Background and Development Process of Thailand Textile Industry

Thailand’s silk and cotton which evolved from ancient handicrafts have been regarded as Thailand famous culture heritage, especially “Thai Silk”

Thailand textile handicrafts have originated since Sukothai, Ayutthaya, Thonburi until the 6th reign of Rattanakosin. They were traditionally made by hand and simple local instruments. Up until the middle of the 6th reign around 1922 to 1925, Chinese from Shanghai imported loom-type weaving machines from China. The machine could weave more rapidly than Thailand local loom but was not popular. Until the next 10 years in 1935, the weaving machine was introduced. Starting from this point I would like to present only highlighted events in brief as follows:

1935

Ministry of Defence established Siam Cotton Factory in which cotton-wool making and weaving machines were intro duced for military service.

1949

The private sector rented Siam Cotton Factory for carrying out and changed its name to Thai Weaving Factory.

1950

• Ministry of Defence by Commissariat began to implement a thread spinning machine with capacity of 20,000 cores.
• The private sector invested for establishing more thread spinning and weaving factories by gradually importing foreign machines to be implemented.

1952

Pakistan dumped on cotton-made textile products. This had an impact on Thailand textile industry.

1954

The Government by Ministry of Industry issued Industry Promotion Act of 1954.

1955

• Ministry of Economic Affairs (Commerce) issued promulgation of import control for every type of thread.
• Thai Weaving Factory (Siam Cotton Factory) was affected by the dumping of Pakistan and operation failure. Ministry of Defence thus transferred it back to carry out in the name of Weaving Organization, which was assigned State Enterprises by the Royal Decree in September 1955.

1960

The Government issued new Investment Promotion Act for Industry Business of 1960, in which high import duty rates were defined for various types of product including textile. Both of the laws significantly increased investment on textile industry.

1961

The Government declared the 1st National Economic and Social Development Plan (1961-1966) which emphasized on promoting industrial development instead of import. Textile industry was also a targeted industry.

1962

The Board of Investment of Thailand determined textile industry upon high priority, thereby attracting more foreign investors, especially Japanese, to gain investment promotion.

1964

The Board of Investment of Thailand issued promulgation for temporarily suppressing consideration to promote investments for thread spinning and weaving industries. ?? A man-made fiber (polyester) factory which was promoted for the investment ran its first production.

1967

The Board of Investment of Thailand declared to promote the investment for downstream textile industry, which was ready-to-wear garment industry.

1970-1971

A huge textile crisis occurred due to great supplies for tread and fabric.

1971

• Ministry of Industry issued promulgation for suppressing permission to establish or extend a knitting factory. It was valid for 2 years from October 1, 1971 (according to private sector demands).
• Thai Textile Manufacturing Association paid subsidies to its members who exported their goods to foreign countries. ??
• Ministry of Finance declared to compensate for taxation of export goods.
• Thailand textile industry passed the above crises and subsequently exported more increasingly.

1973-1974

• Thailand recorded a surplus of textile goods trade for the first time.
• Lack of oil crisis occurred. It continuously affected textile export in subsequent years, thereby again causing a deficit of textile goods trade in 1974-1975.

1976

• Thailand applied for a member of Multi-Fibre Agreement (MFA)
• There was recorded a small surplus of textile goods trade.

1977

There was recorded a small deficit of textile goods trade.

1978

Textile goods trade began to be recorded a surplus, and has been recording a surplus so far.

1981

Ministry of Industry issued promulgation for suppressing to establish or extend a thread spinning, weaving, and knitting factory.

1982

Textile goods trade at Thailand borders decreased due to the occurrence of political problems in Cambodia and Laos. This caused production flood, especially in fabric (but eventually improved).

1986-1987

Lack of thread occurred and its price increased because of an unprecedented high extension for both domestic and foreign markets.

1987

• Textile export goods have made the highest revenue of the country for the first time.
• Ministry of Industry issued promulgation to allow establishment and extension of a thread spinning, weaving and knitting factory.

1991

Ministry of Industry declared to freely allow establishment or extension of a textile factory.

1994

Multi-Fibre Agreement (MFA) terminated.

1995

Free Trade Agreement according to GATT/WTO agreement became effective from January 1, 1995.

1996

• This year export highly decreased for 15% when compared to that of 1994 and 1995.
• The Government gave motivation on machine adjustment. Thus, Bank of Thailand determined financial amount for commercial banks to give credits for the textile machine adjustment.

1997

Thailand experienced an economic crisis (Tom-Yam-Kung Disease). Value of the Baht was strongly attacked. This caused such adverse impacts that debt of a business sector had to be subsequently restructured.

1998-2001

Most textile industries survived after an export began to increase in 1999.

2002

The Government spent a budget on economic activation. There were many projects of the Government to help upgrade and solve problems on industrial sector such as Invigorating Thai Business Project, New Entrepreneur Creation Project, etc.

2003-2004

• This was a period of preparation for textile and garment industry to increase its competitive capability after opening Free Trade and annulling quota according to WTO framework.
• The Government supported Bangkok Fashion City Project and began to launch the project.
• European Union declared prohibition on using 24 colors of azo group in order to bleach and dye textile.

2005

There was no quota anymore for textile and garment trade. Free trade would be valid from January 1, 2005 on.

2006

• Textile and garment trade was intensely competitive. China, India, and Vietnam were both partners and competitors of Thailand in this region.
• Textile and garment goods from China were prevented from USA and EU’s safe guards. Almost 40 items of Chinese textile goods were limited on their quota for 3 years.
• Thailand Textile Institute and the private sector pushed the government sector to accelerate research and development and to form concrete supply chains.

According to the above background of Thailand textile industry, the phases of it can be divided as follows:

1st Phase (1950-1959) The period of setting up factory system for textile industry: The private sector began to invest textile factories such as thread spinning, weaving, and knitting factories; most of which were operated by Thai investors.

2nd Phase (1960-1971) The period of textile industry promotion to substitute import: This was a period in which the Government introduced the 1st and 2nd Economic and Social Development Plan and emphasized on developing the industry to substitute its import. In doing so, measures for investment promotion were utilized to motivate investors, both Thai and foreign, to invest or join the venture. At this period an investment for establishing or extending textile industry was distributed to all categories; from man-made fiber, thread spinning, weaving, knitting, until textile and garment bleaching-dyeingprinting industries. At all events, Japanese investors played an important role on the investment and joint-venture of Thailand textile industry. Those were Toray Group, Teijin Group, Kurabo Group, Marubeni Group, and Nomura Group, for example. Some of the groups or companies were already major manufacturers in Japan, such as Toray Teijin and Kurabo. Others were international trade companies whose policies were to invest in production activities, such as Marubeni and Nomura.

3rd Phase (1972-1981) The period of development to manufacture for export: This period was during the 3rd (1972- 1976) and 4th (1977-1981) Economic and Social Development Plan where the Government began to promote the industry for exporting. In this period the textile industry began to recover from textile crisis in 1970-1971 and was adapting to increase a role in exporting. The ever-deficit balance of textile trade thus began to record a surplus in 1973 and 1976. From 1978 on the textile trade has been recorded a surplus so far and the surplus value has been gradually increased. In any cases, main export markets of Thailand in this period were USA and EU. However, 60% of the textile trade had to depend on the markets with agreement (quota). For the investment or joint-venture, Japan still had a leading role while investors from Taiwan, United Kingdom, India, and Hong Kong also played a role in investments of the industry.

4th Phase (1982-1991) The period of export expansion: This period was in the 5th (1982-1986) and 6th (1987-1991) Economic and Social Development Plan where the Government emphasized on an export promotion policy. In this period textile goods manufacturing and exporting continued to expand rapidly, especially for ready-to-wear garment industry. Finally, textile goods became the highest export sales of 1987. Main export markets in this period were USA, EU, Middle East, Japan, and Eastern Europe. The distribution of Thailand textile markets made quota market-dependent rate decrease to be about 45%. As for the investment and joint-venture of foreign countries, Japan still played a key role both by expanding production capacity (of thread spinning, weaving, and man-made fiber) and establishing new factories (for bleaching & dyeing, printing & finishing, and garment). However, investors from Taiwan, Hong Kong, USA, UK, Switzerland, India, China, etc. also increased their investments for the textile industry. Especially, the investments from Japan, Taiwan, and Hong Kong often resulted from the needs to move their production bases to the less labor cost ones. That is to say, all 3 countries were experiencing problems on high labor cost and high value of money or they could not increase the export from their own countries because of quota limitation.

5th Phase (1992-1996) The period of slowdown : This period was in the 7th Economic and Social Development Plan. In this period the competitive capability of Thailand textile industry with foreign countries decreased. This partly resulted from a rapid increase on labor cost rate each year. At the same time the textile industry of the competitive countries with minimum labor cost such as China, Indonesia, Vietnam, etc. adjusted their manufacturing technologies, machines, instruments, and marketing due to the investments or joint-ventures of Japan, Korea, and Taiwan. The results textile export with low expansion rate; i.e. from two digits to only one digit and turned minus 14.7% in 1996. But if the number of export was deeply considered, it found that the number of textile export to lowlevel markets e.g. Middle East, Eastern Europe decreased significantly. This was a key factor of the minus in total export value despite the fact that the middle-level markets upward still could be slightly expanded.

6th Phase (1997-2001) The period of economic crisis: In this period the value of Baht was seriously attacked. This caused the business sector to be damaged, to have such non performing loans that they had to be broadly restructured with financial institutions.

The textile industry exported less in 1999 but would be more afterwards. Most textile and garment industries could survive but some had to go out of the business.

7th Phase (2002-2006) The period of preparation for free trade: Textile and garment industry was adjusted to increase its capability in any fields.

Department of Export Promotion worked on a project of cloth development for export (Thai Tex Trend, T3).

Thailand Textile Institute worked on a pilot project of providing supply chains for textile industry, developed ERP Software for small-scale and middle-scale textile and garment industries, guided a study on technical textile, did a project on Fabric development, etc.

The quota system was annulled from January 1, 2005. This caused more intense competition in textile trade.

The Government supported Bangkok Fashion City Project.

Thailand prepared on investment promotion and technological development for entering the textile industry with higher skill and knowledge of labors. The industries were technical textile and home textile whose products had very high value added.