Garment Industry's Bleak Future. (extensive)

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Garment Industry's Bleak Future. (extensive)

Post by Kung-fu Hillbilly »

Image

by: Jozef de Coster
October 2019


Cambodia's biggest industry-garment, shoewear and leather-employs some 1 million people and accounts for nearly three quarters of its merchandise exports. However, this industry is beset with problems.

Compared to three years ago, many more cars, gas powered tuktuks and hurried motorcycles fill the roads of Phnom Penh. High buildings arise everywhere in the city centre. So, you may think that Cambodia is on the fast lane to become an upper-middle income country by 2030, as is the ambition of the government. But wait, first some serious obstacles have to be overcome.

This year, Cambodian exports of garments, shoewear and bags will approach $10 billion, which puts the Kingdom of Cambodia on #8 position among the major exporting countries of these products. This is an amazing performance for a country that lacks a basic cotton and textiles industry of any importance and is beset by huge energy and infrastructure problems.

The machine park of Cambodia's garment industry is increasingly becoming Chinese. The 8th Cambodia International Textile & Garment Industry Exhibition in Phnom Penh (22-25 August 2019) was dominated by Chinese stands. By the way, only one Indian exhibitor took the challenge: Kamal Desai of Sahiba Ltd from Surat, who boasts that his company has been pioneering in the fabric industry for well over 2.5 decades, is in constant competition with some of the giants in the fabric business and is still managing to stay on top.

Andrew They, Centre Director of the Cambodian Garment Training Institute (CGTI) in the Phnom Penh Special Economic Zone, says that the number of Cambodians working at middle management level like senior sewing supervisor, compliance officer or quality assurance manager is steadily increasing. As for now, CGTI's annual targets are 2,000 short course students and 60 diploma students. However, though CGTI and other training institutes are doing a good job, the lack of Cambodian middle-managers and skilled workers remains a big problem.

Sadly enough, Cambodia's power elite made and is still stubbornly holding on to the wrong strategical choice of repression instead of cooperation. Doing so, they not only caused much human suffering (when the prominent political commentator Kem Ley was shot dead in July 2016, an estimated 2 million mourners attended his funeral), but also put the Cambodian economy, and especially the export-oriented garment industry, in big trouble.

The dark clouds hanging above exports to the EU, Cambodia's principal market, is already impacting the garment industry. Loo says: "While over the five last years, garment exports to the EU averaged an annual growth of around 15 per cent, these dropped by 7 per cent in the first half of 2019."

Ath Thorn, President of the Coalition of Cambodian Apparel Workers' Democratic Union (C.CAWDU), continues striving for a living wage for workers. He argues that the monthly cost of living in Cambodia is $250-300. Thorn knows that as a union leader he must by all means avoid making sensitive statements. He thus focuses on technical aspects of e.g. the amended article 89 of the Labour Law (seniority indemnity) and the problems related to 'fixed duration contracts'. As for the Law on Trade Unions which was adopted in 2016, he regrets that this has undermined workers' right to free association. Also, legal strike action has become very difficult, if not altogether impossible.

full https://www.fibre2fashion.com/industry- ... eak-future
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Re: Garment Industry's Bleak Future. (extensive)

Post by Duncan »

I cannot understand how Cambodia can continue to compete with other countries when it does not grow cotton , process the cotton to yarn, make any fabric or dye any of that fabric, and has to import the sewing machines as well.
The shoe industry is probably much the same, and as technology gets more advanced with more robots doing the work 24 / 7 and Cambodian worker competing against countries like India and Bangladesh and with South African states being targeted by the Chinese as the next boom area for cheap production ,,,, where does that leave the Cambodian garment factory worker.
Cambodia,,,, Don't fall in love with her.
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Re: Garment Industry's Bleak Future. (extensive)

Post by SternAAlbifrons »

Good points Duncan ^^
It sent me searching for Cambodia's comparative advantages. The following list is from an in-depth study of the industry by the Dutch government. Oct 2018

The dynamism of Cambodia’s garment industry is greatly explained by the country’s strong comparative advantages in the sector.

1/ Despite rising wages, Cambodia is still relatively competitive in terms of labour cost.
This is a key factor for labor-intensive activities like “Cut-Make-Trim” which represent the Kingdom’s main segment of specialization.

2/ Unlike regional neighbors like China or Vietnam, Cambodia enjoys preferential market access to the
EU and the US markets thanks to the Everything But Arms and Generalized System of Preferences schemes.

3/ Investment is encouraged through incentives schemes offered under the framework of Qualified Investment Projects (QIPs), especially in the Special Economic Zones (SEZs).

4/ More importantly, the combination of these favorable conditions in a country where the garment production is already
well established makes Cambodia quite unique and particularly competitive.

5/ Further developments, such as the government’s efforts to lower the costs and increase access to electricity
could pave the way for further investment in machine-intensive activities such as textile production.

6/ Working conditions
The garment industry is the only one in Cambodia for which there is a stipulated minimum wage.
recently announced a remarkable increase, up to USD 170 per month for garment and foot wear workers in 2018.

Although these developments could be perceived as an increased cost by investors, they can alternatively be seen as
providing a fairer income to employees, more than 80% of whom are women, usually below 30 years-old.

Moreover, under the supervision of the International Labor Organization (ILO), the implementation of the Better
Factories Cambodia (BFC) program, , has significantly improved the sector’s standards for working conditions.

These improvements could become a sale argument for suppliers. Indeed, international clothing brands are facing
mounting pressure from consumers for ethical products, following several past scandals in various countries.


I will also add two more possibilities -
i/ The proximaty of Cambodia to China has to be more attractive than distant locations, eg Sri Lanka or Africa.
ii/ The corruption may make doing business easier. eg short cuts thru regulation for an extra fee.
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Re: Garment Industry's Bleak Future. (extensive)

Post by Mishmash »

Duncan wrote: Sun Nov 03, 2019 5:35 pm I cannot understand how Cambodia can continue to compete with other countries when it does not grow cotton , process the cotton to yarn, make any fabric or dye any of that fabric, and has to import the sewing machines as well.
The shoe industry is probably much the same, and as technology gets more advanced with more robots doing the work 24 / 7 and Cambodian worker competing against countries like India and Bangladesh and with South African states being targeted by the Chinese as the next boom area for cheap production ,,,, where does that leave the Cambodian garment factory worker.
The GSP and EBA agreements mean the Chinese Owners avoid duties - at least for now.

I'm fairly sure there is no export duty the Cambodian side also.
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Re: Garment Industry's Bleak Future. (extensive)

Post by Mishmash »

SternAAlbifrons wrote: Sun Nov 03, 2019 6:24 pm Good points Duncan ^^
It sent me searching for Cambodia's comparative advantages. The following list is from an in-depth study of the industry by the Dutch government. Oct 2018
Excellent post Stern... :thumb:
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Re: Garment Industry's Bleak Future. (extensive)

Post by SternAAlbifrons »

Thanks Mish - chuckle
I realised a long time ago that my financial forensics (and probably most of my natural history tutorials) were not really a hot topic on CEO.
I mostly just do the financial and biz investigations for my own benefit - but it is nice to know that there is another boring old fool in the joint who occasionally finds this stuff interesting. Thanks.
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