Central Thailand Factory Closures

[sbk]

Lay-offs soar as major firms hit Two factories

close, 4 under threat as costs rise and ability to compete lessens

Published on August 2, 2007

Union Footwear and Rangsit Footwear have become the latest victims of the strong baht together with several small factories which an-nounced plans yesterday to shut down due to a range of negative factors including the currency's appreciation and higher operating costs.

Union Footwear, which is an original equipment manufacturer of foot-wear for many brands in-cluding Nike, employs 2,414 workers while Rangsit Footwear employs 1,900.

Both companies are paying full compensation to the workers and they are ready to relo-cate the laid-off workers to affiliated plants, said Padungsak Thephasdin na Ayudhya, director-general of the Department of Labour Protection and Welfare.

Labour permanent secretary Chulathawat Intrasuksri said he was informed of the likely closure of four factories in Suphan Buri - autoparts moulder Choknam-chai Auto Pressing, canned fruit and vegetable exporter Agro-On (Thailand), Adidas shoe manufacturer Suphan Footwear, and boxer-pants maker Hi-Tech Apparel. The four companies employ a combined workforce of 2,131.

"They are cutting costs and increasing production efficiency," Chulathawat said, adding that the province has formed a committee to look into the issue to prevent abrupt closures.

He said the Labour Ministry would today announce employment data collected in 75 provinces to inform the public of the employment situation and possible risks to workers.

Prayod Lerswatanasiwalee, president of the Thai Footwear Association, noted that Thai sneaker manufacturing is facing tougher competition from countries like China, India and Vietnam. In addition, foreign buyers have shifted to place orders in those three countries. Thai manufacturers have tried to adjust their management systems and re-duce manufacturing costs while at-tempting to convince customers of Thailand's high export quality and skilled labour.

Chris Helzer, director of international trade for Nike Southeast Asia told The Nation that the company was informed of Union Footwear's decision yesterday. However, "Nike continues to have an active sourcing presence in Thailand," he said.

Nike is now working with over 60 contract factories for footwear, apparel and equipment. Nike was among the clients of Thai Silp South East Asia Export Import, which recently shut down its apparel plants in Samut Prakan due to foreign exchange losses.

According to Prayod, the strong baht adds to the already heavy burden of higher production costs. Bigger exporters suffer more than smaller producers due to their export volume, which leads to higher foreign exchange losses.

Union Footwear is among about 400 companies, employing 200,000 workers, that are members of the Thai Footwear Association. The country's footwear export value is projected to see a flat growth totalling US$2 billion this year, while domestic sales are expected to slow down.

"We cannot say at the moment whether the Thai footwear industry is a 'sunset' sector. The government will need to stabilise the baht and provide assistance in strengthening the sector's competitiveness," Prayod said.

Union Footwear will gradually fulfil existing orders within this year. To facilitate the shutdown, Saha Union will launch a tender offer for the remaining shares at a price of Bt3.29 each and the stock, listed since 1988, will be delisted from the Stock Exchange of Thailand.

Songsak Thampimakwattana, managing director of Union Footwear, which is owned 51.23 per cent by industrial conglomerate Saha Union, said in the filing to the Stock Exchange of Thailand yesterday that the company would discontinue businesses due to severe competition and fewer buyers, causing reduced negotiation leverage in supply conditions and pricing.

Union Footwear posted net losses of Bt11 million in 2004, Bt47.7 million in 2005 and Bt155.7 million in 2006. In the first quarter of this year, its net loss was Bt44.5 million.

Songsak added that footwear was a labour intensive industry and the company suffered from chronic labour shortages in spite of the ever-increasing minimum wage adjustment. High labour turnover rate resulted in an increase in training courses and unstable production output.

Union Footwear also shouldered steady increases in energy, transportation and raw materials costs. It was also required to increase investment on production development and environmental protection as required by customers.

As the company's transactions are quoted in US dollars, the rapid strengthening of the baht since 2006 and the likelihood that the Thai currency would remain strong for the long-term adversely affected the company's income and competitiveness.

"For the consideration of the company's return on investment, commercial competition, risks and additional investment to meet future market demand - which all indicated an unfavourable tendency - the company, including its affiliated companies, therefore decided to phase-out their business," Songsak said.

Bank of Thailand governor Tarisa Watanagase said at a seminar on Thailand's export competitiveness yesterday baht fluctuation could continue. While the baht appreciated 4.9 per cent against dollar from December 18 to July 25, it could rise further if the US economy slumps and drives capital to Asia.

"Exporters need to manage risks through hedging and contracts based on foreign currencies," she said.

Deputy Prime Minister Kosit Panpiemras said that, for the time being, the government would not impose more financial measures aside from the six approved last week.

Meanwhile, Federation of Thai Industries chairman Santi Vilassakdanont said the value of the baht, closing yesterday around Bt34 per dollar, was satisfactory to exporters. He said the private sector would wait 1-2 months to see if the six measures announced last week are sufficient. If not, it would propose new measures to the government.

On August 6, Kosit will chair an economic steering committee meeting, at which the six measures would be discussed alongside additional guidelines to manage capital flows.

The Nation