High hopes for textiles, garments sector
The closing down of textiles and garment factories and the relocation of manufacturing activities to neighbouring countries has been a trend in Thailand. As a labour-intensive industry, reasons for the downward trend of this industry revolve around high wages, labour scarcity and the end of Generalised System of Preferences (GSP) tariff privileges. Thai garments are deemed as not competitive compared with those from neighbouring countries which still enjoy GSP privileges and where low-wage labour is still abundant.
Textiles and garments are generally viewed as a sunset industry. Our research team from Thailand Development Research Institute (TDRI), with support from the Commerce Ministry’s Trade Policy and Strategy Office, has been exploring this issue, as this industry still hires many in the Thai labour force and can add value in the domestic market. We found that, with appropriate adjustments and upgrading, this industry might be able to survive and even thrive in the international economic environment.
Experience from other countries such as Japan, Korea, and Taiwan, which entered this industry before Thailand did, suggests similar kinds of problems during the transition period when their textile and garment industries made the transition from a labour-intensive to high-value industry. Higher labour costs and labour shortages compelled these countries to upgrade from labour-intensive, lowvalue-added garment manufacturing activities to capital-intensive, high-valued-added ones by moving upstream to textiles, fibres and machinery industries.
Countries that we usually associate with high-technology products, such as Taiwan, Japan, or even Germany, still manufacture textiles and garments. The industry in these countries is, however, quite different from the one in Thailand. Taiwan focuses on technical textiles such as fabrics that ventilate heat and moisture, fire-resistant textiles, or special fabrics for use in industries, construction and hospitals.
Some of these textiles have glowin-the-dark or electricity-conducting properties, something that could be put to use in a wide variety of high-value final products. Japan, in addition to her dominance in automobiles, electronics and other high-tech products, has gone another step upstream, as one of the world’s major exporters of weaving and knitting machinery for textiles. Germany, the world’s foremost producer of worldclass automobiles, is, perhaps surprisingly, the number one world exporter of advanced technical textiles for use in cars and for medical purposes.
The path of moving to higher-value upstream activities such as from garments to textiles and fibres, or even machinery is one way to get out of the labour shortages and problems of high labour costs which Thailand is facing. Higher value may also come from branding and marketing activities. Interviews with Thai brand owners give us an impression that world fashion circles consider Thai brands to be unique, modern and good value. Branding, being intangible in nature, could add high value to products. Chanel jackets costing 4,000 baht have a retail price around 50,000 baht. Building brands, however, is no easy task. It involves building a country image and requires collaboration from all stakeholders particularly between the government and the private sector (brand owners). A good place to start is to build a brand domestically, and expand to the regional level (Asean countries). This could bring about the necessary know-how and capabilities for Thai brand owners to finally go global.
These two paths of moving upstream and building brands, especially in fashion, both require an upgrade of the supply chain (production) and demand chain (distribution, sales and marketing, branding). This comprehensive view is necessary as high-fashion clothes are not likely to survive in the long run if they are not made from appropriately high-quality fabrics, not to mention good sewing and production techniques.
The implication is we need strong mid-stream (textiles) and downstream (garment) producers to meet the needs of brand designers. There must be a big enough variety of high-quality textiles, particularly those that could meet a design’s specifications at appropriate prices. Good sewing/production techniques are also needed in high-end fashion. The government and brand owners must understand the world fashion system; being able to showcase quality Thai brands at international fashion shows; and to have concept shops that feature unique brand styles in major fashion cities around the world.
Viewing Thai textiles and garments from a business-unit perspective, we see a high variety of types and sizes. In sportswear, we have world-class producers for Nike and Adidas but we also have SMEs in this segment. We also have brand licensees, who can make products that meet the needs of global buyers and so obtain the rights to use their brands such as Lacoste, Guy Laroche, and so on. We also have medium to low-end fashion producers who can quickly copy the ever changing trends in fashion and sell wholesale. Their products, from places like Bo-bae market and Platinum department store, have done well in Asean markets, especially in neighbouring countries. Quality and consistency are the keys for these producers to further improve product recognition and market access. Once accomplished, building their own regional brands is likely and feasible. So brand building for Thailand is not necessarily limited to high-end fashion.
We believe that textiles and garments are not a sunset industry at all. However, upgrading and development are needed. Strategic moves led by the private sector must be supported by the government. With a proper transition from labour-intensive, low-value business to high-value activities, Thai textiles and garments could attain a global presence, boosting income and jobs for the country.
Chedtha Intaravitak is a Research Fellow at the Thailand Development Research Institute (TDRI).