[PHNOM PENH POST]
IN terms of export volumes, Cambodia’s garment industry has almost certainly enjoyed its best start to a year ever.
Figures
released last week show the industry grew 45 per cent in the first
four months as overseas sales hit $1.2 billion. On the surface, then,
the situation couldn’t be better.
But focusing on the level of growth and export revenues masks what has become a big structural problem.
Despite
the huge sales growth, garments have generated lower overall profits so
far this year compared with the start of 2010 because the recent rise
in costs outstrips the price buyers are willing to pay, Ken Loo,
secret-ary-general of the Garment Manufacturers Association in Cambodia,
says.
“Looking at the export figures alone leads to an overly
rosy picture,” Loo said yesterday. “Profits in the past 18 months have
been on the decline, if there have been any at all.”
The
challenge for the garment industry remains one that has changed little
in decades and that has led to recent problems of profitability.
Buyers
are simply not willing to accommodate large and sudden increases in
sourcing costs because of the price sensitivity of customers, especially
in the low-end market that Cambod-ian producers target.
In the past year, the price of raw materials, fuel and labour – the main costs for local garment factories – have soared.
Cotton
prices reached record highs in the first quarter as mills were accused
of panic buying, oil prices have surged because of unrest in the Middle
East and in Cambodia the minimum wage and additional payment benefits in
the garment industry have risen since September.
But buyers haven’t matched the rise in these costs, Loo says.
Cambodia’s
largest market, the US, continues to highlight the problems garment
sellers have encountered in trying to raise their prices.
A
report by Textiles Intellig-ence shows Bangladesh, Cambodia, El
Salvador and Honduras respectively had the largest rise in garment
exports to the US at the beginning of this year.
And it comes as
no surprise that they, along with Pakistan, happen to be the cheapest
suppliers in the world – reflecting the fact that countries that keep
their prices at rock-bottom in a highly competitive global market
generate the most business.
The problem Cambodian garment
exporters face, along with those in the rest of the world, therefore
remains one of perceptions and expectations.
Consumers in the
West, despite bemoaning “sweatshops” in developing countries, remain
reluctant to spend more on clothes, meaning retailers are unwilling to
pay more when sourcing goods.
And there’s always another country or factory that will make the same garment for less.
Cambodia’s
garment industry is getting the business, as the substantial rise in
export volumes shows. The challenge is to get more from sourcing
companies and to reduce costs without short-changing workers.
Unfortunately, precedent in the garment industry has shown that achieving this is far from straightforward.
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