The "Collapse Tide" Is Surging. Those Factories That Are Moving To Vietnam And Kampuchea Are Coming Back Again?

In recent years, with the gradual disappearance of China's demographic dividend, increased production costs, high environmental pressure, coupled with the uncertain trade frictions between China and the United States, many enterprises have turned their attention to Southeast Asia, such as Kampuchea.

But the business environment in Southeast Asia is not as good as expected. In recent years, many enterprises have moved their factories to Southeast Asia and have returned to China.

The closure of garment factories is a typical example.

According to Ken Loo, Secretary General of the Kampuchea Garment Manufacturers Association, so far, 70 factories in Kampuchea have gone bankrupt, double the number of 35 last year, and this trend will steadily increase in Kampuchea's garment industry.

There are a large number of garment factories closing down in Kampuchea, which are mainly caused by the following reasons:

1, rising labor costs: Kampuchea's labor force no longer has the advantage.

In the past few years, many international enterprises set up factories in Kampuchea, mainly focusing on the relatively low labor costs in Kampuchea. The following is a picture of the change in Kampuchea's artificial wages from 1997 to 2017.

In 1997, the labor wage in Kampuchea was about $40/ months.

In 2017, the official salary has risen to $153/ months.

In 2018, labor wages rose to $170/ months.

In 2019, it rose to $182/ months.

Not long ago, workers petitioned the Ministry of labour for wages to rise to $250.

If employees' benefits and subsidies are included, the average cost of a typical employee in Kampuchea is about $210 a month, and some employees can earn about $500 a month.

Compared with manual wages in Kampuchea, the cost of labor in Southeast Asia and some countries in South Asia is relatively low. For example, in January 2018, it is also the garment industry. The monthly labor cost in Bangladesh is 67 dollars, 67 in Sri Lanka, 77 to 143 dollars in India, 79 dollars in Burma, 134 in Pakistan, and 110 dollars in Laos.

That is to say, the cost of labor in Kampuchea is almost two times that of other South Asian and Southeast Asian countries. Under such circumstances, it is justifiable for some enterprises to escape from Kampuchea to cheaper countries.

2, supply chain is imperfect: logistics weakness increases the production cost of enterprises.

At present, the infrastructure and supporting facilities of Kampuchea's industrial manufacturing industry are relatively weak, and many basic facilities are lacking, such as local hydropower facilities.

In addition, most of the fabrics and other raw materials needed by the garment industry are not available. Therefore, many garment factories set up in Kampuchea are imported from China.

From China to Kampuchea, the cost of freight and customs duties is even higher than that of China, resulting in high overall cost.

3, workers' working efficiency is low: low cost labor wages have not been turned into advantages.

The manual labor efficiency in Southeast Asia is relatively low, which is a common aspiration of many bosses who invest in Southeast Asia.

According to industry analysis, the productivity of Vietnamese and Indonesian factories is about 80% of that of China, and the productivity of Cambodian garment factories is only about 60% of that of China.

At present, a garment factory in China is also paying about 3000 yuan in the central and western regions. If the labor wage in Kampuchea is 200 yuan (about 1400 yuan), and their efficiency is only equivalent to 60% of the Chinese workers' efficiency, if the cost of the supply chain is included, the cost of production in Kampuchea is not lower than that in China, which is why some factories prefer to move the production base back to China.

For example, since 2008, many Japanese companies have moved Chinese factories to Southeast Asia, but in recent two years, many Japanese companies have moved factories back to China.

4, workers strike protest: increased the difficulty of business operation.

Workers in Southeast Asia are not only inefficient, but also frequent strikes and protests. Some workers protest slightly or even strike. And even if workers strike out of work, manufacturers will have to pay wages.

Besides, workers in Kampuchea are not as hard-working as Chinese workers. Some workers may faint if they are in a bad environment. For example, if they smell gasoline, they may faint. Even if such a "sentimental" worker is not allowed to dismiss the factory casually, he will face a lot of punishment if he casually discharges the workers.

Because of this, the normal production of many factories has been greatly affected, and even can not be delivered on time, resulting in the continuous reduction of orders.

5, uncertainty: whether the export price advantage will remain in the future remains questionable.

An important reason why Kampuchea attracts many manufacturers to invest is that Kampuchea's products have certain advantages in exporting to the European Union and the United States.

There are two more important tariff preferences, namely, the EU's "all tax exemption (EBA)" except the weapon and the United States generalized system of preferences (GSP). These tariff preferences have great advantages for Kampuchea's export products, just the preferential tariff treatment provided by the European Union. Kampuchea can save about 600 million to 700 million dollars of customs duties every year.

However, in October 2018, the European Union considered the case of the lifting of preferential tariffs between Kampuchea and Burma. The EU believes that Kampuchea and Burma have violated human rights and workers' rights and interests seriously. This means that Kampuchea will lose the preferential tariff treatment granted by the European Union (EBA) except for weapons.

If the EU finally cancels the preferential tax treatment, the export of Kampuchea's products will be greatly affected, because at present, Kampuchea's garment industry exports a large market share, mainly for the European Union.

So it is also possible for some garment enterprises to move their factories away from Kampuchea.

What do you think of Kampuchea's "collapse tide" this year?