Monday, September 13, 2010

Strikes could undermine Cambodia's advantage

Monday, 13 September 2010
Steve Finch
The Phnom Penh Post

FEW could doubt the moral case for the strikes that look set to cripple Cambodia’s garment sector this week, but worker action could undermine one of the few advantages the Kingdom has over its competitors – low wages.

When garment producers look to Cambodia, low monthly wages remain one of the few competitive advantages the Kingdom has over major rivals in the industry.

At US$61 per month, Cambodia’s minimum wage for garment workers is one of the lowest in the world.

Only Bangladesh pays less at $45 per month, and neighbouring Vietnam offers a minimum wage of between $63 and $90 per month.

If Cambodia’s garment industry is to remain competitive on the global stage and raise wages, the key is to offer investors a reason to come to the

And unfortunately little else about the country offers foreign companies a competitive advantage.

In terms of costs, Cambodia remains one of the most expensive garment exporters in the world.

Electricity, a major cost for factories, was three times as expensive in Cambodia last year as in Vietnam at $0.22 per kilowatt-hour, according to the International Monetary Fund.

And the Kingdom’s neighbour offers a workforce that the World Bank ranks as more efficient and productive than that in Cambodia.

In addition, garment exporters in Cambodia have been plagued by persistently high export costs. Given Cambodia’s lack of a deepwater port all shipments must go via Hong Kong, Singapore or southern Vietnam.

Therefore this week’s strikes pose a real threat to an industry that last year suffered a much more significant downturn than its main competitors and is only just in recovery.

After a 15.6 percent rise in exports in the first half of this year, Cambodia is only just starting to get back to the same level of production experienced before the onset of the global economic crisis.

It was notable that Cambodia faired much worse during the slump last year than competitors Vietnam and Bangladesh, a sign that buyers looked to more competitive products according to the IMF. Therefore, Cambodia’s dilemma of paying its workers well while remaining competitive on costs is an issue that must be addressed at the structural level of the economy.

In the long term, the government has to begin to initiate economic policies that don’t simply rely on paying the Kingdom’s workers a low wage.

If foreign companies were able to operate here without incurring high costs, the industry could compete and expand in a hugely competitive global market.

In many ways this week’s strikes represent a symptom of the main problems facing Cambodia’s economy – the key is therefore to cure the underlying problems.

Unfortunately, if companies were to pay the $93 per month demanded by unions then the Kingdom’s wages would be higher than Vietnam’s.

In such a scenario why would a foreign company decide to come to Cambodia?


Anonymous said...

The Phnom Penh Post should disclose its interest in backing up the manufacturers.

Kuoy Pichet

Anonymous said...

$ 30 more isn't that much. Give it to them and makes everyone happy. If the buyer knows the manufacturer is paying a stinking low wage for poor Cambodian, they would dread buying a products that says made in Cambodia. Why? It's pitiful.

Anonymous said...

The goverment of ah Kwack Hun Xen need to lower the taxes and curb the corruption!

How long poor people have to pay for motherfuckers luxery!

Anonymous said...

Take welfare money from King family to help them better give free money to king's family never work...$15million a year ???
that vested money..

Anonymous said...

Good grief! Low wages are an evidence of labour exploitation, not 'advantage', and that is why they are known as 'low wages'.

These workers are not asking for parity with their counterparts in advance industrialised nations, just a survivable pay otherwise called 'fair wages'.

Many investors, it is true, opt to invest in Cambodia precisely because of these low wages being the norm rather than an exception - it is their predatory instinct driven by the profit motive in the same way that sex tourists flock to places like Thailand and the Philippines for similar reasons.

The idea that countries like Cambodia must retain their competitive edge over their neighbours is the principal reason why the garment industry remains one of the most exploitative in the world, and like Nike and other famous brands, this fact has not been compensated by reduced sales costs to consumers, but has instead been compounded by ever larger increase in profit margin in favour of the manufacturers at both the consumers' and labourers' expense.

Must Cambodian workers continue to accept the current dismal pay rate until their counter parts elsewhere - like Bangladesh and Vietnam - have won higher wages than what they have been allowed so far? It could be a long wait as those 2 countries are among the most populous nations in the world, and like China, with infinitely cheap labour to spare!

On the other hand, $93 per month is hardly a luxury even within Cambodia's socio-economic context. In many cases, this could be the equivalent to the price of a pair of trainers (shoes) or less.

Like the factories, the workers too have to meet other living costs like rent, electricity bills etc. They have to work the longest hours and eat the cheapest food they could afford off the street stalls. So if they are asking for a fair wage, it is not for want of thrift.

Perhaps, the government and the investors, the labour unions and other relevant bodies should come up with a more refreshing alternative than using the same worn out excuse in having or maintaining cheap labour driven incentive for the aim of attracting investment to force workers to go on accepting 19th century era sweat shop existence.

Low wages are not the only reason why some of these investors are in the country. Weak or powerless labour movement, absence of independent judicial system, suppressed civil society voices and so forth, are just as conducive to what they see as 'favourable investment climate'.

School of Vice