PHNOM PENH (Khmer Times) – Backed by their government, Japanese firms are pressing ahead with plans to link the burgeoning industrial complexes that line a 1,700-kilometer economic corridor that runs from Ho Chi Minh City, Vietnam, to a massive new port being constructed in Dawei, Myanmar.
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Japanese Prime Minister Shinzo Abe has pledged $6.1 billion in official development assistance over the next three years to support the fast-growing economies of Cambodia, Laos, Myanmar, Thailand and Vietnam.
“The Mekong region, which has vast demand for infrastructure, is one of our most important areas,” he told reporters following the Japan-Mekong summit on Saturday. “Japan will contribute to infrastructure development of the region in both quality and quantity.”
The assistance includes infrastructure projects aimed at creating an efficient transport route linking the container ports at Ho Chi Minh City and Dawei via Bangkok and Phnom Penh. The corridor is expected to serve as a major industrial artery for the Mekong region once the Asean Economic Community (AEC) is established at the end of the year. The AEC will merge the economies of Southeast Asia, lowering barriers to the flow of labor, goods and capital.
Feeding Supply Chains
Japanese companies are already on the ground, building factories and industrial parks along the corridor to feed ever-complex supply chains that leverage the benefits offered by the region.
Thailand boasts an increasingly formidable industrial sector and skilled workforce while Cambodia’s low factory wages and liberal foreign ownership regulations makes it ideal for setting up labor-intensive manufacturing operations. Vietnam has the closest port to Japan and a cluster of electronics plants, and Myanmar offers access to the Indian Ocean, creating a gateway for trade with India, the Middle East and Europe.
“From the standpoint of Japan, we want prosperity for the region – not just for one country,” said Hiroshi Uematsu, CEO of Phnom Penh Special Economic Zone (PPSEZ), an industrial park on the outskirts of Cambodia’s capital with nearly 80 tenants, more than half of them Japanese firms.
“We consider Thailand the leading country in the Mekong region and expect it to take a responsible role to develop neighboring emerging economies,” he said. “And it’s doing just that.”
Mr. Uematsu said rising labor costs in Thailand have pushed Japanese manufacturers to pursue a “Thai Plus One” strategy, relocating more labor-intensive parts of their businesses to countries with cheaper labor and more potential growth. The widening supply chains continue to interact, with factories in Cambodia and Myanmar feeding components to assembly plants in Thailand’s industrial heartland – and the final products sold locally or shipped through Vietnam’s ports.
Division of Labor
The divisions of labor are already evident in factories set up by Japanese automotive firms across the region.
In Poipet, on Cambodia’s frontier with Thailand, Japanese auto part maker NHK Spring is building a production line inside Sanco Special Economic Zone (SEZ) – a joint Japanese-Cambodian industrial park. The factory will use cheap and reliable Thai electricity, and low-cost Cambodian labor, to produce fabric seat covers for car assembly plants in eastern Thailand.
The border SEZ has also attracted Toyota Tsusho, the trading arm of Japan’s Toyota Group, which is building a “Techno Park” inside the industrial park. The 20,000 square meter enclave is designed to support small- and medium-sized auto parts companies that are part of Toyota’s multinational supply chain.
“The Techno Park will produce many different kinds of [automotive] parts, which will be used by car assembly operations in Thailand,” explained Yamamoto Takahiro, vice-chairman of Sanco SEZ.
Closer to the Cambodian capital, Japanese auto parts giant Denso Corporation has sunk $19 million into constructing a factory to replace the location it currently rents in PPSEZ. The new plant’s Cambodian employees will use materials and components from Vietnam to produce oil coolers and other value-added products for automobile plants in Thailand – dividing labor across three countries.
Investing in Logistics
Logistics has taken on new importance, and a sense of urgency, ahead of the AEC’s year-end deadline. The Japanese government and aid agencies are funneling funds into improving the road network connecting the Mekong corridor’s factories and industrial parks.
Much of this investment is in Cambodia, where undeveloped roads reflect decades of war and neglect. Japan’s development aid agency is funding improvements to National Road 5 – an arterial trade route between Phnom Penh and Bangkok that passes through Battambang, Cambodia’s second-largest city. The road widening and rehabilitation projects aim at ensuring faster transport of goods between the two countries, boosting connectivity with other regions.
In April, the 2.2-kilometer-long Tsubasa Bridge – built with $127 million in Japanese aid – opened to traffic, replacing a cumbersome ferry service on the Mekong River that had resulted in long queues of container trucks.
According to Sok Cheang, executive director of the Cambodia Trucking Association, the new bridge has reduced the costs and journey time of container trucks traveling from Ho Chi Minh City to Phnom Penh, previously a six to eight hour trip that cost about $520 per truck including all fees.
“With the convenience of the new bridge, we can cut travel time by about an hour and save $30 expenses per trip,” he told Khmer Times earlier this year. “Faster transport times will also reduce fuel consumption and lower container costs.”
Further afield, Japan has committed $275 million toward improving the road that connects Bangkok to the SEZ it is developing in Dawei, Myanmar. The mega-project will include a deep-sea port with the capacity to hold 250 million tons of cargo, factories and a 200-square-kilometer economic zone. Once operational, it will make it possible for goods to flow overland across the Mekong corridor instead of taking the traditional route around the Malay Peninsula by sea.
To facilitate this trade movement, Japanese firms are building stronger logistics networks. Sojitz Logistics launched a regular consolidated land transportation service between Bangkok and Phnom Penh in March. Nippon Express recently added a multimodal transport service between Phnom Penh and Ho Chi Minh City that it claims reduces lead time by up to six days on bulk shipments to Japan.
A sales representative for Nippon Express said recent road improvements on the east-west Mekong corridor have made it easier to deliver shipments on time, saving money and reducing the risk of accidents. Faster delivery times are improving the interconnectivity of industries along the route and, some say, exposing the faults of one of the biggest remaining trade barriers: slow customs clearance.
An industrial belt is forming across the Mekong region, led by Japanese investments. Map: KT Staff