A low-cost workforce, favourable export tariffs and political stability are helping transform Cambodia into one of the main rivals to China as the supplier of textiles and footwear to the world’s richest countries.
The growth is impressive. In 2013, this country of 15.4 million people exported textiles worth US$4.97 billion, more than double the US$2.19 recorded in 2005, according to the Garment Manufacturers Association in Cambodia. Most of the goods went to the U.S. although sales to Europe showed the fastest growth.
Shoe exports, meanwhile, have also more than doubled from US$16.8 million in 2005 to US$35.3 million in 2013. Most of the shoes were sold to European buyers, followed by U.S. companies.
“Many manufacturers are relocating their textile and footwear production to Cambodia or sending semi-finished goods there to take advantage of tax-free imports of raw materials and duty-free exports of the goods,” says Simon Lassailly, managing director of SDV Cambodia.
These tax benefits are due to the “Everything But Arms” program, a European initiative under which all imports from Cambodia to the European Union except armaments are duty free.
Cambodia is one of the few countries among its textile manufacturing neighbours such as Vietnam and Indonesia to benefit from these duty-free exports to the European Union, Lassailly explains, making it also attractive for Chinese and Hong Kong-based companies to set up factories there.
The high growth in exports is creating logistical challenges, however, as the infrastructure is not yet in place for high volumes. No cargo freighters fly from Phnom Penh International Airport, for example, and space is limited on the passenger planes. “We are therefore forced to look for alternative solutions,” Lassailly says.
One solution is “buyer’s consolidation” where the European importer consolidates orders from different suppliers into one full container shipped directly to the final destination.
Other alternatives include multimodal transport combining road and air or sea and air. In the first option, goods are taken by truck to Bangkok airport, which has more capacity and departures, to be then transported by air to Europe or the U.S.
The sea-air option works on the same principle but the cargo is shipped on a three-day sea journey from Cambodia to Singapore and then sent to Europe by air.
These multimodal options offer importers operational and financial advantages. They help solve the capacity issues and shorten transport times as well as being more cost effective than pure air freight. The goods also reach the shelves faster than ocean cargo alone.
Some clients also choose to consolidate their cargo from other countries in Singapore before shipping them to Europe or the U.S., Lassailly adds.
European and U.S. buyers of textiles and footwear made in Cambodia’s factories include retailers Celio of France, Dutch group C&A and Gap of the U.S., as well as shoe manufacturers Adidas of the U.S., Geoxx of Italy and German sportswear maker Puma.
Lassailly is looking forward to the creation of the Association of Southeast Asian Nations (ASEAN) Economic Community, expected in 2015, to further help develop the Cambodian textiles and footwear trade. “It’s likely that it will become even easier to import the raw materials from other Asian countries which will be positive for the entire industry,” he says.