DRAFT

Speech
As prepared for delivery

on

Fashion Industry in Thailand

by

Board of Investment of Thailand

November 2003 
Excellencies, Distinguished Participants, Ladies and Gentlemen,

Thank you very much for your kind introduction and warm welcome.

I am honored to have the opportunity to discuss opportunities for

investment in the fashion industry in Thailand.

Actually, when I talk about fashion, I am talking about three

industries – textile and garments; leather; and jewelry.

These industries have long been, and continue to be, important to

Thailand, as Thai manufactured garments, jewelry and leather have
gained a reputation for quality and affordable price that have made
them significant export earners for the country.

Indeed, in recent years, garments has consistently been a “top five”

export product for Thailand, generating in excess of US$2.5 billion
per year, and gems and jewelry exports have increased in recent years
to more than US$2 billion per year, as well, ranking #6 in 2002.

Let me begin by talking about the size and scope of the textile and
garment industry.

Over the years, the Thai textile and garment industry has developed into
a mature industry that has gained acceptance, both domestically and
internationally.

As a result, the textile industry is certainly a major contributor to the

Thai economy, accounting for approximately 17 percent of total Thai
GDP. It is clearly the largest manufacturing industry in Thailand, with
more than 4,500 factories employing more than one million people …
roughly 20 percent of total employment in manufacturing.

In addition, with annual exports of more than US$5 billion per year,
textiles and garments rank as the nation’s 2nd leading export industry,
with garment exports accounting for 60 percent of that total.

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As many of you may already know, Thailand ranks as the 13th largest
exporter of garments, with a two percent share of the global export
market. The major importer of Thai garments, not surprisingly, is the
United States, which accounts for slightly more than half of all of Thai
garment exports, followed by the EU, Japan, ASEAN, Norway, and
Canada.

Approximately 80 percent of Thai garment exports are covered by

quotas, and as we all know, these quotas will disappear by 2005,
meaning free and open competition.

The Thai garment industry possesses many strengths, including

abundant quantities of experienced, adaptable labor; however, there are
some problems that need to be addressed, including an inefficient
supply chain, outdated technology, and rising labor costs.

We know very well that the overall quality and cost-effectiveness of

Thai garments are quite good. The bottom line, however, is that if we do
not do anything to change the industry, a portion of this existing quota
will be taken up by lower-cost economies, such as China, India, and
Indonesia.

Therefore, what we in Thailand have to do is move beyond typical cut-

make-and-trim OEM production. Our plans, then, revolve around
improving the overall quality of design, marketing and manufacturing. It
is also our intention to decrease textile imports by creating a fully-
integrated garment processing industry that builds up our mid-stream
and particularly our up-stream segment in order to support our already
significant down-stream base.

This will enable the industry to increase productivity, thereby reducing

costs, and will facilitate a shift in production from wholesale and mass
brands to design and production of commercial brands (ODM). As a
result, market share will expand and so will the reputation of Thai
designer brands and trendsetters (OBM).

Accordingly, the Thai government has set in motion a plan to develop

Bangkok into a world fashion city. Recognizing that this sort of

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industrial transformation cannot happen overnight and will require
capital, talent, equipment, and skills training, the government has
“seeded” the project with more than US$60 million over three years,
with another US$30 million to come from the private sector over the
same time frame.

The goal is to transform the industry into a regional fashion center by

the time garment quotas expire in 2005, and into a world fashion city
within 10 years.

And lest we think that this is all “pie in the sky”, and that Thai designers
are not able to compete in the international arena, we are heartened by
the fact that there already are several Thai companies that have
successfully ventured abroad, including brands such as Fly Now,
Greyhound, and Senada. These local Thai brands have been able to
penetrate markets in London, Singapore, Tokyo, Shanghai and
Malaysia. Other brands such as Tube and Good Mixer are also attracting
international attention.

So, if the goal is realizable, how do we go about accomplishing the

transformation? After all, to accomplish our objectives, we need to
increase not only production techniques, but the number of designers,
merchandisers and, finally, Thai brands.

Not surprisingly, the answer lies in a variety of activities, many of

which will be undertaken concurrently. The first step is to improve
industrial productivity, through an information center that will
disseminate information about international best practices and state-of-
the-art technology.

At the same time, we must make a concerted effort to increase the

number of “fashion people”, and that can only be accomplished through
education.

Accordingly, the Thai Garment Association is in the process of

developing a feasibility study for a fashion university that will provide
fundamental knowledge on fashion design, commercial issues
(including marketing and branding), and technical skills.

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A second important activity is to improve the way existing Thai brands,
many of which we feel are able to compete internationally, market
themselves.

For more than a decade, Thailand has held an annual fashion fair in
January. This event has attracted not only buyers, but international
media as well. However, we need to do more than a once-a-year
promotional effort.

We will also seek to step up efforts to promote Thai fashion overseas,

through trade channel promotion, engaging trade representatives for
Thai fashion products, and participating in overseas trade fairs.

Our goals in targeting Bangkok as a World Fashion City are clear.

First, we are looking to create 6,000 “fashion people,” consisting of

3,000 designers, 2,000 merchandisers, and 1,000 production specialists.
Second, we must transition from cut, make, and trim to higher-value-
added production. Third, we want to achieve a synergy in the textile
and apparel industry, with no broken links in the supply chain. Fourth,
we want to secure 1.2 million jobs for the Thai textile and garment
industry.

And, finally, we want to reduce textile imports. Not only do we believe

this is crucial to our long-term goals, we think this presents real
opportunities for investors.

As it stands today, Thai textiles are not of consistently high-enough

quality for our garment industry. Accordingly, we end up importing a
lot of textiles (i.e. rayon), more than US$200 million, from countries
such as Taiwan.

This creates two problems for us … first, it adds to the turnaround time
on orders, which is increasingly a problem, as buyers are looking for us
to shorten delivery time from 90 to 75 days.

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Secondly, there is constantly a need for new fabrics, and not having
reliable domestic sources make it difficult for us to properly interface
with textile manufacturers to facilitate the sort of R&D needed to
develop marketable fabrics.

The challenge for the global textile industry, then, is to take look at the
Thai market and ask if this is the right time to invest in a production
facility in Thailand. Given the existing level of raw materials that we
import from Taiwan, such as rayon, and the development of Bangkok
into a regional and world fashion city, I think the answer is a resounding
“yes.”

Let me now turn my attention to the jewelry industry, which increased

by 18 percent to US$2.1 billion in 2002, making it one of the top five
export earners for the country. From diamonds to precious stones and
pearls, as well as jewelry and parts, there has been strong demand for
Thai jewelry, as a result of the high skills level of Thai artisans

However, technology has not kept pace. While there are many
machine tools being manufactured in Thailand, high-tech machines
still are not.

Indeed, high-tech-equipment, such as laser-joining machines,

therefore, is one market foreign businessmen can capitalize on.

Furthermore, while overall quality of Thai gems and jewelry is good,

foreign expertise in design and marketing is needed to help us
penetrate target markets in Europe and the Middle East.

The third fashion-related industry that offers potential is leather.

Currently, 70% of raw material (wet blue and cow hides) were, until
recently, imported from Europe (they were subsequently discontinued
due to Mad Cow Disease), and continue to come from Australia, New
Zealand and India.

Thais can manufacture raw material, but quantity is low and quality is
inconsistent, making it cheaper to import
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Opportunities come in the form of technical cooperation and quality
improvement, particularly in design and branding

These are areas where foreign businesses have demonstrable

strengths. Investment could also focus on related industries, such as
handbags, shoes, and auto seats, where Thai industry needs assistance
in bringing design up to international standards.

Ladies and Gentlemen:

These are just a few thoughts about where there are opportunities for
investment in Thailand’s fashion industry.

Thank you for your kind attention.