Doubts, Anticipation Mix as Cambodia’s SMEs Prepare for 2015
By Sam Rith*
KAMPOT/PHNOM PENH/KAMPONG CHAM, Aug 28 – Cambodia’s small and medium enterprises (SMEs) are busily preparing for the ASEAN Economic Community’s (AEC) free flow of goods in 2015. They are probably not that different from the other 10 ASEAN member states’ own SMEs.
About a three-hour drive from Phnom Penh is Ngov Heng Fish Sauce Factory, which is located in Kampot’s Ta Ang village.
Ngov Heng Fish Sauce is well known throughout the country for producing tasty fish, soy and chili sauces and is one of those SMEs busy developing and enlarging its business.
Chan Sitha, the owner of Ngov Heng Fish Sauce, said he has been making efforts to upgrade his products for almost 10 years. Soon his fish sauce will be well known not only in Cambodia, but also in the United States and throughout Southeast Asia.
In 2007, his fish sauce was first set to be exported to the US but due to the global economic downturn in 2008, the export of his products was postponed to this year.
Chan Sitha said that he still intends to export his product to the US as well as other countries in Asia. “Other ASEAN member countries export their products to Cambodia, and so we will also export our products to them.”
Ngov Heng Fish Sauce factory started producing fish sauce in 1995 but at that time could only produce about 1,000 litres of it per month and only supplied Kampot province. Today, Ngov Heng Fish Sauce produces up to 100,000 litres of fish sauce a month and ships it to all of the provinces in Cambodia.
Chan Sitha said, “Before we produced it 100 percent by hand, but now we use some machines.”
In preparation for 2015, he plans to buy a steaming machine to clean bottles, because currently he uses wood and charcoal to boil water, and plans to build a new high-standard production chain that will cost him about US$100,000.
Keo Mom, chief executive director of Lyly Food Industry Co Ltd, in Phnom Penh, which is well known throughout Cambodia for producing tasty snacks, said that she is ready for 2015. “I am ready for 2015 because I have been preparing for the last few years,” she said.
“For my own company, I am more preparing to defend against as well as to compete with other ASEAN member countries’ products,” she said.
Keo Mom said her company, established in 2002 with $100,000 in capital, now produces over 20 kinds of products and employees over 100 workers, an increase from the original three products and 25 workers she started with.
Cambodia’s national economic growth in 2011 totalled 6.9 percent, and SMEs, which number of more than 500,000, played a vital role in developing the economy.
The Post reported earlier that SMEs represented around 65 percent of the nation’s GDP and employ 85 percent. Te Taing Por, president of the Federation of Associations for Small and Medium Enterprises of Cambodia (FASMEC), said that the ASEAN Economic Community would be both a positive and negative influence for SMEs in Cambodia.
Cambodian SMEs provide services in the tourism, ICT (information and communication technology), trading and retail sectors, which are already prepared for the AEC in 2015, he said.
Problems and Concerns
Te Taing Por said that SMEs such as food and beverage factories in Cambodia worry because they are facing many problems such as lack of finances, poor standards, low productivity, the high cost of raw materials, outdated techniques and barriers to exporting.
Chan Sitha said as an entrepreneur, he wants to compete but the most important thing is finances.
Keo Mom, the vice president of Phnom Penh Small and Medium Industry Association and the vice secretary-general of Chamber of Professional and Micro Enterprises of Cambodia, said that in 2015, not only her company but most Cambodian SMEs will be worried because they are family businesses and do not have enough finances to develop as well as to buy modern materials.
SMEs in neighbouring Thailand, in contrast, are large, comparatively, and have a lot of finances to upgrade their businesses that could conquer the Cambodian market, she said.
Aside from the lack of finances, Keo Mom said, she is also facing a lack of workers. “Each day we see workers resign and go to work in other countries such as Thailand, Malaysia, South Korea and so forth, due to hire wages such as $400 per month in Malaysia and $1,000 in Korea.”
She said that nowadays, she pays her workers $80 to over $100 a month and gives them overtime pay along with other bonuses.
Moreover, Keo Mom said she faces barriers in exporting her products to other countries such as Vietnam and Thailand. “Now our products are only sold near the border, not over the border.”
“We face difficulties entering Vietnam and Thailand, but their products very easily enter our country,” she said. “When we export to their countries, they make up reasons that our products do not meet the required quality or try to ask for certificates that show them the product quality.”
Sen Nith, owner of Kim Chanthou handicrafts in Phnom Penh, which produces dried fish, pork floss and Chinese sausages, said he is very worried about the health of his business when the 2015 arrives. “Bankruptcy is a concern.”
Sen Nith started producing dried fish, a trade he learnt from his parents-in-law, in 1996 with $2,000 in capital and employed only three people.
After a year, his business has been growing. It now employs 15 people and produces two additional products, pork floss and Chinese sausage. He sells wholesale to customers throughout the country and plans to sell his products in the supermarkets and Star Marts in 2013.
His efforts of placing his products in different stores have resulted in a lot of feedback and good sales due to their good taste, he says.
Sen Nith said he is faced with expensive raw materials as Cambodia does not have large enough pig farms. “Some materials we have to buy from other countries. I have to buy plastic bags from Vietnam. For the Chinese sausages, I have to buy intestines from China,” he said.
“Our product does not get dried enough because we use charcoal to cook while others use electric heaters, which is not possible here due to the high cost of electricity,” he said, explaining that the additional costs explain the price difference between his products and imported ones.
He is also faced with a shortage of workers as five of his 15 workers were asked by their parents to go work across the border in Thailand, he said.
Sen Nith offers his employees a salary of $50 to $150 per month, room and board, and covers any medical expenses.
“As we are businessmen, we always want to upgrade and enlarge our businesses but we also need help from the government,” he said. “As it is too close to 2015, the government must put into place strong measures to help SMEs, just as an airplane must speed up before it takes off to the air.”
“I would like the government to provide us with more training, particularly on production techniques,” Sen Nith said. “They can do this by inviting trainers from other countries. At the moment it is difficult to find someone who can train us in new techniques.”
The government should help to lower the price of raw material such as pork, fish, electricity as it would not only help his business but that of others as well, he said.
Benefits and challenges
On the concerns of Cambodian SMEs in exporting their products, Danny Lee, director of the Community Affairs Department at ASEAN Secretariat, said that Cambodian SMEs’ products have to meet the local standards in terms of quality and health.
Lee said: “Aside from the local markets, Cambodian SMEs must look outside of Cambodia as well. What Cambodian SMEs need to do is improve, promote and to publicise their products,” he said. “A lot of opportunities are there for Cambodia, and a lot of revenue can be gained.”
He said that the free flow of goods within ASEAN and a trade agreement with China are going to open huge markets for Cambodia, but that other ASEAN member countries will also be working to take advantage of the policy.
Cambodian SMEs are not much different from SMEs in other countries, Lee said. The main thing they have to do is identify is what their specific trade is; how good their products are compared to their competitors; areas where their products are needed; and how to strengthen their products in terms of quality, packaging, technology and marketing.
Lee said Cambodians must make their products unique. For example, if Cambodian SMEs produce pork floss, they have to ask themselves how much effort they must put in to differentiate their product from pork floss produced in Thailand, Singapore or Malaysia.
Lun Yeng, executive director of FASMEC, said that Cambodia has dental clinics, for example, that offer high standards like in the US but charge less. So there would be a lot of customers coming to Cambodia for such services.
Cambodia is not different from other countries in that the government has to identify what sort of industries they want to promote; how much they are able to help; and how much help from outside is needed in order to compete come 2015.
Solutions and measures
Meng Saktheara, general director of industry at the Ministry of Industry, Mines and Energy (MIME), said that the government has so far helped by reforming regulations to make it easier to establish an SME, and offers technology training and help in finding financial resources, Lee said.
Leang Chhay, owner of Yeang Leang Chhay tile factory in Phnov Leach village, in Kampong Cham province, said he has participated in many training courses relating to SMEs both inside and outside the country.
His factory has improved from using only handmade techniques to using techniques that have increased production about 30 percent along with the quality of the tiles, he said. Before, one worker could produce about 200 to 300 tiles per day, but now this has gone up to 400 tiles. Chan Sitha said he just got approval from MIME and the Asian Development Bank (ADB) for a loan of $30,000 to buy a steaming machine and construct another building.
Meng Saktheara did acknowledge that Cambodia still has technical barriers that mean that the quality of goods it produces is much lower than that of neighbouring countries. He said the government recently established a product laboratory institute. “We are making efforts to have our laboratory acknowledged internationally.”
Meanwhile, Cambodian government officials have called for the clustering of SMEs.
Meng Saktheara said to be strong and compete with others, it is necessary for SMEs to cluster together instead of continuing to compete with each other.
Kong Putheara, director of the Statistic and Information Department and spokesman at Ministry of Commerce, said: “The most important thing is that SMEs have to cluster with one another.” He said the rice sector is a good example, as the success in exporting milled rice to other countries is due to the fact that a number of companies chose to work together.
Te Taing Por said of the SMEs: “They may face bankruptcy in 2015 if they continue to operate as they are.”
SMEs should merge in order to grow and compete in terms of productivity and quality with the likes of companies from Korea and Japan, he said. “When they merge, SMEs have no need to compete with one another in local markets and their businesses will continue to grow,” he said.
Chan Sitha said he strongly supports the idea of merging but added: “When will it start and who will initiate it? It should not take too long. It should start as soon as possible as 2015 is near.”
*This report was produced as part of the ‘Reporting Development in ASEAN’ series by IPS Asia-Pacific, a programme supported by the International Development Research Centre.
Link to the English article in the ‘Phnom Penh Post’: http://www.phnompenhpost.com/
Link to the Khmer version in the ‘Phnom Penh Post Khmer edition: http://www.postkhmer.com