Manufacturers, SMEs seek to raise productivity

Moreover, they will focus further on training to give their workers multiple skills.

The government's policy to raise the daily minimum wage to Bt300 has been implemented as planned in Bangkok, Phuket, Nakhon Pathom, Samut Prakan, Samut Sakhon, Pathum Thani, and Nonthaburi. The wage will be increased in the remaining provinces next year.

According to the Labour Ministry, there are roughly 38.7 million labourers in the Thai economy, of whom 14.6 million are in the labour system, and 24.1 million are outside the system.

Previously, the Thailand Development Research Institute (TDRI) said manufacturers must increase productivity of their workers by 8 per cent if they |want to survive after the implementation of the daily minimum wage. Without government support, the manufacturers must |initiate in-house training programmes.

"Companies that cannot adjust their costs and improve labour productivity by 8 per cent are |likely to face difficulty in operat-ing their businesses," said Yongyuth Chalamwong, the TDRI's labour development research director.

Yongyuth said small and medium-sized enterprises would inevitably be affected by the wage hike. These workers are the target group for whom the government must have training programmes to improve their skills.

A Bank of Thailand study suggests that the wage increase will slow growth of gross domestic product by 1.7 percentage points, while employment (based on the 14.6-million figure above) will decrease by about 4.5 per cent, accounting for about 600,000-700,000 workers. (Based on the higher 38.7-million figure, the reduction is closer to 1.5 per cent.) The inflation rate is likely to increase by 1 percentage point, while consumption demand from the private sector will drop by 1.7 per cent.

However, the Fiscal Policy Office says the wage hike will not affect goods prices much.

Boonchai Charassangsomboon, executive director of the FPO's macroeconomic policy bureau, said the rise in the minimum wage to Bt300 per day for labourers and Bt15,000 per month for state officials would boost the inflation rate by a manageable level of about 0.7 percentage point. Meanwhile the wage policies will result in a 12-per-cent rise in overall income for the whole country, according to the office's calculation.

Of greater inflationary concern is the rise of crude-oil prices. The FPO projects headline inflation this year at 3.6 per cent, slightly down from 3.7 per cent last year. It said the rise in oil prices should decelerate this year because of the fragile global recovery.

Sompop Manarungsan, pre-sident of the Panyapiwat Institute of Technology, said a lot of sup-|pliers to CP All's 7-Eleven con-venience stores had contacted |the institution asking for ideas |on how to improve labour productivity to offset their rising labour costs.

He said Panyapiwat provided training for workers and management courses such as logistics and marketing strategy.

Small firms may choose to cut some jobs and retain staff who are able to improve productivity, he said. Machinery will be introduced to replace some workers. Some manufacturers may pass their additional costs on to consumers, but that is not easy because of high competition.

Sompop said the situation for manufacturers was complicated by the government policy of controlling prices carried out by the Commerce Ministry. Price controls do not give manufacturers incentives to produce more goods. Some may opt to exit businesses, creating a market condition conducive to monopoly. Thus the good intention of the government to protect consumers in fact leads to price rises, he lamented.

ELECTRICAL AND ELECTRONICS

Apichart Leeissaranukul, executive vice president of Thai Stanley Electric, said the company was increasing its productivity and efficiency by implementing what it calls the Stanley New Approach for High Productivity (SNAP), a measure it has adopted for years. The principle of SNAP is that the company reduces time wastage in the production process by making work flow as efficiently as possible. It has a training course for all staff to learn how to work with the highest efficiency.

He said Thai Stanley had three companies under its umbrella with a total of 7,000 workers. The wage increase that took effect on April 1 will increase the company's labour cost by 25 per cent, while total operating costs will rise by 3 per cent. As a result of the wage policy, each worker's monthly income will rise by Bt2,500.

"We have to increase our |productivity to cover the in-creased wage cost. We do not |know yet whether or not we can make it.

"It is not only Thai Stanley's own business that is our concern, but also our suppliers, which are second- and third-tier manufacturers. We have to visit them more and ask them if there is anything that we can help them with so we can survive together," he said.

Kobkarn Wattanavrangkul, chairwoman of Toshiba Thailand, said the company planned to monitor the impact of rising wages closely every six months, as it would affect the whole supply chain.

The company is also struggling to maintain suppliers in Thailand as the cost of production will rise along with the higher cost of labour. Kobkarn said many Thai SMEs would find it more difficult to stay in business in this country as many companies are shifting to source their raw materials from China to reduce their production costs.

To offset the higher cost of labour, Toshiba plans to import machinery and focus more on automation in view of the higher cost of labour and shortage of manpower in Thailand, she |added.

GARMENTS

Sukij Kongpiyajarn, president of the Thai Garment Manufacturing Association, said manufacturers in this industry were trying to increase productivity by at least 10 per cent and reduce working hours by rough-|ly the same percentage as ways |to relieve the impact from the |wage increase. The industry so far has no idea whether these measures will be fruitful for all manufacturers and keep them in business.

"We expect to have a clear picture by early next year. It is possible that about 20 per cent of the SMEs [in the traditionally low-wage and labour-intensive garment industry] will not survive after being forced by raise wages," he said.

Sukij believes that the top 15 companies in this industry will not make any new investments in Thailand. Besides the increased wage, the labour shortage is another factor that encourages them to move out of this country. Those companies now prefer to pour their money into less developed neighbouring countries such |as Vietnam and Cambodia to |avoid the impact of higher wage costs.

According to Sukij, there |about a million labourers in the garment and textile industries in Thailand.

"We cannot stop the government hiking the minimum wage. If the policy finally has a big impact on labour in the garment industry, we plan to ask the government to set up a coaching centre aimed at improving production technology and to help manufacturers improve their productivity. So we may save some of them that are strong enough to continue their production," he said.

FOOD AND BEVERAGE

Thai Union Frozen Products, the country's leading exporter of canned and frozen seafood, plans to increase production capacity by installing more machinery to replace labourers, while also marking up retail prices to offset higher production costs.

Wai Yat Paco Lee, TUF's financial controller, said the firm had reduced the number of labourers over the past two years by investing Bt3 billion annually to increase production efficiency and using more machinery and high-technology equipment.

However, he said the company would also need to raise prices and push some of the burden on to consumers. Currently, about 10 per cent of production costs are labour wages. The firm may need to increase retail prices by about 1-2 per cent, while seeking other measures to make up for higher production costs, Lee said.

Thapana Sirivadhanabhakdi, president and chief executive officer of Thai Beverage, said the company agreed with the government policy to increase wages as it would raise the living standards of grass-roots Thais.

"In the private sector, we all know the way to deal with the new wage hike. Staff training and development will be in focus to make them able to do many jobs and with higher productivity," Thapana said.

ENTERTAINMENT

Leading entertainment and event firms plan to slash overtime and some operational costs to offset the increase in the minimum wage.

Pornpan Techarungchaikul, chief operating officer for RS, a leading music and entertainment company, said overtime payments would automatically be lowered. The company will then consider cutting accommodation and |transport costs as well as food expenses for on-site productions if needed.

Meanwhile, the company is focusing on human-resource development with knowledge- and skill-based training to improve employees' performance and productivity. These projects include competency-based training, and both public and in-house training in line with knowledge, attitude and skill development.

Pornpan added that RS was expanding into broadcasting businesses such as satellite television and pay-TV channels, so it needs more television programmes to complete such services. The broadcasting rights to Spain's La Liga soccer tournaments for the 2013-2015 seasons, which were recently acquired by the company, are among the examples for pay-TV service. So the company will need more employees for the expansion.

Kreingkrai Kanjanapokin, co-CEO of Index Creative Village, a leading event agency, said the company wanted to make sure the impact of the wage hike is substantial before making any major moves in response.

However, his firm has to conduct cost management with suppliers. Under this policy, the company is likely to increase client service fees in the near future, he added.

SMES

The new minimum wage is a serious concern for small and medium-sized enterprises, |which face not only high staff turnover but also competition for labour.

Kritsada Sarakoon, marketing director of Sushi Boy Co, said he had to adjust salaries for all staff since the implementation of the increased daily minimum wage. In addition, the Japanese-cuisine company is looking into employ-ing daily workers rather than |permanent staff. Stringent conditions will also be implemented for new recruitment to ensure that new hires will stay with the company.

"SMEs like my company are at risk as we have higher costs but can't adjust retail prices or reduce quality and quantity. Instead, we have to reduce our margin and boost sales to survive," Kritsada said.

Moreover, labour-intensive businesses face fierce headhunt-ing competition as some companies offer higher wages than the government's minimum. For instance, some of Kritsada's |outlets in shopping malls have |to offer Bt310-Bt320 per day |for new recruits to outbid competitors.

Chanida Hathaipantalux, a director of VR Union Co, said the company would mechanise more under its long-term plan to reduce labour costs in the future. It addition, in-house training will be set up to develop its labourers' skills and productivity.

An auto dealer who asked for anonymity said increases in car prices and improvement of labour productivity were the main strategies she was employing to deal with higher salary costs.

"We have also set an increased target for revenue for each profit unit, let's say 20 per cent more. Overtime is cut and no more workforce is recruited," she said.

HOTELS

Chanin Donavanik, chief executive of Dusit International, announced last week that the company would not recruit new staff even to replace those who resign. Normally, the company recruits an average of 200-300 new staff per year.

The policy will allow the company to control costs after the implementation of the new wage policy. Before April 1, salaries accounted for 16-20 per cent of the group's total costs. The minimum-wage hike comes after room rates have dropped over the past five years.

"It is unavoidable to accept the government policy but it will have a serious effect on the industry," Chanin said.

Sampan Panpat, an honorary adviser to the Thai Hotels Association, said hoteliers, especially small and medium-sized ones, would find it even harder to run their business. Some will have to go out of business or end up being acquired by bigger players in the long run if they cannot handle this financial challenge. To survive, some will choose to combine service charges into their workers' monthly salaries.

He said the wage hike would |hit operating costs hard. It is |difficult for hotel operators to increase their room rates as competition is getting fiercer, driven by the large supply of rooms in the market.

Currently, there are about 6,700 legal hotels nationwide, and 7,000 illegal ones. About 3,000 are SMEs, especially hotels with about 50 rooms. There are 500,000 people working in this industry, with a 50:50 ratio in legal and illegal hotels. For small hotels, labour makes up about 22 per cent of the total operating cost.

Supamit Kitjapipat, managing director of Theeppipat Development Co, operator of Siripanna Villa Resort and Spa in Chiang Mai, said it would cut down on unnecessary expenditure. Existing employees will be trained to be more productive. They will also be asked to work more after other employees resign. At the same time, the firm will look for ways to increase sales.

DIRECT SELLING

Danai Deerojanawong, managing director of Better Way (Thailand), a local direct-selling company and owner of the Mistine cosmetics brand, said the increase in the minimum wage would result in a 6-per-cent increase in overall operation costs and higher labour costs by 12-13 per cent.

"What we have been doing to tackle the wage hike is to manage our costs, focusing on minimum and maximum purchasing volumes for more efficient bargaining with suppliers. We will be looking for product sourcing, packaging and labelling, and to develop product formulas by concentrating on cost-effectiveness," Danai said.