Seven years ago, when foreign investors were taking a hard look at the Vietnamese economy, Cambodia came up in conversation as an alternative site for cheap factory labor. Among those talking were Taiwanese factory owners. The business people known for fanning out around the world in search of low-cost production bases were trying then to escape the country’s depreciating currency and wildcat labor strikes in Vietnam. Vietnam has cleaned up those issues, but Cambodia is still drawing more Taiwanese investors now than ever.
Taiwanese investment in impoverished, once war-torn Cambodia is growing because labor there still costs less than those in Vietnam. The impoverished Southeast Asian country is gaining further attention today because China has developed its infrastructure. Those improvements would ease doubts that Taiwanese investors had in 2012 about the high costs of sending in raw materials and exporting finished goods due to the lack of roads and port facilities.
“Cambodia offers an attractive combination of low salaries, less than China, and now decent infrastructure,” says Stuart Orr, a professor of strategic management focused on China at Deakin University in Australia. “Ten years ago, the lack of commercially viable road transport and the lack of rail transport as well as the high cost of shipping from its only international cargo port would have made it unattractive as a manufacturing investment location.”
Numbers Tell the Story
Cambodia-bound investment from Taiwan over the past six years totals about $568 million and most of that poured in just the past two years, according to figures from the economic affairs ministry’s Investment Commission in Taipei. Taiwanese companies invested about $171 million in 2017 and $181 million last year, a record high, data show. There were 15 projects by Taiwanese companies last year in Cambodia, a six-year high.
Westerners might remember Cambodia best for its civil war under Communist leader Pol Pot who masterminded the genocide of more than 2 million civilians in the so called “killing fields” in the 1970s and plunged the country into decades of poverty. Cambodia has been a staunch ally of China, which has been helping Cambodia build its infrastructure. As of August 2018, China had pumped $2 billion into the country’s infrastructure. Since it began aggressively building in Cambodia two years ago under its $1 trillion Belt-and-Road initiative, China has expanded a port, opened a road network and made plans for two new airports. About 70% of Cambodia’s roads are Chinese-funded, Orr says.
Those developments in turn support Chinese trade in Cambodia, consistent with Belt-and-Road goals. Chinese President Xi Jinping said last month the Belt-and-Road initiatives in Cambodia should be accelerated, state-run China Daily in Beijing reported. China is investing in power generation as well, says Carl Thayer, emeritus professor at University of New South Wales in Australia. More power will help the textile industry, he says. “The Chinese have moved in in a bigger way,” Thayer says. “All these high-rise buildings and condos and everything else they’re doing need energy, so China is into hydropower.”
Who’s moving to Cambodia? Check your closet.
Cambodia is particularly drawing foreign garment manufacturers. Grand Twins International, a Taiwanese garment manufacturer even listed on Cambodia’s nascent stock exchange in 2014. It didn’t expect that much investment, according to media reports at the time, but it became the second foreign firm to list on Cambodia’s stock exchange, a sign of confidence in the country.
Media reports from Cambodia say it’s trying now to export more summer clothes to Asian markets while holding onto its chief client, Adidas.
Another Taiwanese investor Sheico Group built factories in Cambodia in 2008 and 2013 to makes underwear and wet suits. Sheico opened its first factory to take advantage of Canadian and European tariff breaks on exports from Cambodia while avoiding higher wages in China, the company says in a statement to Forbes. Its two Cambodia factories occupy about 70,000 square meters and employ some 4,800 people.
One of Sheico’s plants operate near the Vietnamese border near the regional trade hub of Ho Chi Minh City, making it ideal for importing supplies and exporting clothes, the company says, The second factory is near the Phnom Penh international airport. Cambodian officials are working with Beijing-based, state-run China Development Bank among others to build a 2,600-hectare, $1.5 million new terminal complex there. “Both properties are close to factories in Vietnam that have dying and fabric production,” the statement says.
Picking sites near transit hubs “makes sense,” says John Brebeck, senior adviser at the Quantum International Corp. investment consultancy in Taiwan. “Infrastructure can do a heck of a lot,” he says. “A road gets built and economic activity picks up.”