A Change of Guard

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Tuesday, 4 December 2012

Sunrise in Cambodia: T.K. Garment Co moves across the border for cheaper wages

Published: 4/12/2012 
Bangkok Post 
Writer: Soonya Vanichkorn 

When the government decided to raise the daily minimum wage to 300 baht nationwide, labour-intensive industries knew sunset was descending on their businesses.

Chairman Thaveekij Jaturajaroenkhun stands among his clothes, pointing out, ‘We need to move to grow.’
But for three-decades-old T.K. Garment Co Ltd, sundown in one location means a new dawn in another.
As a leading original equipment manufacturer (OEM) for popular clothes lines in Thailand, the company is relocating its largest production site to northwest Cambodia to escape high wage costs.
"When the company was set up 32 years ago, we had abundant labour and could easily compete with production giants like China," says chairman Thaveekij Jaturajaroenkhun.
"But today our business is facing its sunset days, so we need to move out to grow."
He says 10 other garment companies are also in the process of moving into neighbouring countries, particularly Cambodia and Vietnam.
From humble beginnings with only 12 employees and seven sewing machines, T.K. Garment operates factories in Bangkok and Mae Sot in Tak province on the border with Myanmar. They have 1,200 and 2,500 employees respectively, most of whom are migrants.
The two plants have a combined production capacity of 500,000 to 600,000 pieces per month, with the Mae Sot plant accounting for 65% of the total.
All sales are for the domestic market in which it has 80 customer labels. Their finished products include a variety of clothing for all ages and professions.
"We will begin to wind up the Mae Sot factory in phases as soon as the new factory in Cambodia begins operations in June next year," says Mr Thaveekij.
With an investment of 150 million baht, the new plant will be located in Sisophon Industrial Park in Banteay Meanchey province.

The plant will have a large production capacity of 1 million pieces per month and will employ at least 3,000 people in the next two years.
"The new investment in Cambodia is advantageous because minimum wages in the area are several times lower than in Thailand, which makes us competitive even with countries like China," he says.
The daily minimum wage in Cambodia is about 51 baht.
Another factor behind the relocation was customer demand. "Customers have started to say that goods produced by next year for them should only be produced in Cambodia or Vietnam and not Thailand because they are concerned higher wage costs will be passed to them," says Mr Thaveekij.
Beyond cheap labour, T.K. Garment will also benefit from Cambodia's trade status as a country with Generalised System of Preferences status to export to Europe with lower tariffs.
Mr Thaveekij says the company now plans to export about 60% of its products to Europe, the US and Japan _ something it stopped doing 10 years ago in Thailand when China entered the global production scene.
The remaining 40% of output will brought back for sale in Thailand with zero tariffs.
With a profit margin of more than 10%, Mr Thaveekij hopes his company will break even within three years.
Over the years, governments and academics have said Thai businesses can no longer compete based on cheap labour and must upgrade their products to offer more added value through branding.
But these suggestions are not feasible for his business, says Mr Thaveekij.
"It's not possible to do branding when you also produce for other brands under OEM contracts. If you decide to build your own brand, customers will not trust you because you may copy their designs and in the end compete with them," he says.
"In order to maintain competitiveness against similar businesses, production must be flexible to customer demands."
He says the company provides a one-stop service for customers instead of sticking to one particular product.
Mr Thaveekij says an important factor when investing in neighbouring countries is having trustworthy business partners.
Although the company is just beginning its garment business in Cambodia, it has operated hotels, restaurants and tour agencies in the country for 20 years.
"At the end of the day, even though the situation may be really tough, success depends on oneself. There is nothing a person cannot do unless they are lazy," Mr Thaveekij says.
He has repeated these words to himself ever since he left home in Pathum Thani to work in the city more than 40 years ago.
Born into a Chinese household that grew vegetables for a living, Mr Thaveekij says: "I moved into Bangkok to flee poverty but had a very strong determination to make something better out of my life."
He was offered a job at a garment factory and spent the next 12 years doing every single job including sewing, tailoring and delivery before being promoted to production manager.
"I did not learn about garments through reading books but through real-life experiences. If you ask me now, I can say I have a PhD in garment manufacturing," he says.

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