Who are Reebok's, Nike’s and Adidas's producers
in Thailand, and what is their relationship to the transnational
sportswear corporations? There are four main business groups which
produce for Nike, Reebok, and Adidas, as well as for companies
such as Timberland. These are the Sahapathanapibul Union Group
(which has two subsidiaries, the Bangkok Rubber Group and Pan
Asia Footwear), and the Wongpaitoon Group. [1]
The Saha Union Group is chaired by the former
Prime Minister Anand Panyarachun. Panyarachun himself invited
the Nike Company to Thailand in 1982. [2]
There are more than 50 separate companies under the Saha Union
Group. Footwear manufacturing is only one of the more than 200
commodities produced by the group. In 1997, the group declared
a net profit of 458.4 million baht (US$10.54 million) on total
income of 11.78 billion baht (US$ 337 million), down from 12.64
billion baht (US$ 361 million), or 6.9%, in 1996. [3]
Within their shoe production sector there are three companies:
Union Footwear, Union Shoes, and Unisole. These companies subcontract
from Nike, Adidas, and Timberland, for which the main markets
are the United States and Europe. In 1997, the total before tax
income of the three footwear companies was 2.407 billion baht
(US$ 69 million), an increase of 3.4% over 1996. The companies
subcontracted production of the shoe uppers to remote villages
in the Northeast region of Thailand. [4]
The other two important manufacturers for the major
footwear multinationals are the Bangkok Rubber Group and Pan Asia
Footwear. Each is a subsidiary of the Sahapathanapibul Group.
Thiem Chokwatana originally established the Sahapathanapibul Group
under contract from the Japanese based Lion Company in 1942. Thiem
Chokwatana later formed a joint venture with the Lion Company
and expanded production into instant noodles under the brand name
Mama. He also started a grocery business, which moved into manufacturing.
From there he built the Sahapath conglomerate, which now produces
over 70 consumer brands. [5] The Sahapathanapibul
Group, popularly known as the Sahapath group, covers many business
sectors, including agricultural production, manufacturing of household,
food, personal care, and baby products, as well as construction,
investment, and international trade. In 1997, the Sahapath Group
reported sales of 86.4 billion baht (US$ 2.5 billion), an increase
over 1996 profits of 12 billion baht (US$ 343 mi.0llion) with
the net profit of 4 billion baht (US$ 114 million). [6]
The Sahapath Group also has shares in nearly 40% of the garment,
textile, and footwear companies registered under the Stock Exchange
Market of Thailand. Bangkok Rubber Group and Pan Asia Footwear
are part of the Sahapath group, which are now the largest manufacturers
of shoes in Thailand, contracting to most of the major labels.
The Bangkok Rubber Group consists of 37
companies. Thiem Chokwatana's son, Mr. Narong Chokwatana, is the
Vice-Chairman. The group started to produce shoes under the brand
name Olympic in 1974, with registered capital of 10 million baht.
Later, it established its own brand name, Pan. In 1979, the company
signed an agreement with Blue Ribbon Sport Inc. to produce Nike
footwear for the American and European markets. In 1987, the Bangkok
Rubber Group established a new plant to subcontract for Reebok.
The Bangkok Rubber Group rapidly expanded production for transnational
companies. The group has diversified into many areas of production
and service, including real estate, agriculture, foods and beverages,
and retail, and is concentrated in the Sena Town Industrial Estate
and Saharattana Nakorn Industrial Estate, both of which are in
Ayuttaya Province, on the outskirts of Bangkok.
In 1996, the Bangkok Rubber Group declared capital
reserves of 975 million baht (US$ 28 million). The company's main
customers are Nike, Reebok, Adidas, and Timberland. The Bangkok
Rubber Group produces roughly 7 million pairs of shoes for Reebok
each year. Its total income in 1997 was 4 billion baht, an increase
of 2.9 billion baht (US$ 83 million), or 71.6 %, over its 1996
income. The group’s total assets exceed 7.4 billion baht
(US$ 211 million). The floating of the baht on 2 July 1997 reportedly
had a negative impact on earnings. The company declared a loss
of net profit of 657.45 million baht (US$ 19 million) in 1997
due to the higher costs of imported materials. Sixty percent of
the materials used by the Bangkok Rubber Group are imported, chiefly
from Taiwan and South Korea, the centers of footwear production
in the 1960s and 1970s. [7]
Pan Asia Footwear was established in 1979,
a few years after the Bangkok Rubber Group. Pan Asian Footwear
produces mainly for Nike footwear but also for Timberland and
Adidas. The Bangkok Rubber Group is the largest sharholder with
a 33.5% stake. At the same time, most of the share are held by
business persons within the Sahapath group. The total registered
capital of the Pan Asia Footwear group rose from 10 million baht
to 800 million baht between 1979 and 1997. It has expanded its
business to cover many areas of shoe production, material, and
sales, and to promote and expand it own brand names Pan and Tripper
in the local market. Pan Asian Footwear’s income in 1997
was 1.491 billion baht (US$ 43 million). Local sales consisted
of 75.845 million baht (US$ 2.2 million), while income from subcontracting
for Nike and other brand names was 1.287 billion (US$ 37 million)
with the net profit of 212.64 million baht (US$ 6 million), on
18.48% increase from 1996. Its total assets are 3.191 billion
baht (US$ 89 million). [8] Pan Asia Footwear
reported that 72% of production cost went to materials, 20% to
its management, and 8% to labor. [9] Since
Pan Asia Footwear mainly produces Nike products, its main competitors
are the Union Footwear and Union Industrial of the Saha Union
Group, which also produce for Nike. [10]
The Sahapath Group declared total assets
in 1997 from shoe production in both its Bangkok Rubber Group
and Pan Asia Footwear of over 10 billion baht (US$ 286 million).
[11] The Sahapath Group provides shoes to
almost all the big brand name footwear corporations. Therefore,
the Sahapath Group has stronger bargaining power with these corporations
than Saha Union, which produces mainly for Nike, and the Wongpaitoon
Group, which produces only for Reebok. Pan Asia Footwear reports
that its can sell at the highest rate of any other footwear producer
in Thailand. [12]
The Wongpaitoon Group is both a retailer
and producer of Reebok shoes in Thailand. It is run by Mr. Charnsak
Wongpaitoonpiya and his brothers. Mr. Charnsak is also the advisor
to the Deputy Minister of Commercial Affair, Mr. Paitoon Kaewtong.
The Wongpaitoon Group started production in 1987 with 20 million
baht in capital. In 1989, the Wongpaitoon Group started producing
shoes for Reebok, and became one of five companies awarded Partnership
Manufacturer status by Reebok International, which grants special
privileges over other manufacturers. Benefits of being a Partner
Manufacturer include access to information on market trends; technical
collaboration; advance purchase orders; guarantees of orders of
at least 80% of the production capacity or 600,000 pairs per month;
and the right to select the model, which enables producers to
lower production costs substantially. [13]
At present, the Wongpaitoon Group’s capacity
is 7.2 million pairs per year. The Siam Athletic Co. Ltd., a subsidiary
of the Wongpaitoon Group, sells 710 pairs of Reebok shoes per
month in their shops in Thailand. [14] At
the end of 1997, the company declared a loss of 756 million baht
(US$21.6 million dollar) largely due to the depreciation of the
baht. Like the Bangkok Rubber Group, the Wongpaitoon Footwear
Company has expanded its business to cover many areas of shoe
production, from supplying materials, equipment, molds, to manufacturing
and retailing under the Reebok license. The aim of this is to
reduce the cost of imported materials by using local suppliers
and materials. The Wongpaitoon Group has offered to build a six-story
building for the Reebok's production department staff on its own
premises.
Mr. Charnsak Wongpaitoonpiya has a close personal
relationship with Paul Fireman, Chairman of Reebok. On many issues,
Mr. Charnsak will consult directly with Paul Fireman before consulting
Reebok's local office. This relationship has caused some problems
for the local and expatriate management staff of Reebok in Thailand,
who have expressed their displeasure at sudden manufacturing or
scheduling changes. In some cases Reebok staff in Thailand have
been relocated, with 24 hours, over conflicts with the Wongpaitoonpiya
family.
The major footwear transnational corporations claim
to have been greatly affected by the economic crisis. However
their producers have been facing greater financial losses. According
to the annual reports of the producers in Thailand for 1997, the
Bangkok Rubber Group, Pan Asia Footwear, and the Wongpaitoon Group
reported losses on the exchange rate of 657.45 million baht (US$
18.8 million), 271.00 million baht (US$ 7.7 million), and 757.87
million baht (US$ 21.7 million) respectively. However, their customers,
Reebok, Adidas, and Nike, reported their net incomes for 1997
as 135.1 million, 258.5 million, and 399.6 million, respectively.
[15] Nike reported a drop in profit and announced
the redundancy of 2,000 management positions worldwide. Reebok
also made managers redundant. Many of the redundancies were expatriates
who had been enjoying benefits such as high salaries, housing
allowances and maids, international school subsidy for the children,
car expenses, personal drivers, and international transportation.
These expatriates are replaced by local staff who are not entitled
to any of these benefits. In Thailand, only over the last two
to three years have companies like Reebok promoted local people
to management positions.
In April 1998, the Wongpaitoon Footwear Company
arranged a US$ 100 million five-year loan from Daiwa Securities,
a Japanese financial institution. According to Gerard Greenfield,
research officer of Asia Monitor Resource Center.
securitization of future export earnings, and
the new relationship of dependency on Daiwa as well as Reebok,
adds another set of pressures which are passed on to workers
in the form of a higher rate of exploitation. In addition,
proponents of codes of conduct may also need to consider what
impact this may have on the space for Reebok's code of conduct
to be implemented. Given the iron cage of debt that Wongpaitoon
is locked into, it seems that it is not just Reebok but Daiwa
Securities too which holds a certain degree of power over
the condition under which workers are exploited. [16]
As of June 1998, Reebok was subcontracting production
to seven footwear manufacturers under the Bangkok Rubber Group
and Wongpaitoon Group, indirectly employing about 20,000 workers.
Reebok also subcontracts to 19 apparel manufacturers, which are
small and medium side companies, employing a total of 15,600 workers.
[17] As will be discussed below, codes of
conduct have not been seriously applied to either the apparel
or footwear industries.
For details on Thai conglomerates, see Pasuk
Phongpaichit and Chris Baker, Thailand's Boom!, Changmai:
Silkworm, 1996.
Juanjai Ajanant, Faculty of Economics, Chulalongkorn
University, interview, 18 August 1998.
Before 2 July 1997, when the baht was made freely
convertible, the baht was pegged at 25 to the US dollar. After
2 July 1997, the baht plunged to more than 40 to the US dollar
before stabilizing in at the end of 1998 at 35. All dollar conversations
given in this report are calculated at 35 baht to the US dollar.
Saha Union Public Company Limited, Annual Report
1996, Bangkok: Saha Union Group, 1997, 31.
These include Pao, Hi-class, Pro, Sofran, Mama,
Myojo, Nissing, Koka, Mermaid, Evian, Lotte, Danone, Kodomo,
Salz, Bionic, Q'lean, and Tonic.
With the floating of the baht in July 1997 this
4 billion baht (US$ 114 million) profit was effectively halved.
Bangkok Rubber Public Company Limited, Annual
Report 1997, Bangkok: Bangkok Rubber Group, 1998, 11.
Pan Asia Footwear Public Company Limited, Annual
Report 1997, Bangkok: Pan Asia Footwear, 1998, 5.
Ibid., 6.
Ibid, 6.
Calculated from both companies' annual reports.
Op Cit.
This claim is based on Pan Asia Footwear's fee
on board price, the cost of production, packing, and delivery
to the harbor. The customer handles all shipping and customs
costs unless the manufacturer fails to meet the agreed deadline
for shipping.
Wongpaitoon Group Public Company Limited, Annual
Report 1997, Bangkok: Wongpaitoon Group Public Company, 1998,
10.
