Over thirty members of mostly the Thai-Norwegian Chamber of Commerce but also the other Scandinavian Chambers on Saturday the 31 August enjoyed a visit to Amata City and Hjellegjerde in Rayong Province. The visit was followed by a lunch at the nearby Laem Chabang Country Club where some of the members continued for a round of golf.
The presentation of the Amata City Industrial Estate was conducted by Past President Pol. Gen. Chavalit Yodmani and his staff who gave an excellent insight into the operations of the Industrial Estate as well as an appetizer for potential future residents.
The visit to the Hjellegjerde factory was for many the first time they saw how Hjellegjerde manufactures and assembles their world wide brands Scansit and Northern Comfort leisure furniture. After the tour of the production facilities, President Nils-Gunnar Hjellegjerde briefed on the details of the operation in Asia which is Headquartered in Thailand.
A haven for factories
Pol. Gen. Chavalit Yodmani introduced the presentation of Amata City with an overview of the whole Amata Group with industrial estates in Thailand and Vietnam and a Nature Conservancy Project in China. Noting that Thailand was in his opinion moving too slow education improvements and technical skills development, overall investment climate with confusing government signals and a weak intellectual property right protection, Mr. Yodmani warned that in a few years time Vietnam may well take surpass Thailand in terms of attracting Direct Overseas Investments. Thailand, however, remains with political and cultural stability, an excellent young workforce, friendly and tolerating people a country worthwhile for investment.
Industrial estates like Amata City was a good bid for Thailand to remain competitive. As for China, Khun Chavalit suggested that Thailand should be outspoken about all the costs coming up later in the
process of locating there.
“You are killing yourself if you go there!” he said.
Amata City facilitates companies wishing to establish a production in Thailand in more than one way. Investors setting up their businesses in industrial estates are eligible for the privileges such as:
the right to own land, the right to bring in foreign skilled experts and their spouses; and the right to remit foreign exchange.
Amata City’s location within BOI zone 3 further exempt companies relocating here from corporate tax for eight full years plus aother five years with a 50 percent reduction in corporate tax. This also
goes for companies already established elsewhere in Thailand as well.
Inside Amata City, the industrial estate offers excellent infrastructure, services and facilities. Amata City is currently working on the development of Amata Condotown, accommodation facilities for working; a Amata Commercial Plaza with restaurant, shopping and banking facilites; Amata Medical, a hospital with 10 rooms in first phase etc. Bangkok Bank also confirmed the opening of a full serviced branch at the Amata City Site office for the convenience of the clients.
In terms of educational support, Amata City donated the land to Suankularb Wittayalai Secondary School. Currently, over 300 students can make use of this educational facility in our estate.
Amata City has also put a major priority in the environmental protection and management which many foreign investors see as an important factor in their decision.
Foreign investors who locate factories outside of an industrial estate will lose the right to own land, unless it is a Board of Investment promoted company. They will also have to pay for land preparation, filling and leveling; pay to gain access to utilities; build and operate own water and waste water treatment plants; worry if infrastructure will remain adequate for operational convenience, worry about
red tape, uncooperative local authorities or common gangsters.
Furthermore, the management of factories outside an industrial estate lose out on opportunities to pool resources and form associations with industrial colleagues. Amata City Co., Ltd. for example has supported the establishment of the Amata City Management Club, an association that meet periodically to discuss operational and managerial issues and share knowledge and experience among its members.
The visit to Hjellegjerde’s factory inside Amata City started with a guided tour of the factory floor by Nils-Gunnar Hjellegjerde himself. The factory is the only place in Asia, where the backs, seats and sides of the furniture is molded with the supporting metal structure inside the foam. In a parallel line, the wooden parts of the chairs are produced. The rubber wood is sliced into thin veneer sheets which are then laminated together with glue and pressed into the desired shape. These parts are then spitted, cut, drilled and profiled before being painted to resemble mostly mahogany, teak, walnut, nature, cherry and steamed beach wood.
An intermediate stock of these semi-finished components is kept until an order has been signed for a specific amount of chairs. As they are standardized components, one back may for instance be used in 10 different styles of the model.
When an order has been placed, the final production starts. The leather for the chairs is cut into shape by hand as it is a demanding puzzle to place each cut on the best place on each hide. Not too hides are equal, so a human eye is needed to place the different pieces in the right place and at the same time minimize the waste of hide in between the cuts.
The cushions with their fiber fillings are also being sowed by hand, before being assembled with the wooden parts and the molded parts into complete chairs. If the order is to the American market, the chairs are semi-assembled for compact shipping, while for instance the Japanese market prefers chairs fully assembled.
In Thailand, each chair takes an average of eight man hours to complete compared to five hours in Norway. With 95 employees, about 100 chairs are completed per working day.
One of several differences between the production in Norway and in Thailand is, that the lower wage level has made it profitable to establish a remake section for chairs who fail to pass the final Quality Control inspection. In Thailand, the labour cost amounts only to five percent of the total costs involved in production.
Another difference is the explicit description of each job which is needed in Thailand where the level of skills in Norway eliminates this need. Some product development which increases the production time, but reduces the component cost has also been possible in Thailand, Nils-Gunner
Hjellegjerde said, taking as an example the base of the chair, which in Norway is assembled with six screws, but in Thailand is fitted together with a feather and groove – which actually increases the strength of the base as well.
The factory started production in January 2000 and held its official opening in November the same year. The factory was able to attract support from the Norwegian development cooperation facility Norad who contributed 1,2 mill. NOK – about 16 mill. Baht – for training of the companies employees.
Already the first year, the profit of operation reached 15 percent. In 2001 the company expanded its in-house capabilities gradually reducing its reliance on imported components and at the same time developed its Sales and Marketing facilities further.
This year, Hjellegjerde expects to produce 25,000 reclining chairs which is 50 percent of its current capacity. Full capacity utilization is expected in 2005.
The two Hjellegjerde brands, Scansit and Northern Comfort, serve two different quality segments. While Scansit is medium priced, Northern Comfort is higher priced and the chairs offer more functions.
The US remains Hjellegjerde’s main market. Europe is currently the second largest market. But Nils-Gunnar Hjellegjerde noted that the Japanese, Korean and Austrial markets were growing.
Reassessment of Thailand
TNCC President Nils-Gunnar Hjellegjerde shared his re-assessment of Thailand as a regional headquarter for a furniture manufacturer after his presentation of the Hjellegjerde factory on Saturday 31 August 2002.
Mr. Hjellegjerde first assessment of Thailand was presented at a reception two years ago in Bangkok to mark the occasion of the opening of Hjellegjerde’s factory. Most of his evaluation from that time had proven correct, he said. However, on three main points reality had disappointed him, he said.
“On Infrastructure, I was more optimistic than what has proven to be the case. That does not go for the infrastructure within the Amata City, where the factory is located, but for Thailand in general. Telephone, traffic, etc. could definitely need improvement.”
“The same goes for cooperation with the authorities, “Red Tape”. The piles of documents needed again and again is at best time consuming, at worst frustrating and adding to the impression of a backward public administration.”
“Finally, Financial Services has also been a disappointment,” he added without elaborating any further. Several members of the excursion were nodding their heads in clear a show of recognition of the problems areas he described.