"In a rising market, everybody makes money. In a declining market, only the most competitive make money. The question is, How does Cambodia position itself to be more competitive?" she said

http://www.phnompenhpost.com/index.php/2009061226443/Business/Garment-makers-look-for-answers.html
Garment makers look for answers
Written by Nathan Green
Friday, 12 June 2009

In a major meeting in Phnom Penh today, industry figures will have a
chance to discuss how to escape the financial crisis, but it’s not
just the downturn that has caused the industry to suffer

GARMENT sector representatives are to meet in Phnom Penh today to
develop a national strategy for the industry against a backdrop of
drastically falling exports, factory closures and mass layoffs.

Figures from the Commerce Ministry's Trade Preferences Systems show
garment exports fell 26.41 percent year-on-year in the first quarter
to US$534.6 million, while Stephan Guimbert of the World Bank office
in Phnom Penh estimates that at least 63,000 workers have been laid
off as factories have closed, taking into account that many have been
reabsorbed as some new factories opened.

The smart money is on worse to come. Van Sou Ieng, president of the
Garment Manufacturers Association of Cambodia (GMAC), said he was
surprised exports had not fallen more.

"Cambodia is less competitive than Bangladesh and Vietnam in regards
to production, and less competitive than Indonesia because we don't
have fabrics," he said. "For that reason, last year I predicted a drop
of 40 to 50 percent in the first six months of this year."

In contrast, others are surprised the losses have been as pronounced.
Paul Gruenwald, ANZ Bank's chief economist in Asia, said low-end
clothing and textiles usually held up relatively well in economic
downturns.

"On the garments, I'm a bit surprised by the severity of the
downturn," he said. "Some of the other markets for garments - we
understand - are doing a bit better."

He suggested something else was going on to affect the country's
competitiveness, singling out the country's high level of
dollarisation, which served as a de facto peg to the dollar. "The
dollar has been rising so this is hurting competitiveness," he said in
Phnom Penh this week.

These are the issues attendees at a garment industry conference
organised by the Garment Industry Productivity Centre (GIPC), the
garments wing of the Cambodia Skills Development Centre (CSDC), will
be grappling with when they meet in Phnom Penh today, said GIPC
Director Mona Tep.

While she acknowledged the impact of the global downturn on the
sector, she said the competitiveness, or lack thereof, of Cambodian
exporters was also a contributing factor.

"[Declining garment exports are] a combination of a lot of elements,"
she said. "One of the main elements is the drop-off in the global
economy, that's for sure. But there are other elements in our control
that we can take action on."

Without wishing to prejudge where conversation at the forum would
head, she identified workforce development, industrial relations,
electricity supply, customs issues and offshore marketing as areas
where improvements could be made.


--------------------------------------------------------------------------------

In a declining market, only the most competitive make money... how
does Cambodia position itself to be more competitive?

--------------------------------------------------------------------------------

She said the conference was an opportunity for the sector to discuss
findings from a May 27 forum in which buyers and investors put forward
a wish list for changes to the sector.

"This was not about compliance at all," she said, referring to the
International Labour Organisation's controversial Better Factories
initiative. "We have all the workers initiatives in place already.
What they were expecting is more in terms of quality, productivity,
delivering on time and, of course, price."

Labour compliance is a major buzzword in the Cambodian garment sector,
and an increasingly sore point for factory owners, employer groups and
the government.

Speaking at the May 27 forum, Minister of Commerce Cham Prasidh warned
buyers the government could be forced to revisit its labour-linked
trade policy "if the result of the support of ILO labour compliance
means less purchasing orders and less business for Cambodia".

He acknowledged that the country had seen commitment from a number of
customers, but urged others to embrace the initiative more fully and
resist the temptation to source from countries who could make cheaper
garments as a result of poor labour standards.

"Time has proven that we were right to promote [corporate social
responsibility (CSR)], but time has proven also that, in dire
circumstances in which prices are falling, CSR could be relegated to
the back stage," he said.

Van Sou Ieng said he hoped this government pressure would encourage
buyers to "put their money where their mouths are" and reward Cambodia
for its commitment to the programme, which he said raised costs and
made Cambodia less competitive than countries like China, Bangladesh
and Vietnam, none of whom had been hit as hard as Cambodia by the
crisis.

"If they want to see Better Factories survive they have to pay for it,
and place orders," he said. "Buyers who talk about Better Factories
but only put $1 million or $2 million in orders into Cambodia and
hundreds of millions into other countries are hypocrites."

But Jane O'Dell, a consultant for Nathan Associates Inc, an economic
development consultancy, and the former head of a USAID project that
set up the GIPC in 2005, said compliance with labour standards was
essential for market access. However, productivity and costs also
needed to be addressed. "You can't ignore your business model on the
strength of your labour standards," she said. "Much as the buyers
appreciate the compliance, if they can't get their goods or they can't
make a profit on them, it makes it very difficult even if they want to
place more orders."

Cambodia had good manufacturing capacity, she said, but severe
weaknesses in other areas, including infrastructure, workforce
productivity, utility costs and trade facilitation were costing
exporters.

This was also the finding of a recent UN Development Programme report
on Cambodia's competitiveness in the global economy that placed the
country last among ASEAN nations and among the worst-performing
countries worldwide.

"Increasing Cambodia's competitiveness is a necessity, not a choice,
if the country is to sustain economic growth, reduce poverty and keep
pace with its ASEAN neighbours," the report warned.

Van Sou Ieng agreed. "I think the most important thing to survive the
crisis is to improve our competitiveness and capture more of the value
chain," he said, referring to developing the capacity to produce raw
materials, which make up to 70 percent of the value of finished
products.

He also called for massive government investment in infrastructure and
skills, an urgent reduction in the cost of utilities and a labour
union law to reduce proliferation of unions and create an industrial
relations landscape not marred by strikes. Equally importantly, he
called for the government to take measures to facilitate trade, or at
least reduce the bottlenecks and high costs at customs that were an
all too common complaint across the sector.

"Cambodia has no raw materials so we have to import everything, and it
has no domestic market so we have to export everything," he said.
"Imports and exports are the core of our industry, but administration
costs have crippled it."

Investors lost
He said these issues were behind a decision by a major Japanese buyer
who had looked to invest between $45 million and $50 million in
Cambodia to go elsewhere. "At the end of the day, the Japanese
invested in Bangladesh, despite coming to Cambodia 10 times," he said.
"First, the cost of utilities was too expensive, second was the number
of strikes, and third was the high costs of imports and exports.

"They didn't even look at the Better Factories programme. We spent six
months lobbying, and we lost."

Jane O'Dell said she hoped today's conference will help focus
attention on the critical issues afflicting the sector and help lead
to a nationwide strategy for the future of the sector agreed to by
government, exporters and the unions.

"In a rising market, everybody makes money. In a declining market,
only the most competitive make money. The question is, How does
Cambodia position itself to be more competitive?" she said.

"I don't have a crystal ball or anything like that but the thing that,
I would worry about is that other people who are more focused are
going to be taking market share and Cambodia is going to be losing -
losing jobs and losing opportunity."
.

Relevant Pages