Friday, May 31, 2013

Chinese Signs at Factories in Cambodia

Three months ago I stared out the window of a bus as I returned to Cambodia's capital, Phnom Penh. About 40 minutes outside of Phnom Penh I noticed a number of "for sale" or "for rent" signs for factories or land.

Land for sale

Factory for rent

I also saw a number of signs for factories apparently in use. What most caught my attention about the signs (and why I knew what they said) was that they were written in Chinese. Often no Khmer (Cambodian) writing appeared. Sometimes there was English.

Whatever these signs indicate, the number of factories in Cambodia has been growing. In The New York Times Keith Bradsher raised several key points including:
  • Some companies are motivated to have factories in Cambodia in part due to increased costs in China or perceived risks in China.
  • Costs such as worker's salaries are lower in Cambodia than in China, but those savings can be offset by other factors, such as lower productivity.
  • At least in some cases, competition for employees and strikes by workers are leading to better working conditions and increased pay.
Despite all of this, it is not surprising that total foreign investment in Cambodia remains much lower than in China. There are a variety of relevant factors, one of which is that Cambodia has a population of 14 million people while China has a population 1.3 billion. But I found another comparison Bradsher made to be especially intriguing:
...last year was the first time since comparable recordkeeping began in the 1970s that Cambodia received more foreign investment per person than China.
See the article here for more.

In the China Law Blog Dan Harris emphasized that Bradsher's report does not suggest a current massive shift of factories from China to countries such as Cambodia. He also shared how some of what his "law firm is seeing among its clients" matches up:
  • Small clothing and shoe companies that seriously looked at moving operations to Vietnam or Cambodia or but then chose not to do so because it would be “too difficult” to set up a supply chain in those places...
  • Mid-sized and large clothing and shoe companies that have put their toes into Vietnam or Cambodia by doing a bit of outsourcing from those countries or by setting up small factories there.
  • Many companies of all kinds sending people to scope out Vietnam or Cambodia and, more recently and to a lesser extent, Myanmar.
See the post here for thoughts about what the future holds for foreign manufacturers in Southeast Asia.

Although the increased number of factories in Cambodia has potential benefits for the local population, not all is rosy. For example, a factory recently collapsed and workers are protesting at a factory that makes clothing for Nike. In The Globe and Mail, Mark MacKinnon and Marina Strauss take an in-depth look at a Taiwanese firm's factory and highlight another problem in Cambodia:
At Ying Dong, it takes only a glance to realize how young some of the work force is. “There are a lot of young workers here – many are younger than her,” said 21-year-old Danet, pointing at a particularly diminutive colleague wearing a pink Ying Dong Shoes shirt. The younger girl quickly hid behind other colleagues. “Lots of the girls are 14, 15, 16, 17,” Danet said.
See the article here for more about underage workers at Ying Dong and the working conditions there.

In some ways similar to China, the interplay of companies' motivation for having factories in Cambodia, the benefits of the factories for the local population, and workers' desire to improve conditions & pay will continue. It seems likely that the number of factories in Cambodia will continue to grow. One question I have is whether the Chinese signs are suggestive of who will be behind much of that growth.

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