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SJ Guest Editorial: US/Cambodia Trade: Where the Tailorbird Flies

Rivet's 2020 Denim Circularity report takes a deep dive into how the global denim industry is plotting its circular future amidst a worldwide pandemic.

It’s true!

In 2009, birdwatchers discovered a new species of bird in Phnom Penh.

It’s called the “Cambodian tailorbird;” the name comes from the meticulous preparation of the nest, which is woven together from leaves. There is some speculation that the tailorbird arrived with the tailors from the apparel industry, thinking that Cambodia would be a good place to call home.

It’s also true that when an apparel company leaves one designated area (like China) to manufacture product in a totally different geographic location, the reasons behind that decision become significant. Such is the conundrum that companies face when looking at alternatives for their production.

Is Cambodia a good choice? Let’s take a look.

There are approximately 450 garment factories in Cambodia now, and the employment level is around 400,000. Most of the factories are located near Phnom Penh. Exports from the garment industry account for roughly 80% of Cambodia’s total export revenue.

From 2009 to 2012, the Cambodian apparel assembly industry has almost doubled in size.

In 2012, total garment export was valued at $4.5 billion, with approximately $2 billion (at fob) destined to the USA, and $1.4 billion to Europe.

For the last three years, Cambodia has ranked as the 8th largest supplier of apparel to the USA.

China does continue to dominate the apparel landscape, with a 38 percent market share of US imports. However, while productivity rates (units per operator per day) can be over 50 percent lower in Cambodia than in China, the wage rate is also about 75 percent less. As productivity and skill levels increase, Cambodia will offer serious competition. Raw material often comes from China and arrives by sea in about a weeks’ time.

Cambodia is a relatively small country, with a population of 14.3 million people. In recent Cambodian history, there was a very “dark period” from 1975 to 1979, as Pol Pot’s Khmer Rouge government relocated the population from urban centers to the countryside. Money and private property were abolished. Massive killings took place (“The Killing Fields”), and over 1.7 million people lost their lives in this travesty of justice.

In terms of resurrection and stability, the Kingdom of Cambodia was reestablished in 1993. Several of the first foreign investors were from the garment trades.

In 1996, both the US and the EU granted Cambodia MFN/GSP privileges. In 2001, the US promised generous quotas to Cambodia in exchange for better working conditions. Under the auspices of US Department of Labor and the ILO, the Better Factories Cambodia (BFC) program was established with independent monitoring of factories.

In 2004, Cambodia joined the World Trade Organization, and by 2007, the Supervisory Skills Training program was established, with a goal to train local supervisors. Having significant labor rules and building codes for the workplaces, the industry has started to expand. Many workers are looking for better wage rates today. They have concerns that their personal transportation and food costs are too high, and that wages are not keeping up with inflation.

In terms of the prevailing wage rate, manufacturers indicate that they need to compete in the global supply chain, and they are dealing with higher raw material costs, higher energy costs and relatively low productivity from the workers. Cambodian law prohibits labor from having excessive overtime, and protects their rights to unionize. Plus, the ILO (Better Factories Cambodia) is on location in Cambodia to monitor the laws.

With all these checks in place, while the system may be far from perfect, essentially Cambodian factories are sweatshop free, with virtually no child labor or forced labor, and much work is done on fire safety and occupational hazard prevention.

After 2005, when Cambodia’s trade preference with the US (on quota) ended, the BFC stopped naming factories that were not in compliance. In essence, the BFC lost their bite, and that is why the system has wandered somewhat off course. It is rumored that by 2014, the ILO will start to publish the names of factories that don’t improve issues for which they have been cited. The general feeling is that would put the teeth marks back in the apple. Those concerned with the fallout from Bangladesh will find that Cambodia looks significantly more viable.

Poverty in Cambodia is stubbornly high and looms at 20 percent. Most of the economy is centered around agriculture and fishing, but garment manufacturing is the engine that is pulling the train. The future looks encouraging for apparel assembly in Cambodia. Proximity to raw materials, a respectable infrastructure, a regulated labor force and a government that remains committed to foreign investment, all help to make Cambodia a country of choice for light industry.

The poet U Sam Oeur captured the image over time

From the era of misery during the Killing Fields:

“No places to hide, No skies under which to rest”

To the era of respect for culture and history:

“Where water glitters, palm trees dance.

Where egrets and herons flap after fish”

Welcome to Cambodia, the land of tomorrow…………where the tailorbird flies.

 

RickHelfenbein

Rick Helfenbein is President of TellaS Ltd (Luen Thai USA) and Vice Chairman of the American Apparel and Footwear Association. He is a strong advocate of a robust US Trade Agenda and often lectures on the subject of supply chain and international trade at prestigious universities around the country. He participates annually in the Consortium for Operational Excellence in Retailing at Harvard University and the Wharton School of Business.

 

 

 

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