Adapting to change

Adapting to change

Faced with challenges from high wages to the strong baht, Thai SMEs are seeking ways to turn crisis into opportunity, with varying degrees of success

Five months after the 300-baht daily minimum wage took effect nationwide, the mileage varies among small and medium-sized enterprises (SMEs), with some taking a big blow and others feeling only a scratch.

Apparently, the key factor setting them apart is their ability to adapt to the wage hike and the strong baht as well as other future challenges, both seen and unforeseen.

Among the lucky ones is T.M.C. Industrial Plc. Chief executive Surachet Kamolmongkolsuk said the wage hike has affected the company's business only slightly, as most of its employees are skilled workers such as engineers, who are already on a higher pay scale.

The company has complied with the higher wage only with housekeepers and has so far managed to withstand the effects, he said.

As for the ongoing baht fluctuations, Mr Surachet said exports account for 9% of sales, so these too have a limited impact on his company.

"We even benefit from the baht appreciation, as we import steel for production and it's cheaper," he said.

As his company produces hydraulic press products for the Japanese auto giant Toyota, Mr Surachet sees a continuous flow of foreign investment into the auto industry in Thailand as a vote of confidence in the adequacy of the industry's skilled labour pool.

Once the flow of goods and services grows after the Asean Economic Community (AEC) comes into effect in 2016, the company may hire more foreign engineers with the right qualifications and skills, he said.

As a listed company on the Stock Exchange of Thailand (SET), T.M.C. plans to make use of its status by mobilising capital for future expansion, said Mr Surachet.

However, not every company enjoys a smooth sailing like T.M.C. does.

Somsak Vatinchai, the managing director of Design Alternative, said the wage hike has affected his company substantially, as it has pushed up salary costs by 40%.

The wage hike forced a major rebalance of the company's payroll, as it could not just raise the minimum wage only for labourers.

Employees with vocational certificates, diplomas and bachelor's degrees wanted a raise as well, said Mr Somsak.

Despite higher expenses, the laboratory furniture company has managed to adapt to the wage hike by reducing costs in other areas.

Reducing electricity use is a vital part of the strategy, said Mr Somsak, adding that the company now turns on air conditioners 15 minutes before working hours and has replaced the factory's windows with skylights.

"We also put meters on our machines to assess the peak levels of electricity usage to reduce the production cost," he said.

The cost savings has enabled the company to pay annual bonuses and discard the idea of laying off employees.

"The minimum wage hike has added to the value of human resources, and the company has actually increased staff to 198 from 140," he said.

The company has mitigated the impact of the baht appreciation by negotiating with neighbouring countries, particularly Cambodia, Laos and Myanmar, to pay for its products in the Thai currency.

The firm also fixes the exchange rate for its exports to Bangladesh and India at 29.50 baht to the US dollar to avoid any impact, said Mr Somsak.

He said the company will likely hire foreign skilled workers once the AEC kicks off, as its work involves architecture, engineering and mechanical design.

In the longer term, the company will mobilise funds by listing on the SET by 2015 or 2016, he added.

An SME source said labour-intensive SMEs are having problems coping with the 300-baht wage policy.

The impact of the wage hike has severely added to a decline in sales for them.

Affected companies should cut costs to mitigate the effects and improve productivity by adding value to products, the source said.

Despite the challenges, only a handful of SMEs have relocated their production bases to Cambodia and Vietnam, the source added.

The Industrial Estate Authority of Thailand projected the SME business would grow by 5.1% this year, with prospects of 20-30% expansion next year.

There are 2.7 million SMEs in Thailand. Last year, their GDP was 3.12 trillion baht or 37% of GDP.

A study by the Thailand Development Research Institute (TDRI) showed Thailand needs to upgrade its workforce in terms of both quantity and quality.

Yongyuth Chalamwong, the TDRI's research director for labour development, said technology can alleviate the labour shortage problem, while a proper labour-import procedure can help calculate quotas for an immigrant workforce.

As well, the public and private sectors must cooperate to enhance labour skills. Apart from initiating training programmes, improved social security benefits and tax incentives can increase productivity, he said.

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