Strikes could undermine Cambodia's advantage

via CAAI

Monday, 13 September 2010 15:00 Steve Finch

FEW could doubt the moral case for the strikes that look set to cripple Cambodia’s garment sector this week, but worker action could undermine one of the few advantages the Kingdom has over its competitors – low wages.

When garment producers look to Cambodia, low monthly wages remain one of the few competitive advantages the Kingdom has over major rivals in the industry.

At US$61 per month, Cambodia’s minimum wage for garment workers is one of the lowest in the world.

Only Bangladesh pays less at $45 per month, and neighbouring Vietnam offers a minimum wage of between $63 and $90 per month.

If Cambodia’s garment industry is to remain competitive on the global stage and raise wages, the key is to offer investors a reason to come to the

Kingdom.

And unfortunately little else about the country offers foreign companies a competitive advantage.

In terms of costs, Cambodia remains one of the most expensive garment exporters in the world.

Electricity, a major cost for factories, was three times as expensive in Cambodia last year as in Vietnam at $0.22 per kilowatt-hour, according to the International Monetary Fund.

And the Kingdom’s neighbour offers a workforce that the World Bank ranks as more efficient and productive than that in Cambodia.

In addition, garment exporters in Cambodia have been plagued by persistently high export costs. Given Cambodia’s lack of a deepwater port all shipments must go via Hong Kong, Singapore or southern Vietnam.

Therefore this week’s strikes pose a real threat to an industry that last year suffered a much more significant downturn than its main competitors and is only just in recovery.

After a 15.6 percent rise in exports in the first half of this year, Cambodia is only just starting to get back to the same level of production experienced before the onset of the global economic crisis.

It was notable that Cambodia faired much worse during the slump last year than competitors Vietnam and Bangladesh, a sign that buyers looked to more competitive products according to the IMF. Therefore, Cambodia’s dilemma of paying its workers well while remaining competitive on costs is an issue that must be addressed at the structural level of the economy.

In the long term, the government has to begin to initiate economic policies that don’t simply rely on paying the Kingdom’s workers a low wage.

If foreign companies were able to operate here without incurring high costs, the industry could compete and expand in a hugely competitive global market.

In many ways this week’s strikes represent a symptom of the main problems facing Cambodia’s economy – the key is therefore to cure the underlying problems.

Unfortunately, if companies were to pay the $93 per month demanded by unions then the Kingdom’s wages would be higher than Vietnam’s.

In such a scenario why would a foreign company decide to come to Cambodia?