Sourcing in Cambodia is About to Get More Expensive

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Cambodia wage negotiations

Cambodia’s Prime Minister Hun Sen passed a benefits package—including a wage increase—for workers this week and factory owners are already up in arms about how to foot the bill.

The new benefits package, which takes effect from Jan. 1, 2018, will see garment factory workers receive free health care from their employers, free access to public transport and a minimum wage increase from the current $153 per month to $168 per month, a nearly 10 percent jump. The wage hike follows this year’s increase to $153 from $140 in 2016.

Manufacturers in the country have already called on the government to provide aid to offset their additional costs, according to The Phnom Penh Post, and a representative from the Garment Manufacturers Association in Cambodia (GMAC) has expressed concern for the sector’s competitiveness, saying the benefits package would require manufacturers to spend an additional $10 million a month on worker wages and another $3.5 million a month on health care.

“We believe that the government has done a clear study and considered carefully before making the decision,” GMAC deputy secretary-general Kaing Monika told the Post. “However, we hope that the government will facilitate and provide some encouraging policies to offset the additional costs and to support the private sector, otherwise we will face hard times.”

[Read more about what’s happening in Cambodia: Cambodia Faces Alarming Threat of Garment Sector Subcontracting]

As GMAC suggested, the Cambodian government could help manufacturers lower their operating costs by reducing electricity fees, eliminating unnecessary red tape and working to improve the country’s logistics system.

According to the Post, Cambodia’s garment and footwear industry brought in more than $6.5 billion in 2016 and provided jobs for roughly 700,000 workers. When it comes to trade with the U.S. specifically, textile and apparel imports from Cambodia last year totaled $2.19 billion, which was a 14 percent drop over imports in 2015, according to OTEXA data.

The hope with the added benefits and wages, according to Monika, is that it will help boost workers’ productivity, which is reportedly lower than in neighboring countries.

“What we want from workers in return is for them to increase their productivity, because when productivity costs increase the only way to offset these costs is to increase productivity,” he said.

What’s coming next, however, productivity or not, is that factories will be looking to brands and retailers to pay up.

“If international buyers can offer a higher price for our products, [in recognition that it] will contribute to improving workers’ living conditions, it will also help to maintain investors,” Chan Sophal, director of Cambodia’s Centre for Policy Studies, told the Post.

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