The leather industry in Thailand has been growing at a steady pace from the last two decades. It is one of the world’s notable leather goods producer. But, the country is facing tough competition from neighboring nations like China Indonesia etc, who are producing low innovative products at low costs. 

Furthermore, the labor cost in Thailand has increased greatly. This also inhibits the production of low-cost leather products to compete in the international market. And within the country, the invasion of Chinese products at minimum costs is another hindrance for the growth of the Thai leather industry. The availability of Chinese and other countries’ leather products at comparatively cheaper prices is pushing Thailand out of the market. Due to higher prices of leather goods in Thailand, buyers are moving to China and Vietnam for their needs. 

At present, Thailand is facing a tough time. The nation signed free trade contract with Japan that increased the hope of decreasing the import taxes and in due course remove the tax. Thailand has significant productions of buffalo hides, and it is an important producer of dog chews and industrial gloves. It also has the largest industrial unit for producing golf gloves. Additionally, many manufacturers of various shoe brands are also investing in the country.

THAI LEATHER INDUSTRY

An imperative element of this policy is the process of manufacture technology and product designs to match the pace of the leaders in the market worldwide. The production of leather goods in Thailand can be divided into three development steps. 

The first stage signifies the products that came forward in the leather industry which was produced by the manufacturers of Thailand and was of poor quality. These items were basically produced for domestic selling purpose and few numbers of exports. These foods were priced at low rates so as to meet the competition of the leather market. 

In the second stage, the manufacturers of the leather goods tried to enhance the quality of the products. This gave rise to the phase when Thailand became one of the important places to initiate marketing of international brands and let them start with their production bases in Thailand.

And in the third development stage, the leather goods manufacturers started manufacturing and selling high-end items of leather in the international markets and use their own brands in the leather business. 

LEATHER INDUSTRY STATISTICS

The leather business and industry of the country has 2,750 enterprises that provide work to 300,000 workers and more. Ninety percent of the leather industry sector comprises of small businesses. Moreover, Thailand is ranked at number six in terms of exports of leather products in the world. The most common leather product of Thai leather industry is a bag. Nearly half of the total percentage of this item is made of original leather. As per researchers, Thai leather bags are high in demand.  

Approximately 1100 factories were registered with the Department of Industrial Works in the year 2005. These were basically into manufacturing footwear and other leather items. And, it was surveyed that more than 90 percent of these factories were small and medium-sized businesses. These SMEs employed more than 150000 workers. 

The Thai leather industry group aims to push leather business of the country to become the leader in Asia in the coming decade. The leather products of Thailand may help the government project named ‘the Center of Asian Fashion’. The government has developed few strategies for the leather industries’ development in Thailand. 

The strategies are: 

• The push market 
• The promotion of product research and development
• The creation of brand name of Thailand
• The management and production development of leather item 
• The networking in the industry and development of infrastructure
• The development of law and regulation 

FOOTWEAR INDUSTRY

The leather industry of Thailand manufactures and markets a wide variety of products like handbags, luggage bags, suitcases, footwear and a lot more. These items needed the basic raw materials such as leather, artificial fabrics, and other related things. The manufacturers are also divided into various categories based on their production. Some produce items of leather with their own brand names and logos, while other manufacturers produce some low grade and less priced items for the domestic markets. Some work as subcontractors to buy from the manufacturers and sell with a thin line of margin in the domestic markets. 

The footwear industry has a huge market in the leather industry. The main items produced under the footwear vertical are rubber shoes, plastic shoes, leather shoes, slippers etc. There are more than 2000 footwear manufacturing factories in the country. And 85 percent of them are small and medium-sized businesses. Most of the factories are based in the Bangkok city. 

The local manufacturers of footwear items are divided broadly into two sections. One group that produces sports shoes only and the other section is the one that produces leather, plastic, and rubber shoes as well. But, most of the manufacturers of sports shoes are contract producers. These are brands like Nike, Adidas etc. These are large and medium sized businesses which work basically to produce goods for the international markets. 

 

GOVERNMENT INITIATIVES

The government of Thailand took steps to encourage the manufacturers and producers to create a leather cluster in the year 2005. It was formed then, and now the cluster consists of 27 manufacturers working together. The 27 manufacturers work in the process of tanning, production, and design. According to reports, the cluster has made an income of 800 million baht ($26 million) for its member’s companies.

The leather cluster that has 27 manufacturers started a new shoe brand named Club to support the product development. The Club shoe brand is an association of all the 27 Thai leather items producing companies. The project, supported by the Industrial Promotion Department, is planning to enhance the designs of the products and raise the value of the leather goods. 

Various categories of shoes like casual shoes, moccasins, slippers and shoes for sports is planned to be made available under the single brand, and it will be sold in domestic markets and exported to the countries nearby. The department predicts that the cluster will make an extra 60 million baht ($1.9 million) from the products. It has plans to extend the brand to include other leather goods items also.

In spite of tough competition in the regional market and also the economic downturn around the world, Sophos said that the leather industry of Thailand is in good shape and resulted in an increase in the second quarter of the year 2013.

The percentage of exports of leather goods increased by 11 percent from the previous quarter of 2013 and achieved 14 billion baht ($450 million). It is said that Hong Kong, the mainland China, and Vietnam are the biggest buyers of the leather products of Thailand.

SWOT ANALYSIS

The SWOT Analysis of the Thai leather industry based on the data collected from existing documents and the interviews of the leather enterprises depicts that both internal factors and the external factors influence the leather small and medium enterprises of Thailand as follows.

The strengths are: 

• The hand-made leather products by Thailand manufacturers are of interest globally
• The lesser cost leather products of Thailand have a base to compete in the international market
• The leather industry of Thailand has good experience on leather products which creates confidence

The weaknesses are:

• The leather small and medium enterprises depend on skilled workers which make it difficult to maintain its quality
• The leather small and medium enterprises are usually family businesses and this puts limitation on the business and market expansion
• A good number of enterprises do not have the exporting knowledge 
• Very poor networking makes it tougher to research on new markets
• The lack of skilled designers in the leather industry is a hindrance to the business 

The opportunities are: 

• The government of Thailand helps and supports the development of the small and medium enterprises 
• The government agency strives a lot on finding new potential markets
• The use of IT, i.e. Internet, and social networking as tactical tools to achieve competitive position

The threats are:

• There is a tough competition from China which produces leather products in less cost and huge volume 

FUTURE PROSPECTS OF LEATHER INDUSTRY

The leather goods export industry of Thailand comprises of footwear, general items like bags and other leather goods. Thailand mainly exports its manufactured leather products to the US, Japan, and the UK. And, countries like France, China, and The Netherlands are new prospective markets. 

Hence, the Leathergoods Association of Thailand has associated with the Ministry of Commerce’s Department to build up sustainable growth in the leather industry. The policies are to help the entrepreneurs of the country to produce and retain the quality of products, manufacture new designs and innovative craftsmanship in addition to creating own brands to facilitate the leather products of the country to survive the worldwide competition. 

According to the president of the Thai Leather goods Association the export segment of leather products is showing a growth rate of 3% to 5%. And the increase in growth rate is due to the regular demand from buyers from all over the world. They are the satisfied customers who are impressed by the creative designs and praiseworthy craftsmanship. Moreover, the work and help rendered by the related state agencies, private organizations and other concerned parties have made the leather goods of Thailand to become viable in the market worldwide. 

On the other hand, the manufacturers of leather products in Thailand are getting tough competition from the other Asian and European manufacturers who produce high-end products at low-cost. They are also facing issues like high cost of production from imported raw materials and limitations made obligatory by the brand owners. These aspects are obstructing the realization of more insistent manufacturing process and policies of marketing. Therefore manufacturers in Thailand have to produce more products of additional values and focus more on the development of products and also employ efficient selling and branding policies to succeed in the future.