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China factories relocate in Cambodia

China factories relocate in Cambodia

130208 07
GMAC Secretary General Ken Loo

The secretary general of the Garment Manufacturer’s Association in Cambodia (GMAC), Ken Loo, says more and more garment factories are relocating from China to Cambodia.

“Presently many factories are moving out of China and the countries they are considering are Bangladesh, Cambodia and Indonesia,” Loo said.

“A lot of people talk about Myanmar but I think that is five years down the road. If we are talking about factories in Southeast Asia, we are talking about Indonesia and Cambodia. In Bangladesh, a lot of investors are already there, and they have always been cheap. Investors would have invested in Bangladesh already.”

Because narrow profit margins are causing factories look carefully at moving out of China, Cambodia and Indonesia are the primary beneficiaries.

“Cambodia and Indonesia are enjoying the arrivals of new factories,” Loo said.

GMAC counted 85 new factories in Cambodia during 2012. In 2011 only 55 new factories opened.

“Investors are leaving China, out of the 85 new factories, probably a third from mainland China, and the remaining is a spread of owners from Taiwan, Korea and Hong Kong,” he said.

“We are going to expand even more next year. We should still see growth for the next few years because the exodus from China is not complete. People are still moving out.”

For the Chinese New Year holidays, Loo says fewer are choosing to go home, staying instead to work. He thinks technology contributes enormously to this trend.

GMAC has 392 garment factories, including 41 shoe factories, all of which are exporters. Another category of membership in GMAC includes the non-exporting garment factories who act as sub-contractors to other factories that have licenses to export.

About one-fourth of garment factories in Cambodia are mainland China-owned, another fourth with ownership from Taiwan, 20 per cent from Hong Kong and just under 20 per cent from Korea: all countries with

Chinese New Year traditions. The remaining factory owners come from Singapore, Malaysia, Britain and the US.

Loo said there are between 40 and 50 Korean-owned garment factories in Cambodia.

While the United States remains the most important place for the importation of garments made in Cambodia, the percentage is declining. In 2008, the United States accounted for 55 per cent of Cambodia’s garment factory output, with the European Union taking 25 per cent, 10 per cent to Japan and another 10 per cent to the rest of the world.

During 2012, 44 per cent of Cambodia’s factory output went to the United States, with 32 per cent to the European Union, 9 per cent to Japan and 9 per cent to China.  

“For apparel China is the only growth market left for anybody,” Loo said.

“The United States and Europe are not as good of markets as they used to be. The brand names like Gap, if they want to maintain a healthy growth, are choosing to expand their sales in China, and given the fact of the Chinese ASEAN Free Trade Agreement (FTA), they enjoy duty free access to China as well.”

Loo says for American companies, with rising costs in China; it might be efficient for them to have factories in Cambodia and then export back to China.

Loo said it was easy for garment factories to find workers in past years, but not so easy today.

“There is a shortage of workers in Phnom Penh, but I don’t think there is a shortage of workers in Cambodia. On the one hand, factories complain about a shortage of workers and on the other hand the government says every year they have more than a quarter million new entrants into the job market.”

GMAC estimates that the majority of roughly 600,000 garment workers in Phnom Penh come from the provinces.

“They came 10 years ago looking for jobs. Currently fewer people would travel to Phnom Penh looking for jobs, because there have been improvements in choices where they live and can stay with their families. Parents are worried to let their 18 year old daughter go to work in the factories of Phnom Penh, for fear of her landing in an undesirable occupation.”

That’s why Loo says garment factories need to develop their human resources policies and work on hiring people directly from the provinces.

“For factories in and around Phnom Penh, we hear complaints that it is hard to get workers, because now they have to recruit. Many factories don’t have a human resources policy, and right now when they need people they hang banners at the factory gates.”

Loo says the banners used to work a few years ago, but they are not effective now.

"I tell the factories they need to look at how they recruit. In the past they just sat around waiting for applicants. Factories now have to think about reaching out into the provinces, by an informal network, and there is a lack of formal networks in the provinces. They key is how to match the two parties.”

Loo says GMAC is now working with the National Employment Agency, with a small success of matching up province people with garment factories so far.

“People would rather stay in their province. Now there are options available in the provinces and there are rising costs of traveling to Phnom Penh looking for a job. We hope to expand the outreach to the provinces. We have many job fairs now, right down to the villages. We’re looking now at Kampong Cham, Kampong Chhnang and Kampong Speu.''

To contact the reporter on this story: Stuart Alan Becker at [email protected]


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