CAMBODIA 2017 COUNTRY REPORT
Carol D’souza
CONTENTS
01
Overview & Traits
02
Country Stability
03
Apparel Industry
04
07
05
08
06
09
Trade Agreements
Shipping & Transport
Main Suppliers
Lead Time
Business Etiquette
Risks & Benefits
LOCATION - Southern portion of the Indochina Peninsula in Southeast Asia. Borders the Gulf of Thailand, between Thailand, Vietnam, and Laos GEOGRAPHIC SIZE - 181,035 sqkm; it is one and a half times the size of Pennsylvania GOVERNMENT TYPE - Multiparty Democracy under a Constitutional Monarchy HEAD OF STATE - King Norodom Sihamoni (since 29 October 2004) NATIONAL HOLIDAYS - Independence Day, Nov 9 POPULATION - 16,204,486 people POPULATION GROWTH RATE - 1.5% (2017 est.) LIFE EXPECTANCY Total population: 64.5 years Male: 62 years Female: 67.1 years (2016 est.) GENDER RATIO - 52% male, 48% female
OVERVIEW & T DEMOGRAPHICS OF POPULATION Location - population concentrated in the Southeast, particularly in and around the capital of Phnom Penh Ethnic composition - Khmer 97.6%, Cham 1.2%, Chinese 0.1%, Vietnamese 0.1%, other 0.9% (2013) Religion - Theravada Buddhism (official) 96.9%, Muslim 1.9%, Christian 0.4%, other 0.8% (2008) Language - Khmer (official) 96.3%, other 3.7% (2008 est.) National symbol(s) - Angkor Wat temple, kouprey (wild ox) National colors - red, blue EDUCATION Literacy (2015) Total - 77.2% Male - 84.5% Female - 70.5%
GENDER BREAKDOWN Median Age (2016) Total - 24.9 years Male - 24.2 years Female - 25.6 years
CAPITAL CITY PHNOM PENH
Capital City Phnom Penh
TRAITS EXPORT $9.233 billion (2016) Export commodities - Clothing, timber, rubber, rice, fish, tobacco, footwear
IMPORT $12.65 billion (2016) Import commodities - Petroleum products, cigs, gold, construction, machinery, motor vehicles and pharmaceutics
ECONOMIC OVERVIEW Industrial growth rate - 8.3% (2016) Labor force - 7.777 million (2016 ) Unemployment rate - 0.4% (2014) Main Industries - tourism, garments, construction, rice milling, fishing, wood and wood products, rubber, cement, gem mining, textiles Budget deficit - -0.9% of GDP (2016) Budget revenue - $3.912 billion Inflation rate - 3% (2016) Currency - riels, KHR Currency exchange rate - 4,058.7 KHR per USD (2016) NATURAL RESOURCES - oil and gas, timber, gemstones, iron ore, manganese, phosphates, hydropower potential, arable land
C
COUNTRY STABILITY
POLITICAL
Cambodia is a developing country, with a political state of constitutional monarchy with an elected government and a multi party democracy. Two main political parties: Cambodian’s People’s Party (CPP) and Cambodia National Rescue Party (CNRP). After three decades of intense civil conflicts, Cambodia’s economy and social structure has developed immensely from the bottom. Diplomatic dealings with many countries have been established, including the United States.
By 2010, the U.S. had assisted Cambodia with approximately $70 million through the United States Agency for International Development for public assistance plans. A massive political disadvantage Cambodia faces is corruption within the government. According to Transparency International (2014), Cambodia was ranked one of the worst performing countries in Southeast Asia. Due to the lack of transparency and accountability, Cambodia is a high risk country for foreign companies to investment in.
The countries GDP is increasing rapidly, however, it is still quite low comparative to other countries. With a GDP of 3700 per capita, 18.6% of Cambodians are still living below the poverty line (2012). The development of the Asean Economic Community (AEC) has not had an immediate impact on the country, however, it should further help to boost growth, foreign investments and reduction of product prices and trading expenses.
EXCHANGE RATE 4,058.7 KHR per USD
ECONOMIC
Currently presented as an open market economy, after years of devastation and societal fragmentation due to conflicts, colonization, genocidal Khmer Rouge and foreign sanctions. Referred to as an ‘Olympian of Growth’, the countries economic growth rate is at 7.7% due to government incentives as well as FDIs. Their developing domestic political and economic stability and raising labor wages will support future GDP growth of average 7% annually. The tourism, garment, construction and real estate, and agriculture sectors accounted for the bulk of growth. The garment and footwear sectors accounts for around 600,000 people, the majority of whom are women. The construction sector is dependent on the influence of investors from China and South Korea, which could affect the economy negatively if it leads to outlaw of money and more demand for foreign personnel.
SOCIAL
The Cambodian culture shares the ideals and beliefs of the general Asian culture, most importantly the sense of family, community and consideration. This is also reflective within their main religious belief, Buddhism. With a population of 15.76 million (2016) people, the country is comprised of 90% Cambodians, 5% Vietnamese, 1% Chinese and 4% belonging to other ethnic groups. The literacy rate stands at 77.2 % with Khmer as their first language and English increasing as a second language. Their diet mainly consists of agricultural food, such as rice and fish. Some highly prevalent social issues within the country includes the rising rate of HIV/AIDs, human exploitation and trafficking, undernourished children, and waste of natural resources.
SOCIAL ISSUE A major issue in Cambodia is human trafficking. The country is ranked 14th globally for modern slavery, this includes forced labour and sex trafficking. Child labour accounts for 39% of population. Child sex tourism is highly prevalent with median age of 12 years for rape victims. little efforts have been made. The issue has been brought up and made aware of, however, not solutions have been implemented at all.
Cambodia’s technological sector is at a rudimentary stage and extremely underdeveloped in comparison with other Asian nations. However, country does have the ability to skip traditional technologies in attempt to catch up and quickly adapt newer technologies. The country skipped landline stages and adapted to mobile communications effectively. Comparative to International usage, the frequency of internet usage is low with only 31.3% of the population having direct access to the Internet. Women have less access to these technologies. Advances in technology, especially in the garment industry, would be incredibly helpful and would allow for increased efficiency within the industry. There is a large possibility of technological advances through globalization as more FDIs enter the country.
TECHNOLOGICAL
Cambodia has been one of the highly dollarized economies since 1992. Since 2007, the share of foreign currencies has increased to around 80% and the economy has become dollarized. Within the past two decades, the share of US dollar deposits (in total deposits) has fluctuated between 92% and 98%.
COUNTRY STABILIT
TY
STATE OF RELATIONSHIP WITH UNITED STATES The economical and political changes within Cambodia in the last decade has significantly affected its relation with the United States. While it was strained during the Cold War, their relationship has strengthened overtime and full diplomatic relations were re-established after the Royal Government of Cambodia, Khmer Republic was formed. USAID provided Cambodia with the opportunity for growth by paying for programs within governance, education, health, and economic growth. The U.S. supports many different efforts in Cambodia, such as combating terrorism, HIV/AIDS, building democratic institutions, promoting human rights, fostering economic development, eliminate corruption and trafficking, amongst others. Another effort is to achieve to most accurate accounting of the Americans missing from the Indochina conflict. In early 2017, the country canceled on a joint military exercise with the U.S. With a $500 million dollar debt dating back to the 1970s, Prime Minister Hun Sen lobbied for the U.S. to forgive the debt. Cambodia also scrapped a long-standing U.S. military development aid program, the Seabees, that has been providing help and service to underserved areas of Cambodia since 2008.
STRENGTHS
S
- Low wages (compared to US production) leads to lower labour costs - Large pool of young workers - Consistent GDP growth in last decade - Easy investment with inter-country production chain - as it is a strategic location with existing transportation links to large garment and textile producers in the region - Preferential access to worlds richest markets - Benefits from bilateral agreements at a regional level - Favorable investment environment for Foreign Direct Investment (FDI) with Qualified Investment Project (QIP) incentives - Limited restrictions on movement of revenue across the border - Standards in factories monitored through the International Labour Organization Better Factories Cambodia (BFC) program - Less sensitive to economic crises as majority garment production is focused on basic apparel and mid range OPPORTUNITIES
O
- Geographical location - Demand for international expertise - Further development of infrastructure offers high potential for Cambodia as part of a regional production chain - Hydropower dams are being created which could slowly increase the reliability and lower the cost of electricity - Further investment in machine intensive activities such as textile production - Customs procedures need to comply with AEC criteria, which could minimize issues for exporters - Production costs cheaper than other regional textile and garment producers - Continuing implementation of Better Factories Cambodia (BFC) will increasingly become a selling point to buyers who are facing mounting pressure from consumers for ethical products
S
WEAKNESSES
W
- No FOB (free on board) capabilities - Poor existing infrastructure can lead to added costs and time to transport goods - Shortage of skilled workforce - High mobility of workforce discourages employers from implementing training practices - Lack of middle management personnel - Low worker productivity - Lack of construction laws, financial and regulatory systems - High energy, electricity costs and unreliable production - High reliance on imports of raw materials - Corruption due to lack of transparency and unclear bureaucratic procedures
THREATS
T
- High dependency on non-ASEAN foreign construction investors - Weakness towards the external risks due to the insufficient local infrastructure - Cash outflow and sensitivity to external shocks and price fluctuations for commodities due reliance on imported raw materials - Out-migrating local skilled workforce - Ongoing salary disputes could lead to substantial increases in the minimum wage - Increasing competition from other low cost investment destinations - Increasing pressure for Cambodian garment workers - Possibility that electricity generated does not surpass growth rates could lead to worsening of electricity reliability and cost - Strong reliance on preferential trade agreements - if the economy grows largely, it will significantly impact manufacturing costs
STATE OF INDUSTRY
STATE OF INDUSTRY Garment and apparel industry in Cambodia is rapidly growing and getting more expensive, due to changes in environment, such as rising minimum wages and building expertise in footwear category. There is a shortage of labor due to poor labour conditions. There are more job opportunities in other sectors, and young employees are gravitating towards them. Due to lack of skills worker performance is incredibly poor. There are many labor costs related to salary, other benefits and dismissal. The latest minimum wage is U.S. $153 per month.
Y Key Apparel Exports to US knitwear, cotton garments or man-made fibers, such as recycled polyester Key Textile Exports to US sweaters, swimwear, suits, t-shirts, shorts, skirts and blazers Export - $9.233 billion (2016 est.) HTS Code 6103.22.00 - Of cotton - sweaters (70), Shirts (50), trousers & breeches (30), jackets (20) 6103.23.00 - Of synthetic fibers - sweaters (30), shirts (25), trousers (10), jackets (07)
TRADE AGREEM There is no current existing free trade agreements between Cambodia and the United States. However, by 2006, they had signed the U.S. - Cambodia Trade and Investment Framework Agreement (TIFA). It provides strategic framework and principles that allow dialogue on issues related to trade and investment between the two countries. Issues tackled include, market access issues, labor, the environment, protection and enforcement of intellectual property rights, and lack of proper infrastructure. The garment and apparel industry will largely benefit from the improvement of these factors, especially labor and infrastructure problems. The more efficiently technologies, infrastructure and labour is set up, the higher the production rate. During the first execution of the original U.S. - Cambodia trade agreement in 1999, imports from Cambodia rose to 200% and the country sold $433 million of garments to the United States.
MENTS
Globally and regionally, it is very well integrated in terms of trade agreements. Starting in 1999, as a member of ASEAN and the Free Trade Area (AFTA), then the World Trade Organization (WTO) since 2004, and most recently, they joined AEC in 2015. AFTA was established with the aim to encourage competitive advantage in the region through the elimination or decrease of fiscal and non-fiscal barriers to trade between members, was supposed to encourage economic efficiency, productivity and stronger and deeper competitiveness.
THREE MAIN INTERNATIONAL PORTS Sihanoukville Port On the Gulf of Siam Largest and only deep seawater port String of Islands surrounding protects port 540 nautical miles (1000 km) from Singapore Capacity: 950,00 tonnes per year Accommodates: 10,000 - 15,000 tons of cargo ships Phnom Penh Port On the Mekong river Access through delta area of Vietnam Serves: 150 ships per year Accommodates: 740,000 tons of cargo Koh Kong Port Near the Thailand border Smaller port, only handles small boats No direct road access to rest of country
COUNTRY TRANSPO
SHIPPING TOP U.S. PORTS FOR CAMBODIAN EXPORTS: L.A., SAVANNAH, NEWARK, LONG BEACH
LEAD TIMES* To: Savannah, GA Cost - $2,265 - $3,716 Transit Time - 35 - 45 days To: Los Angeles, CA Cost - $1,817 - $3,397 Transit Time - 31 - 40 days *based on shipment of a 40� container
ORTATION
DAMCO Ltd. Phone Number - 855 23 960 000 Fax Number - 855 23 424 708 Email - cambodia@damco.com Address - No. 298, Regency Complex A (3rd floor), Mao Tse Toung Boulevard, Phnom Penh, Cambodia GREEN SHIPPING Agency (Cambodia) Co., Ltd. Website - http://www.evergreen-line.com Phone Number - 023 993 685 Fax Number - 023 993 687 Email - gsabiz@greenshippingcambodia.com Address - No. 187B, Samdech Monireth Blvd (217), Sangkat Boeung Salang, Khan Toul Kork, Phnom Penh, 12160, Cambodia YUSEN Logistics (Cambodia) Co., Ltd. Website - http://www.yusen-logistics.com Phone Number - 097 5201 552 Fax Number - 023 998 619 Email - som.soriya@kh.yusen-logistics.com Address - No. 33-34, George Dimitrov (St. 114), Bayon Supermarket, Unit 501, 12251 Phnom Penh, Cambodia
Universal Glory (Cambodia) Ltd. Phone: 855 23 427 8512 Address: No 1782, National Rd 5, Sankat T Sangke Khan Russy Keo, Phnom Penh, Cambodia 12306 Customers: Macys Merchandising Group, PhillipsVan Heusen Corporation, Reebok International Ltd. Products: Men's and Boys' Work Clothing, Women’s Blouses and Shirts Fabrication: Organic cotton Chenghao (Cambodia) Fashion Co. Ltd Phone: 855 86 921078 Email: shiyongmingshuai@gmail.com, jiang_aiguo@foxmail.com Address: Siem Reap Village, Siem Reap Commune, Kandal Stoeng District, Kandal Province, Cambodia 2501 Customers: Muji U.S.A., Muji Canada Ltd. Products: Pants for Men and Women New Orient (Cambodia) Garment Co., Ltd. Phone: +855 23 985 699 Fax: +855 23 985 698 Email: neworient@new-orient.net, ben@new-orient.com.kh Address: No. 17, Work, Canadia Industrial Park, Phnom Penh, Cambodia, 12405 Customers: North Face Inc., Adidas, Waterbury Products: Jacket, Pants, Dress, Skirt, Nightwear Jacket, Polo shirt, Sportwear (Knit)
MAIN SUPPLIERS
Cambodia, in comparison to its garment production neighbors, has an incredibly inefficient supply chain management and production process which affects the lead time for the garment production negatively. Other manufacturing countries within the continent offer 50-100% quicker lead time. Due to festivals, religious beliefs and political events, Cambodia has around 30 days of holidays throughout the year. Although most legal holidays fall on the same dates annually, some holidays are dependent on the lunar calendar, therefore can change. This would affect the lead time of production if the suppliers and buyers are not prepared. Cambodia is often harshly affected by natural disasters such as droughts, tropical storms and flooding. Mekong’s flood season takes place from June to November, in which eighty to ninety percent 0f the river’s flow occurs. This would affect the lead time massively as production would halt and road transportation would not occur.
LEAD TIME O
OF PRODUCTION
Business Cards - Exchanged after the initial introductions. - One side translated in Khmer if possible. - Present your card with Khmer side up - Present and receive cards with right hand or both hands - Treat business cards with respect as the way you handle the card is indicative of the way you will treat the person - Never write on or fold a business card Greeting - Dependent on the relationship/ hierarchy/age between the people - simple rule is to respond with the greeting you are given - typical respectful greeting - a bringing of the hands together at chest level, Hierarchical: when one intends to show greater respect the bow is lower and the hands brought higher - If a handshake is offered, do not linger or be harsh or too firm - Beckoning someone must be done with a wave towards oneself with palm down. - Men dealing with women should wait and see if the women extends a hand before doing so himself - Avoid prolonged eye contact.
Meeting - Will be introduced to highest ranking first - "Lok" for a man and "Lok Srey" for a woman followed with the first name or both the first and surname - Face to face contact creates mutual trust and understanding - Punctuality is valued, being late is disrespectful - Meeting does not stick to certain schedule or agenda - Meetings go as long as needed - Eat when the oldest person starts - Showing negative emotions, anger, impatience or frustration, would lead to a loss of face
BUSINESS ETIQUETT
Culture Insights - Collective society, values sense of harmony and balance - Modesty and humility are emphasized - Public displays of affection are seen at inappropriate and offensive - Rude to point directly at a person, to touch somebody on the head or hair, to point the soles of your feet at someone (especially a monk or a representation of the Buddha) Negotiation Style and customs - Harmonious and relationship building, non-confrontational and indirect - Small talk often takes place beginning of meeting - Some bargaining is expected - Do not appreciate hard selling, pressuring, or pushy communications - They do not communicate openly, often need to read between lines - Smiling could indicate either pleasure or irritation, nervousness or shyness - Conflict usually resolved through an intermediary
TE
BENEFITS Country - High levels of foreign investment, will potentially aid economic, technological and infrastructure growth - Growing garment industry, will potential lead to better production process, quality and efficiencies Industry - Proximity to countries with access to raw materials and imports - Large, growing and young labour pool - Lower cost of business comparative to other Asian countries
From a small start to a and exporter. Through industry sector has had steadily over the past tw or roughly 80 percent, o has potential to becom
CONCLUSION
Political instability, corru negatively. However, th Large amounts of foreig
Production in Cambodi polyester. Apparel class Although, the garment
RISK & BENEFITS
RISKS Country - Large amount of corruption and political instability - Weak and poor infrastructure - Disaster prone area, especially during flood season Industry - Longer lead times comparative to other Asian countries - Horrible working conditions with unenforced regulations and laws - No free trade agreements with the U.S. - Production and labor costs continue to rise as minimum wages rise
swift rise to prominence in the late 1990s, Cambodia is a growing garment manufacturer years of natural disasters, internal pressures, global economic crisis, Cambodia’s largest d a massive impact on its economy. As a lesser developed nation, it has been growing wo decades. Today, the industry employs over 700,000 workers and accounts for $5 billion, of Cambodia’s total export revenue. With the largest amount of garment exports, Cambodia me one of the largest exporters to the United States.
uption and is still massively prevalent in the country, affecting the garment industry he country’s determination for change and growth is evident, allowing for eventual stability. gn direct investments suggests that Cambodia’s potential is a shared belief.
ia is best suited for knitwear, cotton garments or man-made fibers, such as recycled sifications include, sweaters, suits, t-shirts, shorts, skirts and blazers amongst others. sector is currently the largest; the footwear sector is growing promisingly.
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