The CEO of the Phnom Penh economic zone addresses trends, challenges and the importance of connectivity
The Phnom Penh Special Economic Zone has long been the estate of choice for industry leaders in Cambodia. Outside the zone, manufacturing remains dominated by the garment sector; inside, international companies regularly pioneer new sectors for the Cambodian market and engage in activities seen nowhere else in the country.
Hiroshi Uematsu, CEO of the Royal Group Phnom Penh SEZ and its sister estate in Poipet, has overseen the zone since its inception. When Focus Cambodia sat down with Uematsu at the SEZ headquarters on the outskirts of Phnom Penh, he talked about emerging trends in the Cambodian manufacturing sector, the importance of connectivity in driving the Kingdom’s industrial growth, and the challenges the country still must overcome.
Q: Why do companies investing in Cambodia decide to set up their facilities at your SEZ, instead of elsewhere?
A: Our major tenants are large multinationals from countries like Japan, Thailand, the United States and Singapore. These companies want to invest in a place where accommodation is transparent, accountable and in line with international standards. Their primary concerns, when looking at investing in emerging markets, are security, freedom from corruption, and access to adequate infrastructure and utilities. We provide these essential facilities at a level acceptable for international companies and facilitate communication between our tenants and the government to ensure predictable transparency in bureaucratic procedures. This includes a one-stop service hub for business registration, licensing and permits, with government officials on-site.
Q: How have the kinds of companies interested in the SEZ changed since you started 16 years ago?
A: At first, there were more garment factories, and factories focused on simple-to-produce items like shoes and packages. Nowadays, we see less interest from the garment sector and more from electronics-parts manufacturers and other products that require fine, precise operations to produce. For example, Laurelton Diamonds, a subsidiary of Tiffany & Co., operates Tiffany’s largest diamond-polishing factory in the world in the Phnom Penh SEZ.
Q: Why do companies decide to set up new manufacturing facilities here in Cambodia, as opposed to existing hubs in Thailand or Vietnam?
A: Many of the companies investing in new production facilities at the SEZ have already been operating in places like China or Thailand for years. For them, Cambodia is about diversifying their supply chain to hedge against the risks posed by natural disasters and geopolitical tensions. The 2011 floods in Thailand were a major catalyst for this; they paralysed the supply chains and opened manufacturers’ eyes to the risks of concentrating production in one location. Cambodia is benefiting from this ongoing trend of companies adopting “Thailand plus one” and “China plus one” strategies, but we are not seeing companies relocate their primary manufacturing hubs to the country.
Cambodia’s role as a satellite hub for these larger markets makes improving connectivity essential. To this end, this year we began offering our own customs clearance services to our tenant factories. Now with three customs brokers, we have seen the cost of customs clearance for our tenants who use this service drop dramatically compared to before, sometimes by as much as 50 percent.
Q: How much are companies in the SEZ able to source inputs locally?
A: Right now almost 100 percent of our tenants’ industrial inputs are imported, but we are seeing promising developments. After COVID, we began to see a trend where small supply chains began to form in the SEZ around anchor tenants — like MinebeaMitsumi, Desno and Sumi. For example, a Hong Kong-based supplier of plastic parts for [electronics manufacturer] MinebeaMitsumi decided to open a factory here to facilitate easier access to parts for MinebeaMitsumi’s factory in the SEZ.
Q: How much do you see companies in the SEZ sourcing from Cambodian companies?
A: I only know of one case, a Cambodian metal-processing company that supplies equipment for some of the production lines in the SEZ. There is definitely a willingness to source products from Cambodian companies when the option is available, and the Japanese companies especially are happy to work with and provide training to domestic partners, so they can produce the requisite quality. The problem is that there is very little domestic investment in manufacturing, and thus very few Cambodian suppliers from whom to purchase equipment and other industrial inputs.