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Cambodia: Innovation key to garment industry growth
Cambodia’s garment industry is the cornerstone of the economy accounting for 57 percent of the Kingdom’s exports and making up around 80 percent of its gross domestic product.
As wages rise, international fashion houses, such as H&M, Adidas and Nike, may shift production elsewhere unless the industry makes fundamental changes, according to Soun Vichea, Director of the Intellectual Property Department at Cambodia’s Ministry of Commerce.
While there are more than 500 garment factories in Cambodia, the industry is heavily dependent on imported fabric and was hit hard when the Coronavirus pandemic cut shipments from China, its main supplier.
“The challenge in Cambodia is that even though we have exported about $8 billion [of garments in 2019] we have no capacity by our own to produce the raw material,” Vichea said.
“Mostly we import the raw material from other countries and we add value by cutting and sewing and then export. We depend 50 percent on imported raw material.”
Cambodia cannot rely solely on traditional styles and techniques but needs to leverage the latest technology to keep ahead of its rivals, Vichea added.
“If you can utilise computer programmes for designing, for controlling, management and processing of garments then that also promotes the garment sector and gives the manufacturing sector, more competitiveness,” he said.
Manufacturers not only need to upgrade their technology, Vichea said, they need to address the problem of a low-skilled workforce, especially since wages have risen from $40 per month in 1997 to $198 a month in 2022.
“If the salary increases, unemployment among unskilled labour will increase as well, as investors in the garment sector look to other countries with low labour costs,” he said.
“To solve that problem we need to increase our productivity. In order to increase skills the government of Cambodia has established vocational training to promote the skills of Cambodians and also established institutions in order to provide skills to garment workers.”
Even with home-produced fabric, the latest technology and a skilled workforce that can maximise its potential, Cambodia needs to protect the fashions it produces and exports to avoid being copied and undercut by international competitors.
Vichea urged manufacturers to register and trade mark their designs with government ministries and even consider copyrighting their management processes, a technique successfully adopted by Spanish fashion brand Zara.
He said the Ministry of Commerce is currently drafting a law on trade secrets to protect information, methodology, strategy, management systems and marketing techniques.
According to ASEAN Briefing, in the early 1990s, the Cambodian government took various measures to boost the industry’s competitiveness in the international market, which prompted foreign investors to direct their attention to the country.
Additionally, the country’s industrial development was supported by the Multi-Fiber Arrangements (MFA) quotas and other preferential trade agreements implemented by developed countries like the US and EU.
Two decades later, the garment industry continues to drive the Cambodian economy through human capital development, employment generation and foreign direct investment (FDI).
In 2020, prior to the Covid-19 pandemic, some 800,000 were directly employed in the garments and shoe sector. In turn, hundreds of thousands of families depend on these workers remittances, while a wide range of service sector jobs also depend on factory workers in and around the industrial zones, including food vendors, clothes sellers, transport operators, and many others.
According to report titled ‘Cambodia’s Garment Sector in Transformation’ the demand-side shock to the global apparel industry as a result of the Covid-19 pandemic has had a huge negative impact in Cambodia, with (by some estimates) between 80,000 to 150,000 workers out of work or with reduced working hours.
The garment and footwear sectors account for almost 80% of Cambodia’s total exports, making them linchpin in Cambodia’s $26bn economy. Nearly one in five employed women in Cambodia work in the garment sector as of 2020.
Cut-make-trim model
Cambodia’s garment factories are generally based on the principle of cut-make-trim (CMT) model.
Under this method of production, the raw material, machinery and the design of the garments are imported from abroad, while the assembly of the product is outsourced to the labor-intensive factories in Cambodia.
The CMT implies cutting and sewing of material according to the clothing brands’ specifications.
The garment industry is essentially dominated by foreign owned firms, mainly from the neighboring countries such as China, Hong Kong, Singapore, Malaysia and Republic of Korea. The association with foreign-owned garments firms or brand names provide Cambodia’s garments industry an important channel into the garments global value chain.
Over 60 percent of Cambodia’s garment factories are located within or in close proximity to the capital city – Phnom Penh. The finished products are transported from the factories in Phnom Penh by train to the seaport of Sihanoukville where the garments are shipped to other countries.
Other key locations of garment factories are Kompong Som, Kompong Speu, Kompong Cham, Kompong Chhnang, Svay Rieng, Takeav and Kandal provinces.
Source: https://www.khmertimeskh.com/50981422/innovation-key-to-garment-industry-growth/