efficiency - the oxygen for thailand's production industry

7/28/2019 Efficiency - The Oxygen for Thailand's Production Industry

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Efficiency The Oxygen for Thailands Production Industry

Historically, Asian countries have opened their markets to foreign investment

and products, often resulting in the establishment of production facilities offering mainly

labor job opportunities. This allowed western producers to manufacture their goods in

low labor cost countries such as the Philippines, Malaysia, Indonesia, Thailand, India,

Bangladesh and others which was essential for them to stay price competitive in their

own consumer markets. At the beginning of the labor export era, the only requirement

for Asian suppliers, in addition to low labor cost, was mainly to reach and fulfill western

product quality standards. Today, these requirements have changed. Nowadays the

western consumers concern is not only about the price/quality ratio of the product itself.

He also considers environment friendly production, as well as operational safety, health

conditions and social compliance in manufacturing countries.

Western consumers increased awareness of these factors requires Asian

manufacturers to invest in improvements to existing manufacturing methods and

techniques and to implement social welfare policies and practices, which often translate

into considerable cost. At the same time expectations of living standards across the

population of rapidly developing countries in Asia are increasing, partially driven by

new disposable income and the promotion of expensive western goods and life styles in

Asian consumer markets. Both, the higher standard requirements in all aspects of

production and the higher living standard expectations in the manufacturing countries

lead to higher cost for the manufacturer and ultimately to a higher first cost of the

product.

The basic cost life cycle of a manufacturer starts with the cost of raw materials,

the cost of the production process and the cost related to quality. The cost spiral then


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gets further driven upwards by the requirements regarding environment, safety, health,

(ESH) and social compliance.

When China opened its labor and production market, it could easily compete

with the already well-established Asian countries like Thailand as it started with only the

three first steps of the cost spiral. Western buyers moved a huge amount of their

production to China in order to profit from the price advantage. Some of them later

paid the price like Mattelin 2007 when it had to recall millions of toys made in China

that did not meet quality and safety requirements. The same happened in the garment

industry where entire shipments got rejected because of quality/safety issues resulting in

lost sales for the companies that had moved their production to China. In order to make

up for bad incidents damaging Chinas reputation as a reliable manufacturing country,

Chinese manufacturers had to move up through the Quality and Compliance Cost Spiral

very quickly. Two or three years after the big run to China many western buyers

moved part of their production back to their previous reliable suppliers saying that the


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price advantage in China is not worth the uncertainty of eventual quality incidents.

Unfortunately by that time some Thai manufacturers had already run out of business.

China remains a big labor and production market. With its often new and

technologically well-equipped factories and a society more likely stimulated by

competition than those in many South East Asian countries, China represents a serious

challenge to the earlier well established production countries such as Thailand where

competition keeps increasing and is likely to intensify with more countries trying to get

a piece of the cake.

Today we are at a stage where at least some industries in Thailand face the same

problem as those in developed countries; they have become too expensive since they are

higher on the cost spiral and they can hardly compete with their neighbouring

competitors offering the same product at a lower price. To address this issue and survive,

Thai manufacturers have to drastically reduce their production cost by reducing all kinds

of waste and by increasing efficiency to a maximum. This will reduce the risk of

customers considering to move or to effectively move their production away from

Thailand.

While the current Thai government, with its 300 Baht minimum wage policy, is

somehow addressing the issue of the low purchasing power of its population (compared

with neighbouring countries), eventually helping Thailand to gain a more attractive

position in investors eyes and international comparison charts, as well as increasing

consumption and though creating higher demand for hopefully domestic products, this

same policy puts a huge additional burden on companies operating in the labor intensive

manufacturing sector.

Another challenge for the Thai manufacturing industry is already appearing on

the horizon with ASEAN expected to open up frontiers and take down commercial


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barriers among Asian neighbours in 2015. By that time, free flow and distribution of

consumer goods are expected to be eased and ASEAN countries competition will not

anymore be limited to who can supply more cheaply to industrialized nations. Instead

we will see an increasing ASEAN-internal competition where your Ma-Ma-noodles,

for cost saving reasons, may suddenly be produced in Vietnam or Laos and from there

be shipped to the Thai consumer market or where a similar product from a neighbouring

country may storm the local market and eat up market shares from the Thai product.

With the unavoidable specter of a considerable cost increase due to higher daily

wages to be paid to workers, and in the wake of a liberalized ASEAN market, it is

ultimately time for the Thai manufacturing sector to seriously review and analyze all

production- and operation processes and to make the necessary changes in order to

increase efficiency and reduce cost to the absolute minimum. This includes:

Taking substantial efforts to adopt Lean Manufacturing or other modernproduction technics

Reducing overall production time to effective time of productioneliminating all waste-times in between different steps of production

Creating or improving transparency, visibility, accuracy and speed ofinformation across all processes with the help of sound IT systems

integrating the entire business and if possible even the customer

Investing in labor skills, knowledge and competence through plannedtraining and education

Improving work attitude, motivation and psychological ownership through aparticipative management approach


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Whether and for how long a manufacturing company can shield itself against the

neighbouring competition and survive in the long run mainly depends on the

implementation of the above mentioned improvements.

Written by: Niklaus Stucki

Bangkok, 14th November 2011

Published: The Nation, 13th January 2012

efficiency - the oxygen for thailand's production industry

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