Thai garment manufacturers are eyeing growth in Asian markets

Thai garment manufacturers are eyeing growth in Asian markets

Thailand's textile and garment industry is aiming to diversify its export markets as it faces a significant drop in demand from its key American and European Union (EU) customers.

Thai garment exports for 2012 are forecast to fall by 10% to US$2.8bn, while the country's textile exports for 2012 are expected to dip by 15% to US$3.5bn, according to figures from the Thai Garment Manufacturers Association (TGMA).

Exports to the US in 2012 are estimated to decrease by 10% and exports to the EU by a whopping 25%.

The US currently accounts for 35% of Thailand's textile and garment exports, and the EU 25%, according to the TGMA.

Yuttana Silpsarnvitch, executive director of TGMA, told just-style that the industry is now increasingly focused on selling to a wider range of markets.

"The US and EU will still be important, but we are looking to grow in other markets, especially in Asia, such as Japan, Korea, China, Hong Kong and in ASEAN [the Association of South East Asian Nations], to balance our market share," he said.

And indeed, Thailand's garment exports to Japan in the first 10 months of 2012 grew 12.8% on the same period last year, to US$280m, while exports to other ASEAN countries rose 7.9% to US$132m.

Silpsarnvitch said that Japan currently accounts for 12% of Thailand's textile and garment exports, but that the industry is aiming to increase this to 18% by the end of 2013.

"Japan is trying to source more beyond China due to the political issues between the two countries, and also the growing labour costs in China," he said.

ASEAN AEC benefits
He added that the Thai textile and garment industry is also keen to ensure it benefits from the ASEAN Economic Community (AEC), a liberalised common market of ASEAN countries to be established from 2015.

Import duties for Thai textiles and garments, which are currently 5-10% in ASEAN apart from Cambodia, Laos, Myanmar and Vietnam where they are already 0%, will be eliminated in the AEC.

"Thailand is well-placed to export more to ASEAN countries," said Silpsarnvitch. "We can offer high-quality textiles and garments, and we are well located, in the centre of the region. Thailand is a logistical hub and distribution centre in the region."

The TGMA recently set up a new information service, called its overseas trade and investment centre, which Silpsarnvitch said is designed to provide members with information about how to develop more trade and investment with other ASEAN countries. TGMA has around 400 members. 

Rising costs
Silpsarnvitch said that as well as the economic slowdown in the US and EU, increases in labour costs in Thailand are contributing to the recent fall in exports.

Wages have lifted significantly over recent years, and the minimum wage was increased by 40% in several regions on 1 April 2012. Further increases took effect on 1 January 2013, to bring the daily minimum wage across the country to THB300 (US$9.80).

"The biggest area in Thailand for garment production is in the north and north east," said Silpsarnvitch. "And wages there have gone up by about 100% over the last two years.

"Labour costs represent 20% of the total garment production cost, so overall costs have gone up a lot. This is a big problem, as customers have the choice to place their orders elsewhere in Asia."

Silpsarnvitch added that a shortage of labour is also an issue. Unemployment in Thailand is currently just 0.7%, and Silpsarnvitch said that workers are more attracted to the country's automotive and electronics manufacturers than the textile and garment industry because they can offer higher wages.

CLMV expansion
He added that to combat these difficulties, a growing number of large Thai garment manufacturers are shifting some production to Cambodia, Laos, Myanmar and Vietnam (given the group acronym CLMV in Thailand), with more than 20 Thai garment companies set to do so over the next two years.

"We're promoting this growing expansion into CLMV to customers, as it means the same product can be offered at a cheaper price," he said, adding that a further advantage of producing in Cambodia, Laos and Myanmar is that due to these countries being classified internationally as LDCs (least developed countries), garments produced there carry no import duties into the EU. Garment exports from Thailand to the EU carry a 12% import duty.

Silpsarnvitch said that the Thai garment industry will continue to focus on its three leading product areas - sportswear, lingerie and children's-wear.

He noted that a major advantage of the sector is the strength of Thailand's textile industry, which produces a wide range of fibres, yarns and fabrics for garments, as well as home furnishing textiles and technical textiles.