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Economy

Cambodia making a play for more factories

Workers polish watch bezels by hand in Nihon Seimitsu's Bavet factory. The high ceiling ensures enough air flow to forgo air conditioning.

There are growing expectations that the Southern Economic Corridor, which cuts through the lower part of the Indochinese Peninsula, will soon buzz with activity. The corridor is a highway linking Bangkok with Phnom Penh and Ho Chi Minh City. It also stretches west from Bangkok, to Dawei, Myanmar, a city that opens to the Indian Ocean.

     Thanks in part to the ASEAN Economic Community, which officially kicked off in December, factories are beginning to sprout up in Cambodia, the corridor's biggest beneficiary.

Border towns

About a two-hour drive from Ho Chi Minh City, along a 70km stretch of highway with two lanes in each direction, is Moc Bai, a town along the border with Cambodia. After stepping out of our Vietnamese taxi, which would only go as far as Moc Bai, I walk to Bavet, on the other side of the border.

The Tsubasa Bridge, which opened to traffic in April, has 121-meter-tall towers and is 1,500 meters long. Except for the bridge, there are no streetlights along the highway between Bavet and Phnom Penh.

     Unlike the European Community just before its integration, the border's existence cannot be missed. Travelers have to go through immigration and customs on both sides.

     Bavet has about 10 casinos, including Le Macau and the Las Vegas Sun. With only foreigners eligible to access casinos in Vietnam, Vietnamese cross the border and gamble away their dong in Bavet.

     The town, however, has another face -- that of a special economic zone which hosts foreign export companies. Special economic zones are one-stop industrial parks that provide a variety of services -- investment project registration, help with export and import procedures as well as other assistance in cutting through red tape. They also promise necessary infrastructure, such as water supply and sewerage systems.

     An arrangement between Vietnam and Cambodia allows Vietnamese vehicles, including trucks, to go 20km into Cambodia. SEZs have been created along Cambodia's Route 1, part of the Southern Economic Corridor, for export convenience and to allow companies to dip into the cheap labor pool.

     Since Cambodia has been exempted from tariffs and import quotas by Japan, the U.S. and Europe, labor-intensive sewing industries have assembled in the area, hailing from China and Taiwan. Taiwanese and Chinese bicycle parts factories have also been set up; they use the tariff incentives and export their products to Europe.

     Watch-related companies are also getting in on the action. Nihon Seimitsu, a Japanese company based in Kawaguchi, Saitama Prefecture, started producing bezels in Bavet's Dragon King SEZ in March 2014. It is trying to create a "watch village" by inviting related companies to set up factories around its plant. Of Nihon Seimitsu's 130,000-sq.-meter site, its factory only takes up 40,000 sq. meters. A Hong Kong watch band maker took over another 50,000 sq. meters for a factory of its own, shifting its production from China.

     Three other companies are expected to start operations there. Nihon Seimitsu also plans to invite final assemblers to its growing village.

     "We will take care of companies starting production here in all aspects, including recruitment of employees and provision of meals," said Tomiyuki Arai, president of Nissey (Cambodia), Nihon Seimitsu's local subsidiary.

     It is often the case that a finished product maker brings subcontractors to an overseas location where it has a plant, and a cluster of factories grows organically. Nihon Seimitsu has taken the opposite approach.

     Bavet is said to have created 50,000 jobs in total, but its future is not altogether rosy. The area has seen severe labor disputes in the past several years. The legal minimum wage spiked from $61 a month in 2010 to $140 this month.

     The current minimum wage "is about the same level as in Moc Bai," said Yukio Higashimoto, president of Nakayama (Cambodia), Osaka-based Nakayama Shoji's local subsidiary that handles sewing of baby clothes. Moc Bai is right on the other side of the border.

     "In Vietnam, there are no strikes and there is no need for customs clearance," Higashimoto said, appearing envious of a Taiwanese factory beyond the border.

Phnom Penh SEZ

Phnom Penh is about 170km from Bavet. About equidistant from each is Neak Loeung, a Mekong River town. In April, the Neak Loeung Bridge, also known as the Tsubasa Bridge, was completed with official development assistance from Japan, smoothing the way for transportation between Phnom Penh and Ho Chi Minh. The bridge also helped to draw interest to the corridor.

     Before the bridge was built, the Mekong split the highway. It could only be crossed by ferry, and sometimes drivers had to wait seven hours just to catch one. The road between Bavet and Phnom Penh is narrower, one lane each way, but its surface condition is good, and Phnom Penh can be reached in about three hours.

     It has no streetlights, however, and it is said transport companies avoid sending drivers out at night.

     In Phnom Penh, traffic congestion has become part of everyday life. Lexuses and other large cars fill the pavement. Some places have high-rise buildings. The capital, not long ago ravaged by civil war, has revived splendidly and is somewhat reminiscent of its former self, when it was called the Paris of the Orient.

     The vigor of its economy can be seen inside Aeon Mall Phnom Penh, which opened in June 2014. It is the country's first mall-type shopping center. When I dropped by Aeon Phnom Penh Store, the mall's anchor tenant, one recent night around 8, a light-meal restaurant on the first floor was filled with diners.

     The Aeon group plans to open its second Phnom Penh mall in the summer of 2018.

This is the entrance to the Phnom Penh SEZ. Toyota Motor and Denso have secured sites just inside.

     On the consumption side, Phnom Penh is full of life, but the city is also accumulating industry at a remarkable clip. The draw is the Phnom Penh Special Economic Zone. About eight years after shovels first began getting the 3 million-sq.-meter zone ready, in 2007, a little vacant lots remained.

     Ajinomoto led the way in moving into the zone in 2010. In 2011, Minebea started producing small motors at a factory and Sumitomo Wiring Systems began operating a wiring harness plant.

     The following year was big for the SEZ. Japanese companies operating in China and Thailand had begun looking for alternative production centers after anti-Japanese protests erupted in China and floods left many factories in Thailand under water.

     That year, a record 15 companies started operating factories in the Phnom Penh SEZ. More recently, Coca-Cola has begun constructing a plant and Toyota Motor has secured a temporary storage site in the zone.

     At present, 73 companies are listed as operating in the SEZ, and 18,000 people work in it.

     There are now plans to expand the SEZ by 570,000 sq. meters.

     The Southern corridor between Phnom Penh and Bangkok consists of three main routes, two of which pass Poipet, a boomtown on the Cambodian side of the border. For Thais, Poipet means casinos. But the town has Bavet-like aspirations and hopes to lure companies wishing to expand their operations in Thailand.

     As such, a movement to develop SEZs that would accept "Thailand Plus One" investments is gaining momentum. The company that developed and operates the successful Phnom Penh SEZ plans to open an SEZ in Poipet at the end of this year.

     Sanco Poipet became the city's first SEZ. An automotive seat cover factory of Yokohama-based NHK Spring is under construction; it is to be the zone's first factory. "Labor costs here would be about $200 a month per worker, including the minimum wage, transportation and lunch," said Tomoshige Yamada, SEZ general manager at Phnom Penh-based Sanco Cambo Investment Group, which developed and operates the SEZ. "In Thailand, employment would cost at least $350 per worker."

     The SEZ sits about 3km from the border.

     On a site adjacent to the NHK Spring factory, Toyota Tsusho plans to develop a park and fill it with factories it hopes to rent out to small and midsize autoparts makers. The trading company aims to create an automobile parts village in Poipet to lure some of the many autoparts makers with factories in Thailand.

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