Picture Grows Bleaker for the Garment Sector

The Cambodian garment sector has suspended or laid off as many as 40,000 factory workers from their positions since March, Van Sou Ieng, chairman of the Garment Manufacturers Association in Cam­bodia, said Wednesday.

The news comes just two and a half months after GMAC announc­ed that 51,000 jobs had been shed between September 2008 and mid-March 2009 due to a considerable fall in exports leaving the country.

“Since the last figures, Cambodia has seen roughly between 20 to 40,000 people who have been ei­ther suspended or lost their job,” Mr Sou Ieng said, speaking at a business forum in Phnom Penh with multinational manufacturers and buyers, as well as officials from the Ministry of Commerce.

He added that he thought 40 percent of that number had lost their jobs all together and 60 percent had been suspended.

“I would ask you to help us make Cambodia a competitive partner in the global marketplace,” Mr Sou Ieng told the forum. “We have not fought enough to provide awareness to the world about Cambodia’s high labor standards.”

Indeed, the garment sector is in disarray with 70 factories having closed since August 2008, according to a report released Monday by the UN Development Program. The main reason for the slump is due to a lack of demand from the United States, to which Cambodia currently sends 70 percent of its garment exports.

But both buyers and officials from the Commerce Ministry say they are committed to getting the sector back on its feet.

“We will do whatever we can to support the garment industry,” Commerce Minister Cham Prasidh told Wednesday’s forum, adding that Cambodia had gone from a speck on the map 10 years ago to being in the top 10 exporters to the US today.

Mr Prasidh said that Cambodia’s high labor standards make it the perfect industrial environment to attract buyers, giving particular attention to the presence of the International Labor Organization-assisted Better Factories Cambodia program.

“The country wants to make sure that there is no possibility of boycotting your product because of labor issues,” he said.

Despite the attractiveness of Cambodia’s ethical stance on labor laws, garment companies say that the cost of buying from Cambodian manufacturers is not competitive enough when compared to countries without such laws. Buyers at the forum were virtually unanimous in saying that compliance with labor laws, although important, is not the deciding factor when doing business.

“Customs and taxes are very high here,” said Kay Lee, executive vice president of the South Korean-based garment company Hansoll Textile. “Illiteracy levels amongst the workforce are weak as well, so skill levels are not very high either.”

Kanwarpreet Singh, chief representative in Cambodia for international clothing company H&M agreed.

“Buyers are going to buy at the lowest price despite the working standards. That is what makes customers come into the shop,” he said.

Mr Sou Ieng said that Cambodia’s exports are down 30 percent compared to last year and that export costs in Cambodia are between 3 and 10 percent higher than those in neighboring countries.

He said that the stark reality of higher costs for buyers has caused more problems for Cambodia’s garment industry since the global economic crisis started to shake the foundations of the Cambodian economy midway through 2008.

“We have even had some companies take orders out of Cambodia and go to Bangladesh,” he said.

For Anna Palmqvist, head of clothing operations for H&M in Shanghai, Cambodia’s lack of unique products means that the items they are producing are a victim of ferocious competition from other countries

“Sometimes you can be like a fat cat stuffed full of all the same things. Now is the time to diversify,” she said.

To help ease the situation, Mr Prasidh said, the Commerce Ministry is currently devising measures to promote duty-free trade in Cambodia. Cambodia has recently managed to acquire duty-free exports to Japan, for everything except rice; Canada, for everything except milk and eggs; and China, he noted.

Eric Beugnot, a director at Agence Francaise de Developpement, the French government’s international aid arm, said that the garment industry’s main problems were low productivity and a lack of sophisticated products.

But with eight buyers with a combined revenue of $143 billion per annum actively participating in Wednesday’s forum, he said, it appears evident that there is a desire among buyers to place more orders with Cambodian factories.

 

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