Taiwanese Firms in Cambodia

From a production line with more than ten sewing machines in a row, the noise echoes through the ­expansive spaces of the Gin-Sovann plant. The seamstresses wear different-colored scarfs that represent different work teams. They incessantly push the pedals of their high-speed sewing machines, finishing hems. Afterwards, the garments are brought to another line for pleating and sewing on buttons. At the last stop, the label and size tags are sewn on the pajamas, which are bound for the American department store Macy’s. The plant is rushing to fill more than ten US-bound containers in time for the Christmas shopping season.

“In July of this year [2018], before the Cambodian elections, Prime Minister Hun Sen came here to campaign under arrangements by the Cambodian Ministry of Labor and Vocational Training,” recalls Panda Lin, general manager of Gin-Sovann. “Hun went along each row of machines taking selfies with the seamstresses—some 1,200 in all. They all wanted a photograph, so he ended up staying for more than three hours. Many of the women had never imagined they’d see a national leader at the factory, and some were moved to tears! When the prime minister suggested that the factory give the workers a day off, the whole place erupted in cheers.”

Basic wages have been rising steadily in Cambodia and are now higher than in many areas of Vietnam.

Breaking new ground

Called “Panda” by his fellow Taiwanese businessmen because of his beer belly, Lin recalls what brought him to Cambodia: “I had a plant in Vietnam, which had exported 12 million garments to Britain. But because of quotas, one container was sent back. It was an order for Disney, so we were required to make a video of the goods being destroyed.

But there are no quotas on imports of textiles from Cambodia to the EU. To get European orders, Lin came to Cambodia in 1997, building a factory in Phnom Penh beside National Highway 5. In July of that year, a coup led to two days of violence.

When the factory opened in 1998, the plan was to hire 600 workers, but more than 2000 aspirants came from all over the country, and the number of positions wasn’t sufficient. With multitudes eager to get an interview, military police were called in to maintain order.

His early days in Cambodia were marred by disorder: “Once I went to the bank to take out US$50,000 to pay salaries and got held up. Eight guns were pointed at me, and the robbers pistol-whipped me. I was truly risking my life!” He shakes his head as he recalls the incident.

Panda Lin, the general manager of Gin-Sovann Fashion, opened his first Cambodian factory in 1997, aiming to avoid import quotas imposed by the EU.

Economic take-off bolsters ambitions

The economic reforms of the 1990s in Cambodia brought foreign-exchange liberalization that turned the country into a battleground for Taiwanese banks. In downtown Phnom Penh, any Taiwanese will recognize the familiar sight of branches of Taiwan Cooperative Bank, HSBC Taiwan and other Taiwan banks. Thanks to an interest rate on loans of 13%, First Commercial Bank made big profits after it set up a branch in Phnom Penh in 1998. When news of its success got back to Taiwan, other banks grew hungry for a piece of the action, and one after another they came to Phnom Penh to establish operations.

Jerry ­Liang, a manager at E. Sun Bank’s Cambodian subsidiary, Union Commercial Bank, points out that the Cambodian economy was just taking off back then and had a great need for capital. Consequently, the banking industry grew rapidly. UCB has issued 14,000 of Cam­bodia’s 80,000 credit cards—more than any other bank.

But the capital of Phnom Penh has undergone a dramatic transformation over the past two decades. The ­basic monthly wage for a worker has risen from US$30 in 1998 to US$170 today. When you include the potential for two overtime hours a day, a worker might earn US$270 per month. Wages are thus higher even than in some areas of Vietnam. And with various taxes added to those rising wages, overall labor costs for clothing manufacturers have grown substantially. And yet the prices these factories can charge for orders are falling. According to statistics from the Garment Manufacturers Association in Cambodia, the number of plants is falling too.

The biggest driver of this decline has been the wave of labor unrest that began five years ago. Many trade unions formed by opposition parties called for strikes. Lin notes that after Hun Sen won the most recent election, he has limited the power of unions and brought greater polit­ical and economic stability. Yet one still hears of strikes being called at other factories. It is simply one of the risks of investing in Cambodia.

With Phnom Penh’s economy booming, major construction projects are underway everywhere.

Moving globally, spreading risk

Sheico, meanwhile, came to Cambodia as a result of labor unrest in Shen­zhen in mainland China.

Min ­Shiue, the company’s managing director, says that they hastily came to Cambodia in 2008, fearful of how the labor situation in China would affect their Shen­zhen plant with 2000 workers. Orders kept growing, but production and progress on the orders were seriously impacted. Con­sequently they decided to establish a factory in Cambodia near the border with Vietnam. Because Sheico’s first Cambodian factory was thus close to Ho Chi Minh City, raw materials and finished garments were easily imported and exported.

With the dust swirling over the bare earth of the construction site, ­Sheico was able to build its factory in just four months. Having started with 300-some workers, the factory now has more than ten workshops and more than 4000 workers in all.

Yet 2013 saw the rise of several opposition parties in Cambodia. With calls for from various labor unions, a wave of strikes spread like a virus. Sheico was hit when the strikes elsewhere made it impossible for employees to get to the company’s original factory in Cambodia. Work stopped there for ten days, which resulted in delayed shipments of finished garments. Although the company’s European and American customers were understanding, ­Sheico feared it wouldn’t be able to endure a wave of strikes like it had experienced in Shen­zhen in 2008. It thus decided to spread the risk by establishing a second Cambodian factory near ­Phnom Penh’s airport.

First Commercial Bank was the first Taiwanese bank to open a branch in Cambodia.

Going native

Sheico makes all manner of water sports clothing and accessories—for surfing, rafting, sailing, and paddle-­boarding to swimming and diving. It enjoys a total global market share of 60‡70%. With the ­Chung Hsin brand, company chairman ­Shiue Pi-­goong established the company in 1968, manufacturing raincoats and rubber boots. In 2018, ­Sheico celebrated its 50th anniversary. In order to keep labor and factory construction costs down, it has been locating factories overseas for 30 years. By this point it has well-oiled management systems in place.

At the company’s second Cambodian plant, in Phnom Penh, there are three separate factory buildings that make flotation vests, diving clothes, and a variety of customizable sports garments and equipment. They produce more than 200,000 pieces a month.

Sheico requires all its Taiwanese management staff to “go native.” They must learn Cambodian, and they are regularly tested on their proficiency, with scores included in performance assessments. With the Taiwanese staff speaking Cambodian, it both prevents misunderstandings when meaning is lost in translation and makes it easier for the staff to gain the respect and trust of Cambodian workers.

2008, when the company established its first factory in Cambodia, was a great learning year for ­Sheico. Back then some of the company’s local management at its Shen­zhen plant led the strikes. After the strikes were called off, a share of their employees left to work for a competitor. There was even one employee who secretly photographed the raw materials in the company warehouse and sold the photos for RMB50,000‡100,000.

Min Shiue says that based on its experiences in mainland China the company decided that it wouldn’t produce products in China that made use of its core technologies. ­Sheico’s R&D and raw materials production are based in Taiwan, with its headquarters located in Yi­lan. Each year the company files more than ten patents for processes connected to the texture and functionality of its raw materials, as well as to its dyeing and finishing processes. The company makes an insulating neoprene fabric that can be produced in thicknesses ranging from only 0.5 millimeters to more than one centimeter. It is used to make the lightest surfer’s wetsuits in the world.

It has turned out that one key to ­Sheico’s successful global strategy has been to remain based in Taiwan, where its focus on R&D enables it to keep its lead over its competitors. Meanwhile, by establishing factories overseas, it has leveraged the favorable treatment the EU offers ASEAN countries. By playing to its strengths and adapting to local conditions, it is conquering the world.

Sheico managing director Min Shiue is working diligently to maintain the company’s leading global position.

Sheico employs many Taiwanese managers to control production at its overseas operations. They are a major reason the company is able to maintain its industry-leading global status.

Sheico has developed special ink that it digitally applies to Glideskin wetsuits to create highly realistic images. The breakthrough earned it a German Design Award in 2018.

Sheico uses Japanese industrial sewing machines, which don’t skip stitches, thus maintaining a high level of quality.