Brands re-evaluating Cambodia sourcing strategy - Just Style
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Brands re-evaluating Cambodia sourcing strategy

By Hannah Abdulla 24 Jun 2020

European garment brands including H&M are weighing up what their future sourcing strategies in Cambodia will look like as the country looks set to be partially stripped of its Everything but Arms (EBA) trade benefit in August.

In a Facebook update last week, Cambodia’s Ministry of Commerce said it had held meetings with brands including H&M and Adidas during which discussions centred around free trade agreements and support to get the sector back on its feet following the Covid-19 outbreak and its impact on the industry.

Many factories across the nation have temporarily suspended production while others have closed down operations after some buyers refused to accept products already produced, pay for goods produced and delivered, and cancelled orders. Yesterday (23 June), factories made a plea to the government to suspend its upcoming wage negotiations in the country to help them sustain their businesses.

According to local press reports, the meeting with the Ministry of Commerce saw Addidas and H&M express “their commitment to restructuring their production networks in the Kingdom” and to “work more closely with the government to improve the garment industry’s situation, which has been affected adversely by the onset of the Covid-19 pandemic.”

A spokesperson for H&M told just-style the situation in Cambodia is “complex.”

From 12 August, the EU will suspend duty-free access for some products over “systematic” human rights violations.

Established in 2001, the EBA trade initiative provides least developed countries (LDCs), such as Cambodia, with duty-free and quota-free access to the vast EU market for all products except weapons and ammunition. Its aim is that these LDCs achieve faster economic growth and other social-economic developments through expanded exports.

As the EU represents as much as 45% of Cambodia’s total exports, losing the EBA benefits could be economically detrimental. The Cambodian garment industry is especially vulnerable to the EU policy change, given apparel products currently account for nearly 70% of all Cambodia’s export earnings.

Research published recently on just-style suggests even the partial suspension of Cambodia’s EBA eligibility could result in significant and lasting negative impacts on its apparel exports to the EU. 

Earlier this year, H&M said it “strongly agreed” with the EU’s aim to address serious human and civil rights violations in Cambodia. 

“We fully recognise the complexities for the EU in balancing the need to influence Cambodia towards becoming a country where human and civil rights are respected, and to support job creation and poverty alleviation through inclusive economic growth,” it said at the time. “If Cambodia had complied with the EU’s requirements, as well as launched strategic initiatives essential for modernised textile industry, such as Cambodia’s Garment and Footwear Sector Development Strategy, the country would continue to be a very attractive sourcing destination. This includes developing an industry where labour rights are fully respected, and where stability and competitiveness are safeguarded. H&M Group wants to continue to play a part in developing Cambodia in a positive way, including reducing poverty and strengthening human rights.”

Speaking to just-style yesterday, a spokesperson for H&M added: “We want to play a part in developing Cambodia in a positive way, and we continue to have a close partnership and open dialogue with our suppliers. However, the situation in Cambodia is complex from a sourcing perspective. A lack of adequate initiatives in developing the Cambodian textile industry, and a partial withdrawal of the EBA privileges, means we are evaluating if and how our business and production strategy in Cambodia will change.”

A spokesperson for Adidas declined to comment on the detail of the meeting but said with regard to the coronavirus pandemic the group was “fully meeting” its payment obligation for completed orders or orders in process.

In 2019, Adidas sourced 23% of its apparel from Cambodia and the country is among its top three suppliers for footwear.

“We try to avoid the cancellation of orders. We are working in close collaboration with our partners to shift some of the orders to the second half of the year. Adidas has also endorsed an initiative of the International Labour Organization (ILO) to support suppliers and their workers in times of pandemic.”