By Zhixing Zhang
Forecast
– Cambodia may lose its competitive advantage in garment industry in the coming years if it fails to address ongoing labor tensions.
– The country’s polarized political scene will continue to complicate labor issues.
– Unsolved labor issues could have larger political and social ripple effects.
At a time when Southeast Asia is on its way to becoming the next global manufacturing hub, ongoing labor tensions are threatening Cambodia’s garment sector, the backbone of the Kingdom’s emerging economy.
Cambodia is a major link in the supply chain for many global brands, but if the country does not iron out these growing tensions, brands may begin to look elsewhere. That could hit the industry hard, causing serious social and political ripple effects.
The garment sector accounts for 80 percent of Cambodia’s export revenue, 33 percent of private sector employment, and is a key source of foreign investment to offset the country’s around 2.5 billion USD trade deficits.
Cambodia’s garment sector is seeing unprecedented growth as the country grows along with the region, and garment and footwear exports registered an average of 20 percent annual growth for much of the past decade, and continue to climb by 14.5 percent last year to $7.1 billion, according to the Industry Ministry’s figures reported by China’s Xinhua News Agency. But despite these strides ahead, labor tensions threaten to set the sector back.
LABOR TENSIONS USED AS POLITICAL FOOTBALL
A draft bill for a trade union law underscores the country’s increasingly tense labor relations, and has been the center of furious debate between some domestic trade unions, international rights groups and the political opposition on one side and Cambodia’s business leaders on the other.
At issue are the conditions and requirements for which trade unions can be formed, operated and dissolved. To appease criticisms from international labor organizations and domestic trade unions, the current draft has incorporated a number of important changes, including lowering the number of workers needed to form a union from 20 percent of a factory’s employees to a mere 10 people. It also raises the threshold for dissolving a union and eliminates a range of arbitrary powers granted to ministerial authorities to suspend union registration.
But business leaders fret the draft law is too lenient toward unions and could end up hurting business, and have requested changes.
Cambodia currently has around 3,400 trade unions, which is often seen by business as multiplicity and difficult to govern. In particular, around 90 percent of the unions are active in the garment sector – a linchpin of the country’s economy.
Adding to the complexity is the country’s increasingly strained political situation over the past three years, as some analysts say political and union leaders want to stir the pot in order to gain politically, with no thought of whether that will benefit the workers.
“Cambodia’s heavy dependence on garment industry (has) given high stakes to the trade unions, which have emerged as prominent social and political forces,” a Chinese official who is directly familiar with the matter told Borderless on condition of anonymity.
“Some unions are established with strong affiliation to political forces,” who, at times of tense political competition, tend to capitalize on labor issues in order to pursue their own agendas, the Chinese official said.
“Some union leaders are less concerned about the workers than their own political capital”, the official continued, “and ultimately, the issue of labor relations is unlikely to be addressed easily due to the unsettled political scene.”
This, combined with the country’s often poor working conditions, wage standards, and lax legal requirements, has contributed to the growing frequency of labor movements, and repeating demand for wage increase.
LABOR TENSIONS THREATEN TO CHIP AWAY AT CAMBODIA’S COMPETITIVE ADVANTAGE
Tense labor relations and ongoing conflicts over wages and working conditions have taken a toll, and the country has seen an average of 123 strikes per year over the past four years, according to an estimate from the Garment Manufacturers Association of Cambodia (GMAC).
Some strikes have turned violent and have caused serious supply chain disruptions. Some demonstrations have sparked outcry from rights groups after police violently broke up the protests.
There also remain other ongoing labor issues that, if not addressed, could chip away at Cambodia’s competitive advantage.
Indeed, over the past three years, minimum wage for garment workers saw dramatic growth, nearly doubling from $80 per month in 2013 to $140 this year.
The pay hike has already put Cambodia’s labor costs well above some of its key regional rivals, and unions are still unsatisfied with that number, and would like to see it rise to $160 per month.
Indeed, minimum wages in Bangladesh, Laos and Vietnam stand at $68, $78 and $90-130 respectively, eroding Cambodia’s competitiveness.
Ken Loo, Secretary General of the Garment Manufacturers Association of Cambodia (GMAC), told Borderless:
“Currently, Cambodia’s competitive advantage is ample supply of labor, decent logistics and other infrastructure, no capital controls, no restriction on foreign ownership.”
Prolonged labor tensions could also cost Cambodia at a time when regional competitors such as Indonesia, Myanmar, and Bangladesh are rapidly ramping up productivity, infrastructure, and logistics chains.
Competition is particularly high from Vietnam, whose garment industry could soon reap the benefits from a number of free trade deals, including one with the European Union that will take effect this year.
In a country where the cost of living is becoming increasingly expensive – especially for those earning lower wages – Cambodia will have to strike a balance between satisfying workers and ensuring its competitive advantage.
LABOR TENSIONS COULD SPARK SOCIAL, POLITICAL UNREST
If the issue is not resolved and countries, companies and investors start looking to invest elsewhere in the region, that could hit Cambodia’s multi-billion dollar garment industry hard.
Already, “some Chinese garment factories are recalculating their decisions,” and are considering setting up shop in other countries in the region, according to the Chinese official.
It could also lead to further social and political tensions if a significant chunk of the industry’s nearly 600,000 workers see pay cuts or layoffs in a country where much of the population still lives hand to mouth, and where even a slight pay cut can be financially devastating to a family.
Photo Credit: istockphoto:Lquang241
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