Due to rising labor costs in recent years, many domestic factories have moved to Cambodia. However, there is news that the phenomenon of factory closures in Cambodia is getting worse and the cost of opening factories is rising. According to statistics, a total of 54 factories closed down in Cambodia in 2017; a total of 35 factories closed down in 2018; so far, more than 70 factories have closed down in Cambodia this year, which has doubled compared with last year. Do Cambodian factories really close down frequently? What’s the reason?
Cambodia China Chamber of Commerce Textile Enterprises Association explains doubts
On December 9, Cambodian media interviewed He Enjia, president of the China Chamber of Commerce Textile Enterprises Association in Cambodia, and learned that those who had recently closed down were all former business owners. Low-price impulse factories or poorly managed factories. In addition, some factories have been transferred or changed their names. “It is normal for factories to be open. In fact, there are not so many factories closed.”
He Enjia emphasized that it is still not possible to know the exact number of how many factories have closed, because some factories have been transferred or changed their names without notice. The association will have to wait until the end of March 2020 when the factory pays its dues to get a clear picture.
However, he pointed out that the annual increase in production costs and the transfer of buyers to lower-cost countries are the main reasons for forcing factories to close. Secondly, wages are not proportional to work efficiency. In addition, there are many public holidays in Cambodia, which will directly affect the operation and survival of the factory.
Let’s look at the cost first. The wages of Cambodian workers continue to rise. From 1997 to 2017, Cambodia’s minimum wage increased from US$40 to US$153, US$170 in 2018, and US$182 in 2019, which is significantly higher than other competing countries for garment and shoe exports. For example, Bangladesh is US$67, India is US$77-143, Myanmar is US$79, and Pakistan is US$134. Add in employee benefits and overtime pay, and Cambodian workers might get $200 or $300 a month. In 2020, the minimum wage for Cambodian garment and shoe factory workers will increase to US$190.
In addition, increasing wages without increasing productivity is also a problem, which means that work efficiency is very low. Generally speaking, the productivity of factories in Vietnam and Indonesia is about 80% of that of China, while the productivity of Cambodian garment factories is only 60% of that of China. This is why some Chinese companies feel that it is better to move factories back to China.
What’s interesting is that workers in Southeast Asia have low production efficiency, but their awareness of rights protection is particularly high. In addition to strikes caused by bosses running away, there are often demands for workers to increase wages. Strikes demanding wages or benefits, or even factory relocation can trigger a general strike.
In addition to human factors such as employees’ demands for salary increases, low production efficiency, strikes, etc., there is another ridiculous reason why investors can’t stand Cambodia: Cambodia is the world’s largest The country with the most recognized holidays has 28 public holidays, almost a full month. Take October this year as an example. October 8th to 10th is the Day of the Dead, October 15th is the Memorial Day for the Founding Fathers, October 23rd is the Paris Peace Agreement Memorial Day, October 29th is the King’s Accession Day, and then Including Sundays, it seems like a whole month of busy vacations.
In addition, starting in 2019, the Cambodian government began to implement a twice-monthly wage system, which put considerable pressure on factories, because the speed of capital flow is the lifeblood of an enterprise. This regulation intensified the cash flow pressure on the factory and was one of the reasons for the closure of the factory.
Cambodia is not optimistic about the prospect of EBA revocation
He Enjia It was revealed that Cambodia’s textile industry is currently mainly based on clothing. This time there are also bags, shoes and fabrics. This is the most basic situation of Cambodia’s textile industry. Among them, there are about 80 Chinese-funded shoe factories, about 60 luggage factories, and about 500 clothing factories. In addition, there are five or six fabric factories, as well as more than 200 factories for accessories, trademarks and buttons that are not included in the statistics. Among them, mainland Chinese companies account for about 41%. Together with Hong Kong, Macau and Taiwan, textile companies in Greater China account for 70% of Cambodian textile companies, making them the leading companies in Cambodia.
Cambodia’s largest industry is the light textile industry, accounting for more than 75% of Cambodia’s total exports and employing 700,000 people (according to the insurance provided by the government (worker data), but in fact there are about 1 million direct employees and about 3 million indirect employees who rely on this industry to support their families. The total number of 4 million people accounts for a quarter of the country’s population. The textile industry has brought the greatest economic and social benefits to Cambodia.
It is worth noting that in February this year, the EU announced the launch of the process of withdrawing Cambodia’s preferential tariff measures (EBA). Since then, the two sides have gone through multiple rounds of consultations and surveys, and the first phase of the process has been completed in August. Ends mid-month. The EU will take up to three months to draftAccording to the report, the EU and Cambodia will then hold consultations and negotiations on the report, and the EU will make a final decision in February next year. Although there is still some time before the final decision and its effectiveness, Cambodia’s domestic assessment of the prospects of EBA withdrawal seems to be bleaker than before.
The Cambodian Garment Factory Association recently issued a statement urging the EU to maintain EBA benefits, otherwise the well-being of 750,000 Cambodian workers and 3 million people will be affected. </p
