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Understanding impact of economic crisis on garment sector
28
Apr '10
The International Labour Organization has recently conducted a number of research studies to examine the impact of the global economic downturn on the Cambodian garment industry. The main objective of these studies is to strengthen our understanding of the human, enterprise, and sector level impacts of the downturn, analyse the response measures adopted, and to assist in the design and implementation of policies and practical interventions to support the industry's recovery and future growth.

The survey forms one part of a three-tiered study the ILO is conducting over a period of 9 months to develop a sound understanding of the economic, social and labour market impacts of the economic downturn on the garment industry. Alongside this enterprise component, the study will also examine the plight of workers themselves, as well as the overall state of the sector, its strengths and weaknesses, and its future prospects as a driver of Cambodian growth.

The study is a joint initiative between ILO and the Cambodian Federation of Employers and Business Associations (CAMFEBA). Financial support was also provided by Agence Française de Développement.

The global downturn has shed light on the need for Cambodian garment factories to both expand and diversify their markets to include those in Asia to reduce reliance on those in the United States and the European Union, according to a new report by the United Nations labour agency.

Nearly 90 per cent of the 66 factory managers surveyed reported having been adversely affected by the economic crisis, listing falling export orders, heightened pressure to reduce prices and the increased cost of inputs as the three main pressures they are facing.

On factory-level impacts:

• 88% of all factories reported having been adversely affected by the economic crisis. For nonexporting factories, this figure is 100%.
• Falling export orders, heightened pressure to reduce prices, and increased cost of inputs were identified as the three main pressures faced by these factories.
• Non-exporting factories appear to have suffered more from rising domestic input costs and falling domestic demand.
• A greater percentage of non-exporters have experienced non-payment by buyers: 10% of nonexporting factories, compared with just 4% of exporting factories. Exporting factories are often the main buyers from these factories.
• While most factories (63%) managed to increase or maintain revenues prior to the economic crisis, factory revenues for most factories (58%) dropped between August 2008 and August 2009 (ranging from 5% to 75%, with an average of 30%).
• While most firms (65%) had been experiencing rising expenses before the crisis, during the crisis (Aug-08 to Aug-09), 28% of factories reported a decline in expenses. A key factor in this was the decline in costs related to production, which declined amid falling demand for garments.

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International Labour Organization

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