Thai Textile from Thai Traditional Knowledge to International Technology

Thai textile has a long history. Thai people weaved fabrics for using in household since ancestors’ time, so there has been knowledge passed from generation to generation. Her Majesty Queen Sirikit noticed that point, so she has promoted household weaving to be an additional job for people in rural areas. She has been the leader in using Thai fabrics and promoting making clothes from Thai fabrics. Modern designs and new technology have made products more suitable for using and taking care. Now, textile products are important sources of income for rural people and create employment for city people.

Thai textile industry started in 1936 by the Ministry of Defense. Private section began running the industry in ten years later. In 1959-1965, there was foreign investment from Shanghai, Hong Kong and Japan, so Thai textile industry has developed products, management and marketing to meet international standard as well as there has been great investment. Therefore, Thai textile quality becomes accepted internationally and the textile exports have made several billion baht. Thai textile production has used both Thai knowledge and international technology which create variety of Thai textile.

Main industry in building the country

Thailand has been able to produce enough textiles both for using domestically and exporting for a long time. Therefore, it can be firmly said that textile industry is one of important industries making Thailand economy and society strong until now with following evidences.

1. Important source of producing gross domestic product (GDP)

Gross domestic product in agriculture, industry and service is a measure of country’s economy. Textile industry has made 275,006 million out of the whole products in the country, 5,930,362 million or 5% of gross domestic product or 13% of gross industry product.

Fig.1 Proportion of Industry to GDP

2. Employment and Government’s income (revenue tax, customs duty)

• Employment

In 2004, textile industry had 1.08 million of employees or 25% of workers in industry which varied from literate level to doctoral level. This industry consists of intensive capital and intensive labor. Therefore, it has helped the government in supporting every level of workers and upgrading knowledge, skills and experience.

Fig.2 Employment in Textile Industry

• Government’s income

Production in textile industry does not only create employment and develop Thai people’s ability, but also returned over 10,000 million of income for the government to spend on economy and society development each year. In 1999, the Customs Department got 6,135.9 million of income from corporate income tax and value added tax and 10,200.1 million in 2005 (The corporate income tax was excluded because the form was due in May 2006.), so only value added tax has increased almost two times in the past seven years. When corporate income tax is considered, it was found that the Customs Department got 2,635 million of income from textile import tax in 1996 and 3,118 million in 2005. Therefore, only corporate income tax, value added tax and revenue tax have made 13,798 million of income in 2004.

Fig.3 Value of textile industry taxation million baht

• import tax
• corporate income tax
• vat

*no data from the Customs Department **Corporate income tax was not calculated yet.

3. Source of continual services

Textile industry production costs almost 3,000 million baht each year. Over a million of workers take part in the production and there are many kinds of business supporting production which create many jobs for Thai people such as transportations, both natural and industrial resources productions, people’s traveling involving production, financial and banking services, textile design and textile testing services. There are also product standard measurement for controlling products to make the trade convenient and save resources in mass production, research and development or create variety of products as well as human resources development.

4. Thai textile in global market

Each year, Thailand exports textile and garment almost 300 billion baht. Fibers, thread, fabrics and clothes are exported to the USA, Europe, Japan, China, ASEAN, etc. In 2005, textile export value was 266,695.9 million baht which increased from in 1992, 126,787.6 million baht or 2.1 times more which shows that Thai textile much more share in world market.

Fig.4 Whole Textile Export Value

• textile export value (million baht)

Fig.5 Textile Export Value separated by types of products

• Directions of Relevant Economy and Society

Nowadays, the world does not gradually change as before. Globalization seems to spread all over. Therefore, Thai textile entrepreneurs must keep up to world changes which affect demand in both Thai and international textile market, production capital and marketing advantages.

5. Factors greatly affecting Textile Industry

Globalization or no-boundary economy and society has made many countries’ governments face more difficulties which is very different from the past. No-boundary culture, investment and more freely movement are the result of information technology, transportation and financial tools development. The factors affecting the competitive ability of Thai textile industry in demand and supply both of Thailand and in the world are as follows.

• Exchange Rate changes rapidly. The change of baht value from 44.5 baht/US dollar in 2001 to 37.9 baht/US dollar in 2006 has affected the capital of export which Thai entrepreneurs must consider in multi-dimension comparing with entrepreneurs in other countries.
• Fuel Price: Crude oil price had risen from 24.33 dollars/barrel in 2001 to 69.2 dollars/barrel in 2006 which affected investment and adaptation of business. ??
• Terrorism at the World Trade Center in 2001
• Inflation: In 2006, Thailand had inflation rate as high as 4.7% which affected consumer’s buying ability and production capital.
• Severe Acute Respiratory Syndrome (SARs) in China in 2003
• The beginning of avian influenza (bird flu) in 2003, especially in Thailand, has decreased investor’s confidence.
• The long-time war in Iraq
• Tsunami in South Asia and Southeast Asia in 2004 and earthquakes
• Hurricane Katrina in the USA in 2005
• The parliament was dissolved in 2006 and the situations are still unstable.
• Conflicts in three southern provinces
• The entry of socialist countries into the market system such as Russia, Eastern Europe and China
• India began to open to higher degree of market mechanism.
• China became a member of the WTO in 2001.
• Textile quota was canceled in 2005.
• How to make Thai textile sustainable

Both economic and social factors affecting textile industry happens all the time. The effects depend on entrepreneurs’ ability to handle the situations. In order to survive, entrepreneurs must built strength or step with caution, knowledge and good cooperation from relevant organizations both public and private, especially entrepreneurs themselves as well as development of supply chain including fibers, spinning, weaving, bleaching, dyeing, finishing, clothes and technical textile used in industry.

Every organization must unite to gather knowledge and cooperation from every cluster to develop Thai textile industry to be able to compete in world market. Planning and coordinating theorical and practical stages must be organized with integration so that the Thai textile industry’s ability upgrade follows current situations and is sustainable. Each industry must try to find its niche market. Because of small Thai Textile industry, comparing to world industry, moreover in working culture has been still produce alone not integrated into strenght cluster and supply yet. Anywhere they needs to find the niche in world market because now. Thailand does not have cheap labors, so it is not possible to compete with low prices. Therefore, the survival of Thai textile industry requires cooperation in building strength and finding the niche market.

 

Quick Response Time from the Textile Cluster is the Key to Survival

Introduction

During the past year it has become apparent that there is an urgent need to create a cluster in our textile industry. This is because the competitive landscape has changed completely. Stand-alone factories that preferred to have nothing to do with anyone else won’t survive much longer as they simply won’t be able to compete in today’s cut-throat environment, especially when dealing with overseas buyers who have plenty of choices and enormous bargaining power. This is especially so at the lower end of the market where buyers are very cost conscious and want speedy shipments. The most important thing for today’s buyer is the ability to deal with suppliers who can provide everything in one place. For example, customer wants to order I million shirts from company A in Thailand with delivery scheduled within 45 days. Today’s orders usually come with specifications for the raw materials, color and size. What company A needs to do immediately is to manage the order with the rest of the textile firms in its cluster or supply chain. This means ordering the cutting at the same time as ordering fabric and ither accessories. This is completely different from what happened in th past when buyers usually indicated taht they wante to use certain fabrics from certain countries of when traders managed the production flow. Today, orders from buyers such as the US will be placed only through a supply chain.

As a result, we believe that only the emergence of a strong cluster will lead to a clear and easy-to-manage supply chain and solid links with outside stakeholders. A strong cluster means a smooth, trading process throughout the supply chain with less bottlenecks. This will further reduce much cost and lead time. In addition, with the introduction of sophisticated ICT, the flow from the securing of raw material through the production process to the end product being ready for delivery to the customer will be even faster and more accurate while internal communicatios between parties within the chain will be more precise. If the textile industry can create such a lighteningquick process, Thai textile manufacturers will be able to respond much faster than their competitors. And only with such speed will the textile industry be able to survive. The main problem is how long it will take us Thais to build a strong supply chain and cluster.

Progress in the development of Thailand’s textile cluster

In one presentation in early 2005, I said that the Thailand Textile Institute (THTI) was studying facts and figures so that it could assess the possibility of developing a cluster and linking networks in the area along Phetkasem road, especially in Bangbon, Bang Khae and Nongkhaem areas adjacent to Samut Sakorn, Nakhon Pathom and Ratchaburi Provinces. The objective then was to systemize and create a road map for a cluster of textile factories that included those at the downstream end, where cutting takes place, and extended to where the brand owners and points of sale are situated. The study is now complete. Thus, THTI would like to take this opportunity to inform you of the results of the study as well as our recommendations for establishing an effective cluster. We will also update you on how we have sought to familiarize those in the value chain with a new software that privides strong logistics support to factories, starting with the procuring of raw materials to making garment items and then stocking them in the warehouse before moving them quickly into the customers hands. In addition, we also looked into the issue of effective communications between factories and other suppliers. The results of the THTI stydy can be broken down into five major sections:

1. Components and distribution

Distribution pattens in the garment and textile segments in the four target provinces show that there are already cluster in the area as it boasts the highest number of textile factories, or as much as 25 per cent of all textile and garment factories in Thailand. The most concentrated area is along Phetkasem road which link the provinces of Bangkok, Samut Sakorn and Nakhon Pathom. Those working in the textile industry in the area account for as much as 14.5 per cent of all the labor in Thailand’s textile and garment industries.

2. Structural network of manufacturing trading and logistics

2.1 The supply-chain network in the four target provinces is not yet perfect because of three reasons. (1) Factories are reluctant to open themselves up and reveal information to other factories; (2) Cutting factories still need to import a great deal of fabric as they are not confident in the quality of fabric made in Thailand. Besides, the government’s import-duty and value-added tax policies encourages people to import fabric rather than consume what is produced locally; and (3) The supply chain of a textile manufacturer usually focuses on serving customers rather than other suppliers.

2.2 Meanwhile, their sales patterns are as follows. (1) Operators choose to sell their goods here and abroad, most pf which is sold directly to customers; (2) Most factories are OEM; and (3) For domestic sales, small and medium factories mostly sell their output to wholesalers and OEMs.

2.3 As for the logistics in the industry, it was found that there are still a lot of problems regarding transport within the country and overseas. In addition, we also found that there are problems with inventory and warehousing.

3. Estimates of demand and supply

Quantitative differences between demand and supply gradually increase the further dounstream you go, from very small to quite big. The reason the downstream industry has far more supply than the upstream is likely the result of the ease with which it is possible to open a small downstream factory while a large capital-intensive factory at the upstream end is much more difficult to set up. As a result, our recommendation for the Board of Investment is to extend more investment support to those in the in the upstream and middle stream sections rather than those down the line.

Qualitatively speaking, the diversity of the products is still very much a headache at the intra-industry level. There are problems with too much diversity in yarn, thread and fabric while the ability to fulfil customer’s needs in terms of quality, on-time delivery, and price starts to differ markedly between midstream and downstream industries.

4. Competitiveness

The study found very little research and development activity done by cluster entrepreneurs. The reason often is because it is too costly while the returns from the R&D will be too slow from the point of view of these entrepreneures. One suggestion is that the government should set up a textile research and development center within the cluster area such as in Ratchaburi province to carry out these kinds of activities with pilot plants from the upstream, middle stream and downstream industries. The main reason behind this is that to come up with new, sassy and sopisticated products, the entire system must be revamped.

In addition, the government should support entrepreneurs within the cluster to penetrate new markets such as those in West Africa and the former USSR republics.

5. Improving business environment

5.1 The main problem confronting the industry’s effort to successfully cluster is the lack to quality human resources. There are sever shortages of skilled labor, technicians and engineers. At the same time, job-hopping is rampant. In addition, there are very few education instritutes offering courses that respond to the textile industry’s need. The government needs topay more attention to this subject.

5.2 There is an urgent need to improve the country’s logistics. Among the key issus that need to be addressed are: (1) the introduction of more information technology (IT) to help upgrade the country’s logistics system; (2) promotion and supporting the effort to collectively purchase shipping tonnage; (3) regulation of the way the industry reserves cargo containers; (4) provision of enough trips to transport the goods; (5) extension of the time for cargo inspection, receipt and transportation; and (6) establishment of a cargo transport center.

5.3 Related supporting agencies still do not provide sufficient support for this cluster. For example, educational institutions, the Department of Skilled Labor Development, R&D institutions, financial institutions, even the Board of Investment, department of Export Promotion and THTI still not very active on the issue.

If the problems mentioned above are not properly fixed, the industry will face tough times. If we lood at Figure I, we can see that textile cluster in the target area is in fact surrounded by supporting agencies such as education institutions, financial institutions and both public and private government agencies that the cluster can form links with and ask for help and support. But nothing constructive has happened so far. Even among the businesses themselves, no one has so far been able to help any other party to do something in a creative and beneficial way. Thus, THTI is calling for the government to systematically introduce certain policies of guide these supporting agencies to realize the implications of the issues facing the industry and support the cluster concept.

Vision and strategy to develop a pilot cluster

The textile cluster in the four provinces requires close and tight connections among the businesses. The goal is to increase competitiveness and use focused marketing to reach better local and international markets. In addition, science and technology will be introduced and applied to create higher quality products and better processes while public and private agencies will be encouraged to provide better support in order to increase the response time of the textile industry to make it a winner. So far, about 43 textile factories have started to group themselves as a cluster, with the THTI as their mentor. They have announced the following strategies.

1. The cluster will focus on the development of both local and international markets. Businesses will collaborate in the reserch of domestic markets to get a clearer picture of what customers desire. In international markets, the cluster will collaborate in market penetration, marketing activities, capturing niche markets and creating merchandise brands.

2. The cluster will focus on developing new products with special qualities that better respond to customers’ needs. These include the development of high-performance fiber, famcu yarn and special-blended yarn, multi-functional textiles and technical textile, the latter of which can link this cluster with other clusters such as the mobiltech group that develops textile for use in the auto industry.

3. The cluster is set to improve its production methods by turning from mass production to mass customization. This will be realized through a move to supply-chain management where there will be more collaboration between suppliers and raw material users. In addition, there will be developments in production planning, information system updating, and logistics and an updating of management visions.

4. The cluster will closely cooperate with the government and other supporting industries as well as link itself with ?education instirutions, financial institutions, R&D units and other government agencies in order to come up with more effective policies and practices.

The four strategies described above will be applicable to 34 projects and serve as a precedent in the development, promotion and strengthening of Thailand’s textile cluster in the four provinces. One of the first initiatives to apply these strategies is a pilot project to create a supply chain and a transport system within each factory that has a comprehensive full-fledged production process; and with other factories. (Details are in Figure 2)

This will be implemented based on a concept of mutual trust, mutual standards and mutual benefit, with the THTI acting as a coordinator and inspector. As everyone understands the same thing, this attemp to come up with a constructive link within the cluster and outside the cluster should not be too difficult. In this regard, the THTI has developed the so-called ERP software which each factory can use and even customize to ensure effective production. This in turn should lead to a process that not only lowers cost but demands less time, reduces unnecessary stocks, and provides on-time deliveries. Thus, the Thai textile industry would be able to respond quicker to our customers than our competitors would.