Kampuchea's Collapse Is Surging. Is It Worth The Chinese Textile Enterprises To Leave Southeast Asia?

In recent years, as China's demographic dividend continues to disappear and production costs continue to rise, many Chinese enterprises have moved their factories to Southeast Asia with lower labor costs, such as Kampuchea, under the high pressure of environmental protection.

But the business environment in Southeast Asia is not as good as expected. In recent years, many enterprises have moved their factories to Southeast Asia and have returned to China. This shows that the current business environment in Southeast Asia is not as optimistic as it may be. Especially for Kampuchea, there has been a lot of factory closures in the past few years, of which the garment factory closures is a typical example.

According to the Kampuchea daily, Ken Loo, Secretary General of the Kampuchea Garment Manufacturers Association, said that so far, 70 factories have been closed down, double the number of 35 last year, and this trend will steadily increase in Kampuchea's garment industry.

There are a large number of garment factories closing down in Kampuchea, which are mainly caused by the following reasons:

1. the rise in labor costs has left Kampuchea no longer an advantage.

In the past few years, many international enterprises set up factories in Kampuchea. The most important thing is to look at the relatively low labor costs in Kampuchea. The following is a picture of the change in Kampuchea's artificial wages from 1997 to 2017.

In 1997, the labor wages in Kampuchea were about $40. By 2017, the official salaries of employees in Kampuchea had risen to $153 a month, and by 2018 wages had risen to $170. Well, 2019 has risen to $182. If employees' benefits and subsidies are included, the average cost of a typical employee in Kampuchea is about $210 a month, and some employees can earn about 500 dollars a month.

Compared with manual wages in Kampuchea, the cost of labor in Southeast Asia and some countries in South Asia is relatively low. For example, in January 2018, it is also the garment industry. The monthly labor cost in Bangladesh is 67 dollars, 67 in Sri Lanka, 77 to 143 dollars in India, 79 dollars in Burma, 134 in Pakistan, and 110 dollars in Laos.

That is to say, the cost of labor in Kampuchea is almost two times that of other South Asian and Southeast Asian countries. Under such circumstances, it is justifiable for some enterprises to escape from Kampuchea to cheaper countries.

2. supply chain is imperfect and logistics is weak, which increases the production cost of enterprises.

At present, the infrastructure and supporting facilities of Kampuchea's industrial manufacturing industry are relatively weak, and many basic facilities are lacking, such as local hydropower facilities. Most of the fabrics and other raw materials needed by the garment industry can not be supplied. Therefore, many garment factories in Kampuchea are imported from China. From China to Kampuchea, the cost of freight and customs duties is even higher than that of China, resulting in high overall cost.

3. low efficiency of workers, so that low-cost labor wages did not turn into advantage.

Manual labor efficiency in Southeast Asia is relatively low, which is a common aspiration of many Chinese bosses who invest in Southeast Asia. According to industry analysis, the productivity of Vietnamese and Indonesian factories is about 80% of that of China, and the productivity of Cambodian garment factories is only about 60% of that of China. Without contrast, there is no harm.

At present, a garment factory in China is also paying about 3000 yuan in the central and western regions. If the labor wage in Kampuchea is 200 yuan (about 1400 yuan), and their efficiency is only 60% of that of the Chinese workers, if the cost of the supply chain is included, the cost of production in Kampuchea is not lower than that in China, which is why some factories prefer to move the production base back to China. For example, since 2008, many Japanese companies have moved Chinese factories to Southeast Asia, but in recent two years, many Japanese companies have moved factories back to China.

4. workers' strike and protest increase the difficulty of business operation.

Southeast Asian workers are not only inefficient, but also have high awareness of rights protection, coupled with the support of the government, so many workers are often on strike and protest. Some workers protest slightly or even go on strike. And even if workers strike out of work, manufacturers will have to pay wages.

Besides, workers in Kampuchea are not as hard-working as Chinese workers. Some workers may faint when they are in a bad environment. For example, if they smell gasoline, they may faint. Even such a sentimental worker can not be casually dismissed, because casually dismissed workers will face great punishment.

Because of this, the normal production of many factories has been greatly affected, and even can not be delivered on time, resulting in the continuous reduction of orders.

5. uncertainty, is it still doubtful whether the export price advantage will remain in the future?

An important reason why Kampuchea attracts many manufacturers to invest is that Kampuchea's products have certain advantages in exporting to the European Union and the United States. There are two more important tariff preferences, namely, the EU's "all tax exemption (EBA)" except the weapon and the United States generalized system of preferences (GSP). These tariff preferences have great advantages for Kampuchea's export products, just the preferential tariff treatment provided by the European Union. Kampuchea can save about 600 million to 700 million dollars of customs duties every year.

However, in October 2018, the European Union considered the case of the lifting of preferential tariffs between Kampuchea and Burma. The EU believes that Kampuchea and Burma have violated human rights and workers' rights and interests seriously. This means that Kampuchea will lose the preferential tariff treatment granted by the European Union (EBA) except for weapons.

If the EU finally cancels the preferential tax treatment, the export of Kampuchea's products will be greatly affected, because at present, Kampuchea's garment industry exports a large market share, mainly for the European Union.

So it is also possible for some garment enterprises to move their factories away from the former village.

In summary, the major brands do not dare to place orders easily in Kampuchea factories. Many local factories have been forced to stop production or even go bankrupt due to the decline or even shortage of orders.