Asian suppliers of fabrics, accessories and machinery as well as Western clothing brands continue considering Cambodia as a zealous cut-make-trim (CMT) garment manufacturer that is advantaged by low labour costs and preferential access to developed markets. It looks, however, increasingly uncertain how Cambodian garment exports will develop in the coming years. Will these exports continue their triumphant rise? Or will they stall and commence to decline in favour of countries like Vietnam and Myanmar? Jozef De Coster reports from Phnom Penh.
The main components of the Cambodian garment industry's SWOT profile (its main strengths, weaknesses, opportunities and threats) are well known. Cambodia has relatively low labour costs and enjoys preferential access to the world's richest markets. On the other hand, it has no free on board (FOB) capabilities, and its competitiveness is weak. It's threatened by political and social unrest, and the growing competitiveness of Vietnam and Myanmar. But there are surely some opportunities in exploring new suppliers (e.g. in India) and new export markets. Here are some positive and negative factors that would be-investors, suppliers and buyers should take into consideration.
Some positive factors
Cambodian economy buoyant: According to Glenn Maguire, chief economist of the ANZ Bank for South and South-East Asia, Cambodia is currently 'bucking' the regional trend and will likely achieve a GDP growth of 7.2 per cent in 2016 and 7.1 per cent in 2017. For the whole ASEAN region, GDP growth is expected to dip to 4.5 per cent in 2016 compared to 4.7 per cent in 2015.
Preferential trade agreements: As companies which buy from Cambodia-like H&M, Inditex, Marks & Spencer, New Look, Adidas, Nike, Levi's, Uniqlo-know very well, Cambodia benefits from preferential trade agreements with the European Union (EU), Japan, Canada, whereas China does not. Manufacturers in Cambodia benefit from duty-free access to the EU through the Union's Generalised Scheme of Preferences (GSP) Everything But Arms (EBA) arrangement.
Fast growing exports to EU: According to trade data reports from Fibre2Fashion's Market Intelligence unit, EU clothing imports from Cambodia shot up by 12.8 per cent in 2015 and were up by 17.4 per cent in the first three months of 2016. The clothing export performance of Cambodia towards the EU was thus much stronger than that of Pakistan (+ 7.2 per cent in 2015 and + 8.7 per cent in the first three months of 2016) and of Vietnam (+ 3.4 per cent in 2015 and +1.8 per cent in the first three months of 2016). The reason for this upsurge has been attributed to Cambodia being benefitted by the ongoing shift in sourcing from China to other Asian countries where labour is cheaper. The average wage for garment workers in Cambodia is only a fifth of that in China.
Cambodian factories are able to produce high-value garments: Though the rotation of garment factories in Cambodia is quite high (many closures, many new entrants), there's a strong core of companies that now has twenty or more years of solid manufacturing experience. That Cambodia has low minimum wages does not imply it's solely a producer of low-value garments; many European brands get high-value items produced in Cambodia. A British company is now producing trousers and suits for Marks & Spencer, and according to Mona Tep of French organisation Evalliance, some companies even have the skills of making complicated jackets needing 150 different operations.