Faced with the prospect of rising costs after the expected hike in the country’s minimum wage next month, 15 of Thailand’s largest garment manufacturers have indicated that they will halt local expansion plans.
This story first appeared in the March 27, 2012 issue of WWD. Subscribe Today.
Thai Garment Manufacturers Association president Sukij Kongpiyajarn told local press that the move was made as a sign of opposition to the Thai government’s plan to increase the daily minimum wage in at least six Thai provinces from $7 a day to $9.75 on April 1. Wages in Thailand’s other provinces will also increase up to 40 percent, although they will remain below $9.75. Local media quoted an association official saying that 30 percent of the smaller producers in the garment industry might shut down due to the wage hike.
According to the Labor Ministry, the minimum wage increase, which was an important component of the ruling Pheu Thai party’s economic manifesto when it was elected to power last year, will affect 5.4 million workers in the Southeast Asian nation of about 69 million.
The wage hike is the latest setback for Thailand’s garment manufacturing industry, which, like others in the Southeast Asian nation, has been wracked by devastating floods last year and an unsettled political situation. According to the association, Thailand’s garment and textile exports in January contracted nearly 19 percent year-on-year to $544 million.
The association said its members would seek to build capacity in neighboring countries with lower wages. According to Kongpiyajarn, at least 10 garment manufacturers are seeking to invest in Myanmar, which has recently undertaken significant efforts to liberalize its politics and economy. The association has called for the government to reduce the current tax rate of 30 percent on income repatriated from abroad to facilitate offshore investment.
A senior official at Thai’s commerce ministry, which is responsible for overseeing the wage hike, did not respond to a request to comment. The government had previously indicated that the wage increase would boost consumption and prompt Thai companies to expand into more capital-intensive industries. Implementation of the wage increase had previously been pushed from Jan. 1 to help companies recover from last year’s floods.