Cambodia's sales pitch: Sweatshop-free products

USA Today

By David J. Lynch

PHNOM PENH, Cambodia - Every Third World factory boss knows the formula for

success: Drive your workers to the point of exhaustion and pay them as

little as possible. If they complain, replace them.

But garment factories in Cambodia, one of the world's poorest nations,

aren't gloomy pits of Dickensian misery. Instead, Cambodia is seeking to

become the rare Third World country to develop economically while treating

workers reasonably well.

Whether it succeeds might ultimately depend upon whether U.S. consumers

demand more than low prices from their clothing stores. "The really big

question is: Do consumers care?" says Bama Athreya, deputy director of the

International Labor Rights Fund, a Washington, D.C.-based non-profit group.

No other country depends as much on its garment industry as Cambodia. And no

other garment industry so depends upon the United States, which buys

two-thirds of the shirts, trousers and jackets made here.

Cambodia's sweatshop-free sales pitch is laser-focused on U.S. buyers. Gap

is the Southeast Asian country's largest customer, with purchases last year

of about $350 million, according to Ken Loo of the Garment Manufacturers

Association of Cambodia. In 2004, Wal-Mart says it bought about twice as

much from local suppliers as it did two years ago, though the undisclosed

total remains low. Nike, Levi Strauss, J.C. Penney and Sears also buy

shirts, jeans and sweaters here.

"It's been an important market for us. We continue to see it as an important

market," says Dan Henkle, Gap's vice president of global compliance. "They

are doing a lot of things well."

Few countries would seem a less likely worker champion. Under the radical

Khmer Rouge regime that ruled from 1975 to 1979, more than 1 million people

were literally worked to death in a crazed bid to construct an agrarian


In the 1980s and 1990s, factory conditions here, including widespread

compulsory overtime, were typical for a developing country. In 2000, Nike

pulled out of Cambodia temporarily after a British documentary found

underage workers in one of its contractor factories.

Today, workplace conditions, monitored by the International Labor

Organization, the United Nations agency that keeps tabs on factories here,

aren't perfect. Some of the 230 garment factories still violate the law by

forcing employees to work overtime. Last year, two labor union officials,

including a member of the ILO's advisory committee, were killed in what

Amnesty International suggests were politically motivated shootings. Amid a

2-year-old ban on demonstrations, unauthorized labor protests have been

violently disrupted by a government-linked student group known as the

"pagoda boys," the human rights group says.

But the industry is free of the forced labor, sexual harassment and child

labor abuses habitually seen in the Third World, according to the ILO.

When labor violations are found, the ILO process involving government,

management and labor officials facilitates a resolution, say industry

watchers. "We are very impressed with these programs, and we are fully

supportive of the ILO project," says Carolyn Wu, a Shanghai-based Nike

spokeswoman. The company, which returned to Cambodia in 2002, buys T-shirts,

tennis skirts and shorts here.

Fast-growing industry

Until the mid-1990s, Cambodia didn't have a garment industry. Now, it

employs 265,000 people, and its $1.9 billion in exports represent roughly

80% of the country's total export earnings. For the countryside's

ill-educated young women, garment factories offer almost the only good jobs

outside the brothels of the capital's teeming red light district.

But as Cambodia labors to recover from Pol Pot's "killing fields," it faces

a growing competitive challenge. Under a global trade regime that expired

Jan. 1, quotas limited the amount retailers could buy from individual

countries. In effect, that system forced companies such as Wal-Mart and Gap

to spread orders across dozens of countries.

The quotas now are gone, leaving retailers free to buy from wherever they

want. As a result, China's share of the U.S. clothing market is projected to

jump to 50% from today's 16%, according to the World Trade Organization. In

the first two months of the year, Chinese clothing exports rose 28%

year-over-year to $9.3 billion. China's costs are tough to match, because it

has abundant labor, modern roads and domestic fabric sources.

"Cambodia can never compete head on with countries like China. There's no

way," says Loo of the industry association.

To carve out a market niche, Cambodia is billing itself as sweatshop-free.

In December, a World Bank survey of 15 top buyers ranked its garment

industry No. 1 in working conditions. So far, that has helped Cambodia avoid

significant losses to China, despite having higher costs.

"No question that such a reputation is a plus. ... Having confidence that a

factory is doing the right things for workers in terms of pay, benefits,

working conditions, etc., is important to us and could be a deciding factor

in where the business goes," Wal-Mart spokesman William Wertz wrote in an


Cambodia's big advantage is having its factories certified by an independent

monitor with international credibility, the ILO. Established in 2001

following a trade deal with the U.S., the program sends monitors armed with

a 500-item checklist on unannounced factory visits.

The aim: to hold factories to Cambodian labor law, which stipulates a $45

monthly minimum wage and a six-day, 48-hour workweek with no more than two

hours of daily overtime. The ILO reports give companies confidence that

their brand names won't be tarnished if they buy here. As factory conditions

improved, Cambodia's share of U.S. garment imports rose to 14% last year

from 9% in 2002.

Hong Kong-owned Archid Garment Factory, which makes 30,000 dozen shirts and

blouses each year for Gap, Victoria's Secret, Express and Foot Locker,

offers an example of the program's impact. Inside the factory, situated

along an axle-jarring road on Phnom Penh's outskirts, a mostly female

workforce sews, folds and packages shirts and blouses. The young women sit

at rows of sewing machines adorned with spools of bright blue thread.

The work is tedious, but the women say that unlike the equally tedious

chores in their villages, the factory provides reliable income. Heng

Simhoen, 22, helps support her parents and siblings with about half her

monthly $50 earnings.

"They don't have a proper job. They just look for anything to make money.

Sometimes, they play traditional music or sell ice or farm," she says. "But

there are no guarantees."

After a 2003 inspection found several potential violations, Archid reduced

dust (a major source of employee health problems) and spruced up workers'


As Heng folds short-sleeved shirts, the air is warm, but not stifling.

Though Cambodia's exorbitant electricity costs make air conditioning

unaffordable, the factory is cooled by fans that pull air through a "water

wall," a large panel of corrugated waxed paper doused by a steady liquid

trickle. "If (the monitors) don't think your conditions are acceptable, then

no orders," says Huang Zhaodong, 32, the factory's Chinese manager.

Labor laws add costs

While all retailers say they insist on good working conditions, many are

more interested in cost, quality and time to market. Full compliance with

labor laws can add 10% to 20% to a supplier's costs, according to Paul

McKenzie of CLSA Asia-Pacific Markets in Hong Kong.

To persuade reluctant factory managers to pay, the ILO argues that better

working conditions boost profits in the long run.

Prodded by the monitors, Archid manager Huang reorganized production of the

$45 million in garments he ships annually to U.S. customers. Chairs for

workers who previously had been on their feet were among the improvements.

The result: Productivity jumped 48%, and overtime fell by more than half.

"Our factory became more efficient," Huang says.

Still, good working conditions alone won't guarantee Cambodia long-term

success. "A country would not be competitive if (working conditions) was the

only thing they did well," says Gap's Henkle. "This is perhaps an advantage

for them, but they can't rest on that."

Combating corruption

To reward Cambodia's efforts, Congress is considering legislation to

eliminate the 15% to 25% tariffs on its exports to the USA.

Lower tariffs would help. But for Cambodia to remain competitive, it must

address problems outside its factories as well as inside.

That means tackling widespread corruption. In this desperately poor country

of 13.8 million, where civil servants average a $28 monthly paycheck,

companies must routinely bribe customs officials to get raw materials into

and finished goods out of the country. Those payments add at least 6% to

costs, a major hurdle in a fiercely competitive global market, Loo says.

"It's not a nice environment to be in," says Adrian Ross, general manager of

U.K.-owned New Island.

To cut chances for under-the-table payments, the government plans eventually

to let garment makers get customs permits online.

Such reforms won't be introduced overnight. But Cambodia has time to change.

Many buyers aren't immediately shifting orders to China, fearing the U.S.

will soon cap surging Chinese exports.

Archid's orders are solid through June, and Huang and his counterparts at

other large companies have expansion plans. But he is uncertain whether to

build the new factory, which would add 400 jobs. The allure of China's low

costs might swamp Cambodia's sweatshop-free sales pitch, he worries.

If it does, the price will be paid by people such as Sophea Mang, 19, who

dropped out of the 10th grade to take a job making clothes for Americans.

Every month, she sends home half her $45 salary so her three sisters can

stay in school.

Surrounded by colorful blouses, Mang recalls the impoverished village where

her family ekes out a living raising livestock. If Archid's orders someday

switch to China, she'll reluctantly return to the farm.

"I like this life better," she says. "Both the farm and this are hard work,

but this is a better life."