As western brands’ supply chains shift to Cambodia’s low-wage economy, customers will have to decide what human price they are willing to pay for their garments, says Paul French

China’s factory wages have been rising fast in the past few years. A combination of rising salary expectations, increased living costs and a labour shortage thanks to the one-child policy have all meant that textile workers can now earn an average of $400 a month.

Skilled workers can earn double that. Moving production inland from the more expensive coastal areas hasn’t worked – rising living costs, inflation and labour shortages simply caught up. Add to this rising overheads for manufacturers for everything from electricity to land rents to taxes and many sourcers have looked elsewhere. This is the so-called “China+1” strategy of shifting textile production overseas and out of China.

In Cambodia, textile wages are about $120 a month (though the minimum wage paid to many workers remains below $100), land is cheaper and other overheads lower than China. Phnom Penh and the manufacturing regions close to the Thai border have become hot destinations for sourcers and consequently textile exports from Cambodia reached $5bn in 2013, up more than 20% from the previous year.

There have been problems – Cambodia had a skills shortage, so much of the production has had to be lower-end, while the country has a population of only 15 million. So while Cambodia has become another possible alternative to China – along with Bangladesh, Pakistan and other south-east Asian locations – it won’t totally replace the most populous country in the world any time soon.

Still, this influx of investment (in electronics, food processing and other sectors, as well as textiles) has put pressure on manufacturers to compete for workers while trying to keep wages down. It is now clear that that attempt hasn’t worked; Cambodia is not China in one crucial respect – it has trade unions. But it is like China in one crucial respect too – the influx of foreign investment has inevitably created inflation. The outcome of these two factors is agitation for higher wages.

The Cambodian government is now struggling to deal with strikes that have been ongoing since late December 2013. Their reaction has often been violent and deadly; labour activists have been arrested and imprisoned. The aim of the strikes was ostensibly to raise the minimum wage to $160 a month and also to highlight what the unions see as deteriorating health and safety conditions in factories as manufacturers cut corners to maintain profits.

Big brand supply chains

The influx of manufacturers (some of them Chinese offshoring to cut production costs) means that products for many major brands – think Adidas, Puma, Gap and H&M – are being made in Cambodia. Talk to the manufacturers and they’ll give you the same line as they did in China a decade ago – we can raise wages, but costs will rise and the brands will go elsewhere. And so manufacturers in Cambodia find themselves in an all-too-familiar spot – pressure from the brands to keep costs low.

This, of course, is not to excuse low pay and bad conditions in Cambodia or the Phnom Penh government’s response to the strikes. But it does show that this is largely a repeat of China. Western brands that charge premium prices have pressured manufacturers to seek lower wage production bases. They have secured lower cost production while keeping their prices high in western markets and profit margins high.

In the coming weeks and months, we will undoubtedly hear statements from the major brands whose goods are being produced in Cambodia that they deplore the violence and poor conditions. They will claim, as sourcers, to put pressure on their manufacturers to improve conditions and pay decent wages. Cambodia may become seen as a risky place to do business. But what they do not appear to be willing to do (as they were also not when costs began to soar in China in the mid-2000s) is increase their prices and/or accept lower profit margins.

Additionally, once again western consumers are faced with a choice as they see the pictures from Cambodia and feel angry about factory conditions – pressure the brands, accept higher prices? It did look like ethical consumption and the anger about Chinese factory wages and conditions rather abated when the recession hit Europe and America. People threatened with personal deteriorating wages and living standards weren’t so willing to pay more for better conditions overseas.

Perhaps the images from Cambodia will encourage some consumers in the west to look again at their own purchasing patterns and desire for high margin brands, and follow the chain back to Phnom Penh and the military police shooting into a crowd of protesting unionised textile workers.

Based in Shanghai, Paul French is an independent China analyst and writer.

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