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Price wars to subvert gains made by SMEs

Employees work on a production line on the outskirts of Phnom Penh at a food SME.
Employees work on a production line on the outskirts of Phnom Penh at a food SME. Hong Menea

Price wars to subvert gains made by SMEs

Cambodian entrepreneurs and business leaders on Saturday stressed the challenges for firms in the hospitality and retail sectors that adopt an aggressive pricing policy, suggesting a more value-added approach instead.

At the 2nd Global Alumni Convention – a forum that brings together Cambodian graduates who studied overseas, government officials and senior business leaders – participants said undercutting competitors on price affects the industry as a whole in terms of future investment and quality standards.

Speaking at a panel discussion on the challenges for small and medium enterprises, Pascal Ly, CEO of the Credit Bureau Cambodia, said that for SMEs to compete on price was a “very risky strategy” and they should instead look at providing solutions to customers’ needs, which were price resilient.

“When you talk about solutions you bring much more than just a product, you are branding services and bringing quality to what you are proposing,” he said.

“If you are able to provide a solution to [a challenging problem] then [the customer] won’t even discuss the price.”

Kouch Pheng, founder of local logistics services provider Advanced Glory Logistics (Cambodia), said that price undercutting by one firm could lead to similar actions by other businesses, which would eventually impact each firm's bottom line.

“With decreasing the price, I think that any company that is your competitor will be able to do the same and you will kill your industry,” he said.

“[Businesses] cannot make profits in very low [priced] markets, so no one can survive. Not only you, but the whole industry.”

Pheng said it would be more prudent for businesses to focus on providing customers with superior services rather than indulging in price cuts.

Khorn Chhundara, CEO of Koi Café, a chain that sells Taiwanese tea-inspired beverages, said unregistered businesses normally had a price advantage over registered firms, but that bigger firms can tackle this price disadvantage by scaling up their operations.

“For the food and beverage sector, if you are unregistered, you are unlikely to have more than one or two branches,” he said.

“For us, with more branches we have economies of scale, so we can sell more products at a low price. So if they want to compete in price we can also compete in price, because we buy the products at a low price already.”

The theme of price competitiveness also dominated a separate discussion on the priorities of developing Cambodia’s tourism sector.

Arnaud Darc, CEO of Thalias Group and executive treasurer of the Cambodia Hotel Association, said that while there was a substantial increase in the number of hotels entering the market, many hotels were only able to compete by providing discounted room rates.

“I think the hotel industry needs to try and compete outside of the room rate,” he said. “I try to talk to my colleagues and say don’t give more discounts, give more services and better quality, but keep your rate at a certain level so that we can continue investing.”

He added that room rates in Cambodia were already exceptionally low and that the hotel industry was only harming itself if it continued to book rooms at increasingly low prices.

(The Phnom Penh Post is the media partner of the Global Alumni Convention)

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