[AEC Plus] Thai Textile and Garment Industry Hopes to Gain Momentum in Cambodia (Current Issue No. 2365 Full Ed.)

The apparel industry in Cambodia is considered one of the fastest growing in the world. They have caught some attention from investors worldwide as a new production base, because they are being offered such prime incentives as low wages and special privileges by the Cambodian government and trade partner countries. In the current situation wherein businesses are faced with rising costs of production in Thailand, Cambodia has received much interest toward foreign investment into textile and garment manufacturing.

Special economic zones and industrial parks in or near Svay Riang, Banteay Meanchey, Sihanoukville, and Koh Kong are seen as good locales. These areas are located not very far from the capital and offer more developed infrastructure that provides convenient access to markets and ports.

Trade and investment aside, business opportunities toward raw material production there seem good, e.g., for thread and fabric to supply the garment industry, because there is a domestic shortage of these materials that has led to a heavy-reliance on imports. This provides an opportunity for operators from Thailand to enter that upstream market, too, with inherent business advantages: being a neighboring country, low import tariffs under ASEAN FTAs, and reputation of product quality.

KResearch projects that Thai exports of textile materials in 2013 may reach USD120 million, representing a growth of 25 percent YoY. In the near future, Thailand should be able to produce a wider array of midstream and upstream textile materials to meet the needs of such Cambodian manufacturing. Another prospect there for Thai businesses is the growing demand for apparel, given their economic growth.

Despite the above factors, investors entering Cambodia should bear in mind a number of cautions. There are hidden costs in the form of “informal laws”, being practices that can increase costs for investors, not to mention a relatively low skill base among their workers; production is therefore restricted to CMT (cut, make and trim) operations, wherein manufacturers strictly follow orders from customers. This means that most domestically-produced goods there focus on price competitiveness, but at the same time, this leaves a lot of room for value-added production to be undertaken there. Moreover, Thai investors will likely face powerful international investors already established with large market shares, especially those from China that have cost advantages over competitors due to the sheer size of production, resulting in lower prices per unit. To penetrate this market successfully, investors should place their products in the upper and mid-range segments, avoiding price competition where they would likely lose to cheaper products.