SINGAPORE -- After more than three decades as Cambodia's prime minister, Hun Sen added a new routine to his schedule last August: visits to the garment and footwear factories that employ some 700,000 citizens nationwide.
Sometimes he has lunch with the workers. He is happy to pose with them for selfies. And he has been dangling a carrot before them, in the form of a higher minimum wage.
Hun Sen is not the only Southeast Asian leader using wages to woo voters, raising hopes for better living standards but creating headaches for employers. Manufacturers are increasingly asking themselves whether countries in the region offer enough other benefits to justify paying employees more.
In Cambodia, garment workers and their families constitute a major voting bloc among the population of 16 million. Hun Sen is personally courting them as he looks to extend his reign in a general election this July -- and calm public discontent over his clampdown on the opposition.
"I wish to express my congratulations to workers who in the days ahead will receive a basic monthly salary increase from $153 to $170," Hun Sen said in late December, in an address to 14,000 workers from 15 factories and enterprises in Phnom Penh. Pointing to other welfare measures, such as free health checks and treatments in state hospitals, he stressed, "You will receive these benefits while I am still the prime minister."
The 11% minimum wage hike took effect on Jan. 1. Employers and workers had previously agreed to raise the wage to $165 a month, but Hun Sen tacked on an extra $5.
"I have declared already that I will continue to seek the premiership post for the next two terms," the prime minister said toward the end of his speech to the workers, which covered everything from the economy to peace. "I hope that you, your parents and grandparents, should they be still alive, will continue to vote for the Cambodian People's Party on July 29, 2018."
Cambodian workers now earn a minimum monthly wage of $170, up 11% from last year.
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Hun Sen has taken a page from the playbook of the now-gutted opposition. Calls for wage hikes had helped the Cambodia National Rescue Party, or CNRP, gain seats in the 2013 general election and the June 2017 communal elections. Last year, though, the top court dissolved the CNRP and jailed its president, Kem Sokha. Now Hun Sen is looking to win over laborers who backed the rival camp.
The higher minimum wage is part of the government's effort to "please the garment workers," said local economic analyst Chan Sophal.
Malaysia, too, is headed for a general election before August, and there are rumblings of a minimum wage increase as well. The government will conduct a biennial review of the monthly wages -- currently 1,000 ringgit ($253) for peninsular states and 920 ringgit for island states -- in the middle of the year.
Prime Minister Najib Razak focused on lower-income voters in recent years. A number of programs, including the implementation of minimum wages in 2014, have been designed to lift the incomes of the bottom 40% of households, which earn less than 3,000 ringgit a month.
A combination of brisk economic growth and political considerations continues to elevate wages across Southeast Asia. Indonesia boosted its wages by 8.7% in major areas including Jakarta in January, while Vietnam increased them by 6.1% to 7% depending on the area, according to data compiled by Bank of Tokyo-Mitsubishi UFJ. Minimum wages in some parts of Southeast Asia have more than doubled in the last five years.
Back in January 2013, the minimum wage in the Jakarta area was raised by 43.9% from the previous year. Joko Widodo, now Indonesia's president, had just been elected governor of the capital region four months earlier and was looking to ease frequent labor protests.
Demonstrations again played a role in setting Indonesian wages this year, with the increase exceeding last year's in many parts of the country. And in early November, just after new Jakarta Gov. Anies Baswedan set the hike, hundreds of members of labor organizations gathered in front of Jakarta's City Hall to demand a steeper increase and criticize the governor.
In Myanmar, which is poised for the region's biggest minimum wage increase this year, "[State Counselor Aung San] Suu Kyi is trying hard to make economic progress at a time when Myanmar is building a genuine democracy," said Myint Myint Cho, managing director of Min Thiha Jewelry, which mainly does business in Yangon. "She is trying to raise the lives of the blue collar workers."
The large increase -- 33% -- is the result of protests and haggling.
Last August, about 2,000 factory workers marched in Yangon, arguing that their daily minimum wage should be raised to 5,600 kyat ($4.21) from 3,600 kyat -- the amount the government first set in 2015. "This can't cover our cost of living," a protest organizer told local media.
Employers sought to limit the figure to 4,000 kyat, and after negotiations, they settled on 4,800 kyat.
The question is, can Southeast Asian economies withstand the side effects?
This year's minimum wage hikes are exceeding expected inflation rates. The International Monetary Fund sees consumer prices rising 3.5% in Cambodia, 3.9% in Indonesia, 2.9% in Malaysia, 6.1% in Myanmar and 4% in Vietnam.
A recent report by consultancy Korn Ferry Hay Group forecasts inflation-controlled wage hikes of 2.8% in Asia this year, topping other regions and almost double the global average of 1.5%.
Minimum wage increases can have positive economic effects -- spurring consumption, for example -- but Southeast Asia may be losing its appeal as an alternative manufacturing base. In the 2000s, some multinationals moved their plants there from China to escape upward wage pressure and spread risk.
Workers demand a higher minimum wage during a May Day rally in Jakarta last year.
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Last October, soon after Vietnam's congress approved an average wage hike of 6.5% for 2018, employers insisted the timing was wrong.
The Vietnam Textile and Apparel Association held a conference in Hanoi, demanding a delay of at least two years, noting that last year's increase of 7.3% pushed up textile and garment companies' total production expenses by 2.9%.
"Manufacturers have to increase salaries and social insurance funds," said Nguyen Thi Mai, general director of Vietnamese yarn producer Fortex, which employs 1,000 people. "We are under pressure to balance the input costs and profits. If we fail [to balance them], layoffs or production cuts could result."
Higher wages must go hand in hand with productivity improvements, Mai added.
In Cambodia, there is real concern about the future of the apparel industry, according to Monika Kaing, deputy secretary-general of the Garment Manufacturers Association in Cambodia, or GMAC. Urging all sides to minimize the impact of rising labor costs, he said, "While the manufacturers have to increase productivity and effectiveness, the government should have policies to reduce the formal and informal public service fees."
Sooner or later, businesses will face a choice: become more efficient or leave.
"We need to see the costs of the new minimum wage and find ways to survive, like reducing overtime and unskilled labor," said Myint Soe, chairman of the Myanmar Garment Manufacturers Association.
Maung Myint, a member of Myanmar's parliament and former industry minister, wrote on his Facebook page: "If employers cannot afford that 4,800 kyat new minimum wage, there will be closures of some businesses. Then the unemployment rate will rise."
Global manufacturers are responding to the pressure with more automation. Japan's Mabuchi Motor, which runs overseas plants in China, Vietnam and elsewhere, is one. The company has seen labor costs per head rise by about 10% every year in both China and Vietnam, and as a spokesperson put it, "We will only lose profit unless we address this issue."
Yoshio Morishita, general manager of Bank of Tokyo-Mitsubishi UFJ's global business division, said auto plants in Thailand and Indonesia are also resorting to robots. He noted that foreign "garment and other labor-intensive makers may relocate their production sites to countries with lower labor costs." Output that shifted from China to Southeast Asia could move to South Asia and on to Africa.
Morishita did say that car and home electronics makers "are unlikely to [make such moves] as they have stable supply chains of international specialization in Southeast Asia."
The inexorable rise of minimum wages might trigger still another response: shifting production back to more advanced markets.
Honda Motor last year brought production of its Super Cub motorcycle back to Japan from China after five years, since rising wages had narrowed the cost gap. Similarly, as surging Southeast Asian wages close the cost gap with China, some output could move back in that direction.
Labor is already expensive in Southeast Asian markets, relative to their overall competitiveness, noted Frederic Neumann, co-head of Asian economic research at HSBC. "If you don't have fantastic infrastructure and competitive legal systems, a marginal increase of labor cost matters even more," he said.
Countries that rush to hike minimum wages without improving business conditions risk shooting themselves in the foot. This very scenario is beginning to play out in Cambodia, where global manufacturers are growing frustrated with the whims of local authorities.
"We fell for the sweet words of the Cambodian side," Manabu Fujimura, a professor at Tokyo's Aoyama Gakuin University, said of the prevailing sentiment among Japanese executives with business interests there.
Garment makers and other light-industry manufacturers from Japan, South Korea, Taiwan and China flocked to Cambodia around 2010, lured by monthly per capita labor costs under $100. Now that the minimum wage far exceeds that, some companies are becoming reluctant to invest.
Cambodia and other emerging economies have a major opportunity to accelerate their development, amassing technology and investment through labor-intensive industries. But if companies head elsewhere, without leaving much capital behind, this scenario will go up in smoke.
"Populism," Fujimura warned, "kills the economy."
Nikkei senior staff writer Kazuki Kagaya in Tokyo and staff writers Thurein Hla Htway in Yangon, CK Tan in Kuala Lumpur and Mitsuru Obe in Tokyo contributed to this report.
