OBG talks to Boonchai Chokwatana, Chairman, President & CEO, Saha Pathanapibul (Sahapat)

Interview: Boonchai Chokwatana

What do you think the impact of the rise in the minimum wage in 2012 will be?

BOONCHAI CHOKWATANA: It varies from sector to sector on the production lines. In principle we support the notion of increasing the minimum wage; it is good, but it must be done step by step, not all of a sudden at one time. If it was increased over three or four years, 25% each year, it would help industry to adjust. Companies would be able to drive efficiencies or look at more automation, to reduce the need for labour. But by doing this we might be less competitive compared to other countries like Vietnam or Indonesia. We are very fortunate that wages in China have increased recently as well. A number of brands that we were producing in China actually moved to Thailand in 2010 and 2011. But now Thailand is increasing wages, so it is worrying. Sahapat is not affected very much since the wages we give to our labour force are already quite high.

What do you think the outlook is for higher value-added production in Thailand?

BOONCHAI: We can achieve low production costs, which will afford us a surplus to undertake promotion and brand building activities. In the past this was not a focus for Sahapat – our strategy used to be to sell low-cost products. But now we have to change our mentality by trying to sell quality and credibility. We are adopting this approach across all product segments.

We have traditionally partnered with many foreign companies, especially Japanese firms. The former Democrat government launched a “creative economy” drive a few years ago. However, there are many things that need to be done to make this work. The government has established a science park, which came to me recently to find more ways to commercialise the research and development that takes place there. In the past the private sector was not able to be so dependent on government efforts to promote innovation so we had to depend on ourselves for over 40 years. But it is a good thing to see public efforts such as the science park.

What is the outlook for Thai garments and footwear industries within an ASEAN economic community?

BOONCHAI: Thailand still produces a lot and is very attractive for many brands – garments, shoes, etc. The industry had been damaged when Nike, moved its production out of Thailand in search of cheaper costs. Nike was with Sahapat group for almost 30 years, but about three years ago moved to concentrate on Indonesia, China and Vietnam. But Thai garment and footwear manufacturers have an opportunity to develop and adopt better technologies. Sahapat will most likely move to establish factories in Cambodia and Myanmar to enjoy lower production costs. But we see those as complimentary to our current production capacity in Thailand. The benefits of lower costs are partly passed onto consumers. Thailand is still in a good position within the ASEAN Economic Community because we are more industrialised. We developed much earlier than countries like Vietnam, Myanmar or Laos.

What opportunities are Thai companies currently exploring further afield?

BOONCHAI: Many of our companies in Thailand have moved towards investing internationally. In our area, however, we do it carefully. Expanding internationally is not always successful. There have been Thai investments in China for decades and not all of them have taken off, until lately. Sahapat also invested in China, but most of those investments failed. We have been approached to set up a noodle business in West Africa – I was cautious about the idea of investing in Ghana and Nigeria, but other brands like Anthony Salim’s Indofood have moved to seize such opportunities.

The Thai baht has also been quite strong of late, and we consider this a disadvantage for international expansion. If you want to export, it is a hindrance. We would prefer to see a baht at approximately BT35-40 to $1, but it is currently closer to BT30. Our economy recovered very quickly after the Asian financial crisis, on the back of a weakened baht, but today it its price is rising.