According to Chea Buti, deputy secretary-general of the Council for the Development of Cambodia (CDC), Cambodia expects to see an increase in foreign investment from Japan as major garment companies relocate to the country as manufacturing and sourcing bases.
This is due to “rising labor costs and the Chinese government's zero-COVID policy,” Vuthy said, adding that Southeast Asian and neighboring countries such as Vietnam, Bangladesh and Indonesia are also benefiting from the change. While the labor cost for an average factory worker in Guangzhou, China, reaches about $670 a month, the minimum wage in the same sector in Cambodia is set to reach $200 by 2023.
Vouty revealed the development at the European Chamber of Commerce in Cambodia (EuroCham) Responsible Business Hub event in Phnom Penh last week, where the first Garment, Footwear and Travel (GFT) Sector Profile was also launched.
Some of the major companies making the switch include Adastria, Aoyama Shoji and Matsuoka Corporation. Aside from rising costs, the move is also in line with the Regional Comprehensive Economic Partnership (RCEP), which will allow Japan to take advantage of existing exemptions on textile import tariffs.
Adastria's production in China fell from 81% in 2011 to 59% in 2021.
Matsuoka Corporation, a contract manufacturer under Fast Retailing, plans to reduce its production volume from 50% as of March last year to 29% by 2025. Instead, it plans to increase production in Bangladesh to 34% and in Vietnam to 28%.
Reasons for these changes include the weak yen and rising raw material prices in China, with the RCEP, which came into effect in January last year, providing a new lifeline for affected companies.
The GFT market is set to grow further
The GFT sector overview also notes these changes in the manufacturing and sourcing base, as well as increased government interest in promoting green and renewable energy investment and skills development to make the Cambodian market more resilient and diversified.
This plays to the Kingdom's strengths, with the garment sector having been a cornerstone of the local economy for over two decades. Prior to the COVID-19 pandemic, GFT accounted for an average of 10% of Cambodia's annual GDP.
Feasibility studies are also currently being conducted for further free trade agreements (FTAs) between Cambodia and Japan, India and Bangladesh which, if ratified, would open up further opportunities for Cambodia’s GFT exports and other goods.