Executives from two of Thailand's leading trade associations are forecasting a 10% growth in the country's garment exports this year, thanks largely to an Economic Partnership Agreement (EPA) with Japan. The industry is also looking to expand into ASEAN markets, but may be hampered by labour shortages and a lack of expertise in design and product development, as Niki Tait explains.

Since quotas between World Trade Organization (WTO) members were withdrawn at the beginning of 2005, Thailand has held its own in the global textile and clothing trade - despite internal problems, including a military coup in 2006, which put many of the government's industry development plans on hold.

Mr Des Pathanasethpong, president of the Thai Garment Manufacturers Association and Mr Virat Tandaechanurat, president of the Thailand Textile Institute explain that prior to quota removal, clothing factories had to be versatile enough to make products according to quota availability.

But this meant most were unable to specialise and engineer their factories. 

Since the lifting of quotas, retailers and importers have been able to buy from whom and from where they choose - and have built closer partnerships with their suppliers.

Likewise, manufacturers have specialised in specific types of products, increasing their efficiency by engineering their factories accordingly. 

The key areas of development are men's and women's underwear, active sportswear and children's wear. 

Companies now may specialise in ladies' bras or highly technical waterproof breathable jackets, for example, whereas before they had to make a range of garments just to get the orders. 

Leading sector
Over a million people - or around 20% of the country's manufacturing workers - are employed in Thailand's textile and clothing industries.

22.4% work in the capital intensive textile industry. 62,860 are employed in the knitting mills and 77.6%, or 824,500 people, work in clothing production.

The sector's exports are worth THB258,451m (US$8.7bn), of which 48.8% consists of textiles and 51.2% of clothing. Over 57% of clothing exports by value are knitted. 

This ranks Thailand as number 12 in the world for textile exports, supplying 1.4% of world trade, and eleventh for clothing exports, with a 1.5% share. 

The main export markets are the US, EU, Eastern Asia including Japan, and ASEAN (Association of Southeast Asian Nations) countries.

The industry is totally vertical, spanning fibre production to finished clothing.

However, because most of the clothing industry making for export operates on a CMT basis, where the customer provides the fabric, it has to date been operating more or less totally independent from the textile sector.

Trade with Japan
The Economic Partnership Agreement between Japan and Thailand, which came into force on 1 November 2007, is seen as invaluable in helping to bring the Thai textile and clothing industries closer together.

Indeed, with customers continuously pressing for shorter lead times, it is surprising that they do not already take more advantage of the country's fabric suppliers.

The rules of origin under the Japan-Thailand FTA state that for Thai produced garments to qualify for zero tariffs when exported to Japan, the fabric must either be made in Thailand or Japan. 

The trade deal will help reduce Japan's exposure to China, which supplied 90% of its clothing in 2007, as well as providing a tremendous growth opportunity for the Thai industry.

ASEAN trade deal
Another free trade agreement between the ASEAN countries came into effect in 2005 and has to benefit both the Thai textile and clothing industries. 

Of the ten ASEAN member countries, there are just two appreciable textile producing countries - Thailand and Indonesia - to service the rapidly growing clothing producing countries of Vietnam, Cambodia and Laos. 

Of the two, the Thai textile industry is thought to be more competitive than Indonesia, better located geographically and has fewer political problems. 

The Thailand Textile Institute estimates that textile exports to ASEAN countries will increase by 20% over the next five years, and that imports and exports between ASEAN countries in textiles and clothing will amount to US$20bn. 

Vietnam, though, is developing a textile producing industry of its own and is trying to attract overseas investment. 

At over 500m the population of the ASEAN countries exceeds that of the EU, and the middle classes are becoming more affluent. 

Within ASEAN, those looking for fashionable clothing will increasingly look to Bangkok, which is seen as a thriving fashionable city, to deliver it. 

And as the Thai fashion industry begins to grow, the inevitable knock-on effect will be a move from OEM production to ODM or whole garment production with its additional value.

China and India appear less of a threat to Thailand as their textile and clothing producers will be increasingly involved in producing for their own internal markets.

Technical textiles
Another line of development is in technical textiles, where several potential areas have been highlighted. 

Thailand currently produces 2m cars a year for both export and domestic use. Under the FTA with Japan the country is also working towards producing a new environmentally friendly, low energy 'Eco-car'. Talks for a possible joint-venture are taking place with several key Japanese car manufacturers. 

Crucially, all these cars will require environmentally-friendly automotive textiles for interiors, car seat covers, air bags, and tyre construction.

Medical textiles and agro-textiles are also of great interest, with the ASEAN countries seen as large potential consumers.

With the cost of oil rising and the world reserves running out, alternatives to man-made fibres are being considered.

Thailand is well placed to address this alternative market since it produces sugar cane, corn, bananas, pineapples and bamboo, the fibres of which can all be used to make textiles. 

But while the industry has potential in these fields, it has not yet put this into practice.
 
Weaknesses
Despite these opportunities, there are several weaknesses the Thai textile and clothing industry needs to address.

Clothing is a labour intensive industry and a shortage of workers is preventing its expansion within Thailand.

Labour cost is a major issue when producing garments on a CMT basis and wages in Thailand are higher than those in Cambodia, Vietnam, Laos, Bangladesh, Pakistan and India.

As a result, many Thai companies are looking overseas for expansion, mainly to the nearby ASEAN countries of Vietnam and Laos, where they can also take advantage of concessions from the EU and US.
 
The lack of expertise in design, product development and merchandising also limits the potential to move from OEM manufacture to ODM and OBM where better margins can be achieved. 

Over 50% of all Thai textile and clothing exports currently go to the US, meaning the country is very exposed to this one customer and to fluctuations in the US dollar.

The expansion of the industry into the ASEAN market should help counteract this threat. 

Niki Tait C Text FCI FCFI heads Apparel Solutions which provides independent assistance and training to the apparel industry in manufacturing methods, industrial engineering, information technology, and quick response.