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Business Insight


Business Insight

Looking for Opportunities

Kyoko Fujita

Leaders of 10 Southeast Asian countries plan to launch an economic community in December. Investors and company executives have high hopes for the bloc. They expect it to generate new investment opportunities. Many Japanese business people see Cambodia as a strong potential player.

A group of Japanese business people toured a special economic zone in Phnom Penh last month.

More than half the companies here are Japanese.

The visitors say Cambodia's location, low labor costs, and few restrictions on foreign investment are big incentives.

"As Cambodia is located between Thailand and Vietnam, setting up a firm here would make it easier to do business and supply our products throughout the region," says Kazushi Miyachi, head of auto-parts maker Takarakasei Kogyo.

Many business people believe that Cambodia has the potential to become a serious competitor to Thailand, as a target for foreign investment.

Japanese sporting-goods maker Mikasa Corporation sees Cambodia as an attractive place to do business. The company has been rolling out volleyballs and soccer balls from its factory in southern Thailand for 14 years. It exports about 2 million balls a year.

But Thailand's soaring labor costs are hurting profits. Three years ago, the Thai government raised the national minimum wage by 40 percent. Workers have been leaving the company for better paying jobs. Mikasa executives say they are taking every measure to retain their employees. They opened a free nursery school right next to the factory for workers with children.

Even so, 10 percent of employees quit the firm every year. Managers say they can't raise wages any further.

"We will have to bring down our production costs if we are to become more competitive," says Mikasa's Thai president, Satoshi Iehara. The solution he chose was to build a factory in Cambodia, close to the Thai border.

Labor costs here are a third of those in Thailand. About 100 local employees are taking part in the first stage of production. They create the balls' cores by making a rubber ball and gluing cloth to it.

The cores are then transported to a factory in Thailand, where they are turned into complete balls. Machines apply a coating, and experienced workers complete the work by attaching panels.

Iehara now wants to shift more of the process to Cambodia. He believes the move will not only boost profits, but serve as a hedge against Thailand's political uncertainty.

"If the factory in Cambodia can achieve the same level of production as the one in Thailand, we can continue manufacturing, even amid strikes or political turmoil," he says.

As Japanese manufacturers continue efforts to cut costs, Cambodia is shaping up as an increasingly attractive location.

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