* This case was written by Will Mitchell at the University of Michigan’s Business School. Assistance was provided by members of the MBA program at the Sasin Graduate Institute of Business Administration at Chulalongkorn University in Bangkok, Thailand. Some figures are casewriter’s estimates.

The Thailand Ceramic Tile Industry in 1992*

The ceramics industry is one of the oldest industries in Thailand, traditionally making pots, plates, bowls and other kitchen utensils. Thai ceramic firms began to make decorative building tiles to substitute for imported tiles in 1969. Tile exports began during the mid-1970s, although in 1992 the primary market continued to be domestic buyers.



In 1992, there were more than thirty tile manufacturers in Thailand, most basing their operations on simple production technology and low labor cost. These companies produced several types of tiles, including simple, glazed non-ceramic (4 inch x 4 inch); unglazed ceramic; glazed ceramic; and mosaic tiles. This case is primarily concerned with glazed ceramic and mosaic tiles.

Glazed ceramic tiles with shiny or matte finishes are used to cover floors, walls and counters. The tiles are made by adding water to slip, which is a mixture of ground stone, sand and clay. After drying, the wetted powder is compressed into tile form, glazed and colored. The tiles are then strengthened by baking in a kiln at 1000 to 1250 degrees centigrade. Decorative wall tiles are fired at lower temperatures than floor and counter tiles. The lower firing temperature creates brilliant colors and glossy surfaces but makes the glazes less durable.

Unglazed ceramic mosaic tiles are made from porcelain rather than clay, and are durable and slip resistant.

Substitute products include both more and less expensive products. More costly coverings include marble and granite that tend to be longer lasting than tile. Less costly coverings include vinyl, PVC and linoleum. Tiles are easier to maintain, more durable, and cleaner than inexpensive substitutes.



Domestic Users and Channels

In Thailand, ceramic tiles are sold to homeowners and to contractors for condominium and large-scale property development projects, such as office/shopping complexes. Architects and interior designers often influence customer choices.

Two types of retailers service the homeowner market. Some retailers are dedicated to a single firm, selling only its ceramics products, but carrying the full range of products. Other outlets carry products from many manufacturers, but may have a specific focus, such as bathroom fixtures and design.

Project developers often negotiate directly with the manufacturer. Manufacturers frequently will direct the customer to a dealer to negotiate a price after agreeing on a design. Tile manufacturers may submit supply bids for particularly large projects, and then pass the order to a dealer if the bid is accepted.

Domestic Demand

Demand can be segmented into high, medium and low end. High end users seek quality and new designs with little price sensitivity. Low end users are price sensitive at the expense of quality and design. Medium range users' needs fall between these extremes.

Sales were tight during the early 1980s as Thailand experienced a severe recession from 1983 to 1985. Tile manufacturing capacity exceeded local demand during this period, which the industry dealt with by allocating production based on past market shares. Demand more than tripled between 1987 and 1991 as annual GNP growth rates in excess of 10% fueled a property development boom. Condominiums, town houses, shopping malls and hotels were constructed at a prodigious rate. Sales growth is reported in Figure 1.


Figure 1

Thai Ceramic Tile Sales: 1987-1991

  Sales Growth(%)    
1987 585      
1988 762 30    
1989 941 24    
1990 1313 40    
1991 1855 41    
In million baht. $1 U.S. was equivalent to approximately 5 baht. Thai inflation ranged from 5% to 6%.

New tile manufacturing capacity was added during the boom of the late 1980s, some of which had not yet come on line in 1992. The development boom slowed during 1991 and in 1992 available production capacity roughly balanced current demand. The industry feared renewed excess supply if the construction slump continued. Key economic indicators are shown in Exhibit 1.

Foreign Users and Channels

The leading foreign markets for Thai glazed ceramic and mosaic tiles have been, in order of importance: the U.S., Australia, Germany, Singapore and the Netherlands. (See Exhibit 2.) Typically, tiles are marketed internationally through independent agents and foreign wholesalers. Thai exporters are another important distribution channel.

In joint ventures with foreign firms, the foreign partner usually locates the overseas markets. Sales are promoted by organizing trade exhibitions in foreign countries.

Foreign Demand

Exports of mosaic tiles are increasing. Between 1986 and 1988 the average increase was 67% per annum. However, on July 1, 1989 the U.S. government issued a cut in Generalized Trade Preferences (GSP) on glazed mosaic tiles. This change resulted in a 25% drop in Thai market share of mosaic tiles in the U.S. The GSP cut did not apply to other types of tiles, and so did not affect market share in those segments.

Major manufacturers of glazed ceramic and mosaic tiles in Japan, Korea and Taiwan are confronting problems of raw material supply and high production costs. They also face high foreign exchange rates. These factors affect foreign demand for Thai tiles.

Although export sales are desired, transportation costs and tariffs have limited their growth. Some Thai manufacturers have seen foreign direct investment as the major opportunity for foreign sales.

Key problems include higher fuel prices than in some competing ASEAN countries, substantial transportation costs to the Port of Thailand and slow service at the Port. Quality often lags behind leading-edge world standards because of technological lags. Wage rates in Thailand are low by developed country standards but have begun to rise. The national minimum wage was raised to slightly over 100 baht per day in 1992.

Manufacturing Process

Most of the raw materials needed for tile manufacture are available in Thailand, including kaolin, clay, quartz, limestone and feldspar. Some critical materials must be imported, however, including the clay, quartz and glass sand. The industry is centered near the available materials, in the Samutsakorn it is near Bangkok's commercial center and shipping facilities on the Gulf of Siam, while Saraburi is located on a major inland highway north of Bangkok.

Tile design and manufacturing quality are critical requirements for success in the industry. Designs have often been licensed from Italian tile manufacturers. After licensing, a new design takes six months to a year to bring into production. Manufacturing quality depends on the quality of manufacturing equipment and the availability of skilled labor.

The major tile manufacturers in Thailand have upgraded their manufacturing equipment during the past twenty years, although they have sometimes lagged behind the leading global technological edge. Sophisticated grinding and kiln firing machinery has often been acquired from Italian companies that are considered the world leaders in tile manufacturing techniques. Smaller Thai producers have retained older production techniques and facilities.

Other than the grinding and kiln firing processes, most aspects of the production process are labor intensive, even for advanced firms. Skilled workers with a lot of experience are needed to meet quality standards in critical aspects of tile manufacture. Skilled labor was in short supply in 1992, as training had not kept up with increased demand and technological advances made during the past decade.

Economies of scale in the industry have never been precisely measured. Managers believe that larger facilities translate into a substantial cost advantage, both in Thailand and in other countries.


Government Involvement

The Thai government has played a major role in the industry since the mid-1970s. The Petroleum Authority of Thailand provides natural gas at a subsidized rate. Imports of ceramic tiles were banned in 1978. However, tariffs and import restrictions were scheduled to decline over the next fifteen years based on agreements reached within the ASEAN Free Trade Area (AFTA) during the early 1990s.

The government encourages tile exports through investment incentives for plants that export at least 80% of their production. The Ministry of Science and Technology and the Ministry of Industry provide technical and market information. The Ministry of Commerce sets quality standards and assists with manufacturing technology and design advances. Government ministries have also supported development of industrial parks, including zones for transportation access, export processing, general industry facilities, commercial facilities and housing.



Domestic Competitors

Four firms dominated the Thailand tile markets in 1992 and had held stable market positions for the past decade. Thai German Ceramics Industry Ltd. (TGCI) and Thai Ceramics Co., Ltd. (TCC) sold tiles in the homeowner and developer segments. Union Mosaic Industry Co., Ltd. (UMI) primarily sold in the homeowner segment where it offered high quality tiles to high income homeowners. Royal Ceramics (RCI) produced only wall tiles and sold mainly to the domestic market. Figure 2 details the market share in Thailand held by the major companies. (See Exhibit 3 for details on past performance.)


Figure 2

Market Share in Thailand: Major Competitors–1990

  All Tiles(%) Glazed Ceramic Only(%)    
TGCI 40 36    
TCC 20 28    
UMI 20 20    
RCI 10 8    
Others 10 8    

Thai German. TGCI was the first major ceramic producer in Thailand, founded in 1969 as a 25% German and 75% Thai joint venture. By 1991, the German financial interest had declined to 3.5%

TGCI, the largest tile exporter in Thailand, exports about 15% of its output. Major markets included the U.S., Canada, Australia, New Zealand, Hong Kong and Singapore. The company recently launched exports to Japan, South Korea, Taiwan and Europe.

The company had the largest capacity in Thailand in 1992, with a workforce of 1200 people, and it is believed to have the lowest production costs. TGCI's annual production capacity has expanded from 5.8 million square feet in 1969 (485,000 square feet monthly) to 181 million square feet in 1991 (15.1 million square feet monthly).

TGCI is expanding capacity to 388 million square feet per year (32.3 million square feet per month) in 1993. Most of the new capacity will be located in eighteen new plans in a 1100-acre industrial park, located near the Port of Thailand, that TGCI is spending 4 billion baht ($160 million) to develop. TGCI is establishing several of the new plants in the industrial park as joint ventures with U.S. and European firms.

TGCI offered the broadest range of tile sizes in 1992, emphasizing the larger sizes. Almost 75% of the company's output consisted of standard, single-fired glazed floor tile; higher-quality, double-fired interior wall tile accounted for 15%. The company also produced third-firing tile for interior wall designs. About 10% of production is specialty floor tile that has the appearance and hard surface of granite. The company is considered a design and product innovator, and regularly introduces new tiles with different dimensions for special applications.

TGCI realizes higher than average prices and margins.

Thai Ceramics. TCC is a subsidiary of Siam Cement, the largest diversified company in Thailand. Siam Cement has trading subsidiaries worldwide and a global reputation. The parent provides substantial financial resources and bargaining power, as well as being a source of raw materials for tile manufacture. In addition, Siam Cement sells cement to many large scale property development projects in Thailand, and is sometimes able to negotiate cement and tile sales jointly. About 20% – 30% of TCC's output is sold through its own dealers.

TCC has recently established its manufacturing facility in the U.S., in order to overcome U.S. tariffs and avoid transportation costs. TCC's 1.5 billion baht ($60 million) plant in Tennessee was scheduled to produce about 40 million square feet of wall and floor tile annually when production began in 1992. This represents about 4% of total U.S. tile consumption, which reached about 1 billion square feet in 1989, the construction boom year. The TileCera facility planned to aim its output at the middle and upper segments of the U.S. tile market that are currently dominated by Italian and Spanish imports. Much of the tile making equipment in the highly-automated facility was imported from Italy. The new facility was designed to conform to recently strengthened U.S. environmental regulations, and met stricter environmental standards than many established U.S. facilities. The U.S. ceramic tile industry was in "dire straits" in 1991, according to Robert J. Kleinhans, executive director of the Tile Council of America, Inc. Employment, profitability, production and exports were all down from late 1980s levels.

Union Mosaic Industry. UMI manufactures various types of mosaic, ceramic, and granite tiles under the brand names of UMI, Duragres and Lila. Approximately 90% of its mosaic tiles and 40% of its ceramic tiles are exported to major markets, such as the European Community, the U.S., New Zealand, Australia and Japan.

The company, formed in 1975 with technical assistance from Japan, is located on more than forty acres in Sarabari Province, north of Bangkok. The company faced financial difficulties during 1976-1977, leading to a financial restructuring and a name change.

UMI's second and third factories opened in 1983 and 1984, with Italian technology, to produce Duragres tile for the domestic market. The fourth plant started operations in 1987 using advanced Monoporosa production technology from Italy. The company made two new investments in 1991 to strengthen its marketing network. It invested 5.5 million baht in Siam Art Ceramic Co. Ltd., a marketing firm for ceramic tiles, and 2 million baht in Tekno Cer HRL, a joint venture with Italian partners which will market the company's products in Europe.

The company opened another factory in 1991, bringing the combined daily capacity of its factories to 48,000 square meters. Assisted by German technical expertise, UMI has also diversified into producing PVC door panels.

Royal Ceramic Industry. RCI commenced operations in September 1969 in Saributo, under the brand names of RCI and Royal, with a daily capacity 1800 square meters. The company obtained technical know-how and equipment from Japan. In 1975, a second factory opened expanding daily capacity to 3200 square meters. In 1987, daily output reached 5300 square meters and another factory, with a daily capacity of 3500 square meters, opened. The factories had a combined daily output capacity of 8820 square meters in 1990. In 1991, 430 million baht was invested in equipment and facilities to increase daily production capacity to 16,000 square meters.

In 1992, the company introduced a new line of decorative, third-firing tiles. Income increased by 17.2% between 1991 and 1992. Return on equity was 24.3% in the 1991-1992 fiscal year.

International Competition

Foreign firms had little access to the Thai market in 1992 due to Thai import restrictions. With declining restrictions due to the AFTA agreements, firms based in other South East Asian countries posed mid-term threats. Italian companies have excess capacity, as well as superior production skills, and may see the more open Thai market as a growth opportunity.

Some foreign entry into Thailand has already been occurring through joint ventures. In July 1991, for instance, the Ferro Corporation (based in Cleveland, Ohio) and the TPI Polene subsidiary of Thai Petrochemical Industry Co., agreed to establish a joint venture for the production of ceramic glazes and frits (glass granules for glazing ceramic tiles) in Nong Kare, north of Bangkok. The plant, due to open in late 1992, is expected to have an initial annual capacity of 15,000 metric tons and to employ 100 people. TPI is among the largest petrochemical companies in Thailand, and is involved in plastic feedstocks, titanium dioxide pigments, chemical intermediates and cement. Ferro is an international producer of industrial specialty materials such as coatings, colors, ceramics, plastics and chemicals, with sales exceeding $1 billion in 21 countries.

Many countries see ceramic tile as an export opportunity. Polish firms are attempting to strengthen their ceramic tile businesses, for example, using Italian technology to support technical improvements.

Indian ceramic tile manufacturers also are gaining strength. The Indian industry produced over 2,500 million rupees ($147 million U.S.) of ceramic goods in 1990, including ceramic floor tiles, sanitary ware, tableware and ornamental products. Many Indian companies are forming joint ventures with Italian, Spanish and German firms to update manufacturing technology and acquire designs.


Thai ceramic tile manufacturers face different issues in the 1990s in addition to those they have previously encountered. As the industry moves from a protected, traditional industry toward a global industry, several key issues emerge for manufacturers. One is how they should position themselves to compete outside Thailand. Another is how they should deal with the increasing presence of foreign firms in the domestic market in the wake of the AFTA agreements. In the 1990s, how will slower domestic growth, reduced governmental protection and future competition from lower wage and higher technology competitors shape the industry? Finally, how should the role of the government change to fit the new conditions?


Exhibit 1

Thailand’s Economic Indicators
1989 1990 1991 1992
GDP per capita (Baht) 32,049 36,563 41,000 45,840
GNP per capita ($U.S. )
Thailand * 1,180 1,400 1,600 1,800
Indonesia (1988) * 450
Philippines * 732
Malaysia * 2,201
Korea 4,908
Taiwan 7,498
Singapore * 10,740
Hong Kong 10,941
United States 20,852
Japan 23,016
GDP growth (%) 12.0 10.0 7.5 8.0
Agriculture 6.6 -1.8 3.0 3.4
Industry 14.9 13.7 10.5 10.1
Construction 21.3 22.7 15.5 9.2
Services, other 11.8 9.5 7.0 8.0
Expenditure growth (%)
Private consumption 10.9 9.1 6.5 7.0
Public consumption -0.1 2.9 3.0 3.3
Private investment 15.7 23.0 15.0 9.0
Public investment 5.7 33.3 30.0 20.0
Consumer price increase (%) 5.4 6.0 5.8 5.7
Export (billion Baht) 510 583 705 830
Increase (%) 27.7 14.4 20.8 18
Import (billion Baht) 650 838 997 1150
Increase (%) 29.9 28.8 19.0 15.3
Trade balance (billion Baht) -140 -255 -292 -320
GNP (%) -7.9 -12.4 -12.5 -12.0
Current account (billion Baht) -64 -180 -200 -210
GNP (%) -3.6 -8.8 -8.5 -7.9
Tourism income (billion Baht) 96 116 120 140
Debt-service ratio 10.5 9.2 n.a.
Note: 1992 values are projected. * Member of ASEAN. Source: Thailand National Economic & Social Development Board.


Exhibit 2
Export Value From Thailand of Floor Wall and Mosaic Tiles
Country 1988 1989 1990
United States 192.3 338.6 322.8
(21.4) (28.9) (34.0)
Australia 185.8 238.4 184.5
(20.7) (20.3) (19.4)
W. Germany 123.3 117.0 113.9
(13.7) (10.0) (12.0)
Singapore 57.3 144.1 40.3
(17.5) (12.3) (4.2)
Netherlands 93.5 93.8 83.4
(10.4) (8.0) (8.8)
Hong Kong 27.4 60.4 66.2
(3.1) (5.1) (7.0)
Finland 28.2 39.8 28.1
(3.1) (3.4) (3.0)
Canada 13.8 21.2 28.6
(1.5) (1.8) (3.0)
Others 75.5 118.4 81.2
(8.4) (10.1) (8.6)
Total 797.1 1171.7 949.0
(99.8) (99.9) (100.0)
Note: Values are in million Baht. Figures in parenthesis indicate percentage to total export value of floor wall and mosaic tiles.


Exhibit 3
Past Performance of Major Producers (1988-1990)
1988 1989 1990 1988 1989 1990 1988 1989 1990 1988 1989 1990
Sales 852 1327 847 860 1039 n.a. 762 941 634 234 379 228
Profits 130 252 204 82 30 n.a. 80 112 95 (4) 51 38
Gross Margin (%) 39 44 50 38 31 n.a. 32 33 64 27 36 61
Net Margin (%) 15 19 24 2 2 n.a. 10 12 15 (2) 13 17
Capac.a Growth (%) 40 32 8 n.a. 28 24 11 56 24 57 64 0
D/E Ratio 1.4 0.6 0.8 9.4 11.3 n.a. 2.6 1.0 1.0 4.5 1.5 0.9
Market Capital 1.5 7.6 7.7 - - - - 5.1 6.2 - 6.2 2.9
Stock Return (%) 119 239 172 - - - - 226 42 - 111 35
High 1026 354 404 - - - - 336 430 - 171 171
Low 382 49 152 - - - - 204 254 - 99 125
Note: Monetary values are in million Baht. 1990 figures are calculated for six months as of June 30.
a Calculated from year end capacities.
n.a. Not Available.



Business Wire (July 18, 1991). Ferro Corporation and TPI Polene Company. Limited form joint venture in Thailand. 

Hobbs, B. (December 30, 1991). Tile Plant in Clarksville to Open with 'Green' Design. Nashville Business Journal 7(52): 1.

International Trade Reporter. (July 31, 1991). U.S. Tile Council of American.

Institutional Investor. (April 1991). Pioneer in Manufacturing and Leisure. Thai-German Ceramic Industry Company, Ltd. (p. S 4).

Xinhua General Overseas News Service. (October 21, 1990). India's ceramic tile industry develops rapidly.

Xinhua News Agency (January 5, 1990). Thai ceramic tile industry expects to grow 30% this year.


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