Four pillars: manufacturing / Outlining opportunities for growth in Cambodian manufacturing

Posted on: April 27, 2018 | Special Reports

Nikolay Kurnosov, general manager of components giant Bosch Rexroth in Cambodia and Vietnam, discusses Cambodia’s manufacturing industry

Bosch Rexroth general manager Nikolay Kurnosov

What are the main challenges facing Cambodia’s manufacturing industry
Cambodia faces a significant challenge due to low automation in the factories, which means they cannot achieve high levels of efficiency and quality. Even some multinational corporations act shortsightedly by choosing to benefit from cheap, low-skilled manpower rather than investing in modern technology. Finding skilled labour is also a challenge, one that becomes more difficult when technologies have been widely adopted.

Corruption and expensive and unstable electricity are among other ongoing constraints to businesses, according to a 2015 Asian Development Bank survey of factories inside Cambodia’s special economic zones.

What can be done to overcome these challenges?
Infrastructure has been improved – sea ports have been enhanced and the rail and road network expanded – but a lot more needs to be done.

Industrial zones have been created, but, to maximise their efficacy, further steps should be taken to reduce logistics costs, and lucrative tax policies and favourable export processes implemented to attract more companies. Digitising paperwork and introducing stricter enforcement would also help to reduce red tape and increase speed, which, in turn, would improve investor confidence.

The government should also invest in improving the reliability and reducing the cost of electricity while introducing policies that encourage the use of renewable energies.

Furthermore, automation and vocational education are both integral to the sustainable long-term development of the country’s manufacturing industries.

How likely is it that Cambodia will fall into a ‘middle-income’ trap?
There is a risk of the ‘middle-income’ trap for Cambodia. To prevent this, a clear, long-term governmental strategy to promote innovation, automation and the development of natural and intellectual resources is required, as is diversification in the manufacturing sector.

The government introduced the Industrial Development Programme (2015-2025) with the aim “to transform and modernise Cambodia’s industrial structure from a labour-intensive industry to a skill-based industry by 2025”.

To meet this target, Cambodia must enhance business-friendly regulation to attract foreign investment; improve the ease of doing business; upskill the labour force; and subsidise or encourage the adoption of new technologies such as the Internet of Things.

To what extent would Cambodia benefit from promoting national champions as opposed to focusing solely on encouraging greater FDI?
FDI is absolutely needed and important for Cambodia in the coming years, but that must not be the only way of development. Investment in education and support of local manufacturers can make the country an independent and stable economy in the future.

What lessons can Cambodia learn from neighbours Thailand and Vietnam?
Both countries pay a lot of attention to the development of their workforces, working closely with industry to improve vocational education, especially in mechatronics. Importantly, Vietnam also included Internet of Things and Industry 4.0 into its national development strategy.

This article was first published in Globe Media Asia’s Focus Cambodia 2018 magazine