Union Footwear to close factories
Manufacturing being hit hard by strong bahtARANEE JAIIMSIN & PENCHAN CHAROENSUTHIPAN
Bangkok Post Article August 02, 2007
The strong baht continues to pummel the labour-intensive manufacturing sector, with Union Footwear Plc announcing yesterday that it will close its five factories this year.
Parent company Saha Union Plc said all five plants run by Union Footwear, a listed company, will be shut down once they complete their orders.
The five factories employ 4,700 workers, whose future remains uncertain despite a promise by the company to relocate some to other jobs.
Union Footwear's main plant is in Bang Pakong district of Chachoengsao. It also has four other factories in a joint venture with other firms - two in Khon Kaen and one each in Nakhon Ratchasima and Buri Ram.
"The production units will be shut down step-by-step. The firm will take responsibility in paying wages and legal compensation," Songsak Thampimukvatana, the firm's managing director told the Stock Exchange of Thailand.
The company will also be delisted.
Saha Union, which holds a 50.52% stake in the firm, offered to buy back shares in Union Footwear from existing shareholders for 3.29 baht each.
Shares in Union Footwear closed yesterday at 3.18 baht, dropping six satang in trade worth 1.22 million baht.
Union Footwear's move came after another footwear company, Thai Silp Southeast Import Export Co, decided to shut down for good on Aug 7.
Mr Songsak said the stronger baht was among the crucial factors forcing the company to close.
Exchange rate fluctuations and baht strength since last year had reduced its competitiveness, he said. Union Footwear intends to stop making shoes because it has been struggling in the global footwear industry, which is dominated by a small group of buyers, he added.
Despite improvements in management and production systems, it has made losses for the past three years.
The company posted a net loss of 44.5 million baht in the first quarter of this year, versus a net profit of 12.2 million baht in the same period of last year.
More than 90% of its total revenue came from footwear production for Nike.
According to Mr Songsak, the company has been hurt by labour shortages despite outsourcing work to subsidiaries in the provinces.
The cost of training was very high because of frequent staff movements, which affected output quantity and caused delays in delivery.
The company could not avoid using expensive air freight services in order to secure its customers.
Aside from R&D and environmental management costs, the company frequently had to absorb rising raw material and production prices by itself to remain competitive against its counterparts, mainly from China and Vietnam.
Yesterday, employees of Union Footwear continued working as usual although some were panicked by the news of the company's closure.
Many of them said their employer had already informed them about the closure in advance and said employees would be given full compensation according to the labour law.
Some employees will be transferred to other companies under the umbrella of Saha Union group.
Santi Vilassakdanont, chairman of the Federation of Thai Industries, said the local footwear industry would not be affected by the closure of Union Footwear because the case was an isolated one.
He said the strong baht could not be blamed for the company's closure.
Mr Santi added that Union Footwear's workforce could move to nearby factories and violent protests should not take place if the firm pays compensation to its employees according to the labour law.
Phadungsak Thephasdin na Ayudhya, director-general of the Labour Protection and Welfare Department, yesterday voiced concerns over the redundancies at Union Footwear.
He said the closure of the factories would have ripple effects on manufacturers of shoe parts, which would be forced to restructure their production and downsize their workforces.
Rangsit Footwear in Ayutthaya province reportedly announced a plan to lay off 1,900 workers at the end of September, a labour source said.
The company had recently informed its workers that it would terminate their contracts and give them the severance pay, said the source.
The Labour Ministry, prompted by Union Footwear lay-offs, will today release details of the employment situation and redundancy risks in 75 provinces. Labour permanent secretary Juthathawat Inthornsuksri said the information was gathered by provincial labour officials.
Of serious concern was the labour situation in Suphan Buri, where four factories face a financial crunch due to the baht appreciation, he said.
They were Chokenamchai Auto Pressing with 498 workers, Suphan Footwear with 472 workers, garment maker Hi-tech Apparel with 730 workers and canned fruit maker Agro-On (Thailand) with 431 workers.
He said the four companies have sought government assistance and adopted these measures prior to their redundancy plans.
BREAKING NEWS (4:30 01-08-08)
Union Footwear falls to baht volatility
Business closures of companies due to heavy losses rising from the baht surge have begun to have a domino effect on Stock Exchange of Thailand listed companies as Union Footwear plans to de-list its stocks and close business permanently by the end of this year.
Songsak Thammapimukwattana, president of Union Footwear Plc, notified the SET of the company's board resolution to de-list its shares from the market because the firm is set to cease business operations due to suffering heavy losses from the sharp baht appreciation.
He said the company had experienced accumulated losses for three years thanks to stiff competition in the footwear business and higher costs of production.
The firm had run business mostly in the US dollar denomination. The currency exchange volatility and the swift baht surge since last year had adversely affected its competitiveness.
The company viewed the footwear business had high risks of losses under the current circumstances and so decided to cease its production.
It would be responsible for the monthly wage payment and severance pay for all 3,000 company workers, he said.
Santi Vilassakdanont, chairman of the Federation of Thai Industries, said the baht had begun to weaken and hover at 33.80 to the US dollar following the issuance of various measures to curb its volatility.
And he said the private sector was satisfied, for the time being, with the current level of the baht.
However, he conceded it is hard to see the baht further weaken because foreign capital continues to flow into the stock market in large amounts.
Mr. Santi said the private sector would take one or two months to assess the situation before deciding whether other measures should be issued to rein in the baht fluctuation.
Bank of Thailand governor Tarisa Watanagase said the central bank could not allow payment of cargoes in US dollar terms as sought by the private sector to ease pressure of the baht surge.
Such an action is tantamount to Thailand's permission for the settlement of cargo trading in foreign currencies in addition to the baht. At present, the check clearing system has been run in baht terms only. (TNA)
