Upgrading, Relocating, Informalising? Local Strategies in the Era of Globalisation: The Thai Garment Industry

Abstract

The garment industry was once the leading manufacturing-based export sector of Thailand. While its international competitiveness has been diminishing since the 1990s primarily due to increases in wage levels, it nevertheless remains an important source of income for a large number of workers. Given this fact, we look at what survival strategies garment suppliers have adopted. In particular, this paper will examine the Thai garment industry from a global value chains perspective, and determine whether upgrading in process, products or functions has occurred. In this context, the paper shows that the Thai garment industry has been stagnating in terms of process and product upgrading. This, in turn, has induced suppliers to move to rural areas where cheaper labour, including migrant labour, is more readily available. We attempt to provide a more evidence-based account of this industrial relocation using unpublished data. Functional upgrading in more locally oriented production networks has occurred; however, competition in such functions has also increased, leading to price-based competition and the erosion of economic rents of network co-ordinators. The paper further argues that informalisation is becoming more common in production and employment relationships, and concludes that such strategies may not be viable in the long run.

Key Words:

• Informal economy
• Thailand
• garment industry
• labour
• development
• global value chains

Acknowledgement

The authors benefited greatly from discussions with and support from Donna L. Doane and Daonoi Srikajon. Special thanks go to Duangsamorn Jatupornpimol (Nok) and Jutarat Dangtummachat (Ploy) for the interviews with garment traders in Pratunam and Bo Bae markets in Bangkok. Nok was also instrumental in arranging interviews with garment companies in the Greater Bangkok region and in Mae Sot. Constructive comments from two anonymous referees have been very helpful in revising this paper. The authors also want to thank the Ministry of Industry of the Royal Thai Government for granting access to the list of registered enterprises for 2006 until 2010. Financial support from the Suntory Foundation (FY 2010-2011) is gratefully acknowledged.

Notes

1. For a general discussion on wages and Thailand, see Jetin (2012) and Mounier and Voravidh (2010).

2. It is now well established in the GVC literature that upgrading can be broadly classified in these three categories. Some authors have suggested other types of upgrading, and this is, at times, very useful; however, we will refer to the three types of upgrading in our paper. For a similar argument, see Goto, Natsuda, and Thoburn (2011).

3. Some of the figures, such as the overall number of workers in the industry and the number of enterprises, differ quite significantly from the data that available in the Thai Textile Statistics produced by the Thailand Textile Institute. This inconsistency could arise because of the difference in their population: the MOI data are based on registered firms while the Thailand Textile Institute could also include non-registered ones. While the MOI data may, therefore, be more limited in their coverage, we use the MOI data in this section as they have more detailed firm-specific information, such as location, number of workers and amount of capital, for all registered garment companies in Thailand. We nevertheless note that the MOI data should also be interpreted with caution as the information may not accurately reflect the latest state of the listed companies. For example, changes in the number of workers or capital endowment in an enterprise will not be reflected in the dataset and remain with the initially reported information.

4. As the “basic wage rates” are closely pegged to the minimum wage, when there is a statutory increase in the minimum wage, the basic wage rates will be adjusted with the same percentage increase. The total amount of salary that workers receive may often be the sum of a variable amount based on individual productivity (“piece-rate”) and the basic wage rate.

5. Again, those appearing in either 2006 or 2010 may not necessarily be new entrants or those who have exited, as they could have moved from one location to another, or have closed and re-opened under a different name, and just re-registered under a new registration number. In other words, there is a possibility that the same supplier (with a different address or name) could be registered under a different registration number, and thus they can neither be treated as a new entrant nor an exiting supplier. However, as we have no means to verify this and make proper adjustments, we will treat them as explained in the text.

6. The distinction between export-oriented suppliers and domestic-oriented ones is not clear in Thailand. While the larger suppliers tend to focus more on exports, an interesting characteristic of the Thai garment industry is that the smaller suppliers also export significantly, not just under sub-contracting arrangements with large suppliers but also directly through foreign buyers. Thus, it is quite difficult to categorise suppliers’ market orientation (export or domestic) by firm size.

7. It should be noted, however, that the export-import ratio is declining (Figure 3), suggesting increasing import penetration of foreign garments.

8. While the majority of the buyers in these markets are catering to the domestic market, a significant portion is also exported to foreign countries through agents and middlemen. More than 80% of the wholesalers in Bo Bae market have at least one buyer that re-sells the products in foreign markets; only 14% is sold only to buyers exclusively for the domestic market. This number is higher for Pratunam market, where about 94% of wholesalers’ customers include at least one middleman or an agent for foreign markets. About 30% and 42% of all sample wholesalers sell more than half of their products to such export-oriented middlemen.

9. Some garment suppliers are reported to actively take anti-union approaches by threatening or firing union members (Interviews, several NGOs in Mae Sot, March 2011).