Cambodia presents something of a conundrum for international equipment suppliers. On one hand, they see a dynamic economy, with rapid growth in some areas such as the production of apparel, footwear and travel goods (GFT), agricultural goods, and food and beverage products. Cambodia’s overall economy is forecast to grow by 5.3% this year and 6.5% in 2023, with manufacturers importing production equipment to support this activity. On the other, though, Cambodia is still a developing country, and the idea of investing in leading-edge equipment is a challenging one for many local business owners. It is possible to employ several workers for the same price as an item of machinery, and parts of the country lack the infrastructure needed to maintain new technology, so incentives for capital equipment investment have been low.
This dilemma was addressed, for instance, by an expert panel convened by EuroCham and funded by German development Agency GIZ’s FABRIC project on 22 March this year. The panel agreed that Cambodia is involved in a balancing act between implementing new technologies, upskilling and protecting workers, and maintaining the country’s edge in the global market – an edge that has relied mostly on low-cost labour.
Speaking to the panel, undersecretary of state at the Ministry of Industry, Some Nara, said that Cambodian factories are very dependent on technical experts from overseas, to install new equipment and back-office technologies, partly because of a local shortage of trained engineers and technical personnel.
Cambodia’s new Law on Investment, adopted in October last year, is beginning to address some of these issues - it extends the number of priority areas that qualify for investment and tax incentives; the list of “qualified investment projects” now includes technological innovation, research and development, digital industries, mechanical and machinery industries, electrical and electronics industries, green energy and climate change adaptation or mitigation technology, biodiversity conservation, health, and small and medium enterprises. This change will help to shift the balance of Cambodia’s economy so that it is not so reliant on labour-intensive production in the GFT sector, and can develop more broadly.
The new law also includes incentives for investing in vocational programs and training to upskill workers.
Together, these initiatives should increase opportunities for the upgrading of Cambodia’s manufacturing capabilities, as businesses find it more worthwhile to invest in production equipment and technology rather than simply keeping wages down.
Another changing factor in this situation is external – increasingly strict demands from international customers in terms of environment impact, social impact and governance (ESG). More and more international brands and retailers are auditing the impacts of their entire supply chains, including the use of renewable energy, better buying practices, worker conditions, biodiversity, raw materials and chemicals. Such requirements cannot be met without also investing in more sophisticated production lines and systems.
If equipment manufacturers are to be a part of the change that is coming, they need to be well-positioned to meet the needs of producers in Cambodia with local technical and spares support, reliable systems and more, so that long-term trust can develop.
Melchers in Cambodia
Melcher’s Phnom Penh office opened in 2010, and provides direct and efficient services to our clients across a range of industries, in Cambodia’s growing market environment. These include maintenance, repair and a fully-integrated spares service.
Established in 1806, and with more than 150 years of experience in East Asia, Melchers is trusted by many international brands and producers to be their “feet on the ground” in this region’s diverse markets, drawing on deep local networks and knowledge, and combining them with dynamic business services and trade infrastructure, to create powerful synergies that deliver results for your business.
contact@melchers.de
