The 2013 UNDP report on Cambodia's desire to industrialize makes sense but was obviously not written by people who spent a lot of time in Cambodia.

The challenges:

[1] The enormous and costly requirement to train Cambodian job seekers for a modern factory

I agree. Outside the garment industry and a few similar industries, modern factories are heavily automated and have executed policies of cutting as much as possible unskilled and semi-skilled labour out of the picture. The majority of remaining factory workers are highly skilled nowadays. Therefore, it makes much more sense to put up the factory where the skilled workers are, and to ship in the few unskilled ones from elsewhere if needed, than the other way around.

[2] Poor protection of intellectual property

I totally disagree. China has always had poor protection of IP while in the meanwhile their industries have done very well. UNDP just added this issue exclusively for ideological reasons. It has nothing to do with Cambodia. They are just being dishonest there.

[3] First-mover risk

I agree. It is risky to be the first one to try anything. So, people wait for someone else to try first and see how that goes. In other words, one reason why there is not much industry in Cambodia, is because there not much industry in Cambodia. It puts the country in a vicious circle. UNDP suggest the use subsidies. I do not think that it will work. Foreign factories will most likely not make a move just because someone gives them subsidies. It may be easier to influence local Cambodian investors with subsidies, but I doubt that it will make much of a difference. They are not moving not because they do not have money but because they do not have the experience of moving into industrial fields. Subsidies will not make any difference as to that particular problem.

[4] No local supply chain

If an industrial company sets up shop in Cambodia, it will have to ship in across borders all its supplies: raw materials, components, specialized service personnel, and so on. This is a serious extra cost, even without taking customs duties into account. UNDP's solution of coordination is not a solution. It is not possible to set up all production facilities across the entire supply chain of a modern production facility in order to be able to supply components locally. The supply chain of modern industry is inevitably global.

[5] Lack of learning by doing

I agree. You cannot learn how to run a modern factory just by reading a book. If you want to set up such factory, you need to have worked in one before. Otherwise, things will go badly wrong until you finally learn how to do it. UNDP's solution of subsidizing factories until they have learned how to manage things, is very costly. I do not think that UNDP seriously mean this.

When I look around me, I see at least two other problems that are show stoppers:

(1) A foreigner cannot own the land on which he builds his factory in Cambodia. This is a problem. Nobody is going to spend 20 million dollars on equipment, in order to install it on half a million dollar worth of land that is not his property. In that case, the land owner would effectively become the main, deciding shareholder in your 20 million dollars of investment in equipment. This means that this type of investments can only be carried out by local investors. But then again, local investors do not have the experience of industrial production. If they had, they would already have built that kind of factories by themselves.

(2) Electricity supply in Cambodia is very expensive and totally uncompetitive on a global scale. Energy-intensive factories would never set up shop in Cambodia. Energy supply is also absolutely erratic across the country. There are power cuts all the time. In most provinces it would not even be possible to set up something as simple as an ice cream factory, because hours-long power cuts will more often than not force you to throw away the production. The remainder would easily become the most expensive ice cream in the world.

^^Just FYI to add from a quick gaze at the points. If you're serious (meaning a serious contender in the business market) you can own land in Cambodia. I own land as a foreigner so I know, and it's not because I'm married to a Cambodian.

Also re: electricity, it's not that bad. Unreliable yes, but cost wise it is far from the worst. Believe it or not, there are places in the U.S. where electricity is more expensive than Cambodia. My last bill in the U.S. was $350 plus for one air con and one desktop computer only in a studio office.

AE86 wrote:If you're serious (meaning a serious contender in the business market) you can own land in Cambodia.

I think that this is another serious issue with industrial policy, that you also find in Thailand's industrial policy: the idea that they want to attract large companies and not small fry. That approach is very short-sighted.

The reason why two apparently, unserious youngsters picked Mountain View in California for their rather unserious activity of building a new and exotic kind of search engine, does not really matter. In the meanwhile, Google -- their toys -- are worth nearly half a trillion dollars. That is much more money than the total value of industrial companies that will ever set up shop in Cambodia. The yearly GDP of Cambodia is only 15 billion dollars. In just a decade time, these two guys created more value than thirty times the GDP of Cambodia.

Common sense says that you should prefer two guys with a backpack coming over to experiment with a new idea, rather than a large, corporate group setting up their serious factory. Furthermore, it is not like they really have a choice. Large industrial corporations will not come over to drag Cambodia out of its vicious circle, because otherwise they would have done that already. These conglomerates will only come over when Cambodia has solved the problem already.