The garment and footwear industry continues to play a pivotal role in Cambodia’s economy, accounting for over 70 percent of exports. However, it is increasingly coming under pressure, facing challenges from inside the country and abroad, including higher salaries, a low level of productivity and rising competition from nations in the region.
According to John Cha, executive committee member of the Garment Manufacturers Association of Cambodia (GMAC), tackling those challenges requires a strong commitment from all stakeholders and a clear action plan to enhance the sector’s competitiveness. He sits down with Khmer Times’ May Kunmakara to discuss the past, present and future of the industry.
KT: How would you qualify the performance of the global garment and footwear industry?
Mr Cha: In 2016 and 2017, global shipments of garments and footwear from the top 10 exporting nations remained stable, with a gradual annual increase of 4 to 5 percent. This is largely driven by innovative design trends and rising consumer expending in the Asia Pacific region, particularly from the middle class.
KT: How about the Cambodian garment industry? How has it been performing and what’s your outlook for 2018?
Mr Cha: Overall, shipments from Cambodia increased slightly in 2017, due mostly to the travel goods and footwear subsectors. The trend is expected to continue in 2018.
While a small number of garment factories shut down last year, a significant number of new factories began operations during that same period. We have also observed an increase in the production capacity of some of the largest plants in the kingdom. In particular, this expansion seems most significant in the travel goods and footwear subsectors; these are two areas where growth is expected to continue in coming years.
KT: What have been the major challenges in recent years? Do you expect these challenges to change in the near future?
Mr Cha: It is a constantly changing world and an ever-evolving business environment! In Cambodia, however, we believe the turbulent years of illegal strikes and radical labour unionism are gone. I believe this is partly due to the increasing maturity of the labour movement, and to the expediency of the tripartite mechanism for solving disputes. Plenty of hard work has been put into making this tripartite mechanism a success. The employers (particularly GMAC), the government (mainly the Ministry of Labour) and the unions have all worked hard to improve the situation. We are also fortunate to have the International Labour Organization as a facilitator and to count with the support of Prime Minister Hun Sen, who always keeps workers’ welfare and industrial harmony in the national discourse.
KT: How does our garment industry compare to those of Bangladesh, Myanmar and Vietnam, who many consider to be our biggest competitors?
Mr Cha: Each country offers its own set of value propositions. Cambodia has its own set of advantages and opportunities which investors favour, both in operational and financial terms. What we also hope to do is to work with the government to make these terms more attractive for potential investors.
KT: Are you worried about the upcoming elections?
Mr Cha: National elections are always a sensitive time, regardless of the country. Cambodia has fortunately moved away from the chaotic political environment of the 1990s. Judging from the elections in 2013, I believe these new national elections will be relatively peaceful.
KT: What are the key areas that stakeholders need to focus on in order to maintain our competitiveness?
Mr Cha: Labour productivity needs to catch up with wage inflation. For this, we need to invest more in capacity development for workers, and encourage factories to invest in high-end machinery that can enhance productivity and quality while saving energy. These machines will help us standardise procedures and simplify processes. There are now many brands of these so-called “smart machines” available in the market. The government should consider incentivising such investment. We also hope non-manufacturing processes can become more cost-effective. In particular, logistics and bureaucratic procedures need to be further improved.
KT: How does the industry feel about the ongoing rise of the minimum wage?
Mr Cha: Garments and shoes are industries based heavily on competitive labour costs. However, this is not the only factor determining buyers’ decision, otherwise they would be flocking to Sub-Saharan Africa to place their orders. The key is the whole value proposition offered by each country. This being said, we believe it is important that the increase in the minimum wage is gradual and affordable.
KT: The government is currently focusing on diversifying the local economy away from garment exports. What’s your view on this?
Mr Cha: The garment and footwear sectors comprise 70 percent of total exports and employ over 700,000 people. The need for the country to diversify into other industries is obvious. However, these two traditional sectors will continue to grow in upcoming years, albeit at a slower pace.