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Logo of Phnom Penh Post newspaper Phnom Penh Post - Garment margins keep unravelling

Garment margins keep unravelling

IN terms of export volumes, Cambodia’s garment industry has almost certainly enjoyed its best start to a year ever.

Figures released last week show the industry grew 45 per cent  in the first four months as overseas sales hit $1.2 billion. On the surface, then, the situation couldn’t be better.

But focusing on the level of growth and export revenues masks what has become a big  structural problem.

Despite the huge sales growth, garments have generated lower overall profits so far this year compared with the start of 2010 because the recent rise in costs outstrips the price buyers are willing to pay, Ken Loo, secret-ary-general of the Garment Manufacturers Association in Cambodia, says.

“Looking at the export figures alone leads to an overly rosy picture,” Loo said yesterday. “Profits in the past 18 months have been on the decline, if there have been any at all.”

The challenge for the garment industry remains one that has changed little in decades and that has led to recent problems of profitability.

Buyers are simply not willing to accommodate large and sudden increases in sourcing costs because of the price sensitivity of customers, especially in the low-end market that Cambod-ian producers target.

In the past year, the price of raw materials, fuel and labour – the main costs for local garment factories – have  soared.

Cotton prices reached record highs in the first quarter as mills were accused of panic buying, oil prices have surged because of unrest in the Middle East and in Cambodia the minimum wage and additional payment benefits in the garment industry have risen since September.

But buyers haven’t matched the rise in these costs, Loo says.

Cambodia’s largest market, the US, continues to highlight the problems garment sellers have encountered in trying to raise their prices.

A report by Textiles Intellig-ence shows  Bangladesh, Cambodia, El Salvador and Honduras respectively had the largest rise in garment exports to the US at the beginning of this year.

And it comes as no surprise that they, along with Pakistan,  happen to be the cheapest suppliers in the world – reflecting the fact that countries that keep their prices at rock-bottom in a highly competitive global market generate the most business.

The problem Cambodian garment exporters face, along with those in the rest of the world, therefore remains one of perceptions and expectations.

Consumers in the West, despite bemoaning “sweatshops” in developing countries, remain reluctant to spend more on clothes, meaning retailers are unwilling to pay more when sourcing goods.

And there’s always another country or factory that will make the same garment for less.

Cambodia’s garment industry is getting the business, as the substantial rise in export volumes shows. The challenge is to get more from sourcing companies and to reduce costs without short-changing workers.

Unfortunately, precedent in the garment industry has shown that achieving this is far from straightforward.



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