CAMBODIA Country Report 2017 | Savannah Weghorst | Global Sourcing Spring 2017
CONTENTS
03 08 14 Overview & Traits
Country Stability
State of Industry
16 18 20 Trade Agreements
Main Suppliers
Transportation & Shipping
26 28 32 Business Etiquette
Risks & Benefits
Sources
OVERVIEW History:
Cambodians are descendants of the Angkor Empire who’s reach extended over most of Southeast Asia between the 10th and 13 centuries. The slow decline of the empire began when the Thai and Cham people began attacking and rebelling against the Angkor Empire. The country was placed under protection from France in 1863 who later incorporated the country into the French Indochina in 1887. During WW11, the Japanese occupied Cambodia and the country gained independence from France in 1953. In 1975, communist Khmer Rouge forces captured the capital of Phnom Penh and all the cities were evacuated. Under the Khmer Rouge rule, about 1.5 million Cambodians were killed. In 1978, the Vietnamese invaded and drove out the Khmer Rouge into the countryside. This started a 13 year civil war. In 1991 the Paris Peace Accord mandated a cease-fire and democratic elections although it was not fully affective. In 1993 the UN sponsored elections to help restore normalcy in the country. It was not until 1998 that a new coalition government renewed political stability. The Khmer Rouge surrendered in 1999.
Religion
Gender Ratio
Ethnicities
In 2004 King Norodom Sihanouk abdicated the throne and his son Norodom Sihamoni succeeded him in 2013.
Population and Size:
16 Million | 2016 1.56% Growth Rate 181,035 sq km (Slightly smaller than Oklahoma) 24.9 Year Median Age 64.5 Year Life Expectancy
Government:
Parliamentary Constitutional Monarchy Chief Of State King Norodom Sihamoni Prime Minister Hun Sen Capital Phnom Penh Khmer Official Language
Location:
Located in Southeastern Asia, bordering the Gulf of Thailand, between Thailand, Vietnam, and Laos
Education:
77.2% Literacy Rate 11 Year School Life Expectancy
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OVERVIEW Exports: $8.5 Billion USD | 2015 154 Total Export Partners
Exports Commodities:
Exports
Clothing, Timber, Rubber, Rice, Fish, Tobacco, Footwear
Budget:
Revenues: $3.388 Billion USD | 2016 Expenditures: $3.562 Billion USD | 2016 Budget Deficit: -0.9% Of GDP | 2016
Inflation Rate:
4.4% | 2017
Conversion Rate:
1 USD: 4,083.33 Cambodian Riel (HKR) 1 Cambodian Riel: 0.00025 USD | May 2017
Population Below Poverty Line: 17.7% | 2012
Unemployment Rate: 04
0.4% | 2014
OVERVIEW Imports: $10 Billion USD | 2015 133 Total Import Partners
Imports
Import Commodities: Petroleum Products, Cigarettes, Gold, Construction Materials, Machinery, Motor Vehicles, Pharmaceutical Products
Industries:
Tourism, Garments, Construction, Rice Milling, Fishing, Wood And Wood Products, Rubber, Cement, Gem Mining, Textiles
Industrial Production Growth Rate: 8.3% | 2016
Garment Sector Minimum Wage: $153 USD/Month | 2017
Labor Force:
6.643 Million | 2016 Agriculture: 48.7% | 2013 Industry: 19.9% | 2013 Services: 31.5% | 2013
* About 2.66 Million People Live On Less Than $1.20 USD Per Day | 2012
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COUNTRY STABILITY political Political Health: After a long history of conflict and wars, Cambodia has found an era of peace. Cambodia still heavily depends on foreign aid with 30-40% of the government budget coming from foreign donor aid. The U.S. alone accounted for $77.6 Million USD in foreign assistance that was distributed among programs for health, education, governance, economic growth, and the demining of unexploded ordnance,
U.S. Relations With Cambodia: The United States and Cambodia have had on and off relations over the last several decades due to armed conflict and government changes in Cambodia. Full diplomatic relations between the two countries were formed when the freely elected Royal Government of Cambodia was founded in 1993. During the 2012 East Asia Summit was held, Obama became the first incumbent president to visit the country. Currently, the U.S. is working with Cambodia to further develop democratic institutions, increase demands for human rights, increase trade, and help solve local issues such as security, health, and development. Recently, there has been controversy surrounding the $500 million dollar Vietnam war debt that the U.S. wants Cambodia to pay. Prime Minister Hun Sen claims that it is the U.S. who should pay Cambodia. Since Cambodia graduated to lower-middle income status in 2016, refusing to pay the debt has hurt their ability to borrow from other countries. 08
economic
Economic Health: With a large amount of foreign assistance, Cambodia has seen strong economic growth in the last decade. The GDP has seen a steady annual growth of around 7% since 2000. The main industries that have led to this growth include tourism, garmeant, construction, real estate, and agriculture. 600,000 Cambodians are employed in the garment and footwear industry. Tourism has seen rapid growth with about 4.5 million visitors in 2014. Despite the steady economic growth, Cambodia is still one of the poorest countries in Asia. In 2012, about 2.66 million people were living on less than $1.20USD a day. In addition, 37% of children under the age of 5 suffer from chronic malnutrition. Half of the population is under the age of 25 and with poor education in place, the cycle of poverty continues. The countryside of Cambodia has poor infrastructure, unskilled workers, and lacks educational programs. 09
social
Social Issues:
Some of the most prevalent existing social issues include the high rates of HIV/ AIDS, undernourished children, human trafficking, and the rapid depletion of natural resources due to illegal activities.
Human Trafficking:
Human trafficking shows itself in many forms. Many men, women, and children migrate to the region in search of job opportunities but often find themselves subject to sex trafficking, domestic servitude, or forced labor in factories, fishing, construction, and agriculture industries. Women and girls are often abducted from rural areas to larger urban areas to act as sex slaves in tourist locations. While Cambodia does not fully comply with the minimum standards to eliminate human trafficking, they are making some efforts. The government has written a plan to increase efforts and increase the number of prosecutions and convictions of trafficking. Corruption has impeded efforts and no complicit officials were convicted. The government makes efforts to identify victims of trafficking and send them to NGOs for care, however victim protection is still lacking. Overall, Cambodia has a long way to go in order to overcome this issue.
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technological
Technology Usage: Cambodia’s technology industry is embryonic. Compared to the international averages, the Internet usage is low. Ownership of Internet capable products is also minimal comparatively. There is also a gender gap when it comes to ownership of smart products and Internet usage. Men in Cambodia tend to have more access than women due to the social perspective of women. This negatively effects the garment industry because investing in technology leads to increased efficiency. This is an opportunity for growth for apparel manufacturers in the area. Investing in technology to track logistics could greatly benefit the companies involved.
Technology Statistics (2016): 8% owns a computer 96% owns a phone 76% owns a phone with Khmer script capability 48% owns a smartphone 48% uses/has used Facebook 37% has access to Internet 33% uses Internet to read and write 11
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STATE OF INDUSTRY The garment industry accounts for a
$10 attendance bonus, $7 transportation
majority of Cambodia’s export revenues at
allowance, and seniority allowances of up to
about almost 80%. The footwear industry,
$11. However, the raise in minimum wage
specifically, has grown very quickly grown
also leads to a raise in the cost of living. The
by 50% to $634 Million in 2015 while
number of apparel and footwear factories
the exports in the garment sector grew
was at 640 in 2015. The UN estimated that
by 15% between 2014 and 2015. The
with 55% of the population under the age
garment industry overall has grown to
of 25, there are roughly 300,000 new job
$6.6 Billion and the US makes up $2
seekers entering the labor market each year.
Billion of the total garment industry exports from Cambodia. Despite the
The Cambodian Labor Code protects
recent raises in minimum wage ($100
workers’ right of association and the right
in 2014, $128 in 2015, and $153 in
to organize and bargain collectively. The
2016), the garment industry continues
law also allows workers in the private sector
to grow. The garment sector accounts
the right to join trade unions without prior
for about 9% of total employment in the
authorization, the right to strike, and the
country and adds about 60,000 new jobs
right to bargain collectively. The Arbitration
every year. The industry employs almost
Council exists for unresolved labor disputes
700,000 people and are mostly women.
to be brought forward and interpret labor
With the growing garment industry, many
regulations.
local people migrated to cities looking
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for paid employment. The minimum
The labor code prohibits forced labor, sets
wage has raised to $153/month with a
the minimum age at 15, and guarantees an
eight hour workday, a forty-eight hour week,
The U.S. Government and the ILO were
and requires time and a half for overtime or
working together with Cambodia to improve
work on a worker’s day off. In addition, night
the enforcements of the labor rights that
shift workers are entitled to 130% of daytime
are already in place. The U.S. promised to
wages. While these laws are in place, they
help increase the textile export quota in
are not sufficiently enforced. Workers are
Cambodia if they made improvements in
often underage, forced to work long hours
labor standards. With the elimination of
and overtime without compensation, work
quotas under Cambodia’s accession to the
in poor condition factories, and are abused
WTO in 2005, the ILO’s Better Factories
physically and emotionally. Subcontracting
program has continued to guarantee that
has also been a known problem within the
workers’ conditions improved.
garment industry.
Top HTS Exports in 2015 | Panjiva $844,717,098.00 HS Code 6110.30
Articles of apparel and clothing accessories, knitted or crocheted: Sweaters, pullovers, sweatshirts, waistcoats (vests) and similar articles, knitted or crocheted: Of man-made fibers:
$790,991,684.00 HS Code 6110.20
Articles of apparel and clothing accessories, knitted or crocheted: Sweaters, pullovers, sweatshirts, waistcoats (vests) and similar articles, knitted or crocheted: Of cotton:
$684,530,686.00 HS Code 6204.62
Articles of apparel and clothing accessories, not knitted or crocheted: Women’s or girls’ suits, ensembles, suit-type jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear): Trousers, bib and brace overalls, breeches and shorts: Of cotton:
$565,997,666.00 HS Code 6203.42
Articles of apparel and clothing accessories, not knitted or crocheted: Men’s or boys’ suits, ensembles, suit-type jackets, blazers, trousers, bib and brace overalls, breeches and shorts (other than swimwear): Trousers, bib and brace overalls, breeches and shorts: Of cotton:
$435,045,089.00 HS Code 6109.10
T-shirts, singlets & other vests, knitted/crocheted, of cotton
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TRADE AGREEMENTS
Cambodia and the United States currently do not have an existing free trade agreement or one in the works. However, the two countries have signed the Trade and Investment Framework Agreement (TIFA) in 2006. The TIFA allows for a dialogue between the two nations’ governments to meet and discuss issues of mutual interest in order to improve cooperation and increase trade opportunities. Through the TIFA, America has invested money in Cambodia to help solve market acces issues, labor issues, environmental protection, enforcement of laws, and even support building and maintenance of better infrastructure. The improvements of infrastructure will allow the textile and apparel industries to run more efficiently with improved transportation of goods. 16
Cambodia is a member of the World Trade Organization, the International Organization for Standardization, and the Regional Comprehensive Economic Partnership. They are also a member of the ASEAN Free Trade Area. The ASEAN Free Trade Area (AFTA) includes Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Laos, Myanmar, and Cambodia. The goal is to increase the countries’ competitive edge in the world market through the elimination of tariff and non-tariff barriers. Through this agreement, Cambodia has free trade with Australia, New Zealand, India, Japan, China, and South Korea.
Trade agreements that have been proposed include the ASEAN-EU FTA,the East Asian Free Trade Area (ASEAN +3), the Comprehensive Economic Partnership for East Asian (CEPEA/ ASEAN+6), and the ASEAN-Pakistan FTA.
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MAIN SUPPLIERS THERE ARE A TOTAL OF 640 APPAREL AND TEXTILE FACTORIES IN CAMBODIA. THE THREE SELECTED (TO THE RIGHT) ARE ALL WRAP CERTIFIED AND HAVE RECEIVED PLATINUM SCORES. THEY ALL MANUFACTURE EITHER CHILDRENSWEAR OR SWIMWEAR. THEY ALL HAVE REPUTABLE BUYERS, INCREASING THE SUPPLIERS’ CREDIBILITY.
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Chu Hsing Garment (Cambodia) Co. Ltd. C.H.G.C. National Road No 6A Bak Kheng Village Phnom Penh, 12112 Cambodia 855 23 365 897 herman@everyday.com.kh kh7655.yp.com.kh/
Products: Cotton, Denim, Pants, Blue Denim Companies: Levi Strauss & Co, Oshkosh B’gosh Inc., Kohl’s Department Stores, Inc., V F Jeanswear Ltd., Mango Apparel S.A., The Children’s Place Services Co.
Quicksew (Cambodia) Ltd.
Building J, Soun Ousahakam Vanttanak, Sankat Stoeung Meanchey, Khan Meanchey, Phnom Penh, Cambodia +855 23 995 595 Http://Kh26918.Yp.com.kh/ Products: Knits, Knit Swimwear, Spandex Knit Swimwear Companies: In Mocean Group Llc, China Beach Ltd., Spanx, Inc., Pacific Sunwear Of California
Zheng Yong Garment Factory Co. Ltd. (Cambodia) No. 4, Road No. 5th, Sangkat Toul Sangker, Khan Russey Keo, Phnom pehn, Cambodia +855 23 430 194 judykwok@zhengyongcam.com.kh http://kh7274.yp.com.kh/
Products: Cotton, Denim, Woven Pants, Denim Woven Pants Companies: Levi Strauss & Co Inc, Oshkosh B’gosh Inc., Fred Meyer Inc, Indigo Sportswear Inc, The Children’s Place Services Co., Beall’s Imp. Inc.
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TRANSPORTATION & SHIPPING Roads and Highways
Cambodia’s roads measure 38,257 km in total with 4,757 km of national roads, 5,700 km of provincial roads, and 27,800 km or tertiary roads. The roadways have been under rehabilitation since the 1990s and as of the last road condition survey in 2005, only 40% of the network is considered to be in good and fair condition. The road transport industry is lacking and is speculated to be from low demands of transport. Most goods are transported on overloaded trucks.
Urban Transport
Urban transport was severely ignored and damaged during the years of war. With traffic volumes rapidly growing, public transport is limited to buses with no subway system in place.
Railways
The Royal Cambodian Railway consists of two single track main lines which carry both passengers and freight. The Northern line is supposed to run between Phnom Penh to the Thai border at Poipet, however there has been about a 50 km gap at the end of the railway. The Southern line connects Phnom Penh to the port of Sihanoukville, however the World Bank states that it is in poor condition.
Inland Waterways
The main waterways include the Mekong and Sab rivers and the Tonle Sap. Phnom Penh is 100 km from the Vietnam border by river however, the river bends limit the passage of vessels longer than 110 m long.
Ports and Shipping
Shanoukville is the only deep water sea port. It is linked to Phnom Penh by a national highway. Phnom Penh has a port on the Mekong River and allows access to the Vietnam Delta. The last port is Koh Kong near the Thai border but is only used for small vessels.
Air Transport
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There are a total of ten airports in Cambodia. The main ones are Phnom Penh International Airport and Siem Reap Airport.
SHIPPING COMPANIES
Green Shipping Agency
Branch of Ben Line Agencies
(Cambodia) Co., Ltd.
(Cambodia)
http://www.evergreen-line.com/
http://www.benlineagencies.com/
comments@shipmentlink.com +855 23 993 686 No. 187B, Monireth (St. 217), 12160 Phnom Penh, Samdech Monireth Blvd
operations@benline.com.kh +855 3493 4735 Group 19, Phum 3, Sangkat 3, Sihanoukville City, Sihanoukville province, Cambodia
(217), Phnom Penh, Cambodia
Kamsab Cambodia DB Schenker (Cambodia) Limited
www.kamsab.com.kh/
http://www.dbschenker.com.kh/
manager_shv@kamsab.com.kh
info.kh@dbschenker.com +855 23 210 572 No.86, 8th Floor, Street St 388, 12309, Cambodia
+855 12 393 476 No. 109Eo, Preah Sisowath Quay, corner of Seng Thoung (St. 104), 12202 Phnom Penh, Preah Sisowath Quay, Phnom Penh, Cambodia 21
MAIN PORTS
THE THREE MAIN INTERNATIONAL PORTS IN CAMBODIA ARE: SIHANOUKVILLE ON THE GULF OF SIAM PHNOM PENH ON THE MEKONG RIVER THE PROVINCIAL PORT OF KOH KONG.
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Sihanoukville Port is the only deep-water maritime port in Cambodia. It is located in the Bay of Kompong Som. There is a string of islands across the mouth of the bay that protects the port from natural occurrences such as storms and strong winds. The port currently has a capacity of 950,00 tonnes per year excluding Port Of Loading ships. The port can accommodate ships of 10,000-15,000 tons dead-weight. The port is located off of National Highway No. 4 (NH4) and is 226 km to Phnom Penh. The railroad is 263 km between the port and Phnom Penh. Lead Times and Cost: FCL 40� From Sihanoukville To Savannah: $2,855-$4,520 34-43 Days To LA: $4,569-$6,212 38-46 Days
Phnom Penh Port is located in the city on the Sap river. It is a river port with access through the delta area of Vietnam. The port is 3-4 km from the junction with the Mekong and 330 km from the mouth of the Mekong. The port requires regular dredging for the larger ships to be able to pass through. The port serves around 150 ships per year.
Koh Kong Port is located by the Thai Border and can only handle very small boats. There is no access road nearby leading to the rest of Cambodia.
Lead Times and Cost: FCL 40� from Phnom Penh to Savannah: $2,295-$2,536 34-40 Days to LA: $4,569-$6,212 38-45 Days
Lead Times and Cost: FCL 40� from Koh Kong to Savannah: $2,855-$4,510 34-43 Days to LA : $3,989-$6,893 38-49 Days
*Some conditions that could affect shipping lead times include natural disasters of monsoons, severe storms, flooding, typhoons, and droughts. Another detail to consider would be that Cambodia celebrates 20 national holidays with paid time off for most workers.
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BUSINESS ETIQUETTE Meeting & Greeting Eye contact should be avoided or minimal The standard Cambodian greeting requires that the individual stands about half meter away from the person and salute by placing both hands together palm in front of the chest with the fingers pointing upward Many Cambodians have become custom to the western handshake and it is acceptable if the Cambodian individual initiates the handshake The handshake should not be too firm as it can be seen as aggressive Always respond by greeting how you are greeted The most senior person must be shown respect In a group setting, the highest ranking person must be introduced first and by the most senior person from the other group. All other introductions should follow from highest to lowest rank so that the Cambodian group understands the dynamics of the group Cambodians address people with the honorific title “Lok” for a man and “Lok Srey” for a woman with the first name alone or both the first and surname.
Business Cards Business cards should be exchanged after introductions One side should be translated in Khmer and that side should be presented upwards to the recipient Use the right or both hands when offering or accepting a business card Business cards are to be treated with respect as they indicate how you will treat the individual 26
Business Meetings Meetings do not stick to a certain schedule or agenda Meetings go as long as needed in order for all attendees to feel that every topic has been sufficiently covered Mutual trust is gained by making an effort to get to know the businessmen with small talk at the beginning of the meeting Cambodians are considered indirect communicators, making reading between the lines necessary Cambodians carefully chose their words and think of how a statement can cause negative reactions Cambodians would rather remain silent than speak up if they disagree with what is said Pushy, pressured, and boastful communications are a turn off Punctuality is important as it shows respect Showing emotions of anger, impatience, or frustration is considered negative behavior Modesty and humility are important in Cambodian culture and compliments and praise are returned with deprecating comments One should speak slowly, clearly, avoid slang and colloquials, and should speak in a calm manner 27
RISKS & BENEFITS
Pros Large and growing labor pool Cheap costs of labor and production compared to other Asian countries Growing levels of foreign investments that will potentially grow the economy, infrastructure, and technology Location is ideal with easy access to materials from neighboring countries Peninsula location allows for easy access to established shipping routes Growing garment industry which leads to better quality products, better technology, and faster production
In conclusion, while there are many cons to doing business in Cambodia, there are also many pros. Cambodia may still be underdeveloped and politically corrupt, however they have made vast improvements over the past decades. The garment and footwear sector now accounts for their largest export value and continues to grow. Cambodia has large potential to become one of the leading garment manufacturers to export to the United States as long as they continue to reinvest in improving the current conditions in their country. 28
Cons Large amount of political corruption and instability No free trade initiatives with the US Weak and poor infrastructure Poor working conditions with unenforced labor laws Rising minimum wages will continue to increase labor and production costs Social unrest for many current issues such as workers’ rights and human trafficking
For those looking at Cambodia as a potential source of manufacturing, the main goods that the country exports are knitted or woven man-made fiber or cotton garments such as sweaters, sweatshirts, suits, blazers, dresses, skirts, shorts, and t-shirts. The footwear industry is experiencing rapid growth and Cambodia would be a key country if looking to manufacture footwear. 29
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SOURCES
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