Thailand, a ‘rara avis’ in Southeast Asia fashion sourcing turns towards consumption

Thailand, a rara avis in Southeast Asia. With one of the highest minimum wage in the region, the country has a much diversified economy, in which textile exports have a very low weight in foreign trade. Despite presenting a less appealing scenario for foreign fashion groups, companies like Lenzing, Pandora, Kering and Ecoalf have invested in recent years to shore up their production in the Thai market. Parallel to that, a gross domestic product (GDP) per capita far higher than its neighbouring countries and the rise of international tourism outline a consumption market increasingly attractive to large fashion players.

Prayut Chan-o-cha, an army officer, is the prime minister of Thailand since August 2014, after leading a military coup that overthrew the provisional government established after the departure of Yingluck Shinawatra. The former leader of the country left office by order of the Constitutional Court after being accused of abuse of power for the dismissal of a senior official.

Chan-o-cha announced last year the holding of elections in November 2018, although the elections could be delayed until February 2019. Maha Vajiralongkorn is the king of Thailand since December 2016, when he took over the throne after the death of his father, Phumiphon Adunyadet.

Thailand will hold next November its first elections since the putsch led by Prime Minister Prayut Chan-o-cha in 2014

Thailand has a GDP per capita of 17,800 dollars (14,877 euros), much higher than Bangladesh, with 4,200 dollars (3,510.4 euros); Vietnam, with 6,900 dollars (5,767 euros); and India, whose GDP per capita reached 7,200 dollars (6,017.8 euros) last year.

Almost 90% of the Thai economy is generated by industry and services, while the remaining 10% corresponds to agriculture. However, the primary sector employs a third of the country's labour force. In recent years, the country has accelerated its economic growth, although the rates are milder than in other Asian states. In 2017, GDP rose 3.7%, compared to the 3.2% increase registered in 2016.

The Thai society, on the other hand, also differs from that of other Asian giants because it presents an older population pyramid. Nearly 46% of its citizens, more than 68 million inhabitants, is aged between 25 and 54 years, according to Cia Factbook, and life expectancy stands at 74.9 years.

The Asian country has one of the highest minimum wages in the region, currently around 7.86 euros per hour

During the last decades, poverty in Thailand has reduced substantially, with 7% of its population living below the poverty line. In 2013, the country’s government, led back then by Shinawatra, approved a national act that set at 300 baht (7.86 euros, at current exchange rates) the minimum wage per day. In Bangladesh, the minimum wage is 5,300 takas (51.86 euros) per month.

Last January, Thailand’s Central Wage Committee recommended that the daily minimum wage should be increased by 7% to 330 baht (8.65 euros) in its two most industrialized provinces, Chonburi and Rayong. For Bangkok, the Thai capital, and six neighbouring provinces, the committee said that minimum remuneration should be at 325 baht (8.52 euros), a 4.8% increase.

Textile industry, a secondary actor in foreign trade

Textile exports from Thailand reached 8,550 million dollars (224.2 million euros) in 2016, compared to 7,800 million dollars (204.5 million euros) in 2015, according to data from the Observatory of Economic Complexity. The importance of the sector in foreign trade is far below that of other industries such as computer hardware and the automobile, thanks to the fact that several Japanese car manufacturers set up their production plants in the country.

Among the international fashion groups that have manufacturing facilities in the Thai market is Lenzing. The Austrian spinning manufacturer announced in mid-2017 the construction of a new factory in the country to produce lyocell fiber (a more-sophisticated viscose), with a production capacity of 100,000 tons per year. The company also set up its own subsidiary in the country.

Pandora will invest 240 million euros until 2023 to strengthen its productive infrastructure in Thailand

At the beginning of last year, Kering also reinforced its structure in Thailand to shield itself from animal rights’ pressure groups. The conglomerate, owner of luxury brands such as Gucci, Balenciaga or Yves Saint Laurent, started the development of a python farm, which is scheduled to start operating this year.

One of the most recent movements was made by Pandora, which produces most of its jewelry in Thailand and yesterday announced an investment of 240 million euros until 2023 to increase its production capacities in the country. The Danish group, which manufactured last year 117 million pieces in its Bangkok premises, is set to increase its production capacity between 7% and 10% year-on-year, to reach 200 million pieces anually. Since last December, Pandora has an innovation centre next to its Thai factory, where the group works to improve manufacturing processes.

Spanish sustainable fashion brand Ecoalf, controlled by Manor Group, has also set foot in Thailand, where it began to produce fabric by recycling waste from its coasts in early 2018. The aim was to reduce the manufacturing costs of the company and gain volume, given that the biggest economic burden continues to lie in the process of transforming garbage into yarn.

An up-and-coming consumption market boosted by tourism

The ever-increasing number of international tourists visiting Thailand, together with rising wages among the country’s working class, has driven the expansion of Spain’s key fashion retailers in the market.

In 2016, Thailand welcomed 32.6 million foreign visitors, mostly from China. Tourism, which accounts for nearly 12% of the Thai economy, grew by 7.8% in 2017 to over 35 million tourists, according to data released by the Ministry of Tourism and Sports of the country.

After China, most of tourists come from Malaysia and South Korea. According to forecasts of the Kasikorn think tank, arrivals will rise by 6.5% in 2018 to reach 38 million visitors.

H&M will open the first standalone store in Thailand of its upmarket chain Cos in 2018

Inditex had twenty-six six stores in Thailand at the end of fiscal 2017, the majority belonging to Zara, while Mango ended 2016 (the company’s last concluded financial year) with 23 stores in the country, all franchised. Tendam (formerly Grupo Cortefiel) operated with eight stores in the Thai market: five from Springfield and three of its lingerie-and intimates chain Women’secret.

H&M group has already scheduled the landing of its upmarket chain Cos in the Asian country in 2018, when it will open a first store. The Swedish company is already established in the country with franchises of its eponymous label. In 2015, French sporting goods’ giant Decathlon opened its first shop in the Thai market, located in Bangkok. The company, controlled by the Mulliez family, projected the opening of up to five points of sale in the years to come, all of which will be located in the capital city.