Japanese companies in the Kingdom are looking at expanding local operations as business confidence for 2015 is expected to rise on account of higher projected sales and operating profits, according to a survey conducted by the Japanese External Trade Organization.

The survey, which looked at Japanese businesses’ outlook in the Asia Pacific Region, received responses from 40 Japanese companies in Cambodia, with 80 per cent saying that they expect to grow their business operations in 2015. Business confidence exceeded 60 per cent among respondents, showing strong expectations for improvement.

Looking at the Kingdom’s neighbours, 66 per cent of respondents in Vietnam said they would increase their local operations, 64.7 per cent in Myanmar, 60.9 per cent in Thailand and 46.2 per cent in Laos, showing increased optimism among Japanese businesses in Cambodia.

Hiroshi Suzuki, CEO of the Business Research Institute for Cambodia, said these results were encouraging because a large amount of Japanese FDI is invested in labour-intensive parts of manufacturing and improved sentiment will only benefit the sector. He said it was an added benefit that most of these products will be exported to neighbouring countries, thereby diversifying Cambodia’s export destinations.

“This helps very much the effort of Cambodia to diversify their export items from garments to automobile or electronic parts and the export destinations US and EU to Asian countries,” he said.

Suzuki added that continuous efforts to improve both hard and soft infrastructure in the country are essential to sustaining this positive business sentiment.

Hiroshi Uematsu, managing director of Phnom Penh Special Economic Zone, said that while many Japanese companies in the country are still in the early stages of their operations, as compared to Thailand and Vietnam, they see potential in Cambodia’s large, young workforce and reasonable wages.

“Many Japanese manufacturers came from China and are gradually shifting their production to Cambodia,” he said.

“We expect more high-value garment, electrical, mechanical and automobile parts manufacturers to expand their production in Cambodia.”

The survey lists out double-digit wage increase in the Kingdom as a potential hurdle for this expansion, with Cambodia being among seven countries in APAC with high wage increases.

Nearly 80 per cent of respondents cited wage increase as a potential problem for this growth, followed by 79 per cent expecting issues with raw material procurement, 60 per cent worker quality and 47 per cent wanting better customs clearance procedures.

Masashi Kono, representative of JETRO in Phnom Penh, said the demand for skilled labour will only increase and it is necessary to improve the education sector to satisfy this demand.

“Some big manufacturers like Minebea and Sumi [Cambodia] Wiring Systems have a kind of elementary school within their companies and labourers are studying before working every day,” said Masashi.

According to Uematsu, high electricity and logistical costs, coupled with corruption are still the major challenges for Japanese businesses in Cambodia.

“In my understanding these are more serious than skilled labor supply,” he said. “Cambodia is expected to tackle these challenges in order to go to the next stage of [the] country’s development.”