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Published on August 6, 2007

Textile exporters have suggested that the government hold talks with trading partners to provide investment incentives if it is serious about encouraging exporters to channel foreign exchange out of the country to stem the baht's appreciation.

They also suggested the government come up with a support package as these exporters still fear moving out of the country in view of possible investment risks.

Dej Pathanasethpong, president of the Thai Garment Manufacturers' Association, said the government should adopt a two-pronged strategy by holding talks with trading partners and creating support packages for exporters.

The association has proposed the government negotiate with key trading partners to provide tax incentives to Thai investors. Meanwhile, support packages, including a policy on double taxation, special incentive schemes for overseas direct investment, a matching fund for investors and negotiations on free-trade agreements, have also been recommended.

"Despite the strong baht, manufacturers are not interested in investing abroad due to a lack of government incentives. They also do not want to shoulder the business risks of expanding in the country with the prospect of further exchange losses," he said.

Encouraging Thai companies to invest overseas is one of the six measures approved by the government to ease the baht's appreciation. The economic steering committee will today discuss concrete measures to encourage the outflows, with proposals from the private sector expected to be floated at a meeting chaired by Deputy Prime Minister and Industry Minister Kosit Panpiemras.

Dej noted that large textile companies are ready to invest overseas to comply with the government's desire for more outflows, which would counter the massive inflows that have relentlessly propelled the baht higher against the US dollar. However, he added that without incentives, most of them would stay within Thailand.

Though Thai Silp South East Asia Import Export had shut its plant, Dej said Thailand's textile and garment industry - particularly large-scale operators - are doing fine despite the strong baht.

He admitted that as import content in the industry accounts for 40 per cent of manufacturing costs, a strong baht means a loss in income. Still, Thai exporters have enjoyed huge orders as usual and those who are not choosy could remain in the business.

Dej said the Asian region has the greatest potential to become the world's textile manufacturing base thanks to all the support factors in the region, such as up-stream manufacturing (spinning industry), mid-stream operations (weaving and bleaching, dyeing, printing and finishing) and down-stream production (garments). In addition, labour is cheaper when compared with countries outside Asia.

The Thai garment industry has developed aggressively to serve customer demand since the end of quotas under the World Trade Organisation agreement in 2005. Only the stronger baht could undermine the industry's export competitiveness, he said.  

An Asian Development Bank analysis said Asian countries have the lion's share of textile-mill capacity in knitting, spinning and weaving among all regions of the developed world. It also said Asian-based textile mills accounted for 60 per cent of world fibre consumption in 2003.

The association's survey reported that Thailand's textile industry employs one million workers. Of that, the garment industry employs 600,000. Thailand's industrial sector as a whole employs eight million workers.

Thailand has an advantage not only with skilled labour but also a full package of services to facilitate importers, such as material-sourcing through to logistics.

Wallop Witanakorn, president of Hi-Tech Group, a leading garment exporter, said exporters had to undertake intensive cost reduction to maintain their competitiveness.

"If big buyers start placing orders in big lots, Thai exporters should develop their manufacturing efficiency to cope with those orders," he said.

He added that small manufacturers should adjust their manufacturing capacity, otherwise buyers would seek out rivals.

One of the group's cost-reduction strategies is to upgrade support workers to become sewing-machine operators. Support workers and sewing-machine operators now exist in equal numbers, which is a waste in terms of management.

"Any increase of just one machine operator means higher production costs," he said.

He added that the group also encourages workers to practice "live first time", which means sewing-machine operators must concentrate to ensure all tasks under their responsibility bring 100-per-cent results. 

Thailand is a major sportswear manufacturer, accounting for 40 per cent of the country's average annual garment export value of US$3.6 billion (Bt120 billion), producing for global brands - 50 million pieces per year for Nike, and 20 million for Adidas.

"Thai garments is not a sunset industry, but manufacturers need to adjust both management and manufacturing to serve customer demands. We are worried about small manufacturers," he said.   

Achara Pongvutitham

The Nation