Cambodia returns to industrial evolution

Yamaha has committed to a Cambodian manufacturing plant, along with fellow Japanese firms Minebea and Sumitomo Electric. Bloomberg

via CAAI

Monday, 28 February 2011 14:29 Seng Sovan

ONE effect of the global economic crisis seldom discussed amid reports of a liquidity crisis and garment sector meltdown was the impact on Cambodia’s manufacturing progress.

In 2008, Cambodia was on the brink of attracting large multinational companies looking for new sources of cheap labour and the latest frontiers of market growth. But these firms subsequently “stayed at home”, in the words of Sok Chenda, secretary general of the Council for the Development of Cambodia, as CEOs looked to damage limitation rather than expansion overseas.

In Cambodia’s case, the economic crisis looks to have only stalled – rather than aborted – the start of a long-awaited transition from labour-intensive industry towards more complex manufacturing. And increasingly, it is Japan that is driving this industrial evolution.

Confirmation at the weekend that Sumitomo Electric Industries, a Fortune-500 company, plans to become the latest Japanese firm to build a plant here provides the most recent evidence Cambodia is finally expanding manufacturing beyond the confines of the garment industry.

Sumitomo follows Minebea, Ajinomoto and Yamaha – all Japanese firms that have in recent months either opened or committed to manufacturing plants in the Kingdom.

Chinese firms have long had a manufacturing presence here, but most have limited themselves to the garment industry. Instead, China’s industrial base has had a more indirect impact on the stuttering manufacturing progress starting to take shape in Cambodia.

If China’s entry into Cambodian garments was partly due to the United States initiating quotas on Chinese clothing and apparel in 2005, according to some analysts, then the recent entry of more international complex industry into Cambodia can also be traced back to the mainland to an extent.

Masayoshi Matsumoto, president of Sumitomo Electric, told Kyodo News the firm’s decision to expand manufacturing to Cambodia and the Philippines later this year was due to a labour shortage and wage rises in China.

Minebea’s announcement at the end of last year that it would set up a production facility in Cambodia represents the first time the company would have opened a large-scale manufacturing plant in a new country since it did so in Shanghai 17 years ago.

The firm begins its first production in Cambodia in April at a leased factory before relocating to a US$61 million facility in the Phnom Penh Special Economic Zone next year, a plant that will rank second only in volume to Minebea’s China operation. This represents a significant moment for Cambodia.

While cynics will note these companies are coming here for the cheap labour, tax breaks and access to a new, untapped market, the benefits for the country will likely be substantial.

Minebea alone plans to hire 5,000 people in the longer term, workers that would otherwise have been hired at minimum-wage garment factories, or worse. These are employees that will be trained to assemble small electric motors for office and household electronic equipment, goods that have never been manufactured in the Kingdom previously.

Similarly, Sumitomo plans to make automotive wire harnesses, the latest sign the vehicle industry is starting to look at Cambodia as a production base following recent interest by Hyundai and Yamaha.

Within the long, arduous cycle of industrial evolution this marks solid progress for the country, not least because Japanese firms have over the past half a century represented the pinnacle of manufacturing.

For Cambodia, learning from companies like Sumitomo and Minebea is perhaps the most significant benefit that can be drawn from these new relationships. Cambodia’s manufacturing progress is as much about keeping multinationals here to gain increased expertise as it is about the revenues that can be generated from them. Just ask China.

If Japan is the master of developing technology then China is surely the more recent master of co-opting innovation for maximum gain. Now the economic crisis is over, Cambodia can get back to following their example.