Recently Post Property started investigating how much of Cambodia’s construction industry was substituting imports for locally produced materials, and if there was a trend towards industrialization beyond brick production (Post Property reported last week).

In an email, ANZ Royal CEO Grant Knuckey, told Post Property: “From our perspective [of] construction materials, importation has remained strong and substitution isn’t significantly evident outside of perhaps cement.”

Nevertheless, with an expanding real estate and property market, a transition should kick in at some point.

“We would expect, over time, for this to transition to increase import substitution, but that is likely to be restricted to specific goods where Cambodia may have a comparative advantage, rather than being across the board. Materials that require large scale and high energy usage, such as steel, are not realistic to manufacture locally, but you do see increased local activity in, for example, steel fabrication,” he said.

To better understand the change in locally manufactured construction materials, for example steel fabrication, Post Property spoke to Lim Vatanak, general manager of Tang Pech Construction. Among other things, his company focuses on steel appliances in borey construction. He spoke about the supply chain, investment decisions and specialized manufacturing.

At some point, companies reach a size where they face the decision of whether to make or buy the products they sell. Where are you at?

We are at this point right now. Before, we always bought the steel from local suppliers, but we are now thinking of importing the steel from abroad and buying better machinery to fabricate the steel.

We have to focus more on quality and productivity. Currently I am speaking to suppliers in China to buy a steel cutting and bending machine – but the machine is rather expensive; between $50,000-$100,000.

That sounds like a substantial investment. What market indicators let this investment appear profitable?

There are more and more local competitors who are producing windows, doors and other steel products. There are bigger clients who need us to produce faster and with better quality.

Other than investing in a machine, what do you need to find from abroad?

This afternoon, I was contacting this logistics company. We have to study the costs of transporting the steel that we currently get from local suppliers who import it from China. If the cost of transporting is too high, we cannot buy the fabricated steel we need, we have to buy the machines and the steel plates.

In any case, you would cut out many middle men …what does the machine you are looking to buy right now do?

It is a cutting and bending machine. Currently these tasks are done manually with less sophisticated machines. The finished products need a lot of manual correction later. This takes a long time. But, with the new machine, Bam! the steel is cut and bent and looks perfect.

Don’t these high-tech machines require a lot of electricity which is still quite expensive in Cambodia?

The machine does use a lot of electricity, but the costs are manageable. I mostly consider the price of buying the machine.

In order to make the investment worth your while, I assume you need to produce and sell a significant amount of product. How specialized is the machine? Can you produce the whole range of products you offer?

We can use it for almost everything such as cutting steel for windows, fences, railings – it’s all the same production step.

Who are your main clients?

We are mainly working for borey developments and our order is usually to build ‘anything related to steel’ such as windows, doors, fences, railings, roofs etc.

‘Everything related to steel’ sounds like a broad spectrum. Is it common among other players to provide the whole range?

No. In Phnom Penh, we don’t have many fabricators that can do that. But what most players also lack are the many labourers needed to install all the products developers need. So, when they are starting new, big projects, they always come to me, or the other few competitors, to do the job. Only a few companies can do this kind of job. We mainly do, for now, Peng Hourt, Vimean Phnom Penh, Varina and CamKo City.

So, in the steel fabrication business for the construction market you are already a main player. How will investment into machinery enable you to further expand, produce efficiently and compete in other segments?

As far as steel products go, we mostly fabricate for the borey’s and we don’t have competitors from China or Vietnam. These big players are here but they are not coming to make windows and doors. They are targeting projects in different sectors. They mostly build warehouses and factories. I’m talking about big structures that require a lot of strong steel. I think that is the most competitive market segment.

Do you compete in the warehouse construction segment?

No, we don’t have a lot of such clients.

Why?

Those structures need specific steel that we cannot just buy. We need to fabricate specific, hard steel for this kind of structure. For such projects, we need very high-end machinery and high tech skills. Providing it would be a very expensive investment.

Are Cambodian companies investing in that kind of machinery?

I know about three to four big ones who are, but we are not interested in this field. We can do it, but we are not targeting this kind of market. There is too much competition, and we have a strong connection to the borey developers. Borey constructions are also long term unlike factories or warehouses. For factories, it’s mostly one building and the project is over. That’s it. But borey developers do one project after the other. One isn’t even finished and the next one is coming. So targeting boreys is more profitable for us than targeting the factory construction.

So, you chose to expand and focus into the borey market with your investments?

Yes, and in the long run, people will pay for better quality. And demand more.