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9 Aug 2007

Industry

Strong Baht crisis: Thai Industry Must Expedite Adjustments (Business Brief No.2025)

With the current rapid appreciation in the Baht, some export businesses are facing losses and liquidity problems. Many of them have announced business closures and terminated their workforces; some of them had employed thousands. This trend demonstrates that there are still other businesses that may be closed and many of them need a close watch. This phenomenon has caused wide concern about the intensifying consequences following the too rapid increase in the forex value of the Thai Baht. This has led to a series of problems beginning with those experienced by Thai businesses, followed by employment problems and NPLs at financial institutions, and will definitely lead to a further slowing in domestic consumption.
At present, labor intensive industries such as garments, shoes and leather products are all facing problems due to subsiding competitiveness. They have lost their market advantage due to relatively expensive labor costs compared to rival countries that have lower wages, e.g., China, India and Vietnam. And worse, the problem of the accelerating Baht has also becomes a catalyst driving troubled businesses to shutdown.
Despite the above factors that have affected the industrial sector – notably in each company's specific characteristics that have influenced their business operations – seen from the closure of many factories in the textile and shoe manufacturing businesses, many companies in these businesses have received more purchase orders. Factors that define competitiveness are comprised of numerous elements, e.g., price versus cost, the quality standards of the goods produced, promptness in delivery, etc. In a market with intense competition, it is necessary that manufacturers exert all possible effort to reduce their unit costs. That is to say, they have to increase output over input! The development of production efficiency is a must to stay above rivals and help Thai products compete with those of other countries that have lower costs.
Businesses affected by losses in competitiveness include both labor-intensive industries such as textiles, shoes and other leather industries, as well as high-technology businesses that include electronic products and machinery. The majority of them are original equipment manufacturers (OEM) who focus on large-scale mass production, but lack bargaining power (as contracted producers) and are typically affected by price pressure from buyers. Besides this, they face tough competition. Some entrepreneurs in these industries that are still in business have shown novel differentiation in their adjustments by focusing on design and offering intrinsically more valuable products, distinctive branding, and using flexible production processes; others have demonstrated the ability to manufacture products in small lots on a variety of models. In niche markets, there are a few rivals, but the unit price is significantly higher.
With the dauntingly stronger Baht, entrepreneurs have to make adjustments in order to dynamically elevate their competitiveness toward globalization and the free trade trends of the world.

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