If industry-watchers were roused last year by the influx of Japanese investment to Cambodia – including bellwether parts manufacturer Minebea – 2012 should not disappoint.
Up to 60 new Japanese companies are expected to apply for business licences this year after the number tripled to about 30 in 2011, according to the Japan International Cooperation Agency’s Cambodia office (JICA), which has played a major role in attracting the businesses.
Official figures were not available.
More important than the numbers is the industry transformation these companies have brought with them: higher value-added manufacturing, such as ball bearings and electrical wiring production. It’s a much welcomed move away from garment-making that experts said is set to continue.
“While Japanese foreign direct investment tends to be cautious in deciding to enter a new market like Cambodia, once the decision is taken to invest, it tends to grow quickly and sharply, and they are usually in for the long haul,” said Jayant Menon, lead economist at the Asian Development Bank’s Office of Regional Economic Integration.
But there’s more to wooing these companies than what the government has long touted as an advantageous investment climate and political stability.
Far from the Kingdom’s factory floors last year, JICA co-hosted seminars on Cambodia in Tokyo, Osaka and Nagoya, drawing more than 300 companies. JICA will put on two more seminars in Tokyo and Osaka at the end of this month.
Japan is also one of the most represented countries in Cambodia. At the Cambodia Investment Board, an investment-approving body, Japan is the only nation represented by a country desk, according to Hak Lyda, a program officer for private sector development at JICA.
The trend has been regional. In 2001, there was one Japanese company operating in Hanoi, said chief executive and economist at the Business Research Institute for Cambodia Hiroshi Suzuki.
Since then more than 400 companies across a spectrum of industries have set up in the Vietnamese city.
Korea, China, Thailand and the Philippines, among others, have seen similar investment patterns, he said. And as production costs rise throughout the region, Cambodia’s low wages will increasingly draw the attention of Japanese TV and automobile makers and other parts manufacturers.
After natural disasters at home and in Thailand in 2011, Japan is also trying to hedge its investments in the region.
Cambodian production is an alternative supply source to bigger investments in China and Thailand, ADB’s Menon said. “Cambodia offers a relatively inexpensive insurance policy in this regard.
“But it is insurance which remains valuable during normal times, with regular production, but becomes more valuable when unpredictable shocks disrupt production along a similar segment of the supply chain.”
While Hak Lyda was optimistic about the potential increase in Japanese investment, he said skill, electricity and infrastructure shortfalls – perennial sources of concern for manufacturers – must be addressed by the government.
“It depends on the government’s efforts and commitment toward being a manufacturer of high-end electronics. If they want, they can just continue to produce garments.
The question is: How far do they want to go with this?” he said.
To contact the reporter on this story: Don Weinland at [email protected]