Amid steepened competition in the Thai garment industry, one of the more viable strategies for Thai companies to sustain their businesses is to make greater inroads abroad, particularly within ASEAN. KResearch is of the view that Indonesia offers the brightest prospects:
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In trade, the Indonesian economy has grown favorably, helping raise disposable household incomes and purchasing power toward apparels. This is especially evident in the steady growth seen in garment sales there over the past 4-5 years, which has been consistent with garment imports from Thailand.
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In investment,the value of foreign direct investment (FDI) into Indonesia's textile and garment industry has increased continuously. With AEC integration in 2015, they will inevitably draw in more FDI, thanks to their large workforce and competitive labor costs relative to other ASEAN nations.
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Opportunities exist in Indonesia's garment market, due to rapid urbanization and strong demand for apparel. They have similar fashion tastes to ours and growing spending power there also offers opportunities to Thai investors to set up clothing outlets in their teeming cities.
We at KResearch expect that the above factors will help raise the value of Thai garment exports to Indonesia this year to USD8 million, up 43.0 percent YoY. This figure should increase steadily between 2013 and AEC integration in 2015, thanks to high economic growth in Indonesia and efforts by Thai garment exporters and retailer/shopping mall investors.
Although Thai garments can easily grow in the USD11-billion Indonesian clothing market, thanks to the quality and reputation of Thai products – making it easier for other Thai brands to enter Indonesia – Thai entrepreneurs must recognize several challenges, too. Among these are competition from other foreign garment suppliers that have located production bases there. This is a significant challenge for Thai garment companies doing business in Indonesia.
Meanwhile, Thai garment companies intent on setting up there should pay close attention to frequent changes in local regulations and stringent labor laws. Another factor may be the skill level of Indonesian garment workers, some of whom seeming to not be adept at intricate work, though their sewing skills are generally good. In addition, increased foreign investment into Indonesia may give rise to labor shortages in the near future.
Given this, the transition period to AEC integration should provide good opportunities for Thai garment producers to make inroads into the Indonesian garment market before competition intensifies.
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