||Spooked By China, Japanese Companies Looking To Cambodia
||Friday, October 12, 2012
Knowledge Management in Government
||Oct 12, 2012
PHNOM PENH--Violence and economic retaliation against Japanese companies in China are prompting them to look elsewhere, and Cambodia is one nation benefiting from their new investment interest.
In the Cambodian capital, more than 3,000 kilometers from Beijing, industrial park manager Hiroshi Uematsu is busy fielding inquiries from Japanese companies desperate to hedge the risks of doing business in China.
"I receive inquiries three or four times a week," he said. "I have never received so many since I became managing director five years ago."
Inquiries surged after Sept. 16 or so, when protesters attacked Japanese companies in China, condemning Japan's decision to put three of the disputed Senkaku Islands under state ownership.
The industrial park, Phnom Penh Special Economic Zone, is a 45-minute drive from the city center. It offers infrastructure such as electricity, water and sewage.
In late September, a metal processing company from western Japan decided to open a factory there. For the past year or so, it had been considering Cambodia as a location.
And the top executive of a Chinese plant that makes automotive parts made a visit there on short notice.
The industrial park is 90 hectares in size, twice as large as the Tokyo Disneyland theme park. All lots are currently assigned under contract, but Uematsu’s company, Phnom Penh SEZ Co., is developing a new section that will expand it by 150 percent.
"All lots in the new section will be filled by the end of next year," predicted Uematsu. "I hate to say this, but the current situation in China has served as a tailwind for our company."
Since 2010, investments by Japanese companies in Cambodia have surged and are expected to reach $500 million (39 billion yen) this year, a seven-fold increase from 2011.
About 500 Japanese companies have discussed possible projects with the Council for the Development of Cambodia, a government body that promotes foreign investment, since 2010.
Half of the companies were manufacturers, 80 percent of which were considering relocating from China.
In the late 2000s, a spike in personnel costs and a labor shortage in China led Japanese companies to consider scaling back or even closing operations there, and to look for an alternative location.
Anti-Japanese demonstrations in China in April 2005 fueled a surge the following year in companies investing in Vietnam.
The risk of doing business in China rose again when bilateral relations took a hit after a Chinese trawler rammed two Japan Coast Guard patrol boats off the Senkaku Islands in September 2010.
Cambodia has a population of only 13 million people. Its development has long lagged that of many Southeast Asian countries due to a civil war that ended only 20 years ago.
But Cambodia has attracted a growing number of investors thanks to its cheap labor and an economy open to foreign business. It has also receieved a critical boost from the emergence of a land transportation network across the broader Indochina region.
The rural town of Bavet in southeastern Cambodia is among those that have benefited. A major highway runs through it, connecting Bangkok and Ho Chi Minh City via Phnom Penh.
Bavet, on the Vietnamese border, has been designated a special economic zone. Companies are eligible for a privileged tax regime and preferential customs procedures.
About 20 companies are now based in the Tai Seng industrial park in Bavet. Half are Japanese-owned, and many produce garments or machine parts for the Japanese market.
The 125-hectare facility opened in 2006 but remained deserted for some time. Two years ago, foreign companies began moving in, according to Forval (Cambodia) Co., which helps Japanese companies set up there.
Trucks frequently pass through the park's gate, many of them displaying Vietnamese license plates. They take containers of manufactured goods to the airport and seaport in Ho Chi Minh City, 65 to 80 kilometers away.
The highway is one of the three developed as part of the Greater Mekong Subregion program, an initiative that began 20 years ago. The program was sponsored by the Asian Development Bank to integrate the economies of countries along the river.
Cross-border road haulage has benefited, too, from the introduction of one-stop services for immigration, customs and quarantine.
The highway and associated state services, known as the Southern Corridor project, have allowed companies to divide operations between countries. They can, for example, conduct labor-intensive assembly in Cambodia and advanced processing in Thailand.
Minebea Co., a precision parts maker, operates a factory in the Phnom Penh Special Economic Zone and another in Thailand, 650 kilometers away.
Once or twice a week, it sends from Thailand to Cambodia the components of small motors used in digital video equipment. The assembled motors are then shipped back.
To reduce the risk of concentrating their operations in China, Japanese companies are seeking an additional investment location in Southeast Asia in what is known as a China-plus-one strategy.
Attention is focusing on Cambodia, Myanmar and Laos, the less-developed members of the Association of Southeast Asian Nations, because in nations such as Indonesia and Vietnam, industrial parks are full and wages are high.
Among ASEAN members, Singapore, Thailand and Malaysia were the first to achieve strong economic growth, leveraging seaborne exports.
"Land transportation has seen Cambodia, Myanmar and Laos included in production networks and their economies are taking off," said Kengo Katsuki, vice president of Minebea (Cambodia) Co. "'Inland ASEAN' is on the rise in the Indochinese Peninsula."
The Japan External Trade Organization opened an office in Cambodia in 2010. This move is believed to have spurred Japanese companies’ investments there.
In August, Hiroyuki Ishige, JETRO’s chairman, visited Laos and met with senior government officials including Prime Minister Thongsing Thammavong.
Laotian leaders asked Ishige to open a JETRO office there, too, saying the time had come for their country of 6.4 million people to promote industrialization.