Cambodia On The Rise

The garment and textile industry in the Kingdom of Cambodia — a Southeast Asian country bordered by
Thailand, Laos, Vietnam and the Gulf of Thailand — was established in 1993 when foreign investors
set up manufacturing there. Over the past 20 years, the industry has grown tremendously and is now
the largest foreign exchange earner in Cambodia and a significant contributor to its economy.

Garment production accounts for 16 percent of Cambodia’s total gross domestic product (GDP)
and employs 45 percent of its manufacturing workers, according to the South East Asia Textile
Business Review 2009. Garment and textile exports comprise 85 percent of the country’s total
exports, the Garment Manufacturers Association in Cambodia (GMAC) reports.


Industry Profile

In 2011, Cambodia’s garment and textile industry comprised more than 300 factories employing
some 335,000 workers, of whom 91 percent were female, according to the Ministry of Commerce. The
industry lacks a strong textile-manufacturing base, and operates largely in the final phases of
garment production — mainly cut, sew and trim — and imports almost all of its fabric, which is
supplied mostly by China as well as other Asian countries.

Cambodia’s garment and textile exports have increased annually since 2001 with the exception
of 2009, which marked the beginning of the Great Recession. However, Cambodia rebounded strongly
from the global economic downturn, with garment and textile exports in 2010 increasing 25 percent
year-on-year to total US$3.02 billion; and in 2011, increasing 34 percent to total US$4.05 billion.

The United States is the largest importer of Cambodian garments, followed by the European
Union (EU). GMAC figures show that in 2011, Cambodia’s garment exports to the United States were
valued at approximately US$2.07 billion, representing 51 percent of its total garment exports and a
14-percent increase year-on-year; and garment exports to the EU were valued at approximately
US$1.17 billion, representing 29 percent of its total garment exports and a 66-percent increase
over 2012.

Cambodia benefits from duty-free and quota-free access to the EU and the United States as
well as to many other major world markets.

Since 2001, the country has been a beneficiary of the Everything But Arms (EBA) initiative,
which is part of the EU’s generalized system of preferences (GSP) and which grants virtually all
products excepts arms and ammunition from 49 of the world’s least developed countries (LDCs)
duty-free and quota-free access into the EU market. The EBA’s rules-of-origin policy was relaxed in
January 2011 to allow LDCs to export to the EU duty-free even if they are involved only in the
processing of the goods — a change that is highly advantageous for Cambodia, which imports almost
all of its fabric. However, the EU Ambassador to Cambodia has said the country may receive less
preferential economic treatment from Europe in the coming years as it becomes more developed.

The United States and Cambodia signed a bilateral Trade and Investment Framework Agreement in
2006; and in 2012, the two countries began discussions of possibly entering into a bilateral
investment treaty.

Foreign Investments

Cambodia’s garment and textile industry has seen a rapid increase in investment from foreign
manufacturers. The country’s low production costs, and particularly its lower-than-average wages —
along with other benefits such as tax incentives and the duty — and quota-free access to the U.S.
and EU markets — have prompted companies from higher-priced locales in Asia to set up manufacturing
in Cambodia. In fact, only a small percentage of garment and textile manufacturing operations are
locally owned.

In 2012, China was the largest investor in the Cambodian garment sector, with investments
totaling $121 million; followed by Taiwan, $112 million; and South Korea, $70 million; reports
Cambodia’s Ministry of Commerce. Other countries that invested in the sector that year include
Singapore, the United States, Malaysia, Japan, Thailand, Australia, England and India.

Labor Unrest

Cambodia is the only country in the world in which the International Labour Organization
(ILO) independently monitors and reports on working conditions in garment factories vis-à-vis
compliance with national and international standards. This endeavor is carried out through the
Better Factories Cambodia (BFC) program, which was established in 2001. The program stemmed from a
trade agreement between Cambodia and the United States under which the United States would give
Cambodia better access to its market if Cambodia improved working conditions in its garment sector.
BFC has incentivized major U.S. brands including Levi’s, Gap, Sears, Walmart, and Disney to
purchase apparel made in Cambodia, and as a result, Cambodia’s garment exports to the United States
have increased significantly.

Throughout the 12 years of the BFC program, Cambodia has been considered a “best practice”
model for other garment-producing countries in regards to labor standards compliance. However, a
recent report by Stanford University and the Workers’ Rights Consortium has suggested the country’s
reputation is somewhat unwarranted, and that the BFC program lacks transparency and desperately
needs to be reformed. The report also says that Cambodian workers have lost faith in the BFC
program because it protects brands’ and factory owners’ interests while paying little attention to
workers’ concerns such as health and safety issues, declining wages and job security.

Cambodia’s garment industry has seen a string of mass faintings, attributed mainly to
unfavorable health and safety conditions including poor air quality and overheating caused by
inadequate ventilation; exposure to toxic chemical substances and fumes; exhaustion from forced
overtime; and malnutrition resulting from insufficient pay. The Ministry of Labor reports more than
1,600 garment and shoe factory workers fainted in 2012.

Such conditions have led to increasing labor unrest in Cambodia’s garment industry, with more
and more workers striking and incidents of violence reportedly rising. In 2012, more than 84,000
factory workers staged protests to demand pay raises and improved working conditions, the Ministry
of Labor reports. Some workers have even moved to neighboring countries that offer higher wages.

After several rounds of wage negotiations among the Ministry of Labor, GMAC and other
worker’s unions, the Cambodian government increased the minimum wage for garment and footwear
workers by 20 percent from US$61 to US$80 per month, effective May 1, 2013, with hopes that the pay
increase would appease garment workers and prevent them from moving to other countries or even
transferring to other industries to earn higher wages. However, the increase has not satisfied all
factory workers, and thousands have continued to strike, demanding at least US$100 per month.

Silk Industry

Cambodia’s silk industry dates back to the 13th century. The country was once renowned for
its “golden silk,” a particularly high-quality silk yarn spun from a yellow-colored cocoon, which
today is a rarity. Up until the 1940s, Cambodia had approximately 6,000 hectares of land dedicated
to the cultivation of mulberry trees to provide leaves to feed the silkworms, and the country
produced up to 20 tons of silk annually. In the late 1970s, the Khmer Rouge regime’s attempts at
agricultural reform nearly eliminated silk farming in Cambodia, and the sector has been slow to

Today, there are around 40 hectares of mulberry plantations in the country. Recent data from
the Food and Agriculture Organization (FAO) of the United Nations indicates that Cambodia only
produces around 5 percent of its silk yarn supply and imports 395 tons of raw silk yarn from China,
Vietnam and other countries.

Silkworm diseases, low-quality silkworm varieties, and antiquated production techniques have
further contributed to Cambodia’s diminishing silk yarn production. The country’s silk industry
continues to use a manual reeling process that is inefficient and more time-consuming than
automatic reeling machines, and that produces a coarser silk fabric not desired by the luxury

Today, the industry employs around 20,000 silk weavers who contribute some US$25 million
annually to the country’s GDP, according to the World Trade Organization’s International Trade
Centre. However, many Cambodian silk artisans have abandoned the craft, and it is feared that the
country’s age-old silk industry may completely dissolve. In September 2009, the FAO launched a silk
industry rehabilitation project that included the establishment of a Silkworm Egg Production
Center, the construction of seven silk farms, and training for employees; however, project funding
has been exhausted.

The Ministry of Commerce is working to draft a plan to help boost the Cambodian silk sector.
In addition, scientists at the Silkworm Egg Production Center have obtained the Eri silkworm, a new
high-yield silkworm hybrid that feeds exclusively on cassava — a crop that is abundant in Cambodia,
and is more resistant to heat and disease than mulberry trees. The silkworm already is being raised
in India, Japan and Thailand, and research is being conducted in Cambodia to determine its
potential there.


Cambodia’s garment and textile industry has weathered the economic storm, but it must make
some changes to help it continue its upward climb and remain competitive in the global market.

The industry’s dependence on fabric imports, foreign investment and export demand make it
particularly vulnerable to global financial crises and rising raw material prices.

It has been suggested that the country could take advantage of its abundance of bamboo
forests by processing bamboo fiber into fabrics — which not only would decrease the cost of
importing fabrics but also would add value to its garments.

Many of Cambodia’s garment workers are unskilled, mainly because of poverty and poor
education, and consequently, the industry gives skilled jobs to foreign workers, often at higher
costs. GMAC is setting up Cambodia’s first garment training institute, financed by the French
Development Agency, to train Cambodian garment workers for specialized jobs in apparel making and
merchandising to lessen the industry’s dependence on foreign workers and also to increase worker
productivity. According to GMAC, Cambodian garment workers are less productive than other garment
workers in the region, producing only 30 to 40 shirts per hour, compared to Vietnamese workers,
with 60 to 70 shirts per hour; and Chinese workers, with 100 to 120 shirts per hour. Labor unrest
also contributes to decreasing worker productivity, so health and safety conditions in the
country’s garment and textile factories and its meager wages will remain important issues.

Despite challenges, investment in Cambodia’s garment and textile industry has increased: Data
from the Council for the Development of Cambodia (CDC) indicate that Cambodia gained 40 new garment
factories valued at US$239 million just in the first half of 2012. Prospects for the industry are
good, with the Ministry of Commerce reporting that garment and textile exports in 2012 increased 14
percent year-on-year to total US$4.6 billion.

April/May/June 2013