With the trade war between the world’s two largest economies in full swing, a number of international brands are shifting production away from China, with Cambodia a strong contender to become their next base for the manufacturing of garments and footwear products.
For in depth analysis of Cambodian Business, visit Capital Cambodia
The US and China have been involved in a tit-for-tat trade war since early July, with the latest move from Washington being to impose 25 percent duties on $16 billion worth of Chinese imports. Affected products include car tires, furniture, wood products, as well as handbags and suitcases.
A study conducted among companies that source goods from China released in July by the US Fashion Industry Association found that 67 percent of participants expected to reduce the amount (in monetary value or volume) they produce in China over the next two years.
The same study put US trade protectionism as the number one challenge for the industry.
“The shift has been under way,” Steve Lamar, executive vice president of American Apparel & Footwear Association, told Bloomberg.
The talk of tariffs has created “a lot of anxiety,” and companies are gauging how fast they can make more changes to their sourcing, he said.
Steven Madden CEO Edward Rosenfeld told Bloomberg that his company’s has been shifting production of its handbags from China to Cambodia.
15 percent of Steven Madden’s handbags will come from Cambodia this year, with this percentage likely to double in 2019.
“That gives us frankly about a three-year head start on most of our peers, because many folks are just now trying to make that move,” Mr Rosenfeld said.
“Our head of handbag sourcing is actually over there right now, working on a plan to ramp that up.”
Kaing Monika, deputy secretary general of the Garment Manufacturers Association in Cambodia (GMAC), told Khmer Times that the trade war will impact investors’ confidence in China and will make them consider re-locating to other countries in the region.
“You should see more interest in sourcing travel goods from Cambodia now. Travel goods production should continue to exit China and be a growth opportunity for Cambodia,” he said, adding that China still exports almost $5 billion to the US in travel goods.
“Aside from the trade war, China rising labour costs and a more stringent enforcement of regulations, such as environment-related laws, will also prompt more and more factories to leave China, and Cambodia stands to benefit from this.
“The real question is whether Cambodia would be their first choice for re-location, or if they have other countries in mind … Peace and stability are important but there are other factors that count when gauging national competitiveness,” he added.
Tapestry, the luxury company behind Coach and Kate Spade handbags, has also reduced operations in China, while increasing production in Southeast Asia, specifically in Vietnam. The company now does less than 5 percent of its sourcing from China.
Vera Bradley, an American luggage and handbag design company, said in December they are also looking at shifting production away from China and into Cambodia and Vietnam, according to Bloomberg.
Exports of Cambodian garment and footwear products increased by 9.3 percent during the first half of the year, reaching $3.7 billion in value, according to the Ministry of Commerce.
Shipments to the European Union grew by 10.66, achieving a total value of more than 1.6 billion, while those to the US rose by 10.73 percent and were worth $858 million. These two markets jointly accounted for 72 percent of Cambodia’s total exports.