Most firms engaged in plastic manufacturing are small- and medium- enterprises ... investments has foreign capital accounting for more than half of their capital stock; this ..... standard quality control program, the small companies adopted more ...
THE PLASTIC INDUSTRY OF THAILAND Paitoon Kraipornsak
Export is the engine of growth of Thailand’s economy. For over a decade until 1996, the average annual growth of Thailand’s exports was 20 percent. When the financial crisis struck Thailand in 1997, exports contracted but only briefly. It recovered quickly and grew by 7 percent in 1999. This owes largely to the financing schemes made available by the government to exporters that allowed them to capitalise on the depreciation of the baht. In addition, the government implemented a raw material duty refund scheme that eased the higher costs of imports due to the baht depreciation. Among the fastest growing exports of Thailand are plastic products. During the last decade, exports of plastic products grew at about 26 percent annually, faster than other manufactured exports whose growth averaged 19 percent. Consequently, the share of plastic products in total manufactured exports increased from 2.1 per cent in 1988 to 3.8 per cent in 1998. According to world trade atlas database and Eurostat, in 1998, Thailand was ranked the eighth largest plastic product exporter in the world and the largest exporter in Asia. Concurrent to the growth of its exports, the plastic industry registered productivity increases of 0.48 per cent per annum1 during 1971-89 (Kraipornsak 1995). And during the period of high economic growth in 1986-89, the industry’s productivity was even growing faster at 8.1 percent.
1
This figure however corresponds to the calculated total factor productivity (TFP) growth rate of rubber and plastic products.
The plastic product is also an important industry in generating employment. In comparison, share in total manufacturing value-added was only 2.7 per cent, its share in total manufacturing employment was 4.7 per cent. Regarding proportion of employees per value added, it was 4.2 persons per 1 million baht of value added for the plastic industry while it was on average only 2.4 persons per 1 million baht of value added for the total industries. Close to two-thirds of firms in the plastic products industry is considered small-scale, with less than 50 employees (National Statistical Office 1997). The aim of this study is to explore factors and strategies contributing to the survival and prosperity of the plastic industry in Thailand. Macroeconomic and industrial development particularly relevant to the plastic industry will be examined in the next section. Industrial structures and performance of the industry will then be presented. In addition, the study selected 4 plastic firms to be examined as case studies. Relationship between productivity improvement, quality of jobs and competitiveness is expected to conclude lastly.
2. Macroeconomic Policies and Industrial Development to Improve Competitiveness The Thai government recognizes the importance of light industries. As a consequence, many light industries have developed into large, export-oriented industries. Most light industries are small and medium sized operations. Many of them involve inexpensive productions and low to medium quality products. The production bases are mostly in Bangkok and its vicinity. Plastic furniture, for example, is one important light industry promoted by the Board of Investment that consists of products that are quite new to the domestic market in recent years. The Department of Industrial Economics is a government agency that promotes and supports the role of SMEs. Current major policy on SMEs promotion of the Department of Industrial Promotion include 3 strategies. First is to upgrade the capabilities and efficiency of small and
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medium scale industries (SMIs) by developing labour skill for the industry especially in the fields of technology and management, strengthening the medium size of small industry in standardising quality of production and supporting linkage and subcontracting activities, supporting consultancy service activities, and the provision of information on production, technology, marketing, finance and management. Second is to support and promote the decentralization of SMEs to rural areas and communities by supporting non governmental organization entrepreneurs in rural communities with emphasis on the accelerated implementation of the Promotion of Rural Industrial Development Project, and promoting subcontracting activities from factories located in the central to rural and community areas. Third is to develop and strengthen the Department of Industrial Promotion capabilities and the efficiency of SMEs promotion by accelerating the SMEs development plan, improving efficiency of working systems and coordination between various agencies, and developing capabilities and knowledge of Department of Industrial Promotion personnel to work more aggressively to their full capacity and responsibilities. In fact, the policies of the Thai government for SME development are embodied and articulated in various forms. These include Acts of Parliament, the National Economic and Social Development Plan, and Cabinet resolutions. However, all these policies are translated into strategies and action plans by the various ministries. Under the current five-year Eighth National Economic and Social Development Plan, 1997 - 2001 commencing 1 October 1996, it does not contain as much elabouration of SMIs' role or policy for economic growth when compared to the previous Seventh National Plan (1992-1996) which stated full specific references on SMIs. One reason to explain the change is that the current National Plan introduces a new development paradigm by shifting focus from growth orientation in the previous plans to people-centered or human resource development. The government however
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still regards its economic policies, goals and strategies laid out in the Seventh national Plan as being yet to be involved and still valid. Many plastic firms are classified as SMEs. A major constraint facing SMEs in obtaining finance is lack of sufficient collateral. To alleviate this constraint, the Small Industry Credit Guarantee Corporation (SICGC) was established under the Small Industry Finance Corporation Act 1991 to provide credit guarantees on the uncollateralized portion of SME loans. The SICGC has start-up capital of 400 million baht. The ability of the SICGC to provide services needed by SMEs is however hindered by the scope of its guarantee operations, its fee structure, and its process of paying compensation to financial institutions. The Small Investment Finance Corporation (SIFC) was established under the Small Investment Finance Corporation Act 1991. The function of the SIFC is to provide short and long-term finance for SMEs with fixed assets of less than 50 million baht ($1.12 million). The SIFC has initial start-up capital of 300 million baht ($6.67 million). The SIFC has a critical role to play in providing financing for SMEs. Nevertheless, the SIFC currently lacks the capability to carry out fully this role. Recently, the cabinet approved additional tax measure on 18 September 2001 to assist small and medium-sized industry. Beginning January 2002, companies with registered capital less than 5 million baht ($ 112 thousand) are illegible to qualify for a new corporate tax rate of 20 per cent (the existing rate of 30 per cent). In addition, the measure also permits small-medium enterprises to take larger deductions for capital depreciation thus reducing the tax liabilities. Machinery purchase, for example, can have up to 40 per cent deducted in the first year, typically written off in equal charges over 5 years. Factory and plant investments can have up to 25 per cent deducted in the first year, normally be calculated over 20 years. Computer and equipment purchases can have up to 60 per cent of the purchase price deducted in the first year and remainder spilt over the second and third year. 3
3. Industrial Structure and Performance 3.1 Structure of the Plastic Industry2 Most firms engaged in plastic manufacturing are small- and medium- enterprises (SMEs). The average size of firms in the industry is 89 -- less than the average for manufacturing which is 103. Their smallness is an advantage to the extent that it affords them flexibility to cope with the vagaries of the global market. About 94 per cent of firms in the plastic industry operate six days in a week. In addition, work shifts in many plastic firms are 8 to 10 hours long. Workers are generally unskilled and production techniques are labour-intensive. Strong demand for plastic products encourages new investments in the industry. From 1992 to 1996, about 52 per cent of firms in the plastic industry had new investments, compared to only 44 per cent for the manufacturing sector. The industry has also received more foreign direct investments than other sectors in manufacturing. About 14 per cent of firms in the plastic industry has foreign investments; the average for the manufacturing sector is 11 per cent. Two-fifths of plastic firms with foreign investments has foreign capital accounting for more than half of their capital stock; this compares to 33.5 per cent for the manufacturing sector. The investments come largely from Japan and Taiwan, 42 and 24 per cent of total foreign investments, respectively. The problem, however, is that while the firms are flexible because of their size, they rely mainly on low cost of labour. Much is to be desired on the level of production technology as well as on prevailing management practices. Because there is plenty of cheap labour but capital is scarce, extending working hours is practically the only means to raise production
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volumes. But such strategy is feasible only in the short term and clearly unsustainable. As labour cost in Thailand continues to increase, these firms are bound to lose their market advantage. In the long term, it is not feasible to substitute prolonged working hours for productivity improvements to remain competitive in the market. 3.2 General Performance of the Plastic Industry in the Thai Economy The plastic industry maintains strong backward linkages with the petrochemical industry. Currently, Thailand has about 3,000 polymer converters and 2,000 plastic fabricators (Ministry of Industry 1998). Plastic fabrication in Thailand started more than 3 decades ago, serving mainly the domestic market. A big boost to the plastics industry is the rapid growth in demand of both the domestic and global markets. It is estimated that domestic demand for plastics is growing at 11 percent annually (Lucas and Wangdee 1997). Plastics can be used as a substitute for steel, metal, and many other metal and non-metallic products. Plastic is also used as an intermediate and final product. At least three segments within the plastics industry may be distinguished on the basis of technology and quality of material input (Lucas and Wangdee 1997). The largest segment is plastic bag production. Another segment consists of firms producing automotive parts. These firms maintain contracts with plastic fabricators. A third segment consists of manufacturers of higher value-added products for niche and export markets, such as melamine tableware and other plastic kitchenware.
2
All figures were calculated using data from the Industrial Census, National Statistical Office (1997).
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In a study conducted by the Faculty of Commerce, Chulalongkorn University in 1997, the business sector perceives the potential for growth of the plastics industry as being moderate. Plastics is however classified as basic and supporting industry. As the establishment of the ASEAN Free Trade Area (AFTA) draws near, trade protection on plastic products has been declining, from as high as 60 percent during 1980s (tariff 40 per cent plus surcharge 20 per cent) to the present level of 30 percent. Plastic fabricators are benefiting from such change. The tariff rate on plastic palette was reduced in 1998 from 27 percent to 20 percent. Currently, most of the plastic palettes are sourced locally because of the domestic presence of a petrochemical industry. Despite reforms, Thailand’s trade with ASEAN countries in plastic resins and plastic products is still small relative to its total trade in the region. The top export destination countries for the Thai plastic products are Hong Kong, Japan, ASEAN, Indochina, China, EU, USA, Pakistan, Australia, Malaysia, India, and Sri Lanka. The plastic industry takes advantage of the rapid growth in domestic demand, low wages, and rebates on tariffs paid on imported inputs when the final product is exported. Overall, plastic manufacturers operate under a liberal market environment. The industry is not subject to any government control as regards to the establishment or expansion of a factory (Ministry of Industry 1998). By the nature of plastic manufacturing processes, some factories may have negative impact on the environment, but the government is not putting a tight lid on the matter. As more than two-thirds of the plastic factories is located in Bangkok and its vicinity, manufacturers have fewer infrastructure concerns than they would otherwise. The concentration of plastic factories in Bangkok and its vicinity may however create
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urbanization problem in Thailand in the long run, but the industry is less concerned with this problem. What concerns plastic manufacturers more is access to financial sources. Manufacturers also complain about the inadequacy of information on the export markets. This however is a problem not only of plastic manufacturers but also of many small and medium enterprises. (Ministry of Industry, 1998). There is also shortage of skilled labour and related fields of technicians including computer programmers, engineers and product designers are still inadequate for the industry and solving of this problem has been placed as the highest priority and this limitation has done little in a support of the industry’s development (Ministry of Industry 1998). The government charge for the plastic products is mainly on value-added tax, sale tax and income tax of which the rates are very close or similar to those of neighbouring countries. From the 1997 Industrial Census of the National Statistical Office, it reveals that the major need for the government’s support of the plastic product manufacturers is the supply of low interest rate loans, import tax reduction, training course and marketing and export promotion. They accounted for 67.4, 62.0, 37.3, and 34.8 per cent of the plastic manufacturers who reflected the needs respectively. In terms of productivity, the study calculated capital productivity and labour productivity and compared them between the plastic industry and all industries. Using the most complete set of Industrial Census Report data from the National Statistical Office (NSO) in 1997 to calculate these figures, by using the conventional definition of partial physical productivity, both capital and labour productivity in the plastic industry are lower than average for all industries. The capital productivity (million baht of value added per one million baht of fixed assets) of the plastic industry was found to be 0.4659 compared to 0.5628 of all industries.
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The labour productivity (million baht of value added per one worker) of the plastic industry was found to be 0.2393 compared to 0.4136 of all industries. This finding reflects the fact that the plastic industry uses unskilled labour intensively. As a result, capital deployed in the plastic industry creates less value per output. The same reasoning explains lower than average labour productivity. Since each industry employs workers of different skills set, the value of output per one unit of worker is not comparable across industries. For this reason, unit labour cost may be a more appropriate measure of competitiveness. If the average wage and salary of employees were used as proxy for labour productivity, the corresponding figures are US$1,645 (70,737 baht) for plastics, and $1,745 (75,030 baht) for all industries. This augurs with the observation that the lower return to labour in the plastic industry is due to the use of low skilled workers. Nonetheless, the industry is helped by its export orientation, foreign investment, high demand and government policies. These factors have kept the industry buoyant despite its lackadaisical productivity performance.
IV.
Case Studies of the Selected Firms
This study selected 4 plastic firms to be examined as a detailed case study, ranging from small, medium, to large sized firms3. Two out of four are purposely sampled to be small factories as more than 90 per cent of the plastic manufacturers in Thailand are small sized firms. These two selected small firms produce plastic injection (plastic dinning bowl, plate and household accessories) and high-density plastic film (plastic bags). The third and fourth firms are relatively large that differ in organization and management so that the study will
3
It was due to time and resource constraints. These selected firms were interviewed and surveyed in hoping to explore the management strategies adopted by the firms under different conditions and performances. Therefore some findings must be generalized with caution.
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compare their relative performances. The third firm deals with the production of high-density polyethylene films. The fourth firm is a large plastic product manufacturer dealing with exports, quality control and subsidiary companies which is characterized by higher quality products, more sophisticated technology, formal and modern management and relatively high capital intensive production technique. Experiences of the selected sector and firms are explored in this section. Apart from the structure, characteristic, and performance of firms in general practice of the plastic industry, the study brings together the analysis of these samples to compare and draw conclusions with respect to the different business and economic environment factors and firm strategies influencing the different outcomes. The finding is expected to be helpful to determine ways and means to encourage an improvement of productivity and efficiency of firms in the sector. 4.1 The Cases The study firstly sent a one-page questionnaire for basic data of each company by mail. Appointments for personal interview were then made to obtain more details later. The detailed interview questionnaire is designed to provide information on three main aspects: basic
information
of
company,
production,
and
innovation/research
and
development/technology, of which are useful for the analysis of how various firms manage and operate to gain productivity improvement and competitiveness. Some open-ended questions are also asked to help analyze in more details their ideas, how they plan, and the descriptive information, which cannot be obtained from specific questions. Most of interviews were conducted between April – May 2000. The first selected firm is owned by an individual businessman and his brother and has been running as small family business for longer than 30 years. The study interviewed the deputy manager. There are 23 people involving in this company consisting of 4 administrative staff,
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15 operating staff and 4 other supportive staff. Office and factory are in the same large area producing dinnerware, plastic house-wares and any accessory plastic equipment by subcontracting order. They own 8 existing machines aged around 10 years old but only 4 machines have been operated, perhaps due to decreasing demand according to the economic slowdown. Development of human resources is done through a performance evaluations and learning by doing. He admitted that outside training program is rare in his company, as he considered too costly and not worth for the volume of his sales. The production technology adopted is quite traditional. The major technology comes with the machines he bought, i.e., machine handbook, training from machine sale representatives, and experience of his employees. His still small volume of sales is a main cause of this factory to be not widely involved in research and development engagement. The factory runs 24 hours a day with 3 shifts of 8 hours. He said that there are not many problems in quality of products produced because plastic pallet is used as the main raw material in the production and normally all plastic pallet used is qualified according to the standard. In the past, he used import raw material but now about half is bought domestically. The deputy manager is familiar with GATT/WTO quite well, perhaps, since his education qualification is in Economics in both bachelor and master degrees. He commented on the importance of the export market although he does not export because his production capacity is not large enough to serve export market. He also believes in free trade and competition and said that competition will be a driving force to lower cost and price due to efficiency He admitted that his main strategy is to be gradually growing business with self-financing sources of fund. With the gradual growth, the business is stable without risk but with less return.
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The second case is also classified as an SME established in 1990. The study interviewed the deputy manager of the company. The interviewee is a member of the administrative staff and graduated from a well-known private university in Bangkok in business administration. The business has about 20 staff, including 5 administrative, 2 technicians, 10 operators and 2 others. The company established in 1990 as a business company. Various plastic bags is the main product of his business amounted to 70,000 kilograms of output produced worth around 2.5 million baht ($ 55,000) a month. A problem of this industry, he told, is the fluctuation of price of plastic pallet that is the main raw material in plastic bag production. The fluctuation of plastic pallet price due to oil price is the problem that makes producers difficult to set price and plan for the efficient production. He said that this raw material costs more in Thailand than in Malaysia and Singapore, the neighbors. Quality of the machine is another essential for the performance of this industry. With better quality of the machines used, the plastic bags can be produced more up to 2-3 times differences. He believes that being an SME makes him flexible enough to the changing demand for plastic bags. The demand for plastic bags in Thailand can change significantly from season to season such as during various Thai traditional ceremonies causing higher demand for plastic bags. To cope with fluctuation of the price of raw materials and demand, being SME is therefore an advantage of him. However, disadvantaged point of SME in this industry is that they have rather less bargaining power in price bargaining when buying the plastic pallet, the major cost component in the production of the plastic bags. He gave information that the demand for plastic bags is quite dependent on the growth of the economy. There was a large amount of demand for the plastic bags during the earlier period
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of the high economic growth perhaps because the plastic bag is a consumer product used in every day life in most households in Thailand. In addition, the plastic industry has a high linkage with other industries such as packaging and containers in various exporting industries such as food industry and car accessory and parts. Therefore, it is believed that there is still an obvious growing demand for plastic products, at least at present time. This large and expanding demand seems to be a focus of his plan in the business. He believes that good management as well as good technique of production adopted can cause the difference of the industrial performance. Good management can cut cost and survive in the difficult situation. The quality of plastic bags is partly controlled by the market demand forcing wholesalers and retailers to control the quality of products sold to respond to the taste of consumers. In addition, there is very high competition in this business and therefore this competition is a major driving force that leads to higher productivity and quality of the products, he said. The third case is a medium-large scaled industry of 183 employees producing high-density polyethylene films. The factory consists of 10 administrative staff, 7 technicians, 120 skilled labourers, 40 unskilled labourers, and 6 others. The factory has been operated for 25 years in the form of limited company. Most of their skilled workers must be trained at the beginning of their work life there. On the job training is also a main part of the human resource development. There are regular job evaluations and incentives provided to workers as a part of his human resource development program. He admitted that the factory at present has been adopted quite old and low technology of production in the form of not a modern machines causing rather high cost of operation as well as too many labourers used. In addition, the decreased order of his product during the current
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economic crisis is another reason for this excessive capacity of production and labour surplus. He recognized that in order to regain higher productivity, the company should readjust downward the current workload. The interviewee of this case believed that large business has an advantage in buying raw material that could be cheaper due to their massive buying volumes. Moreover, the large business can be more attractive to the qualified labour to work with. Quality control is another point that the interviewee mentioned the weakness of the small business compared to the large business. There is quality control procedure in both incoming and outgoing process including plastic pallet selection that he has to carefully order from the particular factory or brand in his production process. Research and development in his case is from localization of products developed abroad, production development and redesign. Acquired technologies are foreign technology and suppliers of raw materials or components. The firm does not export his products because he is not ready for it in terms of quality of products, human resource, and potential capacity of his production. Nevertheless, he accepted that free trade is essential to the development of its quality and productivity and the exports will widen market for the product. He agreed that new modern technology, competition, productivity and quality of jobs are important to the future of the industry to compete in the future world market. Finally, the fourth case is a large scaled business set up in 1966. It is a business type of public limited company with employment scale of 737 full time employees consisting of 130 administrative staff, 46 engineers, 13 technicians, 338 skilled labourers, and 210 other supportive staff. The main business of this case is the production of PVC (both palette and
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powder), VCM, and sodium bicarbonate (50% concentrated). The company also exports their products to The Middle East, Europe and North America. This business has received privilege from the Board of Investment with ISO9001 system including selection of raw material, quality control program, human resource development program, and product delivery. The major raw material is ethylene that is one of the products of their owned production line. The company has been very dynamic giving emphasis on strategic adjustment on the area of marketing and management so as to maintain their competitiveness in the new world environment. Major explicit strategies are announced including (1) organization development by cutting shorter line of command and providing faster process of administration, (2) product development and quality assurance to serve for the demand from foreign market, and (3) production development by adoption of modern advanced technology. The company has adopted various types of research and development including improving of existing products and materials, improving of existing processes, design and developing new products, developing new materials, and basic science. The company has developed product and production process by various activities such as product and process design capabilities, prototype/tooling development, component/materials selection, and documentation of products and processes. In-house product design is capable in terms of drawing preparation for specification and making prototype parts. Various types of technology adoption include joint venture partners, turnkey contract, hiring of key personnel and skilled employees and managers, supplier of raw materials or components, and suppliers of capital equipment and machinery. The company has also introduced organizational changes to improve or reduce the length of production cycle in the last three years in order to improve productivity and efficiency and strengthen their competitiveness. These include computerization of production
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data, more efficient production planning, introduction of in-house maintenance facilities, introduction of routine maintenance checks, and improvement of quality control methods. Above details of the 4 cases can be concluded that most cases are of traditional way of family business in Thailand, mostly involved in SMEs. General weakness of this SME business can be found clearly when the economy grows fast. The business cannot take advantage of a rapidly increasing demand for the products. On the contrary, at the current period of slow economic growth, the business could survive because of his conservative style of business. On the contrary, the larger business is quite more organized in a modern and formal style that can provide better for a large expansion of production and sales including export market. 4.2 Analysis and Findings Exports are an incentive to boost competitiveness and productivity. Any business dealing with exports will have to improve their quality of the products, including quality control so as to be able to compete in the world market. All firms accept the role of exports in facilitating an expansion of their business. For those not exporting it is not possible for them to conduct exporting activity unless they are able to restructure their business to meet the world standard of quality. This point also indicates the fact that they may face some problems in moving towards the exporting of their products as they recognize the need to meet the quality and structural requirements of the export market. They agreed that the world market is large and unbounded and that they are potentially expanding their productions to full capacity. All samples accepted that export market was a major factor facilitating the survival of the industry during the crisis. Without the export market, the industry would have gone into slump but in fact grew. All of them have heard about the WTO and realized that the liberalization of trade and industry has its shortcomings. It is remarkable that perhaps two of the interviewees, (who are
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high rank positions in those companies) are those economic graduates (two small firms). Another interviewee is a business graduates (the medium sized firm). All 3 interviewees of the large sized firm are educated managers within their respective firm. Their recognition of WTO and free trade and its role is no wonder. However, they expressed a rather negative opinion on trade liberalization, favoring a pro-protective point of view. One firm (the first case) does not agree that the large scaled enterprises always have advantages over the smaller firms. In term of unit cost, it is not necessary that the large firms who do have advanced technology technique of production will perform a lower unit cost though they can produce on a massive scale. The answer seems to be dependent on whether the technique of production is most suitable to the product and amount of outputs produced. This would lead to the conclusion that the appropriate technology and efficient production plays an important role in explaining the comparative advantage and competitiveness of the industry. Some techniques of the production can be too expensive for some industries, production levels and conditions. It can be concluded that the competitiveness must be considered in a dynamic process. At a certain point and set of conditions, a sector or industry may be more competitive though it may not be in the future when some conditions change. There are few clear relationships found from the interviews. A higher level of technology has been adopted by a larger company who are more concerned with the importance of exports, as well as higher capital intensive technique (more machines adopted in production) and modern management practices adopted in the company. Formal organization was found to exist in the large scaled company (the fourth sample). R&D activities were found in only one case in the large sized company while the small companies have no R&D for themselves. Small companies’ technology is mostly imported, especially relying on the information and experience imported by the machines’ manual, together with practical experience from previous involvement in the industry.
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Problems relating to human resources were claimed by the three small and medium companies to be one of the few factors retarding the quality of production. The problem is mainly reflected in terms of poor quality work and the consequent difficulties and costs to their production processes. It is perhaps surprising, however, that there is no training program to help improve the situation despite a recognition of the problem. This human resource development program may imply recognition that the quality of the Thai workers seems to be inadequate and inappropriate for the job. In regard to this situation, it is becoming a more serious concern about human resource quality and the resolution of the problem in Thailand, thus failing to meet the needs of the economy. Little is mentioned about the adequacy of education provision, as the development of the education system in Thailand is geared towards the greater accessibility and opportunity of education provision. The quality of education and training in Thailand seems to be dubious perhaps as a consequence of the recent attempt to expand education at very fast pace. All factories in the sample believe that working excessive hours can lead to the decline in the labour productivity, as workers will make more error in the production process proportionally due to their tiredness. All samples gave their own ideas about the optimum hours of work, which is considered to be about 8-10 hours a day. This indicates that business-people are keen to improve their profitability by minimizing the costs of their production. To gain efficiency, therefore, all factories run their machines 24 hours a day with 3 shifts of workers who work 8 hours for each shift. Apart from the problem of human resources, capital fund is the other problem the business people have experienced. However, this problem does not figure strongly in the complaints of the sampled cases. Four surveys were conducted and all of them fortunately do not have a funding problem (at least at the time being).
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Another reason perhaps for the lack of problems with the financial fund is partly due to the fact that all firms in the samples have been established for some time. Three of them have long been established for 20, 25 and 34 years (compared to the average 9 years of industry found), while one company has been established for only 7 years. They therefore have a strong financial flow such that they can operate their businesses without any additional capital requirements (unless they have cumulative funding). This indicates also that perhaps the businesses run their businesses in a conservative style; i.e., they do not expand their production levels at a fast pace so that they do not need large amounts of finance from external sources. Note also that the conservative style of investment mentioned earlier is a normal way of the most Thai SMEs, including the plastic industry. The small firms were using quick responses to changes strategy and reasonable quality products at competitive prices. The large firms even though realized the necessity of this responses, it is relatively difficult to quickly respond to the changes in both technology and demand perhaps due to structure of relatively large proportion of their fixed costs. All cases do have a quality control system and while the large companies conducted a standard quality control program, the small companies adopted more informal styles. Many small firms conduct the quality control by investigating randomly a few raw materials and production processes or even only the finished products. The main reason explaining the difference of the two quality control methods adopted by the traditional small firms and the large firms is mainly described by the fact that the large companies have larger amounts of funds and require stricter quality control process in order to export their products to the world market, while the domestic market does not require such strict procedures. The largest firm (who is involved in export) recognized the fact that export is a factor influencing the growth of the industry, especially during the crisis. Although the other three firms in the sample who are not involved in the export activity also recognized the 18
importance of export in helping to widen their markets. The obvious expansion of domestic demand is another factor explaining rapid expansion of the industry. This was also confirmed by the survey. The informal quality control of practices of the small firms also made them not ready to export their products to the world market.
V. Conclusion and Recommendation The government has recognized the role of small and light industries in economic development. In Thailand, many light industries have evolved from a household, labourintensive operation into large, export-oriented industries. Policies of SME development are embodied and articulated in various forms and have been translated into strategies and action plans by the various ministries. Many plastic firms can be classified as SMEs. The abundance of labour supply and the smallto medium-scale operation required of firms engaged in plastic manufacturing explain the rapid growth of the industry in a country such as Thailand. The plastic industry in Thailand comprises largely of conservative and small-scale firms. During the economic crisis, these small firms performed relatively well. Apart from their flexibility, domestic demand expansion and exports have provided impetus to the growth of the industry. The industry however has grown despite its poor productivity record. The study found that low productivity can be traced to poor R&D and continuous use of low technology. There are exceptions however in the case of large firms. Low cost of labour, nonetheless, has helped Thailand maintained its competitiveness. But the low investment in R&D is expected to bear on the long-run growth of the industry.
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Inevitably, the industry has to deal with the problem of low productivity. Both large and small firms in the study recognize the need to focus on product quality and standard to be able to compete in the export market. The strategy of using cheap labour to keep costs at a minimum may be appropriate at current conditions. But if the industry were to grow on a sustained basis, then it has to improve its productivity to attain competitiveness and better quality of jobs. All firms in the sample recognize the importance of improving the quality of jobs to the same degree as improving product quality to meet world market demand. Firms of different sizes and target markets, however, have employed different strategies. The large firms have focused mainly on high-priced quality products for exports; small firms on lower priced products mainly for the domestic market. At present, firms can still rely on the growing domestic demand, but in the future, they would have to turn their sights to the export market. Consequently, they have to move to higher quality product. Technological development and acquisition either through R&D or importation of technology will therefore play an increasing and essential role in the future growth of the industry.
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of
Industrial
Promotion,
“Promotion
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SMEs
in
Thailand”,
http://www.smethai.net/investment/einv2bre.htm. East Asian Economic Unit, (2000). Transforming Thailand: Choices for the New Millennium, Canberra: Department of Foreign Affair and Trade. Faculty of Commerce and Accountancy, Chulalongkorn University, (1997), “Thai Industry Vision 2020”, Report Submitted to The Federation of Thai Industry, 6 November, Bangkok. Kraipornsak, Paitoon, (1995):"Factors Affecting Total Factor Productivity Growth: A Case Study of Thailand", Chulalongkorn Journal of Economics, 7(3): 343-360. Lucus, L.E. and C. Wangdee, (1997), "Petrochemical and Plastic Industry in Thailand", Bangkok: Thailand Development Research Institute. Ministry of Industry, (1998), "Industrial Restructuring Plan (1998-2001)", National Industrial Development
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June,
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improve_indust/exs_indust/exscover.html, (in Thai). National Economic and Social Development Board, (1999), Thailand's Quarterly Gross Domestic Product (GDP) for The Second Quarter of 1999, Bangkok, November. National Statistical Office, (1997), The Industrial Census Report, Bangkok. World Bank, (1999), Thailand Economic Monitor Second Quarter 1999, World Bank Thailand Office, Bangkok, August.
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