Making the Cut?
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technical assistance. Also, information on the sourcing practices of global buyers and their relationship with supplier firms should be made publicly available along with data on noncompliant suppliers. This information can be used to confront buyers with the impact of their buying practices on factories’ and workers’ capacity to improve labor compliance (Miller et al. 2009). Finally, the program should be extended to environmental compliance, which is already planned. Referring to the last point above, up to now environmental compliance has not been an important topic in Cambodia. Recently, however, pressures from buyers and also from the media and from communities have increased. Environmental compliance is particularly relevant in the textile sector in the dyeing and washing segment where water treatment is a central concern. Thus, with the development of backward linkages environmental compliance will become more relevant. In the area of environmental compliance strategic government intervention is central to develop central facilities as well as to support firms with credit programs for their investments in compliant facilities. GMAC, Be er Factories Cambodia, and IFC are planning a new line of services to help Cambodian clothing factories make production more efficient and greener by reducing emissions and improving energy efficiency (Be er Factories Cambodia 2010). Inadequate Physical and Bureaucratic Infrastructure
Overcoming infrastructure constraints is a priority in sustaining and increasing competitiveness in the clothing sector in Cambodia. Cambodia’s infrastructure has improved significantly since 1994, but there are still major bo lenecks, in particular in the area of power and logistics. In general the quality of Cambodia’ infrastructure is poor and within the group of its regional main competitor countries it is only comparable to Bangladesh. By far the biggest concern is the high costs of electricity. According to Cambodia’s Investment Climate Assessment in 2009 (IFC 2009), Cambodia ranked near the bo om among regional competitors on all electricity costs indicators. The cost of electricity in Cambodia is estimated to be more than twice that of regional and global competitors (Nathan Associates 2007). In Cambodia electricity costs amount to 19–22 U.S. cents per kilowa -hour compared to costs in Vietnam of around 7–8 cents per kilowa -hour. Also, connecting to the grid is expensive and electricity from the grid is unreliable. Therefore, most medium and large factories have their own power generators to protect themselves from electricity cutoffs, but that is a major investment and expensive. As a result many factories cannot justify additional costs for accessing the grid and maintaining backup generators and remain independent from the grid (Nathan Associates 2007). Although electricity costs are important for competitiveness in the clothing industry, the la er has far lower electricity intensity levels than the textile industry. Therefore, the high cost of electricity is a critical obstacle to industry upgrading and backward integration. Transport infrastructure between the port in Sihanoukville and Phnom Penh where most clothing factories are located has improved. However, transport is concentrated on the road as the railway infrastructure is poorly developed. The railway between Sihanoukville and Phnom Penh is under construction and eventually could provide cheaper transport options. Logistics costs are generally high, including port, import, and export charges. Customs clearance is an expensive and lengthy process, and increases costs and lead times. Although the average time required to clear a shipment declined to 4.3 days for exports and 5.1 days for imports (IFC 2009), further progress is necessary. For instance, in Singapore it takes some hours or even only 25 minutes to clear a shipment.