Korean investors are relocating labour-intensive businesses to countries such as Cambodia after Indonesia raised its minimum wage.
A number of Korean investors had closed their Indonesian factories and relocated to other countries in the region because their requests for minimum-wage exemption had been refused, The Jakarta Post reported.
Indonesia has raised provincial minimum wages about 40 per cent to RP 2.2 million ($226) a month.
“One or two factories have moved their garment production base to Cambodia recently because of wages,” Nam-Shik Kang, chairman of the Korean Chamber of Commerce in Cambodia, told the Post yesterday.
Cheat Khemara, senior officer at the Garment Manufacturers Association in Cambodia, said an increasing number of Korean investors had been coming to Cambodia to invest in the garment sector.
Hiroshi Suzuki, head of the Business Research Institute for Cambodia, said there was a trend of rising labour costs in countries such as China, Thailand, Indonesia, the Philippines and Vietnam.
This meant labour-intensive industries were seeking to invest in low-labour-cost countries, including Cambodia, Suzuki said.
From last month, every Thai worker is entitled to a 300 baht ($10) daily minimum wage.
Monthly wages in Vietnam rose to 2.4 million dong ($113) in January, and Beijing has pledged to increase minimum wages to at least 40 per cent of average salaries.
The minimum wage for a Cambodian in a garment factory is $61 a month. Trade unions have called for the minimum monthly wage to be increased to between $120 and $150.
Cambodia would not lose its low labour costs advantage, Suzuki said.
“Of course, wages in Cambodia will increase to some extent.
“However, the increase would be much greater in neighbouring countries. So the advantage of low labour costs in Cambodia would not be undermined.
“Cambodia has also the advantage of its location in the centre of ASEAN and improved logistical infrastructure, such as roads and ports.”
TK Garment Co, a leading Thai fashion manufacturer, is relocating its largest production site to Cambodia to escape high wage costs.
Nam-Shik Kang, however, said that although many Korean garment factories in Vietnam were looking to relocate to Cambodia, they were hesitant “because Vietnam’s infrastructure for business is very strong and well organised”.
He said that if Cambodia raised its minimum wage to $150 a month, factories would lose their competitive edge to Vietnam and Indonesia without improving their productivity and quality.
“Many Korean investors will start thinking of relocating their production base to Myanmar very soon.”
To contact the reporter on this story: Anne Renzenbrink at email@example.com