China has been raising wages over the past decade, and many manufacturers have been contemplating to move to neighboring countries, like Cambodia. But being cheap is not enough for those ASEAN countries to attract production from China, warns author Shaun Rein of The End of Cheap China: Economic and Cultural Trends that Will Disrupt the World, in the Phnom Penh Post.
There are great opportunities for Cambodia and ASEAN in general to grab market share in the manufacturing sector, especially in light industry. Many apparel and footwear companies are looking to relocate to ASEAN as long as they can find the proper infrastructure and stable government policies. Thailand is attracting more auto sector investment, Bali and other resort areas will benefit from more outbound Chinese tourism.
Where does Cambodia fit in?
Cambodia is well-poised to benefit from China’s rising costs. China-Cambodia relations are strong, so Chinese businessmen feel comfortable operating. Of concern, however, are the recent labour protests, which worry businessmen thinking about rising costs and low labour productivity. Lack of infrastructure is another issue. In today’s world, where brands like Zara release new clothes every two weeks rather than every quarter, the speed of getting product from factory to point of sale is critical.
Is it all about low costs?
I was speaking with bankers recently who are setting up branches in Cambodia in order to help finance the expansion of apparel manufacturers. Cambodia needs to provide low-cost yet skilled labour for at least 10 years to make it worthwhile for companies to relocate. In my book, I actually track a furniture company that relocated to Vietnam but eventually moved back to China because of too many defective products. Cheap is not enough – it needs to be good enough quality too.
The China Weekly Hangout is on hibernation till after Chinese New Year. We will hold in between regular open office sessions, where you can drop in to figure out how hangouts work, discuss possible subjects and whatever might come on the table. Coming Thursday we organize an instructional hour for those who are new on hangouts, or what to learn how to improve their current setup. You can register and watch here.
Here is our last week´s open office hour, with Mario Cavolo, Nathan Kaiser, Gabriel Rueck and Fons Tuinstra.