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9 Dec 2005

Industry

Garments, 2006: Thai Exports Growing ... Rivals Confronted with Protectionism

คะแนนเฉลี่ย

In 2005, Thailand's exports of garments are estimated will total USD3.3 billion, a year-on-year increase of 6.7 percent. The US is Thailand's key importer, accounting for 54 percent of Thailand's overall exports of garments, followed by the European Union (EU), 23 percent and Japan, 5.7 percent.

Looking ahead into next year, Kasikorn Research Center (KResearch) expects that Thailand's exports of garments will top some USD3.65-3.8 billion, rising by 10-15 percent over-year, despite the global economic slowdown, battered by spikes in oil prices and interest rate hikes to contain inflation in many countries. Based on the consensus forecast of November 2005, the US economy will likely decelerate to 3.3 percent in 2006, from 3.6 percent this year, and Japan to 1.9 percent from 2.2 percent. However, the EU economy is expected to see higher growth of 1.7 percent, next year, from 1.3 percent, this year. Remarkably, continued expansion in investment and employment in the US and Japan has led to upbeat private consumption. Under these circumstances, demand for garments among consumers in the world's leading economies like the US, EU and Japan is likely to grow further.

Significantly, Thailand's archrivals, particularly China and Vietnam, will remain confronted with protectionism implemented by the world's major importers of garments, i.e., the US and EU, next year. This will prove to be a windfall for Thailand, whose competitive potential, will thus likely be boosted.

Despite these positive factors in the year to come, local garment suppliers should not be complacent. Among the possible threats for Thailand's exports of garments are as follows:
  1. Competition ? Though China and Vietnam, which are Thailand's most important rivals in garment exports, face export impediments through the measures of major trade partners like the US and the EU, and competition in Thailand's garment export markets, which remains serious as there are other rivals with high potential in garment exports such as India, Pakistan, Bangladesh and Indonesia. All these countries have lower production costs than Thailand, so their goods will gain the interest of foreign importers who consider prices as an important factor in decision-making on purchases.
  2. Production cost ? In 2006, the state sector is preparing to lift the domestic minimum wage by THB2-11/day, on average, to conform with higher inflation and the cost of living. Meanwhile, the state sector also plans to raise the FT cost on electricity in February 2006 in accordance with higher fuel costs. This factor will affect the production cost and competitiveness of Thai garment exports, thus causing significant difficulties to setting lower, more competitive export prices.
  3. Labor shortages ? Previously, producers faced the problem of labor shortages, particularly in skilled laborers who were more interested in moving into the faster growing retail and wholesale trade, rather than in moving within the garment production sector. This has caused Thai garment entrepreneurs to be shorthanded and not be able to fulfill some purchase orders. From a survey of Thailand's Productivity Institute, it was found that if the apparel and textile industry had sufficient skilled workers to meet demand, sales volume could increase from previous levels by around 10.7 percent. If the problem of the labor shortage is still not solved until 2006, many purchase orders which China cannot fill because of reaching their import quota will go to other countries than Thailand, and we will lose this opportunity.
  4. Counterfeit goods' origin ? As China's garment exports will be limited by the US and the EU during 2006-2008, this may push China to the necessity of exporting goods through other channels such as exporting goods to Thailand through Thai importers, or sent to companies that China has set up here to counterfeit the origin of their goods by exporting such merchandise to other countries and claiming that the goods were made in Thailand. On this point, concerned agencies must help monitor this problem and prevent it from occurring, at all.

In conclusion, Thai garment exports in 2006 may be influenced by many factors that are favorable to exports, such as the growing consumption of the private sector in trade partner countries like the US, EU and Japan. Meanwhile, Thai garment exports will also be benefited by the fact that China and Vietnam, which are important rivals, are still confined by trade impediment measures of some importing countries. However, there are still risk factors obstructing Thai garments, particularly its rivals, whose production costs are lower, such as India, Indonesia, Pakistan and Bangladesh, who can grab importers' purchase orders, especially those lost by China. Therefore, Thai garment entrepreneurs should speed up development of their production quality, styles and creation of their own brand names to add value to their merchandise, and enter the medium- to high-end segment export markets where purchasing power is high. Meanwhile, garment entrepreneurs should consider expanding production bases upcountry, such as to the northeast, or to neighboring countries such as Cambodia and Laos, where there are still a lot of lower cost labor available in order to reduce production costs and solve labor shortage problems, as this would also be a way to increase the competitiveness of Thai entrepreneurs

Industry

Garment