In August, AmCham’s Apparel & Footwear (A&F) committee scheduled a packed day of fact-finding meetings and briefings in Phnom Penh to see if the investment climate was improving, same-same, or worsening. Editor-in-Chief Blessing Waung asks Richard Vuylsteke about the trip
What was the purpose of this delegation?
This trip was principally intended as a fact-finding mission to learn more about Cambodia and its strategy to support the apparel and footwear sector over the next five years. The trip was especially timely because of intense debates now underway on revisions to the trade union law and refinement of the process to set minimum wages for the A&F sector.
These discussions are also timely because of the potential impact on Cambodia’s competitiveness after the ongoing TPP (Trans-Pacific Partnership) negotiations are completed, and from increased competition from neighbor Vietnam after its recent trade agreement with the European Union.
For several years, major American, European, and Asia brand owners have been diversifying their apparel and footwear production outside China. The global brands aren’t closing down all their sourcing in China, but there is signifi-cant retrenchment and a concomitant expansion of factory production in both Southeast and South Asia. Africa is also on the A&F sector map.
Some of these countries have decades of experience already, while others like Cambodia have been ramping up relatively recently. On the union topic, there is concern that the law will permit a large number of unions in each factory, which could make management-union negotiations – and union-to-union interactions – even more complex than they already are.
Details are still being hammered out, but if 10 people are sufficient to form a union in a factory of, say, 4,000 workers, the complications are obvious. This is one option actually being discussed. Another looks at various minimum percentage levels of workers in a factory to form a union, which has a bit more flexibility for large and small factories.
A new process of reviewing the minimum wage was introduced last year, but is still being refined. During our visit we sensed some discord on both the process and the expected results.
Suffice it to say that the appropriate degree of transparency, fairness, clarity, and predictability are all being vigorously debated by Cambodia’s government, NGOs, unions, business organizations, and the media.
The results of deliberations on both topics will have major impact on investment decisions. Key US and international apparel sourcing companies (see delegation list sidebar) and brands account for approximately 70 percent of Cambodia’s exports, so the presence of our group’s companies in Phnom Penh demonstrated the importance of these upcoming decisions.
What messages did the delegation deliver?
Our talking points fell into three categories – industry support, labor relations, and worker safety. And, by the way, these have also been core categories on our previous A&F delegation trips, so were not unique to Cambodia. After a couple of meetings we added a fourth message.
By industry support, we wanted to ensure our interlocutors that apparel and footwear brands considered expanded Cambodia investment to be a genuine possibility. That said, Cambodia isn’t the only game in town, and a successful TPP could make life difficult because Cambodia is not included.
But even with a TPP in place, Cambodia still has an attractive list of advantages that it could maximize along with other regulatory changes to build confidence in “Brand Cambodia”. Strengths include having many business incentives already in place, good investment protections, and a young population eager to learn (70 percent are under 30).
Labor relations looks like it will be a sticky point now and going forward. Our group emphasized that their companies were supportive of the freedom of association and believed in the fundamental right of workers to form unions.
Our request was for the processes to be simple, clear, transparent, and not out of sync with global best practices. There is worry that multiple small unions in the same facility could significantly complicate business operations, making increased investment less likely.
We also said that industry would welcome regularly scheduled wage reviews based on transparent, clearly defined metrics.
Worker safety is of paramount importance. We encouraged common safety codes, annual inspections leading to licenses, fire equipment properly installed, structural safety standards rigorously enforced, and ongoing training in fire, electrical, and maintenance of safety systems.
Our fourth point was to encourage the Cambodian Government to include a long-term strategy for the apparel and footwear sector in its current “Industrial Development Plan 2015-2025,” which is currently lacking despite the great importance of the industry to the economy.
Who did you meet?
H.E. Sok Chenda Sophea, Minister attached to the Prime Minister and Secretary General of the Council for the Development of Cambodia.
We had outstanding access, greatly facilitated by AmCham Cambodia leaders who have excellent contacts with the government. We benefited from lots of heavy lifting from Chairman Brett Sciaroni and his deputy Boranin (Nin) Rath, and Executive Director Ron Marvin. Brett has more than 20 years in the country and his personal contacts made a genuine difference.
We were able to meet H.E. Sok An, Deputy Prime Minister and Minister in charge of the Office of the Council of Ministers; H.E. Sun Chanthol, Senior Minister, Minister of Commerce and Vice Chairman of Council for the Development of Cambodia; and H.E. Sok Chenda Sophea, Minister attached to the Prime Minister and Secretary General of the Council for the Development of Cambodia. We also met with US Ambassador to Cambodia William Todd and his country team.
Our non-government meetings included representatives from the AmCham Cambodia Board, CAMFEBA (Cambodian Federation of Employers and Business Associations), and ILO/Better Factories Cambodia.
What follow-up actions are expected?
The committee is considering another visit before the end of this year. We didn’t meet with some NGOs and other business organizations, including GMAC (Garment Manufacturers Association of Cambodia), and plan to do so. The ILO is a major player and we could benefit from a deeper dive conversation than we had this time.
Importantly, H.E. Sun Chantol offered to pull together a government roundtable, inviting various ministries and NGOs to discuss the long-term future of the apparel and footwear sector. We will work with the Minister over coming weeks to see what can be set up. We are presumably all after greater accountability, responsibility, and transparency. Getting a cross-section of stakeholders in the same room should facilitate useful dialogue.
What was the A&F Committee’s role?
Most members of AmCham’s A&F committee have regional and global responsibility for sourcing, compliance, logistics, and strategic planning on long-term sourcing solutions. Many of them are on the road two to three weeks a month, sometimes more, to meet with governments and regulators, as well as meet with suppliers around the world.
An AmCham delegation provides an organizational umbrella that allows different brands to meet with government officials as a group and speak with one voice. This is essential and effective to secure high-level appointments and to tell a sector story, not just express an individual company’s concerns.
These companies are of course competitors, but they can also cooperate constructively on important issues that affect them all. AmCham facilitates what we call “coopetition” – cooperation among competitors. The Chamber also handles planning logistics for the group and sets up the meetings.
Our A&F delegates to Cambodia arrived late Sunday, August, 9 had seven back-to-back appointments on Monday, and then most left that night. Typical Hong Kong style!
The 2015 Cambodia Delegation
AmCham Hong Kong
Senior Vice President
Ralph Lauren Asia Pacific
Raymond Wai-Man Cheng
(*) AmCham HK Cambodia Delegation Spokespersons