Steady demand propels Cambodia export industries in 2014

This report provides an analysis of the performance of key export industries in Cambodia last year, and offers forecasts for this year. It is produced by the Hinrich Foundation, a development organization that aims to promote sustainable global trade by, among others, helping create jobs in emerging Asia.

Strong sales in traditional and new markets boosted exports of Cambodia-made garments and helped suppliers of fashion accessories gain ground in 2014.

Consolidated apparel and textile shipments totaled $1.2 billion in the first quarter of last year, up 9 percent compared with the same period in 2013, according to the latest available data from the Garment Manufacturers Association in Cambodia. The surge is mainly credited to robust demand from the EU and Japan, and emerging destinations such as Russia, Mexico, South Korea, Australia and the UAE.

The upward trend in foreign sales has been continuing since 2010, a year after revenue plummeted to $2.4 billion as a result of the global financial turmoil. The industry had recorded an average growth of 10 percent annually in the pre-crisis period.

Accounting for more than 80 percent of the country’s total exports, the garments sector has been instrumental in spurring the kingdom’s post-war development. It has been boosted by moderate wages, helping domestic suppliers offer competitive prices. Although basic monthly salaries have surged from $80 to $128 following widespread protests by industry workers last year, remuneration in Cambodia is still lower compared with major sourcing hubs in the region such as China and Vietnam.

Aside from reasonable manpower expenses, the sector enjoys quick access to most raw materials, solidifying its position as a viable alternative manufacturing center for garments in Asia. According to the Ministry of Labor, the industry comprises 960 factories and employs more than 600,000 workers.

There are no official export figures for the fashion accessories industry since most products are shipped in small quantities via informal channels. Most of the line’s output comes from NGOs that are helping the poor earn a living through production and sale of wallets, handbags, scarves and jewelry.

It is estimated that annual revenue from silk handicrafts is between $3 million and $5 million. The number is expected to rise in the year ahead as NGOs intensify campaigns to build partnerships with foreign institutions, specifically from the US, France and Australia. The growing popularity of sustainable models is bringing the spotlight on local suppliers who are adept in creating items made of recycled and scrap materials.

Price trends

Prices of garments and fashion accessories generally remained stable in 2014 due to intense competition from rival suppliers in the region. Although makers largely want to keep quotes unchanged to continue attracting foreign orders, most expect prices to soar this year, albeit minimally, as outlay continues to climb.

Adjustments over the next 12 months are predicted to be within 5 percent. Rising expenditure on labor and components is essentially behind the anticipated markups. Manufacturers are cautious of implementing higher increments for fear of losing orders to their competitors.

Prices of fabrics, including silk, have risen considerably over the past few years. Although Cambodia has several silkworm farms, availability is less than demand. As a result, some suppliers have to import this component from China, Vietnam, Thailand and India, adding to total production costs.

Product trends

Simple and plain designs dominated releases last year. Most items featured minimal trimmings such as embroidery, beadwork and shirring. The last two are typically utilized to accentuate evening dresses and skirts. Team logos, jersey numbers and appliques were often incorporated on sportswear.

The use of bright colors such as orange, yellow and red mainly compensated for the lack of accessories. In addition, suppliers modified construction of some models to enhance aesthetics. Examples include women’s tops with batwing sleeves and dresses with contoured waist.

Items with ethnic attributes also stood out in 2014. Ikat prints were typically visible in midrange and high-end skirts. Pencil skirts, on the other hand, were patterned after the traditional clothing sampot to represent the local culture.

Fashion accessories mostly incorporated earth-friendly materials amid growing demand for sustainable products. Rice sacks, which are more cost-effective than fabrics, were transformed into coin purses and wallets. Palm leaf, rush and water hyacinth were employed in hand- and shoulder bags.

Embroidered, painted and crocheted trimmings were also popular. Tassels were primarily used to accentuate scarves. High-end releases typically featured brocaded patterns and complex weaving details.

Challenges

The industry still faced a number of obstacles despite delivering a solid performance last year. The most critical of these was the lack of emphasis on employee welfare. Many companies reportedly did not stringently comply with established regulations that ensure the well-being of their personnel, prompting protests and work stoppages. Trade unions had demanded a raise in basic wages, and improvements in safety and health standards.

According to GMAC, over 400 strikes in 279 garment factories across Cambodia were recorded in 2014. The association blamed these demonstrations, some of which turned violent, for the drop in overseas orders, specifically from the US. It added that these collective actions have hurt the country’s reputation with potential investors.

Another issue that continues to confront the apparel sector is low labor productivity, which is brought about by inadequate training, and outdated and unsuitable management practices. In addition, the lack of attention to equipment used hampers efficiency. Maintenance of machines is sometimes not conducted in a timely manner, bringing down factory output.

For the fashion accessories line, the limited capability of makers in terms of design prevents them from launching models that represent current trends. Low production capacity is also a major concern. Compared with Vietnam and China suppliers that mostly use machines and other modern equipment, domestic enterprises generally continue to employ traditional manual processes. As such, more time and manpower are required, limiting efficiency.

2015 outlook

Garment and fashion accessory suppliers predict exports to maintain an upward trend for the year ahead as a result of intensified promotional efforts outside of North America and Europe. Projections point to at least 10 percent surge in revenue for 2015.

In terms of market expansion, manufacturers are eyeing nontraditional destinations to supplement earnings coming from the US and the EU. These include Turkey, Brazil, Panama, Chile, Argentina and Peru.

To compensate for elevated expenses, prices of garments and fashion accessories are seen rising at 5 percent or less. Makers that specialize in products that adopt recycled materials are not likely to adjust quotes because of the ready availability and affordability of these components.

Releases over the next 12 months will generally feature basic designs. To highlight variety, more decorative elements are expected to account for a large part of turnout. Combining traditional styles with modern aesthetics will also continue to be a popular trend.

For more information about the Hinrich Foundation's industry-specific sourcing reports spanning seven different countries in Asia, including Cambodia, visit Online Developing Country Sourcing.

This article and its contents are provided by the Hinrich Foundation, a partner of Global Sources in promoting trade across Asia. The products and the suppliers featured in this article are export assistance program beneficiaries of the Hinrich Foundation.