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As Cambodia Matures into Major Manufacturer, Domestic Unrest Grows

While much ink is spilled over the shifting sands of China as a manufacturing juggernaut, it’s not the only nation in Asia undergoing a radical transformation. Cambodia, once a destination for sourcing executives looking for the cheap production of simple apparel, is fast becoming both increasingly expensive and sophisticated.

Many retailers have begun to source much more complicated products from Cambodia, moving beyond basic staples like t-shirts and jeans, experimenting with intricate stitching, dyes and more complicated prints.

For example, Marks & Spencer has begun to produce garments adorned with lace and rhine stones in Cambodia. Swedish retailer H&M and Spanish clothing brand Mango have also retooled their operations in Cambodia, entrusting their progressively more skilled workforce and upgraded technology with more ambitious production orders.

Ken Loo, secretary general of the Garment Manufacturers Association in Cambodia (GMAC), noted the historic shift. “They are moving away from basic items,” he said. “In the past, the value creation is lower because it was just a simple transformation of fabric–cutting the dimensions. But now we do something to the fabric.”

However, Cambodia’s labor force is still not advanced enough to produce a lot of the higher-end clothing made in China, the US or Western Europe. Loo added, “That’s why we need a good vocational training institute. A lot of it also comes from on-the-job training. It’s still a question of do we have the ability to do it here.”

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One difficulty posed by the shift to higher-end garment production is that the costs of labor are rising in Cambodia. Still, the nation is regularly beleaguered by business-stymieing strikes from workers protesting what they contend are still inequitable wages. The average salary in Cambodia is currently $80 per month, up from $61 as of last May. Workers demand far more, some arguing that compensation should reach as much as $150 per month on average.

Cambodia has also suffered intense criticism for its labor conditions and factory safety, and lack of accordance with social compliance in general. Last month, Better Factories for Cambodia (BFC), an auditing organization sponsored by the United Nations, announced a new, aggressive initiative to publicly list the factories that fail to meet their stringent requirements for safety.

The BFC currently conducts safety audits of garment factories in Cambodia and sells them to businesses who do or potentially would contract with them. It also makes public a report that summarizes the prevailing factory conditions in Cambodia but has always refrained from naming names.

But now, the BFC intends to take its inspections process a few steps further, publishing the names of factories that repeatedly fail a strict regimen of assessment that considers fifty-three different categories of appraisal. The BFC estimates that fifteen of the roughly 450 factories it currently oversees would qualify for that level of public disclosure.

Some retailers that do business in Cambodia were quick to endorse the new BFC measures. A spokesperson for Wal-Mart said, “We know that transparency is vital to make progress in improving factory conditions throughout the global supply chain, and can only be accomplished by working with stakeholders across the industry.”

Other retail companies have been less enthusiastic, openly expressing concern that the BFC’s new self-assigned role affords it too much power, violates pre-existing trade arrangements with Western brands and could counterproductively makes matters even worse.

A group of some of the biggest companies that contract business in Cambodia–the Gap, Nike, Puma, and Levis Strauss among them–have taken to candidly voicing their objections. H&M reported that its policy is to continue to use factories that suffer from compliance issues as long as their is a demonstrated effort to resolves them in the proximate future. Spokesperson Andrea Roos said, “H&M is aware of the challenges the factories in Cambodia face.”

Cambodia has certainly made great strides as an apparel exporter, experiencing a robust 22 percent increase in its shipment of orders over the last nine months in comparison to the same period last year. The total value of its exports topped $4.1 billion for the duration, much higher than last year’s $1.21 billion.

Foreign investment has recently poured in Cambodia from Australia, England, India, Japan, Korea, Malaysia, Singapore, China, Taiwan and the US. China alone sent the nation $121 million in 2013.

And as Cambodia continues to mature economically, it has become progressively more reliant upon its garment sector, which accounts for 80 percent of all exports.

But even that accelerated growth has not been without its attendant challenges. Between 2012 and 2013, Cambodia increased the number of its factories by a hefty 8 percent to 412. This is partly due to the changing topography of sourcing created by the increasing expensiveness of China, once a prime destination for retailers and brands looking for bargain manufacturing.

And there are ominous signs that civil unrest is growing out of increasingly contentious disputes regarding wages and general labor conditions. On Tuesday November 12, at least 600 workers thundered through Phnom Penh’s Meanchey district, demonstrating for improved working conditions and compensation. In the fog and ferment of the riotous protests, at least one person died. The strikes have persisted for more than three months.