Likely winners and losers in the Year of the Rat

Likely winners and losers in the Year of the Rat

Industries that are forecast to shine brightest in the Year of the Rat, which begins on February 7, include automobiles, petrochemicals, food, textiles and garments and gems and jewellery.

Published on January 3, 2008

Yet it will be a year when the baht is expected to appreciate further against the US dollar, oil prices will continue to rise, there will be shortages of raw materials and skilled labour and the US sub-prime crisis will continue to threaten economic trouble.

Companies in these sectors responded to a survey by The Nation with a conviction that their strengths will further buoy their business despite the negative factors. They say their strengths include the correct business directions, the creation of value, innovation and the right markets.

They concede, however, that the baht could strengthen to 30-31 to the dollar and that this could hamper their export revenue.

In the opposite corner this year will be furniture, toys, footwear and leather goods and electronics and electrical appliances. These companies remain hopeful that technology and marketing developments, as well as closer relationships with clients, will increase their competitiveness and that, despite all, they will manage to shine once more.

Sunrise industries

Automobiles

Following the implementation of eco-car projects by seven carmakers, Thailand should become one of the world's leading auto-production centres. Total vehicle production will increase from 1.25 million units last year to 1.8 million units this year, said Surapong Paisitpatnapong, spokesman for the Automotive Industry Club of the Federation of Thai Industries (FTI).

"Besides eco-car projects, some auto-makers, such as Toyota, Honda and Auto Alliance, have continued to expand the capacity of small passenger cars, in order to serve demand in the domestic and international markets," he said.

While each eco-car project will need a minimum investment of Bt5 billion, supporting industries could invest more than Bt100 billion to support them.

Auto companies are confident domestic demand will grow to 680,000 units this year, from 650,000 last year - if buyers' spending confidence returns following last month's general election. At the same time, export figures should rise 10 per cent to 700,000 units, due partly to free-trade agreements (FTAs).

Processed foods, farm goods

There is expected to be higher demand for Thailand's food exports in 2008, due to FTAs and good quality at fair prices, says the National Food Institute of Thailand. It believes the sector's export value will grow to Bt650 billion, from Bt605 billion last year.

Executive director Yuthasak Supasorn said demand for Thai food products was increasing, because of high quality and fair prices.

"Many developed countries have refused food products from China - our toughest competitor - because of poor quality. We should take this opportunity to increase our market share in the US and European countries," he said.

For bigger markets, local food manufacturers must improve and control product quality, because many countries - particularly the US - have introduced food-safety measures to protect their consumers.

Petrochemicals

Despite pollution problems at Map Ta Phut, petrochemical companies are continuing with expansion projects and have shown a willingness to spend more to reduce pollution.

Total investment of Bt300 billion is expected in the third phase of the industry's development. Pouring investment into expansion are not only local firms like the PTT and Siam Cement groups, but also global players like Dow Chemical.

PTT Chemical president and CEO Adithep Bisalbutr said the petrochemical industry would keep growing dramatically, due to considerable demand domestically and abroad.

"Everyone is looking for opportunities to expand their markets and invest abroad," he said. "We'll see greater cooperation between local manufacturers and international firms in the future, because I think good networks will become the key to success in the petrochemical industry around the world."

Garments

Despite the recent closure of garment manufacturer Thai Silp South East Asia Import Export, the Thai garment export industry is expected to grow 10 per cent in 2008.

Thai Garment Manufacturers' Association president Dej Pathanasethpong said China, the world's biggest exporter, was facing increases in production costs. Its exports this year will not surpass last year's level, because of quota restrictions, poor quality and rising export prices.

A global summit indicated demand for 101 million pieces from China last year and 181 million in 2010. Demand from Asean was expected to be 247 million in 2010, against only 88 million last year.

"This reflects our export competitiveness and quality of production," Dej said.

Thailand is the world's 13th-largest garment exporter. With the exception of China, those countries with higher rankings control a 40-per-cent share of the market, but only 10 per cent of them enjoy cheaper labour costs than Thailand, and 40-50 per cent carry higher costs.

The Thai textile industry is looking to produce innovative textiles rather than simple fabrics as a way to strengthen its competitiveness amid a flood of cheap products from China, India and Vietnam. With these innovations, Thailand may manufacture fibres for construction raw materials, medical equipment and machinery parts.

Gems and jewellery

This industry's export income grew 45.4 per cent to US$4.93 billion (Bt166 billion) in the first 11 months of 2007, despite the strong baht and the absence of benefits from the Generalised System of Preferences (GSP).

Gems and jewellery is one of Thailand's top 10 export sectors and employs about a million people. It also expects double-digit growth in 2008, because of penetration into new markets with lower import restrictions and high purchasing power.

"If the penetration is successful and the baht stabilises, the industry could achieve 20-per-cent growth to $5.24 billion next year," said Thai Gems and Jewellery Traders' Association president Vichai Assarasakorn.

New markets include China, India, the Middle East and Russia - all of them offering high demand for luxury goods in line with increasing incomes.

The association has set up a Gem Bank to support small- and medium-sized enterprises and promote exports to new markets with high potential. It has also called on the new government to waive value-added tax for imports of raw materials.

Sunset industries

Furniture

Thai furniture-makers suffer from tough competition from rivals like China and Vietnam, which quote lower prices because of their weaker currencies, said Manapol Poosomboon, chairman of the FTI's Furniture Industry Club.

Exports from the two countries grow an average of more than 10 per cent a year. In Thailand, a growth rate of only 3-5 per cent to a value of $1.25 billion is expected for 2007. Thailand's share of the global furniture market is now less than 1 per cent.

To strengthen their export competitiveness, manufacturers should focus on management efficiency and cost reductions, Manapol said. Exporters should also target medium- to high-income markets rather than low-income ones, which are dominated by China.

The industry remains optimistic that despite many barriers, furniture exports will grow 3 per cent to $1.29 billion this year.

Toys

Toy manufacturers are expected to face reduced exports, because of sluggish demand in the US, Thailand's major export market, said Thai Toy Industry Association president Duangjai Koosrivinij.

The industry could be hit hard by an expected drop in foreign demand, because 80 per cent of its output is for export. It is already suffering from the strength of the baht.

The Customs Department reported toy exports fell 4 per cent to $194 million in the first 11 months of 2007, Duangjai said. However, toymakers are hoping the high rejection rate of Chinese toys could provide them with an export opening. Nevertheless, with the strong baht, export income should grow only 5 per cent to $250 million in 2008.

Skyrocketing oil prices are also affecting the industry's growth, because of increases in production and logistics costs.

Footwear and leather goods

Because of the strong baht, footwear exports are expected to show growth of 5 per cent - at best - to $1.01 billion for 2007, said Thamrong Tritiprasert, chairman of the FTI's Footwear Industry Club.

The strong baht has been the latest blow to manufacturers facing higher operating costs because of higher energy prices, he said. As products become more expensive, buyers flock to Vietnam and China. China currently enjoys more than half of the world's footwear trade, followed by Brazil, Indonesia, Vietnam and then Thailand. Vietnam's share is now 6 per cent, while Thailand's is only 2 per cent.

Thamrong said if the baht did not appreciate much this year, the industry could record 5-per-cent export growth to a value of $1.06 billion.

Similarly, the strong baht, the country's political instability and labour shortages have hit exports of leather goods, said Thai Leather Goods Association president David Chiu.

The industry expects its export income to grow only 5-7 per cent this year, to between $511 million and $521 million. Last year, it grew 8 per cent. Manufacturers are suffering from an influx of Chinese goods, which now control half of their markets.

Electronics, electronic parts and electrical appliances

The strong baht is a major concern for companies in the electrical-appliance sector, as well as stricter product standards.

The Thai Industrial Standards Institute plans to impose stricter standards on low-quality products from China, for the sake of consumer safety. However, Thai manufacturers will have to comply with the same rules. They will also face higher standards requirements for exports to Europe. Following the loss of benefits from the GSP in the US market, the industry is looking to Europe and the Middle East as new markets with potential.

The Industrial Economics Office estimates total sales of electrical appliances will show growth of 1-4 per cent for 2007. However, total sales of electronics parts, particularly hard-disk drives, will grow up to 30 per cent.

The office said while hard-disk drives, integrated circuits and air-conditioners were still experiencing a dramatic growth of both investment and exports, because of rising world demand, the overall electrical-appliance and electronics industry would suffer lower growth this year, due to price cuts and a global economic slowdown.

Achara Pongvutitham,

Chalida Ekvitthayavechnukul,

Petchanet Pratruangkrai

The Nation