COMPETITIVE ANALYSIS ON GARMENT INDUSTRY IN CAMBODIA

UNDER FREE TRADE ENVIRONMENT

MR. YIN YANNO

A Thesis Submitted in Partial Fulfillment of the Requirements For the Degree of Master of Business Administration

Department of International Business Graduate School

University of the Thai Chamber of Commerce 2007

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COMPETITIVE ANALYSIS ON GARMENT INDUSTRYIN CAMBODIA

UNDER FREE TRADE ENVIRONMENT

YIN YANNO

A Thesis Submitted in Partial Fulfillment of the Requirements For the Degree of Master of Business Administration

Department of International Business Graduate School

University of the Thai Chamber of Commerce 2007

© Copyright by University of the Thai Chamber of Commerce

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Thesis Title : The Competitive Analysis on Garment Industry in Cambodia under Free Trade Environment

Name : Yin Yanno Degree : Master of Business Administration Major Field : International Business Thesis Advisor : Dr.Thasana Boonkwan Graduation Year : 2006

ABSTRACT

The objectives of this study on “Competitive analysis of Garment Industry in

Cambodia under Free Trade Environment” were to: (1) Identify the factors affecting

competitiveness of garment industry in Cambodia, (2) Investigate the competitiveness of

garment product business, (3). Provide both garment management and government as

policy-makers the best alternative strategies to improve the competitiveness of garment

industry in the future garment competitive edge.

Following the light of Balanced Scorecard concept initiated by Kaplan and

Norton, Diamond theories and Five Force Model established by Michael E. Porter and

together with macro environment Analysis of Pearce and Robinson, quantitative analysis

was employed to examine both primary and secondary data. Primary data consisted of

questionnaires distributed to 196 that constituted population and to two agency officers

in Ministry of Commerce.

This research revealed some important findings. Some factors such as

economic growth from macron environment, investment climate from national

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environment, as well as economic of scale, capital requirement, product are identical

among competitor, full of information from industry environment were considered

imperative affecting to competitiveness. Garment firms analysis showed that garment’s

competitiveness was quite poor relative to their competitor in the industry. Meanwhile,

SWOT analysis displayed that all garment industry were wresting with several

weakness, however, there were facing some opportunities from the environments.

The findings from this study showed that most of negative impact was dealing

with government agencies. Strongly recommend the Cambodian government to create

Special Economic Zones and Free Trade Zones to solve institutional issues and

corruption problems. The plan for SEZs is achieved high economic growth through

export promotion. In addition, the government should think carefully about the benefits

and cost of tax incentives. Human resource, infrastructure, information system, shorten

lead-time and business operation should be requested to government to improve. The

government should set up specific garment developing goal by focusing on addressing

of competitiveness of garment industry and developing supporting policy and action to

address of weakness and harness key opportunity. Importantly, the government should

improve through these negative or endogenous factors by using all relevant policy just

like motive economic reforms, trade reform, administrative reform, legal and judicial

reform, and banking and exchange rate reforms. Through this image, the government

should implement quickly, specially, Cambodia corruption law has not yet adopted by

National assembly.

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ชื่อวิทยานิพนธ : การวิเคราะหความไดเปรียบทางการแขงขันของอุตสาหกรรมสิ่งทอในประเทศกัมพูชาภายใตการเปดการคาเสรี

ชื่อผูวิจัย : ยิน ยันโน ปริญญา : บริหารธุรกิจมหาบัณฑิต สาขาวิชา : บริหารธุรกิจระหวางประเทศ อาจารยที่ปรึกษา : ดร. ทรรศนะ บุญขวัญ ปที่จบการศกึษา : 2006

บทคัดยอ วัตถุประสงคของงานวิจัยเรื่อง “การวิเคราะหความไดเปรียบทางการแขงขันของ

อุตสาหกรรมสิ่งทอในประเทศกัมพูชาภาใตการเปดการคาเสรี เพ่ือที่จะหา (1) ปจจัยที่มี

ผลกระทบตอความไดเปรียบทางการแขงขันของอุตสาหกรรมสิ่งทอในประเทศกัมพูชา

(2) ศึกษาความไดเปรียบในธุรกิจสิ่งทอ (3) คิดคนกลยุทธใหมอันเปนทางเลือกใหกับ

ผูประกอบการธุรกิจสิ่งทอและผูวางนโยบายของรัฐบาลในการพัฒนานโยบายความไดเปรียบ

ทางการแขงขันธุรกิจสิ่งทอในอนาคต งานวิจัยไดนําเสนอการวิเคราะหเชิงปริมาณจะนํามาใชใน

การวิเคราะหขอมูลปฐมภูมิและทุติยภูมิ ซึ่งถูกนํามาประยุกตใชตามแนวความคิดของ Kaplan

และ Norton การวิเคราะหโดยใชแบบจําลอง Diamond และ Five Force Model ของ Michael

E. Porter รวมถึงการวิเคราะหสภาพแวดลอมแบบมหภาคของ Pearce และ Robinson ขอมูล

ปฐมภูมิของงานวิจัยถูกเก็บรวบรวมจากแบบสอบถามจํานวน 196 ชุด ซึ่งผูตอบแบบสอบถาม

เปนบุคคลทั่วไปและพนักงานอีก 2 ทานจากกระทรวงพาณิชย

ผลจากการศึกษาพบขอเท็จจริงที่สําคัญหลายขอ ซึ่งเปนปจจัยที่มีผลกระทบอยางมาก

ตอความไดเปรียบทางการแขงขัน เชน การเติบโตทางเศรษฐกิจ สภาวะการลงทุน ผลิตภัณฑ

ของคูแขง การลงทุน และขอมูลที่เพียบพรอมจากผูประกอบการในอุตสาหกรรม จากการ

วิเคราะหผูประกอบการหรือบริษัทสิ่งทอ พบวา ความไดเปรียบทางการ แขงขันอุตสาหกรรม

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สิ่งทอคอนขางต่ํา เม่ือเปรียบเทียบกับคูแขง ในขณะเดียวกัน จากการวิเคราะห SWOT

แสดงใหเห็นวา อุตสาหกรรมสิ่งทอทั้งหมดควรทําการปรับปรุงแกไขจุดออน อยางไรก็ตาม

การประกอบการหรือบริษัทยังคงแสวงหาแนวทางและโอกาสในอุตสาหกรรมดังกลาวไดอยู

นอกจากนี้ ผลจากงานวิจัยยังแสดงใหเห็นอีกวา การรับมือกับรัฐบาลนํามาซึ่งผล

กระทบเชิงลบที่เปนปญหามากที่สุด ผลที่ไดจากการศึกษาเสนอแนะใหรัฐบาลประเทศกัมพูชา

ควรมีการกอตั้งบริเวณเศรษฐกิจ (Special Economic Zones; SEZ) และบริเวณการคาเสรี

(Free Trade Zones) เพ่ือแกไขปญหาระดับชาติ และปญหาทุจริต ซึ่งการที่จะเปดบริเวณ

เศรษฐกิจได ตองอาศัยแรงผลักดันจากการเติบโตทางเศรษฐกิจอยางมากในดานการสงออก

รัฐบาลควรพิจารณาอยางรอบคอบเกี่ยวกับขอดีและขอเสียของการใหการลดหยอนภาษี รัฐบาล

ควรทําการปรับปรุงในสวนของทรัพยากรมนุษย สาธารณูปโภค ระบบขอมูลสารสนเทศและ

การดําเนินธุรกิจดวยความรวดเร็ว รัฐบาลยังควรจัดตั้งเปาหมายการพัฒนาอุตสาหกรรมสิ่งทอ

โดยใหความสําคัญในการสรางความไดเปรียบทางการแขงขันและการพัฒนานโยบาย รวมถึง

การลงมือปฏิบัติ ซึ่งมีสวนชวยในการแกไขจุดออนและสรางโอกาสการทําธุรกิจสิ่งสําคัญ

เหนือสิ่งอ่ืนใดคือรัฐบาลควรแกไขหรือลบลางปจจัยเชิงลบเหลานี้โดยตั้งนโยบายทางเศรษฐกิจ

ไมวาจะเปนการปฏิรูปทางเศรษฐกิจ การคา การบริหาร รวมทั้งในเชิงของการเงินการธนาคาร

ดวย ซึ่งทั้งหมดนี้รัฐบาลควรลงมือปฏิบัติอยางรวดเร็ว โดยเฉพาะกฎหมายทุจริตในประเทศ

กัมพูชาเพราะกฎหมายนี้ยังไมไดมีการนํามาประยุกตใชภายในประเทศ

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ACKNOWLEDGEMENTS

Throughout the course of research leading to the completion of this thesis, I

have gratitude to many people, who have provided me with tremendous help and

support in one way or another, which I think I cannot possibly acknowledge in full

measures.

First and foremost, I would like to express my sincere thanks to Dr.Thasana

Boonkwan, my advisor, for his invaluable thoughts, insightful suggestions and useful

guidance throughout the thesis works. Sincere appreciations were also to the committee

members for their propositions, valuable comments, and constructive suggestions which

were of substantial value to this study.

I wish to express my special gratitude to Dr. Somchai Harnhirun for his kindly

comments and useful advice during the implementation process of this study. His point

of view, provoking comments, time and above all patience refined my thoughts, made

me see the light at the end of the tunnel and more confident to develop the study.

I would like to faithfully acknowledge professors of Global MBA Program at

University of the Thai Chamber of Commerce (UTCC) for their insightful lectures in

different subjects that provide me knowledge and technique to develop a good

research.

I am also immensely grateful to Thailand International Development Cooperation

Agency (TICA), Ministry of Foreign Affairs, Royal Thai Government, especially the Thai

people for granting me the scholarship and enabling me to pursue my Master of

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Business Administration in International Business in University of the Thai Chamber of

Commerce (UTCC). I would like to express my gratitude for their sharing and

enthusiasms during two memorable years in Thailand.

I would like to express gratitude and special thanks to my Senior Minister and

Minister of Commerce, Excellency Cham Prasidh and my secretary of State, Excellency

Sok Siphana, J.D. who have appointed me to attend this master scholarship.

Special thanks are extended to Deputy Director General, Mr. Sok Sopheak, and

my Director Mr. Seang Thai for their kind assistances and some financial support during

my study.

My sincere thanks are extended to my entire friends for their meaningful

discussion, hospitality and friendshipe, especially Miss. Chandee Kayubrungrueng for

her very useful contribution in doing SPSS.

Finally, I am profoundly grateful to my parents my sisters and my brothers, who

have been always with me in every situation. They have been an inexhaustible source

of encouragement and sharing. Their tender love and understanding are invaluable. To

my much-loved wife, Tep Ravy, and my adored kids Yin Sovansokvatei and Yin

Thanith, for their patience, loves and yearning during two years hard waiting.

The research of this thesis is dedicated to my respected and beloved grandma,

Yei Heung, Yai Loeung and my older brother Yin Phina, for their immeasurable love,

cares and supports during my life when they were alive.

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TABLE OF CONTENTS

ENGLISH ABSTRACT. ...................................................................................................... iv

THAI ABSTRACT ............................................................................................................... vi

ACKNOWLEGEMENT.......................................................................................................viii

LIST OF TABLES..............................................................................................................xiv

LIST OF FIGURES...........................................................................................................xvii

Chapter

1. Introduction 1

1.1 Background........................................................................................................... 1

1.2 Statement of the Problems................................................................................... 2

1.3 Objectives of the Study ........................................................................................ 3

1.4 Scope of the Study .............................................................................................. 4

1.5 Research the Question......................................................................................... 4

1.6 Operation Definitions ........................................................................................... 4

1.7 Expected Benefits of the Study............................................................................ 5

1.8 Organization of the Study .................................................................................... 5

2. Literature Review ............................................................................................................ 6

2.1 Theories of Competitiveness Assessment .......................................................... 6

2.2 The Factor Affecting the Competitiveness of Garment Industry ....................... 8

2.2.1 Macro Environment ............................................................................. 8

2.2.2 National Environment ........................................................................ 10

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TABLE OF CONTENTS (CONTINUED)

2.2.3 Industry Environment ....................................................................... 16

2.3 The Factor Affecting the Competitiveness of Garment Industry ..................... 23

2.3.1 Financial Measure ........................................................................... 26

2.3.2 Customer Measure .......................................................................... 27

2.3.3 Internal Business Measure ............................................................... 29

2.3.4 Learning and Growth Measure ........................................................ 29

2.4 Srategy Analysis ............................................................................................. 30

2.5 Overview of Garment Industry in the World and Cambodia ........................... 32

2.5.1 Overview of Garment Industry in Cambodia ................................. 37

2.5.2 The Status of Garment Industry in Cambodia ................................ 48

2.5.3 Structure of Industry in Cambodia .................................................. 50

3. Research Methodology ................................................................................................ 53

3.1 Hypotheses .......................................................................................... 53

3.2 Conceptual Framework ....................................................................... 57

3.3 Research Design .................................................................................. 59

3.4 Population, Sampling, Design and Measurement of Questionnaires .60

3.5 Data Analysis Method .......................................................................... 63

4. Data Analysis and Result.............................................................................................. 69

4.1 Response Rate and General Business Profile ................................................. 70

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TABLE OF CONTENTS (CONTINUED)

4.2 Analyse the Performance of Garment Industry in Cambodia ......................... 77

4.2.1 Macro Environment ............................................................................ 77

4.2.2 National Environment ........................................................................ 80

4.2.3 Industry Environment ......................................................................... 87

4.3 Firm Competitive Analysis ................................................................................. 67

4.3.1 Financial Measue Factor.................................................................... 67

4.3.2 Customer Measure Factor ..............................................................100

4.3.3 Internal Business Mesure Factor .....................................................102

4.3.4 Learning and Growth Measurement Factor.....................................104

4.3.4 Learning and Growth Measurement Factor.....................................104

4.4 Testing Hypotheses ..........................................................................................108

4.5 Strategy Analysis .............................................................................................128

5. Conclusion, Discussion, and Recommendation .......................................................130

5.1 Conclusion .......................................................................................................130

5.2 Discussion ......................................................................................................136

5.3 Recommendation ..............................................................................................143

BIBLIOGRAPHY..............................................................................................................151

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TABLE OF CONTENTS (CONTINUED)

APPENDICES 156

A : Letter for Questionnaire Survey ..........................................................157

B : Questionnaires.....................................................................................158

C : List of Garment Industry in Cambodia................................................176

BIOGRAPHY 180

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LIST OF TABLES

Table Page

2.1 Measuring strategic financial themes 27

2.2 Global Foreign Trade in garments-top export countries 34

2.3 Cambodia's Garment Exports - 1995-2003, Values and Quantities 41

2.4 Benchmarking of Export Trade 42

2.5 Benchmarking of Marketing and Logistics 48

3.1 The criteria to measure level of variable according to

the separate of seven levels 63

3.2 Important rank calculation 66

3.3 Favorable rank calculation 66

4.1 General Business Profile 71

4.2 Importance Score of Macro Environment Factors 77

4.3 Favorability Score of Macro Environment Factors 79

4.4 The Importance Score of National Environment Factors 81

4.5 The Favorability Score of National Environment Factors 83

4.6 Private sector perception on infrastructure quality 85

4.7 Number of document and time required to export 86

4.8 The Importance Score of Threat of New Entry Factors 86

4.9 The Favorability Score of Threat of New Entry Factors 89

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LIST OF TABLES (CONTINUED)

Table Page

4.10 Important Score for Intensity of Rivalry among Competitor 90

4.11 Favorability Score of Intensity of Rivalry among Existing 92

4.12 The Importance Score of Power of Buyer Factors 93

4.13 The Favorability Score of Power of Buyer Factors 94

4.14 The Importance Score of Power of Supplier Factors 95

4.15 The Favorability Score of Power of Supplier Factors 97

4.16 The Importance Score of Financial Measure Factors 98

4.17 The Favorability Score of Financial Measure Factors 100

4.18 The Importance Score of Customer Measure Factors 101

4.19 The Favorability Score of Customer Measure Factors 102

4.20 The Importance Score of Internal Business Measurement Factors 103

4.21 The Favorability Score of Internal Business Measurement Factors 104

4.22 The Importance Score of Learning and Growth Measurement Factors 105

4.23 The Favorability Score of Learning and Growth Measurement Factors 107

4.24 Economic Growth * Macro Environment Cross Tabulation 108

4.25 Infrastructure * National Environnent Cross Tabulation 110

4.26 Economic of Scale * Threat of New Entrant Cross Tabulation 111

4.27 Number of Competitor * Intensity of Rivalry among Existing Competitor 112

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LIST OF TABLES (CONTINUED)

Table Page

4.28 The buyer has ability to postpone to purchase garment product * Power

of Buyer Cross Tabulation 114

4.29 The suppliers’ product is an important product to your company * Power of

Supplier Cross Tabulation 116

4.30 Economic Growth * Macro Environment Cross Tabulation 118

4.31 Infrastructure * National Environnent Cross Tabulation 120

4.32 Economies of Scale * Threat of New Entrant Cross Tabulation 121

4.33 Number of Competitors * Intensity of Rivalry Among Existing Competitor

Cross Tabulation 123

4.34 The buyer has ability to postpone to purchase product * Power of the buyer

Cross Tabulation 125

4.35 The buyers have full information * Power of Buyer Cross Tabulation 127

4.36 SWOT Analysis of the Cambodian Garment Industry 129

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LIST OF FIGURES

Figure Page

2.1 Competitive of nations” Porter’s Diamond Theory (1990) 11

2.2 Element of Industry Structure: Five Forces Model 17

2.3 The Balanced Scorecard translating Strategy into Action 25

2.4 Formulations, Implementation, and Control of Competitive Strategy 31

2.5 Top General Constraints to Private Enterprise Operation and Growth 43

2.6 Percent of Sales Value Paid Informally to Public Officials 44

2.7 Time and Cost to Start a Business 45

2.8 Cost to Start a Business (%) of income per capita 45

2.9 Cambodia garment industry investment approvals 50

3.1 The conceptual Framework, Formulated base on literature review 58

4.1 The type of firms size 72

4.2 Register capital 73

4.3 Number of years that the company establish 73

4.4 Percentage of sale through marketing officer 74

4.5 The main export market 75

4.6 Percentage of garment Industry growth in year 2006 75

4.7 Number of sales return through out 2006 76

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1

CHAPTER 1

INTRODUCTION

1.1 Background

The industries sector has been the main engine of economic growth in

Cambodia. The textile and garment sub-sector has displayed a remarkable dynamism.

Cambodia’s garment industry has undergone dramatic growth in its export during the

last five years, following the United States granting Most Favored Nation (MFN) status

in 1996 and introducing the General System of Preferences (GSP) in 1997.

By 2004, Cambodia was one of the major exporters of garment products, with

an export volume of 36 percent of the country’s GDP. Accounting to the IMF, GDP in

20005 increased fromm2.3 percent to 6 percent. This fast growth is a result of the

increase in garment industry export, even after the quota phased out.

Elimination of global textile and apparel trade quotas on January 1, 2005, has

brought about a dramatic shift in the world market for textiles and apparel products.

Cambodia garment industry remains virtually 90-100% foreign owned, with most of the

decision takers largely based in East Asia from where production orders are received

together with fabric and accessory supplies and delivery instructions. These foreign

owners make decisions about operations in Cambodia based on global business

developments and most have similar operations in other countries, such as China.

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The industry is almost 100% dependent on imported yarns (for knitwear),

finished woven and circular knitted fabrics (for woven and knitted cut and sew

garments), all accessories, and almost all packaging and presentation materials. The

domestic material content is limited to some cardboard cartons and poly bags.

The domestic value added content of the Cambodian garment industry amounts

to 20% of garment exports.

1.2 Statement of Problems

The key date for the garment industry worldwide is 1 January 2005, when

quotas finally phased out. The ending of the quota system is likely to intensify the

following major industry trends: Cost competitiveness will continue to be a key factor as

garments prices expected to continue to fall after couple of years.

The buyers require faster deliveries to meet increasing levels of consumer

demand and ever decreasing product cycle times. This will place greater and greater

emphasis on countries with more complete supply chains that are able to meet these

increasing demands.

It is noticeable that many garment supply countries have been making strategic

investments in recent years to ensure that their supply chains are complete. Buyers

want business to be as straightforward and uncomplicated as possible. They will have a

greater choice after the ending of quotas, and they will buy from preferred suppliers

who offer consistent quality, reliable delivery dates, competitive prices and productivity

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levels at international standards. The number of countries in the garment industry

expected to fall, and buyers will have greater value-added service requirements.

Most of the foreign investors have more freedom in where to place offshore

investments after the ending of the quota system. They prefer host countries that

enable successful operations with the least problems In general; the global garment

market has been demanding higher levels of (a) personal service, (b) quality

consistency, (c) delivery lead times, (d) product innovation, (e) price competitiveness, (f)

reliability, and (g) country image (including compliance with corporate codes of conduct).

The overall impact of the new global market environment on Cambodia’s

garment exporters, and in particular the increasing competitiveness in the global textile

and clothing (T&C) industry, is expected to be a reduction in exports, re-trenched

workers without alternative job opportunities, and a downturn in the national economy.

Urgent action needed now to prevent this from happening.

1.3 Objectives of the Study

1. Identify factors affecting competitiveness of garment industry in Cambodia

2. Investigate the competitiveness of Cambodia’s garment industries, and build

up competitive strategy in export garment products.

3. Provide both garment management and government as policy-makers the

best alternative strategies to improve the competitiveness of garment industry in the

future garment competitive edge.

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1.4 Scope of the Study

This study is intended to study the factors affecting the competitiveness of

garment industry in Cambodia based on the list from Ministry of Commerce are

operation in Phnom Penh city and others provinces near by city.

1.5 Research the Question

1. How is the competitiveness of garment industry managed in Cambodia?

2. What are the relevant factors should consider as competitiveness in

Cambodia’s garment industry.

3. How does the garment firm do to improving their competitiveness on

garment industry in global market?

1.6 Operation Definitions

1. Competitiveness is the relative standing of the organization against its

competitors.

2. Competitive factor it refers to some related aspects affecting the firm in

achieving their relative competitiveness against the competitors. In this study, those

factors are classified into macro, national and industry environment.

3. Industry environment factors are factors that come from inside industry that

shape external opportunities and threats toward the firm.

4. Competitive indicators are a couple of measures used in assessing the

competitive position of certain company among its competitors;

5. Determinant factors mean the factors influencing decisively on printing

industry competitiveness.

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6. Demand conditions about demand for the medicine in the domestic market

7. Related and supporting industries that have effects on performance of the

industry such as input, supporting activities, etc.

1.7 Expected Benefits of Study

1. Giving the understanding for the present situation of Cambodia’s garment

export industry and its position in the world market,

2. Identify how effectively the competitiveness of garment industries in

Cambodia

3. Recommending a new competitiveness method to the garment firms can use

to improve their competitiveness in Cambodia.

1.8 Organization of the Study

This thesis is structured in five chapters. The first chapter describes about the

background and problems statement, objective, scope of this study, Research the

question, operation definition, expected benefits of study and organization of the study.

The second chapter represent reviews the underpinning and underlying the theories

from the relevant literature including overviews of Cambodian garment industry and the

role of garment industry. The third chapter focuses on the explanation of the research

methodology content of conceptual framework, hypothesis, and the research

methodology. The fourth chapter targeted the result of analysis. The conclusion,

discussion and recommendation are in chapter 5.

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CHAPTER 2

LITERATURE REVIEW

This chapter intended to review basic theories and concept as basis for

developing the research conceptual framework. In this chapter, the comprises of 5 sections such as:

Section 1 : The theories of competitiveness assessment.

Section 2 : The factor affecting the competitiveness of garment sector,

Section 3 : Firm competitiveness assessment.

Section 4: Strategy Analysis,

Section 5 : Overview of garment industry in the world and Cambodia

2.1 The Theories of Competitiveness Assessment

The global garment industry has raised some concerns about global competition

when quota phase out by January 2005 in performing the standard on garment industry

such as a) Cost competitiveness will continue to be a key factor as garments prices are

expected to continue to fall after couple years. b) The buyers require faster deliveries to

meet increasing levels of consumer demand and ever decreasing product cycle times.

c) The buyers want business to be as straightforward and uncomplicated as possible.

They will have a greater choice after the ending of quotas, and they will buy from

preferred suppliers who offer consistent quality, reliable delivery dates, competitive

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prices and productivity levels at international standards. The number of countries in the

garment industry can expected to fall, and buyers will have greater value-added service

requirements.

McCulloh (1998) in his book stated that one of various definitions in macro or

nation level taken by U.S presidential Commission on Industrial Competitiveness which

defined competitiveness as the degree to which an economy, under a free market

regime. It could produce goods and services and that survive the test of international

markets, while at the same time maintaining and expanding the real income level of its

citizen.

Defining competitiveness in macro level by basing on productivity and real

income level has been more acceptable than the other one that base on trade

performance ( Markusen, 1992 and Ezeala-Harrison, 1995). This is because increasing

import or decreasing export not necessarily loss competitiveness. Some industries will

be exporter while others will be domestic oriented, then, increasing import may be used

for productive investment may lead to a balance trade deficit but may constitute an

investment for raising future productivity.

Markusen (1992) said defined competitiveness as the ability of the firm/industry

to achieve and maintain a level of productivity that is equal to or higher than level

accomplished by competitors. In addition, in term of cost of competitiveness defined as

the ability of firm/industry to produce and market product at equal or lower unit costs

relative to that of competitors. Some authors tend to prefer using productivity as a

parameter of competitiveness. They use Total Factor Productivity (TFP) that indicates

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the combined productivities of all factors of production and institutions as well as

infrastructure at work within the country. Cost parameter can be misleading just

because there is different price of production factors among competitors in different

countries.

2.2 The Factor Affecting the Competitiveness of Garment Industry

The shape of competitive strategy, each firm has to deem any key factors

affecting to its competitive. Pearce and Robinson (1997) classified those factors into

three abroad levels; macro/remote environment, industry environment, and

firm/operating environment. Thompson and Strickland (2003) also categorized into the

same pattern. Two first major factors constitute source of opportunities and threats for

the company, meanwhile firm factors are the source of strengths and weaknesses of

the company. Two later levels of competitiveness sources are described separately

next.

The term of competitive advantage was written by Michael E. Porter in his book

of “Competitive Advantage of Nation (1985) and statistical research on the

microeconomic foundations of economic development "The Microeconomic Foundations

of Economic Development" (in The Global Competitiveness Report 1998, Geneva,

Switzerland: creating sustaining superior performance “1985”.

Michael E. Porter also extended his microeconomic based on theory of

competitiveness in a variety of ways. He is exploring the shifting role of various

microeconomic influences as a nation's economy becomes more advanced, and the

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relationship between macroeconomic conditions and microeconomic conditions in

development.

2.2.1. Macro Environment

All companies operate in a “ Macro environment” shaped by influences

emanating from the economy at large, population demographics, societal value and

lifestyles, government legislation and regulation, technological factors, and, closer to

home, the industry and competitive arena in which the company operates. Strictly

speaking, a company’s macro environment includes all relevant factors and influences

outside the company’s boundaries, by relevant, we mean important enough to have a

bearing on the decisions the company ultimately makes about its direction, objectives,

strategy, and business model.

Macro or remote environment encompasses all aspects that originate beyond,

and usually irrespective of, and single firms’ operating situation such as economic,

social, political, technological, and ecological factor (Pearce and Robinson, 1997). This

is in line with what Thompson and Strickland (2003) have categorized; the economy in

large, legislation and regulation, population demographics, social value and lifestyle, as

well as technology.

Economy factors concern the nature the direction of economy in which a firm

operates. It include such issue as availability of credit, the level of disposable income,

interest rate, inflation rate, and the propensity of people to spend. Social factors involve

the belief, value, attitudes, opinions, and lifestyle in the firm environment as developed

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from cultural, religious, educational, and ethnic condition. Then, political factors define

the legal and regulatory parameters for example: anti-trust law, tax program, minimum

wage legislation, pollution and pricing policies and so on. In associated with

technological factor, a firm must aware of it to avoid obsolescence and promote

innovation. Finally, ecological factors consist of specific concern regarding global

warming, loss of habitat, and biodiversity, and air, water, land pollution as well (Pearce

and Robinson, 1997).

2.2.2 National Environment

Referring to particularly industry in a country compared to the same industry in

other nations, Michel E. Porter proposed so-called national competitive advantage. Why

does nation achieve international success in a particular industry or why does particular

industry/firm in certain country more competitive and more sustainable than the same

industry in different country? According to Michael E. Porter (1990) the nation’s

competitiveness are influenced by two factors, they are factors that come from the

nation where the industry/firm exist so-called national competitive advantage and ability

of industry or firm to process the nation environment through competitive strategy.

Johansson (2003) used different terms of factors; these are country-specific advantage

(CSAs) and firm specific advantage (FSAs).

National completive advantage or country –specific advantages is attribute of

nation that shape the environment in which local firms compete that promote or impede

the creation of competitive advantage. Porte classified those factors into four broad

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attributes: factor conditions, demand conditions, related and supporting industries, firm’s

strategy, structure, and rivalry,

So-called Porter’s Diamond Theory as illustrate following figure:

Figure 2.1 Porter’s Diamond Theory

Source: Adapted from Michael E. Porter (1990)

Nation is most likely to succeed in industry or industry segments where the

nation diamond is the most favorable. However, it is not to say that all a nation’s firm

will achieve competitive advantages in industry because not all have equal skill and

resources nor do they exploit the national environment equally well. Porter also added

that the diamond is mutually reinforcing system. The effect of one determinant is

contingent on the state of others.

There are two additional variables, according to Michael E. Porter, can influence

the national system in important ways, and are necessary to complete the theory. There

FIRM STRATEGY, STRUCTURE AND

RIVALRY

RELATED AND SUPPORTING INDUSTRIES

DEMAND CONDITIONS

FACTOR CONDITIONS

Chance

Government

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are chance and government. Chance events are development outside the control of

firms such as pure invention, breakthroughs in basic technologies, wars, external

political developments and major shift in foreign market demand. They create

discontinuities that can unfreeze or reshape industry structure and provide opportunity

for one nation’s firm to supplant another’s. The final element necessary to complete the

theory is government. The government, at all levels, can improve or detract from the

national advantage. This role has seen the most clearly by examining how policies

influence each of determinants. Moreover, the influence will be more noticeable when

the firm is state-own enterprises (SOE). The government intervention is not only

indirectly but also directly to the company. Regarding this matter, will elaborated

separately later on. Now each determinant in diamond theory will reviewed in more

detail.

Factor Condition: this determinant represent the nation’s position in factor of

production, input necessary to compete in any industries, such as labor, arable land,

natural resources, capital, and infrastructure. All classical theories in trade such as

Adam Smith’s absolute advantage, Comparative advantage of David Recardo, as well

as Hechesher-Ohlin theorem rest on factor production (Appleyard & Field, 2001).

Porter grouped the factors into two categories, basic and advantaged factors.

Basic factors include national resource into two categories, basic and advance factors.

The basic factors include natural resources, climate, location, unskilled and

semiskilled labor, and debt capital. Meanwhile, advanced factors include modern digital

data communication infrastructure, highly educated personnel.

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Demand Condition: this determinant represents home demand conditions for

the industry’s products or services. According to Porter there are three significant broad

attributes of home demand: the composition of home demand, the size and pattern of

growth of home demand, and the mechanism by which nation’s domestic preference

are transmitted to foreign market.

The composition of home demand shapes how firms perceive, interpret, and

respond to buyer needs (Cooper, 1986). There are three characteristics of the

composition of home demand particularly significant to achieve the national competitive

advantage: segment structure of demand, sophisticated and demanding buyers, and

anticipatory buyer needs (Porter, 1990).

The size of the home market has been prominent in discussion of national

competitiveness (Scott and Lodge, 1985). Rapid domestic growth leads a nation’s firms

to adopt new technologies faster (Schmookler, 1966). Provided it anticipates buyer

needs in other nations, early local demand for a products or service in a nation helps

local firms to move sooner than foreign rivals to become established in an industry

(Vernon, 1966). In addition, in early saturation in their home market force nation’s firm

to continue innovating and upgrading to introduce new feature, improve product

performance. Saturation escalates local rivalry, forcing cost cutting and shakeout of the

weakest firms (Porter, 1990).

Porter described the characteristic of home demand is internationalization of

domestic demand. Porter argued that it could happen through at least two ways. Firstly,

if the nation’s buyer is mobile or multinational companies who travel extensively to other

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nations, it can highlight the opportunity of establishing an overseas presence to a

nation’s firm and may well provide the conviction to pursue such a presence b lowering

the perceived risk. Secondly, a similar set of arguments applies if homebuyers are

multinationals with subsidiaries or operation in many countries.

Related and supporting industries: the third broad determinant of national

advantage in an industry is the presence in the nation of supplier industries or related

industries that are internationally competitive (Hirschman, 1958). Competitive advantage

in some supplier industries confers potential advantages on nation’s firm in many other

industries because they produce inputs that widely used and important to innovation or

to internationalization.

The competitiveness as Porter explained that could be reaped in some ways:

efficient, early, rapid, and sometimes preferential access to the most cost-effective

inputs, ongoing coordination, and through the process of innovation and upgrading. The

presence in a nation of competitive industries that related often leads to new

competitive industries.

This enables to provide opportunities for information flow and technical

interchange, share activities and sometimes forge formal alliances. International success

in one industry can also pull through demand for complementary product or service

(Porter, 1990).

Porter described the characteristic of home demand is internationalization of

domestic demand. Porter argued that it can happen through at lest two ways. Firstly, if

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the nation’s buyers are mobile or multinational companies who travel extensively to

other nations, it can highlight the opportunity of establishing an overseas presence to a

nation’s firm and may well provide the conviction to pursue such a presence by lowering

the perceived risk. Secondly, a similar set of arguments applies if homebuyers are

multinationals with subsidiaries or operation in many countries.

Firm Strategy, Structure, and Rivalry: nations will tend to succeed in

industries where the management practices and modes of organization favored by the

national environment are well suited to the industries’ sources of competitive advantage.

The attitudes toward authority, norms of interpersonal interaction, attitude workers, and

social norm also have impact in a firm competitive advantage. The Important national

differences in management practices and approaches occur in such area as the

training, background, and orientation of the leaders, group versus hierarchical style, the

strength of individual initiative, the attitude toward international activities, and the

relationship between labor and management (Chandler, 1986).

Domestic rivalry, like any rivalry, creates pressure on firms to improve and

innovate. Local rival push each other to lower cost, improve quality and service, and

create new product and service. While firms may not preserve advantages for long

periods, active pressure from rivals stimulate innovation as much from fear or failing

behind as the inducement of getting ahead (Arrow 1962, Scherer 1980, Thomas 1989).

Vigorous local competition not only sharpens advantages at home but also pressures

domestic firms to sell abroad in order to grow. Particularly when there are economies

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of scale, local competitors force each other to look outward in the pursuit of greater

efficiency and higher profitability. The presence of domestic rivals nullifies the type of

advantage that come simply from being in the nation, such as factor cost, access to or

preference in the home market, a local supplier base, and cost of importing that must

be borne by foreign firms (Porter, 1990). Johansson (2003) added one particular

country specific advantage (that can be disadvantage) is so-called country-of-origin-

effect. The effect refers to the impact on customers of the “made-in” label, or, more

generally, a branded product or service is perceived to be from. Products or services

from countries with a positive image tend to be favorably evaluated; white the products

from less positively perceived countries tend to be downgraded.

2.2.3. Industry Environments

Although the relevant environment is very broad as illustrated above, the key

aspect of firm’s competitive advantage is the industry in which it competes. Industry

structure had a strong influence in determining the competitive rule of the game as well

as the strategies potentially available to the firm. Thompson and Strickland (2003)

defined industry as a group of firms whose products have so many of the same

attributes that they compete for the same buyers.

Industries differ widely in their economic characteristics, competitive situations,

and future profit prospects. Knowledge of competitive factors within its positioning in its

industry, clarifies the area where strategic changes may yield the greatest payoff, and

highlight the areas where industry trends promise to hold the greatest significance as

either opportunities or threat (Porter, 1980).

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Michael E. Porter (1980) has convincingly demonstrated that the state of

industry competition is composite of five competitive forces. These factors are

substitution, bargaining power of buyer, bargaining power of supplier, and rivalry

among existing competitors, jointly determine the intensity of industry competition and

profitability, and the strongest force of forces are governing and become crucial from

the point of view of strategy formulation:

Figure 2.2 Elements of Industry Structure Five Forces Model

Source: Adapted from Michael E. Porter (1979), “Competition and Strategy: How Competitive Forces

Sharp Strategy”.

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Threat of Entry: a several factors determine whether the threat of new

companies entering the market place poses significant competitive pressure. One factor

relates to the size of the pool of likely entry candidates and the resources at their

command. As a rule, the bigger pool of entry candidates, the stronger the threat of

potential entry. This is especially true when some of the likely entry candidates have

ample resources and the potential to become formidable contenders for market

leadership.

New entrants to an industry bring new capacity, the desire to gain market share,

and substantial resources. Price can be bid down or incumbents’ cost inflated as a

result, reducing profitability. Porter argued the threat of entry into the industry depends

on the barriers to entry are present, couple with the reaction from existing competitors

that the entrant can expect. If barriers are high and/or the newcomer can expect sharp

retaliation from entrenched competitors, the treat of entry is low.

As Porter said, there are six major sources of barriers of barriers to entry:

- Economics of scale: It refers to declines in unit cost of a product (or operation

of function that goes into producing a product) as the absolute value per period

increases. Economics of scale deter entry by forcing the entrant to come in at large

scale and risk strong reaction from existing firms or come in at small scale and accept a

cost disadvantage, both undesirable options.

- Product differentiation: It means that established firms have brand identification

and customer loyalties, which stem from past advertising, customer service, product

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differences, or simply being first into the industry. It creates a barrier to entry by forcing

entrants to spend heavily to overcome existing customer loyalties.

- Capital requirement: The need to invest large financial resources in order to

compete creates a barrier to entry, particularly in the capital is required for risky or

unrecoverable up-front advertising or research and development.

- Switching cost: It is one time costs facing the buyer of switching from one

supplier’s to another supplier. It includes employee training cost, cost of new ancillary

equipment, and so forth.

- Access to distribution channels: to the extent that established firm has already

served logical distribution channels for the product, the new firm must persuade the

channel to accept its product through price breaks, cooperative advertising allowances,

and the like, which reduce the profits.

- Government regulation and policy Government: can limit or even foreclose

entry into industries with a control of instance: limits access to raw materials, air and

water pollution from entrenched firm’s safety.

Following things can single sharp retaliation from entrenched firms that deter the

new entrants: a history of vigorous retaliation, great commitment of established firm,

highly illiquid assets employed in it, or slow industry growth (Porter, 1980).

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Intensity of Rivalry among Existing Competitors

Rivalry occurs because one or more competitors either feels the pressure or

sees the opportunity to improve position. Intense rivalry is the result of a number of

interacting structural factors (Porter, 1980).

- Numerous or equally balanced competitors: When firms are numerous, the

likelihood of mavericks is great and some firms may habitually believe they can move

without being noticed. Even when there are relatively few firms, if there relatively

balanced in term if size and perceived resources, it creates instability because they may

be prone to fight each other and have resources for sustained and vigorous retaliation.

- Slow industry growth: It turns competition into a market share game for firms

seeking expansion.

- High fixed or storage cost: It create strong pressure for all firms to fill capacity

which often lead to rapidly escalating price cutting when excess capacity is present

shade.

- Lack of differentiation or switching cost: Where the product or service is

perceived as a commodity or near commodity, choice by buyer is largely based on price

and service, and pressure for intense price and service result insulation.

- Capacity augmented in large increments: Capacity addition can be chronically

disruptive to the industry supply/demand balance, particularly where there is a risk of

bunching capacity additions.

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- Diverse competitors: Diverse in strategies, origins, personalities, and

relationship to their parent can cause a difficult and different treatment to overcome

them.

- High strategic stakes Rivalry in an industry becomes even more volatile if a

number of firms have high stakes in achieving success there.

- High exit barriers the following reasons can make a company keep competing

in an industry although they may be earning low or even negative return on investment:

specialized assets, fixed cost of exit, strategic relationship, emotional barriers, as well

as government restrictions.

Pressure form Substitute Products

Porter defined a substitute product as other products that can perform the same

function as the product of industry. Based on Porter’s argument substitute products that

deserve the most attention are those that: (1) are subject to trends improving their

price-performance trade off with the industry products, or (2) are produced by industries

earning high profits. Some other indicators are also important such as growth rate,

market inroads, and expand capacity of substitute product (A. Mondrowitz, 1998).

Bargaining Power of Buyers

Buyer competes with the industry by forcing down prices, bargaining for higher

quality or more services, and playing competitors against each other, all at expense of

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industry profitability. According to Porter, a buyer group is powerful if the following

circumstances hold true:

- It is concentrated or purchase large volume relative to seller sales;

- The products it purchases from the industry represent a significant fraction of

the buyer’s cost or purchases;

- The products it purchases from the industry are standard or undifferentiated;

- It faces few switching costs;

- It earns low profits;

- Buyer poses a credible threat of backward integration;

- The industry’s product is unimportant to the quality of the buyer’s products;

- The buyer has quantity and quality of full information.

Bargaining Power of Suppliers

Supplier can exert bargaining power over participant in an industry by

threatening to raise price or reduce the quality of purchased goods. A supplier group is

powerful if the following apply (Porter, 1980).

- There are few suppliers for a specific input for your company.

- It is not obliged to contend with other substitute products for sale to the

industry.

- The industry is not an important customer of the supplier group.

- The supplier’ product is an important input to the buyer’s business.

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- The suppliers group’s products are differentiated or in building up switching

costs.

- Some suppliers threaten to integrate forward.

- Needed products are in short supply.

2.3 The Factor Affecting the Competitiveness of Garment Industry

As mentioned earlier, the last of three abroad competitive sources is firm or

operating level. From this level, the company can identify the strengths and the

weaknesses relative to its competitor in order to be tailor appropriate strategy. There

are a several methods for assessing company’s competitiveness. One of them is

Balanced-Scorecard method.

In the last decade, there has been a growing criticism of traditional management

control as too narrowly focused on financial measures. For most of the twentieth

century, traditional management control systems have existed in an environment of

mature products and stable technologies (Hally, 1994) Sophisticated technologies and

production processes have led to new demand on company system of measurement

and management control. Financial measures showed the effect of decision already

taken but failed to provide adequate guidance for long-term strategic management

(Olve, Roy & Wetter, 1999).

The following some other criticism over traditional system:

1. Information given by traditional system can lead to action inconsistent with

strategic objective (Goldenberg & Hoffecker, 1994);

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2. The measures used send misleading signal about the efficiency and

profitability of the business (Peters, 1987);

3. Financial measures alone do not provide a rue and fair view of how a

business is developing (Johnson & Kaplan, 1987);

4. The system has been tending to favor short-term investment decision that

encourages manipulation of financial measures (Smith, 1992).

Many began to realize that to be competitive a company needed more complete

reporting on the various aspects of its business. In 1992, Robert Kaplan and David

Norton published firstly the Balanced Scorecard (BSC) model as an alternative of

outcome measure and performance driver. By the thousands, companies embraced the

idea, a balanced scorecard became the hakmark of a well-run company, and a

completely new consulting specialty sprang up to help companies create one for them.

Kathy Ho and Mckay (2001) defined balanced scorecard as a strategic

measurement and management system that translate an organization’s mission and

strategy into a balanced set of integrated performance measures. Regarding BSC as a

communication tool of the multiple, linked objective and some others else argued as a

substitute for a budget (Olve,Roy & Wetter, 1999). ลิขสิท

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Figure 2.3 The Balanced Scorecard translating Strategy into Action

Source: Kaplan, Robert S and David P. Norton. (1997). Balanced Scorecard: Translating Strategy into Action.

However, all agreed that BSC provides a framework for strategic management

by transforming a company’s strategic goals into an integrated collection of objectives

and the performance of indicators that organized by Kaplan and Norton into four

To succeed financially, how

should we appear to our shareholder?

FINANCIAL PERSPECTIVE

Objective

Measure

Target

Initiative

To achieve our vision, how should we appear to

our customer?

CUSTOMER PERSPECTIVE

Objective

Measure

Target

Initiative

To satisfy our shareholder and our customers what business process must

we excel at?

INTERNAL BUSINESS PERSPECTIVE

Objective

Measure

Target

Initiative To achiee our vision how will we sustain our ability to change

and improve?

LEARNING & GROWTH PERSPECTIVE

Objective

Measure

Target

Initiative

VISION & STRATEGY

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perspectives: financial, customer, internal business process, and learning and growth.

The name reflected the balance provided between short-term objective,

yesterday-today-tomorrow dimension, between lagging outcome measure) and leading

indicator (Performance driver), and between internal and external performance

perspective Kaplan&Norton, 1996).

2.3.1 Financial Measures

This measure indicates whether the company’s strategy, implementation, and

execution are contributing to bottom line improvement. This is lagging measure because

it shows measurable economic consequences of action already taken in the past.

The financial objectives can differ considerably at each stage of a business’s

lifecycle. Business strategy theory suggest several different strategies that business unit

can follow, ranging from aggressive market share growth down to consolidation, exit,

and liquidation (Hofer and Schendel, 1978, MacMilan, 1982). However, for simplification

purposes, Norton and Kaplan identify just three stages; growths, sustain, and harvest.

Each of those strategies, based on Kaplan and Norton study, has three financial themes

that are revenue and growth mix, cost reduction or productivity improvement, and asset

utilization.

Olve, Roy & Wetter (1999) has already added some keys specific measures

such as revenue per total assets, profit per total assets, value added per employee,

revenue per employee. Additionally he added profit margin, ROI, ROA, and so on.

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Table 2.1 Measuring strategic financial themes

Strategic Themes

Revenue and Growth Mix

Cost Reduction / Productivity Improvement

Assets Utilization

Growth - Sales growth - % revenue from new

product and customer

- Revenue per employee

- Investment (% of sales)

- R&D (% of sales)

Sustain - Share of targeted customers and account

- % revenues from new application

- customers and product line profitability

- Cost versus competitors

- Cost reduction rate - Indirect expense (%

of sales)

- Working capital ratios

- ROCE by key asset categories

- Asset utilization rate

Business Unit Strategy

Harvest - Customer and product line profitability

- Percentage unprofitable customers

- Unit cost (per unit of output, per transaction)

- Payback throughput

Sources: adapted from Kaplan, Robert S., and David P. Norton (1996) The Balanced Scorecard: Translating Strategy into Action

2.3.2 Customer Measures

Kaplan and Norton describe this perspective as the ways in which value is to be

created for customers, how customer demand for this value is to be satisfied, and why

the customers will be willing to pay for it. In this perspective, managers identify the

customer and market segment in which the business will compete and the measures of

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the business unit’s performances in these targeted segments. One could say that this

part of the process is the heart of the scorecard. If the company fails to deliver the right

product and service for cost-effectively satisfying customers need in both the short and

long run, revenue will not generated, and the business will wither and die (Olve, Roy &

Wetter, 1999). According to Kaplan and Norton, the core measurement of this

perspective includes measures of market share, customer retention, customer

acquisition, customer satisfaction, and customer profitability.

Market share measure reflects the proportion of business in given market (in

term of customers dollar spent, or unit volume sold) that a business unit sells. Then,

customer acquisition measures, in absolute or relative terms, the rate at which a

business unit attracts or wins new customers or business. Meanwhile, customer

retention measures tracks, in absolute or relative terms, the rate at which a business

unit retains or maintains ongoing relationship with its customers. Customer satisfaction

measures assess the satisfaction level of customers along specific performance criteria

within the value proposition, and finally, customer profitability measures the net profit of

a customer, or a segment, after allowing for the unique expenses required to support

that customer (Kaplan & Norton, 1996)

Olve Roy & Wetter (1999) provided several other measures such as number of

complaints, marketing expense, and brand-image index.

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2.3.3 Internal Business Process Measures

In this perspective, the executives identify the critical internal processes in which

the organization must excel to satisfy the shareholders and customers. It should focus

on the internal processes that will give the greatest impact to the customer satisfaction

and achieving the organization’s financial objectives. Kaplan & Norton identify three

principal business process in preparing this perspective; innovation, operations, and

post-sale service. There are many kinds of measures can use for example. Productivity,

capacity utilization, delivery time, administrative expense/total revenue, on-time delivery,

lead-time, etc (Olve, Ray & Wetter, 1999).

2.3.4 Learning and Growth Measures

This perspective enables the organization to ensure its capacity for long-term

renewal, a perquisite for survival in the long run. In this perspective, the company

should consider not only what it must do to maintain and develop the knowledge

required for understanding and satisfying customers wants and needs, but also how it

can sustain necessary efficiency and productivity of the processes, which presently

create value for the customers. This perspective involves with identifying the

infrastructure that the organization must build and create long-term growth and

improvement.

Based on their experience in practice, Kaplan and Norton argued there are

three principal categories for learning and growth perspective; employee capabilities,

information system capabilities, and motivation, empowerment, and alignment. From

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those categories can be draw some measure such as employee satisfaction, employee

retention, employee productivity, R & D expense, investment research, investment in

training, investment in development new product/market, etc (Olve, Roy & Wetter,

1999).

2.4 Strategy Analysis

One of the familiar methods in analyzing firm strategy is SWOT analysis. SWOT

is an acronym for the internal Strengths and Weaknesses of a firm and the environment

Opportunities and Threats facing the firm. It is grounded in the basic principle that

strategy-making efforts must aim at producing a good fit between a company resources

capability (as reflected by its balance of resource strengths and weaknesses) and its

external situation (as reflected by opportunities and threats emerged from macro

environment, as will industry environment) (Thompson & Strickland, 2003).

Strength is something a company is good at doing or a characteristic that gives

it enhanced competitiveness relative to its competitors. Meanwhile weakness is

something a company lacks or does poorly (in comparison to others) or a condition that

puts it at a disadvantage. The sources of weaknesses are, basically, the same as

those of strengths (Thompson and Strickland, 2003). They may exist with regard to

financial resources, image, and market leadership (Pearce and Robinson, 1997).

Thompson and Strickland added such thing as skill or important expertise, physical

assets, alliances and so on.

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As illustrated above, it is useful to utilize the BSC concept to identify a firm’s

strengths and weaknesses that cover four linked-different perspectives: financial,

customer, internal business, and internal growth perspective compared to its

competitors.

The opportunity is defined Pearce and Robinson as major favorable situation in

a firm’s environment. On the other hand, threat is a major unfavorable situation in a

firm’s environment. As discussed earlier, firm environment commonly includes macro

environment (political, economic, societal, etc), nation environment (factor, demand,

domestic rivalry, government, etc) as well as industry environment (supplier, buyer,

substitute, etc).

Figure 2.4 Formulations, Implementation, and Control of Competitive Strategy

Source: Adapted from Pearce and Robinson (1997)

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SWOT analysis can use to aid strategic analysis as illustrated in Figure 2.4 and

SWOT matrix in table 2.2. Key external opportunities and threats systematically

compared with internal strength and weaknesses in a structured approach. The

objective is identification of one of four distinct patterns in the match between a firm’s

internal and external situation.

2.5 Overview of Garment Industry in the World and Cambodia

The global textile and garment industry has expanded continuously to meet the

demands of a growing world population with increases in standards of living worldwide

and diversification of end-use applications. In 1950, for example, the consumption of

fiber by the world’s textile mills was 7 million tons and that increased to almost 55

million tons in 2003. It is interesting to note that polyester, first discovered by The

Calico Printers’ Association in Manchester, UK in the early 1950s, now represents about

65% of total fiber consumption, i.e. about 36 million tons. The principle end-use

applications for textiles fifty years ago were in the manufacture of garments (about 84%)

and home textiles, e.g. bed linen, furnishings, towels, etc., (about 12%) whilst other end

uses represented some 4%. Today, one of the key growth areas for textiles is in

industrial textiles, e.g. fabric substrates for the production of shoes, airbags for cars,

buses, etc., and in technical textiles, e.g. geo-textiles, agro-textiles, and construction

textiles.

The Multi-Fiber Arrangement (MFA) was introduced by the major, high cost

textile and garment industries in the late 1960s–early 1970s as a means of protecting

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their declining textile industries by restricting imports from the then established textile

and garment exporting countries, e.g. China, Egypt, Hong Kong, India, Republic of

Korea, Pakistan, Taiwan, Thailand, Turkey, etc. The quantitative restrictions, known as

quotas, were introduced through bilateral negotiations or, if discussions failed to reach

agreement, restrictions were imposed unilaterally.

The objective of the quotas was to enable the textile and garment industry

capacities in the higher cost countries to be reduced at a controlled rate. This reduction

has taken place over the last 30 years. One of the apparently incidental results of the

MFA has been the transfer to, and growth of textile and garment industries in, many

countries that previously had no significant textile or garment manufacturing traditions

and, therefore had no restrictions on their exports. These countries include Bangladesh,

Indonesia, Malaysia and Sri Lanka. Cambodia is one of the later entrants to the global

export market with garment export sales first recorded in the middle 1990s.

Cambodian garment production, while critical to the economy of Cambodia,

remains relatively small in global terms with about 0.3% of garment production

worldwide and 0.7% of global foreign trade, by value, based on WTO data. In 1995, the

Uruguay Round of negotiations was concluded and the stage set to enable all world

trade to return to the General Agreement on Tariffs and Trade (GATT). This involved

replacing the Multi-Fiber Agreement (MFA) with the WTO Agreement on Textiles and

Clothing (ATC). The ATC is based on a non-extendable 10-year transitional program for

the removal of all quotas by 1 January 2005.

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The critical aspects of the ATC were that the higher cost countries’ importers

had a further 10 years in which to make the needed commercial, industrial and social

adjustments in reducing their production capacities and that the exporting countries had

the same 10 years in which to prepare their business strategies to be competitive in the

new market situation.

Table 2.2 Global garment foreign trade in garment top export country

(Actual project, US$ Billions)

The global textile and garment industry has expanded continuously to meet the

demands of a growing world population with increases in standards of living worldwide

and diversification of end-use applications. In 1950, for example, the consumption of

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fiber by the world’s textile mills was 7 million tons and that increased to almost 55

million tons in 2003. It is interesting to note that polyester, first discovered by The

Calico Printers’ Association in Manchester, UK in the early 1950s, now represents about

65% of total fiber consumption, i.e. about 36 million tons. The principle end-use

applications for textiles fifty years ago were in the manufacture of garments (about 84%)

and home textiles, e.g. bed linen, furnishings, towels, etc., (about 12%) whilst other end

uses represented some 4%. Today, one of the key growth areas for textiles is in

industrial textiles, e.g. fabric substrates for the production of shoes, airbags for cars,

buses, etc., and in technical textiles, e.g. geo-textiles, agro-textiles, and construction

textiles. The Multi-Fiber Arrangement (MFA) was introduced by the major, high cost

textile and garment industries in the late 1960s–early 1970s as a means of protecting

their declining textile industries by restricting imports from the then established textile

and garment exporting countries, e.g. China, Egypt, Hong Kong, India, Republic of

Korea, Pakistan, Taiwan, Thailand, Turkey, etc. The quantitative restrictions, known as

quotas, were introduced through bilateral negotiations or, if discussions failed to reach

agreement, restrictions were imposed unilaterally. The objective of the quotas was to

enable the textile and garment industry capacities in the higher cost countries to be

reduced at a controlled rate. This reduction has taken place over the last 30 years. One

of the apparently incidental results of the MFA has been the transfer to, and growth of

textile and garment industries in, many countries that previously had no significant

textile or garment manufacturing traditions and, therefore had no restrictions on their

exports. These countries include Bangladesh, Indonesia, Malaysia and Sri Lanka.

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Cambodia is one of the later entrants to the global export market with garment export

sales first recorded in the middle 1990s. Cambodian garment production, while critical to

the economy of Cambodia, remains relatively small in global terms with about 0.3% of

garment production worldwide and 0.7% of global foreign trade, by value, based on

WTO data. In 1995, the Uruguay Round of negotiations concluded and the stage set to

enable all world trade to return to the General Agreement on Tariffs and Trade (GATT).

This involved replacing the Multi-Fiber Agreement (MFA) with the WTO Agreement on

Textiles and Clothing (ATC). The ATC is based on a non-extendable 10-year

transitional program for the removal of all quotas by 2005.

The WTO Agreement on Textiles and Clothing

The completion of the Uruguay Round of negotiations resulted in an agreement

to integrate trade in textiles and clothing into the GATT/WTO. In 1995, the Multi-Fiber

Agreement (MFA) was replaced by the WTO Agreement on Textiles and Clothing

(ATC). The ATC is based on a non-extendable 10- year transitional program for the

removal of all quotas by 1 January 2005. Liberalization has proceeded along two paths.

One concerns integrating textile and clothing trade into the WTO framework and the

other is related to the application of accelerating growth factors for MFA quotas. The

ATC binds only for WTO Members and is a subject to the same set of rules and a

single system of resolving disputes, which is applicable to all WTO Agreements. The

ATC calls for a gradual phase out of the quota restrictions carried over from the MFA

regime. Products covered by the ATC have been integrated in three stages and the

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percentage of products that must be brought under GATT rules are specified for each

step. If any of these products come under quotas, then the quotas must be removed at

the same time. In these three stages, the quota growth rates increase progressively

from their base levels by increasing annual growth rates at each stage. Products

brought under GATT rules at each stage were required to cover the four main types of

textiles and clothing: tops and yarns; fabrics; made-up textile products; and clothing.

(Source: Adapted from UNIDO 2003)

2.5.1. Overview of Garment Industry in Cambodia

After two decades of turmoil, the Cambodian government cooperates

with the firms to develop and rebuild with international assistance in the 1980s in

order to provide basic needs for the home market. Mid of 1990s, while Cambodia

restored peace and the government had converted from a centrally planned to a

market economy, (Cambodia’s garment industry should rely on FDI improve export

development). This sector is now the mainstay of Cambodian manufacturing and

thus it is a single most important export item.

The robust growth in the garment sector is mainly the result of Normalized

Trade Relationship (NTR) agreements, first signed with the European Union (EU)

in 1996 and then with the United States the following year. Following the

agreements, Cambodia received grant with the trade statuses of MFN and included

in their GSP. From1990 until 1999, the Cambodia garment exports grew from

virtually from 0 to 50 percent of the country's total exports, with about 90 percent of

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garment shipments to the United States. In 1999, Cambodia's remarkable

performance prompted the United States to introduce quotas on 12 categories of

Cambodian garment exports, but fortunately, this measure has not significantly

affected the expansion of the industry.

The quota stipulates that each year there would be an automatic 6 percent

relaxation of the quotas, effective from January 2000. In year 2000, USA has linked

the relaxation of import quotas to working conditions in order to encourage the

Cambodian government to improve labor conditions in the garment industry by

suggesting an additional 14 percent relaxation of the quotas on top of the

automatic 6 percent, if Cambodia complied substantially with internationally

recognized labor standards. By 2001, the Cambodian garment industry reached a

landmark achievement of exports totaling $1 billion. The growth trend continued as

Cambodia benefited with both an increased quota and with growth in non-quota

products. By 2004, Cambodia became one of major exporters of garment products,

ranking number 16 in the American market. Exports accounted for 36 percent of

the country's GDP that year. The Business Climate on garment industry in Cambodia

both the public and private sectors have long recognized the significant challenges

faced by the business sector in Cambodia (Report by Dr. Hing Thoraxy, CICP director,

Foreign Direct Investment: Opportunities and Challenges for Cambodia, Laos and

Vietnam, Hanoi, August 16-17, 2002). He identified some key issues facing the

business community such as 1).Weaknesses of system; 2). Costs of and access to

finance;3) Inadequate market information on consumer trends; 4) Shortages of skilled

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labor;5) Inadequate infrastructure that restricts access to markets and raw materials; 6)

the quality of the port facilities; 7) the high cost of essential utilities and services, i.e.

electricity, water supply, and telecommunication services; and 8). Land issues for

agriculture investment projects.

In order to provide a more systematic evaluation of the Cambodian investment

climate and to provide policy advice based on both an assessment of the business

climate in Cambodia and that of major competitors, the World Bank carried out

Cambodia productivity and investment climate survey (PICS) in 2003. The PICS

analyzed in World Bank in 2004 represents by far the most comprehensive evaluation

of the investment climate in Cambodia to date. Given the opportunity of private-led

growth* and the challenges of improving the business environment, the government

has begun to design and implement a broad reform strategy anchored in its successful

bid to join the WTO.

As H. E. Sr. Minister Cham Prasidh (Senior Minister and Minister of Commerce

of the Kingdom of Cambodia) described in a recent speech on the Protocol of

Accession. His Excellency requires the Government to undertake 98 separate legal and

policy reforms on an accelerated schedule, improvements in the regulator framework for

foreign direct investment and taxation, and a framework for open consultations with the

private sector on investment climate issues. However, WTO only sets the stage for

competition. An efficient, low-cost investment climate is needed in order for domestic

firms to be able to take advantage of market access opportunities.

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Exports and Markets: Cambodia’s export performance is shown in Table 2.3

Garment exports rose from about US$26 million in 1995 to over US$1,600 million in

2003. This amounted to almost 80% of total Cambodian exports, and Cambodia’s

garment exports represented 0.74% of the world total by value. In 2003, exports to the

US broke through the billion-dollar barrier for the first time at US$1.1 billion, of which

63% were items under quota. However, the US market share of total garment exports

from Cambodia has fallen steadily from a peak of 81% in 1998 to below 70% in 2003.

This was due largely to the provision of preferential access to the EU in the late

1990s and early 2000s and is reflected in the increasing share of exports to the EU

qualifying for GSP privileges in the last three years. Exports to the EU topped US$407

million in 2003, and following the extension of Canada’s GSP scheme to cover textiles

and apparel in January 2003, exports to other markets jumped in 2003 to over US$75

million.

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Table 2.3 Cambodia's Garment Exports - 1995-2003, Values and Quantities 1995 1996 1997 1998 1999 2000 2001 2002 2003

Values (US$ mn)

US

Quota 433.3 524.5 501.4 626.5 710.7

Non-Quota 82.8 226.8 327.2 327.1 410.4

Total 0.5 1.6 109.9 291.8 516.1 751.3 828.6 953.5 1121.1

Share of Quota (%) 83.9% 69.8% 60.5% 65.7% 63.4%

US Share of Total (%) 1.8% 2.0% 48.4% 81.2% 78.2% 76.2% 71.7% 71.3% 69.8%

EU

GSP 143.0 186.4 239.0

1995 1996 1997 1998 1999 2000 2001 2002 2003

Values (US$ mn)

MFN 166.1 169.2 168.4

Total 25.7 74.8 112.4 63.1 136.7 220.8 309.1 355.7 407.4

Share of Quota (%) 46.3% 52.4% 58.7%

US Share of Total (%) 96.0% 93.2% 49.5% 17.6% 20.7% 22.4% 26.8% 26.6% 25.3%

Other Markets 0.6 3.9 4.8 4.5 7.3 14.3 17.9 28.1 78.7

Total Garment Exports 26.7 80.3 227.1 359.4 660.1 986.4 1155.6 1337.2 1607.1

Total Merchandise Exports 865.0 717.0 839.0 795.0 1124.0 1394.0 1564.0 1742.0 2056.0

Garment Share of Exports (%) 3.1% 11.2% 27.1% 45.2% 58.7% 70.8% 73.9% 76.8% 78.2%

Quantities(pcs mn)

US

Quota 118.0 115.2 156.7 136.9 138.9

None-Quota 30.0 91.3 110.2 172.3 201.6

Total 1.3 8.8 62.2 124.7 148.1 206.5 266.9 309.2 340.5

EU

GSP 38.5 49.3 67.2

MFN 42.8 41.0 40.4

Total 9.0 2.0 34.3 20.7 34.7 58.3 81.3 90.2 107.6

Other Markets 0.7 2.0 15.2 1.1 3.2 4.4 4.5 7.4 18.2

Source: Export data of Cambodia's Garment Exports (1995-2003), Values and Quantities was

obtained from GSP Department, Cambodian Ministry of Commerce.

Export Trade: China is by far the largest garment exporter, based partly on

imported finished fabrics and partly on increasing self-sufficiency, through domestic and

foreign textile investments. India is second largest of the countries in garment orders,

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based mostly on domestic textile production and limited foreign investments.

Bangladesh garment exports to the third highest in these countries and have reached a

level of about US$5 billion, building on recent domestic investment in textile production

and backward linkages. Indonesia is the fourth largest garment exporter, after having

been third largest for some years. Indonesia has invested heavily in Man-Made Fiber

production, as well as in textile production, so self-sufficiency in materials supply is also

increasing.

Table 2.4 Benchmarking of Export Trade

Factor Cambodia Bangladesh China India Indonesia Pakistan Sri

Lanka

Viet

Nam

Exports 1990 US$ mn 0 643 9.669 2.530 1.646 1.014 638 300

Exports 2000 US$ mn 985 4.171 36.071 6.178 4.734 2.144 2.812 900

Exports 2002 US$ mn 1.339 4.131 41.302 5.600 3.945 2.228 2.326 1.000

Share global trade

(%) 0 0.59 8.9 2.3 1.5 0.94 0.6 0.3

Share global trade

(%) 0.5 2.1 18.3 3.1 2.4 1.1 1.4 0.5

Share global trade

(%) 0.7 2.1 20.6 2.8 2 1.1 1.2 0.5

Source: WTO and Cambodian statistics

Sri Lanka is fifth largest exporter of garments, based largely on foreign

investments and imported fabrics but with a high degree of self-sufficiency in knitted

fabrics sector. Pakistan has focused more on home furnishing textiles that are more

suited to local cottons and garment exports (US$2.2 billion) are ahead of Cambodia

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(US$1.5 billion). Pakistan’s garment industry is based almost entirely on domestic

investment.

Overall Evaluation of Constraints Overall The survey found that the top

priorities of private companies in Cambodia involved governance, the rule of law, and

corruption. Figure 2.5 shows that corruption was ranked as the number one constraint

for business, with security as number two, and anti-competitive or informal practices as

number three.

Figure 2.5 Cambodia: Top General Constraints to Private Enterprise Operation and Growth

Source: World Bank, 2004, Data for the year 2000.

Governance and Corruption: In generally, in order to conduct business and the

average level of such payments amounted to between 5% and 6% of total sales. This

places Cambodia significantly higher than Bangladesh – at around 50% of Cambodia

levels one of the country’s main competitors in the garment industry. In addition,

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companies operating in Cambodia viewed the integrity of the bureaucracy as very weak,

reinforcing the widely held view that dramatic reforms in all areas of public sector

governance are required to improve the business environment. The impacts have been

resulted in weak governance and high levels of corruption. For example in a number of

indicators such as the “Governance Matters” Indicators produced by the World Bank,

the Corruption Perception Index produced by Transparency International the Investment

Climate indicators reproduced in World Development Indicators; and the Country Policy

and Institutional Assessment (CPIA) ratings done by the World Bank. Cambodia’s

government, civil society, and public alike recognize weak governance and high levels

of corruption as major impediments to lasting growth and poverty reduction.

Figure 2.6 Percent of Sales Value Paid Informally to Public Officials

Source: The World Bank, PICS for each respective country.

Business Operations: two key measures of the ease of doing business

concern the time taken to start up a business and the cost of starting up a business.

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Cambodia was scores considerably higher (in terms of time & money) than major

competitors in South East Asia, especially in terms of costs.

Figure 2.7 Time and Cost to Start a Business

Source: World Bank 2004

Figure 2.8 Cost to Start a Business (% of income per capita)

Source: The World Bank 2004

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Trade Facilitation and Regulatory Streamlining (Cambodian Government

commitment)

In the trade facilitation area, the Government committed to the Twelve-Point

Plan leading to a streamlined, Electronic Single Window was pilot by December 2005.

The overall development objective is to Increase the private sector's contribution

to poverty reduction through growth, export diversification and improved service

delivery. These reforms support Cambodia's pro-poor trade strategy by reducing the

cost, time and transparency of export and import transactions and clearance

processes. Improvements m trade facilitation practices are strongly correlated with

increases in trade and GDP. In the short run, this would also have the effect of

making the garment sector more competitive in a post-quota environment, and

in the long-term contributes to diversification.

Cost and time required to clear import and export shipments is reduced, as

measured by

• A reduction in the number of steps required to clear imports from 45 to

less than 10 by December 2005;

• Reduction in the percentage of export shipments that arc physically

inspected or scanned to less than 40% by June 2005 and to the ASEAN average by

June 2006;

• A 35% reduction in the time required to clear export shipments by June 2006.

• The corruption in trade facilitation processes improves in a follow-up ICS

in 2006.

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Trade Facilitation: The World Bank clearly identifies the negative aspects of

trade facilitation – high costs of corruption and long delays for clearance procedures –

as a critical issue affecting productivity and competitiveness in Cambodia, with each

step in the exporting process characterized by delays, formal costs and informal

payments. In addition to the time taken, companies particularly object to the arbitrary

nature of the procedures that are seen as unclear and often superfluous. Again, it is

found that Cambodia scores lower even than Bangladesh in terms of the longest time

taken to clear customs. In the garment industry, for example, it takes up to 19 days in

Cambodia to clear customs, while in Bangladesh it takes only 14 days.

Marketing and Logistics: Cambodia is disadvantaged relative to the other

countries as shown in Table 8. Each of the other countries has domestic access to at

least some, if not most, of the materials required in the manufacture of garments. This

allows for better performance, in terms of on time delivery and rapid repeat orders.

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Table 2.5 Benchmarking of Marketing and Logistics

Competitive Factors Cambodia Bangladesh China India Indonesia Pakistan Sri

Lanka Viet Nam

Market orientation-local 5 4 3 3 4 4 4 4

On time delivery 4 3 to 4 3 3 to 4 3 4 3 to 4 -

Fast repeat orders 5 4 to 5 3 to 4 3 4 4 to 5 4 4 to 5

Local yarn supplies 5 3 1 to 2 1 2 1 to 2 3 1

Local fabric supplies 5 3 to 4 2 1 to 2 3 to 4 2 to 3 3 1

Local accessories 5 4 to 5 3 to 4 4 4 3 to 4 4 to 5 3

Note: 1= excellent; 2= good; 3= average; 4= less than average and 5=weak or poor

Sources: Market research of Ministry of Commerce of Cambodia

2.5.2 The Status of Garment Industry in Cambodia

The Cambodian garment industry has developed extremely rapidly within the

last 10 years, from a minor presence in 1995, to become the major manufacturing

activity in the country by the late 1990s and early 21st century. In 2003, the garment

industry is estimated value added of almost US$500 million accounted for around 12%

of national GDP. The garment industry has an estimated 320,000 employees of which

85-90% is female and in the age group 18-25 years. This accounts for around 65% of

total manufacturing sector employment. The number of companies, for example, if the

high season requirement were for a 100% workforce, then the low season requirement

is only 60% of that number. The work patterns during the low season are met by

arranging for some workers to return to their villages for an extended stay, at retainer

wages, by releasing contracted workers at the end of their contracted periods, or by

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letting permanent employees leave the companies. In addition, there are many indirect

jobs associated with the garment industry perhaps as many as 150,000 related jobs.

The garment industry is estimated to have 286 companies in early 2006, located mostly

in Phnom Penh and its suburbs with a few in Sihanoukville, near to the main port, and

in Kompong Cham province. Fifty-six companies are reported to have closed down

since the mid- 1990s, so the total number of companies entering the garment industry

has been 242. In addition, there are estimated to be a large number of small cottage

industry sub-contracting companies that provide extra sewing capacities during peak

demand periods. The industry is virtually 100% foreign owned, with most of the decision

takers based in East Asia from where production orders are received, together with the

fabric, accessory supplies, and delivery instructions. The foreign owners usually have

similar stitching units in other Asian countries and decide in which of their units to have

garment orders made-up according to quota availability, product quality, manufacturing

costs, and delivery lead-time. The attractiveness of Cambodia for foreign direct

investment in the mid-1990s was due to the competitive wage cost, no restrictive quotas

into major global markets and GSP access to the EU market, with the added advantage

that quota premiums that had to be paid in most competing countries were not paid in

Cambodia. Consequently, Cambodia had cost competitive advantages over many other

countries.

As a result, the EU was the main market in the early years. Subsequently, even

when some quotas were applied, preferential access to the US market was offered and

exports to the US increased significantly. The garment industry is dependent almost

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completely on imported yarns (for knitwear); finished woven and circular knitted fabrics

(for woven and knitted cut and sew garments); all accessories and almost all packing

and presentation materials. The domestic material content is limited to some cardboard

cartons and poly bags. As a result, the total average domestic added value content in

2003 was about US$ 442 million, i.e. the difference between the value of exports and

imports. Expressed as a percentage of exports, this domestic value added content

amounted to 28.6%. The garment industry is considered one of the most compliant in

terms of labor practices and Cambodia has been awarded incremental increases in

quota allocations by the US government (an additional 14% in 2004 of a possible

increase of 18%).

2.5.3. Structure of Industry in Cambodia

Between 1996 and 2003, a total of US$656 million in fixed asset investment and the government (figure 2.9) approved US$445 million in garment sector registered

capital.

Figure 2.9 Cambodia garment industry investment approvals

Source: Cambodian Investment Board (CIB) reported in CDRI Vol. 8, Issue 2.

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Role of Foreign Investment/Local Investment: It is usual for foreign investors

to join with local investors in setting up joint-venture companies, where the opportunities

are (a) to use locally available material resources, (b) to sell into a strong domestic

market or (c) to export the product into identified target markets. In the case of

Cambodia, there are no domestic investors with which to form joint- ventures and only

the third option is available. Most Cambodian-based garment companies (woven and

knitted cut and sew as well as knitwear companies) are 100% foreign owned. This is an

almost a unique situation in global terms. These foreign investors often have similar

units in other garment assembly countries, e.g. Bangladesh, China, Indonesia, Pakistan,

Sri Lanka and Viet Nam, and make all strategic business and sales decisions.

Fabric/materials are distributed from their central headquarters to the units that produce

the garment orders. The decision as to in which of their manufacturing locations make

up garment orders is based on the manufacturing skills and costs of each of the units,

the lead times available and especially the availability of quotas and preferential market

access. After 1 January 2005, the question of quotas no longer apply and production

location decisions are increasingly based on product quality, lead times, reliability in

meeting delivery dates, productivity and cost competitiveness. Cambodia’s cost

advantage disappears when quotas end and quota premiums are no longer paid in

several competing countries. Delivery lead times is necessarily longer than in countries

with domestic textile production; shipments of incoming materials can, and often are,

subject to delays in shipment or at the port and so garment exporters may not be so

reliable as units in countries that manufacture textiles. Costs are also higher at a time

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when buyers are looking for faster deliveries for smaller orders at lower prices. The

buyers in other countries have indicated that major US and other buyers will focus on

buying more from countries with integrated textile value chains. Possibly the value chain

can extend back to fiber growing or production, but this is not an essential criteria.

Garment companies in such countries are more likely to offer a superior service at

lower costs than companies in Cambodia where all materials have to be imported

indirectly (via Singapore), processed and exported indirectly (via Singapore). In this

context, where will the interests of the dominant foreign investors in the Cambodian

garment industry lie? Will this be with their global business or to their manufacturing unit

in Cambodia?

The decision is not a difficult one; their global business is likely to be their

choice. This is unfortunate because with few domestic investors to support the

Cambodian garment industry, and most Cambodian based companies having no

significant investment in the country, Cambodia is expected to lose a significant amount

of garment business. If the garment companies in Cambodia had been joint ventures, it

could be expected that the local partners at least would an interest in consolidating the

position of the garment industry by ensuring the prompt supply of the needed finished

fabrics and other input materials. This could achieve with backward linkages into textile

production or strengthening commercial ties for supply capacities. Foreign investors do

not see the same need or make the same commitments, as would domestic investors.

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CHAPTER 3

RESEARCH METHODOLOGY

The purpose of this chapter is to present the methodology of collecting and

interpreting data. This chapter is divided into 5 sections:

Section 1: Hypotheses

Section 2: Conceptual framework

Section 3: Research Methodology

Section 4: Research Design

Section 5: Data collection & data analysis method

3.1 Hypotheses

Based on the theories discussed in chapter 2 and the objectives of the study,

this research including following hypotheses:

H1: The effect on macro environment based on performance of garment industry

H0: The economic growth has no significant effect on Macro environment based on

performance of garment industry in Cambodia.

Ha: The economic growth has a significant effect on macro environment based

performance of garment industry in Cambodia

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H2: The effect on National Environment based on performance of garment

industry

H0: Infrastructure has no significant effect on efficiency on national environment

based performance of garment industry in Cambodia.

Ha: Infrastructure has a significant effect efficiency on national environment based

performance of garment industry in Cambodia

H3: The effect on Threat of new entrant based on performance of garment

industry

H0: Economic of scale has no significant effect on threat of new entrant based

performance of garment industry in Cambodia.

Ha: Economic of scale has a significant effect on based threat of new entrant based

on performance of garment industry in Cambodia.

H4: the effect on Intensity of Rivalry among Existing Competitor based on

performance

H0: The number of competitor has no significant effect on intensity of rivalry among

competitor-based performance of garment industry in Cambodia.

Ha: The number of competitor has a significant effect based on intensity of rivalry

among competitor of garment industry in Cambodia.

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H5: The effect on power of buyer based on performance of garment industry

H0: The buyer has the ability to postpone purchasing the garment product have no

significant effect on the power of buyer-based performance of garment industry

in Cambodia.

Ha: The buyer has the ability to postpone purchasing the garment products have a

significant effect based on the power of buyer-based performance of garment

industry in Cambodia.

H6: The effect on power of suppliers based on performance of garment firms

H0: The supplier’s product is important products to garment firms have no significant

effect on the power of supplier-based performance of garment industry in

Cambodia.

Ha: The supplier’s product is an important product to garment factory have a

significant effect based on the power of supplier based the performance of

garment industry in Cambodia.

H7: The effect on macro environment based on performance of garment industry

H0: The economic growth has no significant effect on macro environment based on

performance of garment industry in Cambodia.

Ha: The economic growth has a significant effect on macro environment based base

performance of garment industry in Cambodia.

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H8: The effect on national environment based on performance of garment

industry

H0: Infrastructure has no significant effect on national environment based

performance of garment industry in Cambodia.

Ha: Infrastructure has a significant effect on macro environment basing

performance of garment industry in Cambodia.

H9: The effect on threat of new entrant based on performance e of garment

industry

H0: Economic of scale has no significant effect on threat of new entrant basing

performance of garment industry in Cambodia.

Ha: Economic of scale has a significant effect on the threat of new entrant basing

performance of garment industry in Cambodia.

H10: The effect on intensity of rivalry among exiting competitor based on

performance

H0: The number of competitor has no significant effect on intensity of rivalry

among exiting competitor basing of garment industry in Cambodia.

Ha: The number of competitor has a significant effect on intensity of rivalry among

exiting competitor basing of garment industry in Cambodia.

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H11: The effect on the power of the buyers based on performance of garment

industry

H0: The buyer has ability to postpone the garment products have no significant

effect on power of buyer basing performance of garment industry in Cambodia.

Ha: The buyer has ability to postpone the garment products have a significant

effect basing performance of garment industry in Cambodia.

H12: The effect on powers of supplier based on performance of garment

industry

H0: The supplier’s product is an important product for garment industry has no

significant effect on power of supplier basing performance of garment industry

in Cambodia.

Ha: The supplier’s product is an important product to the garment industry has a

significant effect on power of supplier basing performance of garment industry

in Cambodia.

3.2 Conceptual Framework

The study was conducted by basing on the following conceptual framework

adapted from a couple of theories discussed earlier. The variables were defined then

the interactions among variable are established to clarify the research logical

framework.

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Two Porter’s theories related to competitiveness, these were National

Competitive Advantage and Five Force Model, were employed to identify the factors

affecting the competitiveness. Those factors represent existing opportunities and threats

of the firm.

For formulation of the competitive strategy, SWOT analysis will be use to utilize.

The conceptual framework of this study is s illustrated as below.

Competitive Indicator Competitive Indicator

Figure 3.1 The conceptual Framework, Formulated base on literature review

Macro Environment

National Environment

Industry Environment

Customer Measure

Internal Business Measure

Learning & Growth

SWOT Analysis

The Competitiveness on Garment Industries in Cambodia Under Free Trade environment

Financial Measure

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3.3 Research Design

Source of data

The study used two main sources of data: secondary and primary data

1. Primary data

This source includes two types: the questionnaires additional sources from

firms and government agencies, NGOs, such as WB, ADB, and IFC.

Questionnaires were developed and launched with population of 196

garment industries in Cambodia (the sample size was calculated in next page). The

researchers collected the primary data through interviews are employed with one

executive manager who is responsible for marketing activity in garment factory in

Cambodia. The results from this stage will be used to check the variables and content

validity of the developed questionnaire and market surveys.

2. Secondary data

The data of garment industry are operating in Cambodia based on public

databases just like, annual reports of garment industry from GSP Department, Foreign

trade Department, Ministry of Commerce, GMAC, custom Department and some NGOS

such as WB, ADB, IFC and CDRI.

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3.4 Population, Sampling, Design and Measurement of Questionnaire

Population

There are 196 garment industries in Cambodia, but some factories have closed

without inform to the Ministry of Commerce. So the questionnaires were conducted

based on report from Ministry of Commerce and Garment Manufacturing Association of

Cambodia.

Significantly, the selection of the companies would be done by discussion with

GMAC office.

For assessing the firm’s competitiveness, the benchmarking firm’s standards for

each predetermined measures are needed. For this case, some key players in the

industry will be picked up, and then its average of each predetermined measures from

all firms.

Sampling and Sample Size

The sampling to conduct questionnaire is the garment industries in Cambodia.

Based on the list of the Ministry of Commerce (2004) there are 196 garment industries

in Cambodia are operating business with non-state owner enterprises.

A random sample of garment factories selected from 196 garment-exporting

companies. Yamane (1973) recommended the formula for random sample as below:

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n = 2Ne1N

+

Where, n is sample N is population e2 is probability of error.

n = 2(0.05) 1961196×+

= 131.54

= 132

With N= 196, e=5% (05 percent confidence). Hence, the sample size for

conducting questionnaire should be 132 garment companies.

Questionnaires Design

The questionnaires were designed to meet the objectives of the study and

predefined conceptual framework. The researchers judged to be desirable for both

respondents and the researchers (Zigmund, 2000). The questionnaires were developed

through the following process:

1. Specify information were sought base on the objectives of the study, the

competitive model and major related researches mentioned in chapter 2.

2. Determine type of questionnaire

3. Determined content of individual question

4. Determined wording of each question

5. Determined sequence of questionnaire

6. Draft questionnaires based above garment factory

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7. Pretest draft questionnaire with foreign friends and revise

8. Submitted the draft questionnaire to the advisor

9. Advisor check, correct and get approval on the questionnaire

10. The questionnaires are translated into Cambodian language

11. Pilot testing to make sure the respondent understands and interprets the

question in the same way.

Questionnaire Measurement

In this part, the respondents were requested to answer the series of the

questions concerning to the factors affect the competitiveness of the firms. Firstly, the

respondents were asked to rate each factors with the importance or significance level

toward the firm by writing the number from 1 to 7. (1 for not important at all to 7 very

important). This was used to determine the weight the importance of each proposed

point toward the firm. Secondly, the respondents were asked to consider the IMPACT

of the each item over the respondent’s firms by giving (X) sign within the determined

range (-3) for very unfavorable, (0) for no impact and (3) for very favorable).

Each question consisted of many activities that mentioned above based on

literature review, especially competitive model to capture the construct of interest. The

higher score is the better activities will be done. The percentage of scales will be used

to measure activities in a way such that mean scores could be calculated to show how

the garment companies in Cambodia can manage or solve all activities in competitive

intention. The researcher defines the criteria to measure level of variable according to

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the separate of seven levels as follows:

Table 3.1 the criteria to measure the variable in 7 levels

Most favorable Most unfavorable

-3 -2 -1 0 1 2 3

Not effective

Slightly ineffective

Moderately effective Average Favorable Very

favorable Most

favorable

Source: Likert’s scale

3.5 Data Analysis Method

The researcher analyzes data from questionnaire data by using SPSS statistic

to compute for the results. The outputs of the program have been presented in chapter

4 and 5. The result of survey will be presented as follows:

1. Descriptive statistics to describe general business profile such as Registered

Capital, type of the company, number of year that the company establishment, percentage

sales through joining marketing official, main export market, percentage of customer growth in 2006,

Number of Sales Return Through Out 2006 Toward Total Sale by mean, frequency distribution

and percentage.

2. Statistics including mean, frequency, percentage, standard deviation, are

employed to analyze the garment firm’s performance and respondent’s opinion about

the effect to environment forces.

3. SWOT analysis case, the opportunity and threats that existed in the

environment and also strengths and weakness that the industry had, needed to be

scored, weighted, and summed up together. As illustrated previously, for identifying the

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opportunities, and threats encountered by each of garment industry in Cambodia, the

research classified the sources into 3 environments; macro, national, as well as industry

environment.

Each environment will be detailed into several parameters. Specifically for

industry environment, it was broken down into 5-force model simplified into 4 forces;

threat of new entrants, intensify of rivalry among existing competitors and substitute

products, bargaining power of buyer, and bargaining power of supplier as well. Each

force, then, was specified into some items.

Some experts, including Porter, have argued that those environments have

different extent of effect toward the firm. Industry environment is believed to have more

powerful impacts toward the company than two others, and in the meantime national

environment has greater influence than macro environment. For this reason, those three

environments were judged as weight proportionately with their importance.

Subsequently, to determine each weight for each parameter within particular

environment of forces (sub-environment) the mean of 7-scale importance column of the

questionnaire filled out by respondents were used as the basis. Next, each weight stem

from earlier calculation was multiplied with -3 to 3 favorability score rated by each

respondent for each particular parameter to bring about weighted rating. The numbers

from all of multiplications were figured up to produce total weighted opportunity-threats

rating. Positive values represent opportunities had by the company, vice versa negative

sign revealed threats faced by the firm.

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Afterward, the similar procedure was employed to find out the total weighted

strength-weaknesses rating. Like described in prior sub chapter, four parameters from

finance measure, as well as four parameters from learning and growth measures were

used to assess he strengths and weaknesses of each garment industry. Since each

parameter was considered equally crucial so that total weight 100 was allocated

according to mean of 7-scale importance score given by respondent for each measure.

For rating the strengths weaknesses relative to the industry, some steps needed

to follow. First, using descriptive table could identify analysis the maximum, minimum as

well as the average for each measure. To be able to rate by using - 3 to 3

competitiveness scale, interval for both upper and lower average needed to be

determined. It could be calculated by dividing the difference between the average value

with the maximum and the minimum value accordingly.

For instance, interval below average (-3 to 0 score) was determined by

deducting industry average value with minimum number, and then divide it with 3.

Secondly, once intervals were determined, the relative competitiveness (strength or

weaknesses) of each garment firms relate the industry could be assigned by matching

each parameter value with the predetermined interval. Similar to weighted opportunity-

threat rating, then each parameter weight had to be multiplied with competitiveness

score to bring about weighted competitiveness score. The sums up of all weighted

measure were total weighted strength-weakness rating. Positive scores represented

strengths, while the negative rates signified weaknesses.

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1 2 3 4 5 6 7

Range = Maximum- Minimum = 7 - 1 = 6

Important level = LevelRange =

76 = 0.86

Table 3.2 Important rank calculation

Range of mean score

No Level of importance

1.00-1.86 1 Not important 1.87-2.72 2 Important level 2.73-3.57 3 Below important 3.58-4.42 4 Average 4.43-5.27 5 Above important 5.28-6.12 6 Upper important 6.13-7.00 7 Most important

Interval calculation

Interval = Level

LowHigh−

Table 3.3 favorable rank calculation

Range of Mean score No Satisfaction level

(-3.00) - (-2.14) 1 Most unfavorable (-2.13) - (-1.28) 2 Unfavorable (-1.27) - (-0.42) 3 Below average (-0.41) - (0.44) 4 Average (0.45) - (1.30) 5 Above average (1.31) - (2.16) 6 Favorable (2.17) - (3.00) 7 Most favorable

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Validity and Reliability

Validity can defined the ability of an instrument to measure what it is supposed.

A data-collecting instrument is considered valid if it is free from both systematic and

random error. In our research, a direct contact was made with the respondents in

connection with the measure (personal interviews). Thus, all researchers were able to

safely determining that the measuring results give an indication of what our research

intended to examine. Relatively high contemporaneous validity is possible. We carefully

designed the questionnaire, which was then reviewed, commented upon, modified, and

finally approved by the supervisors from the school and company who have experience

within the research area. In this way, we can ensure the face validity of our research.

Construct validity is establishing that correct theoretical constructs are being linked to

the problems and the results of study. When we compare the findings with existing

theories the marketing strategies based on Jansson (1994) are relevant to our research

problem and analysis of the results of our study. Content validity is high, since a lot of

information gathered to cover as many dimensions as possible.

Personal interview is a very flexible way to gather information. The respondents

felt free to express their opinions. It is necessary to point out that our secondary data

that collected from reliable sources and then compared to the primary data. In other

words, we tried our best to reach a high validity in our research.

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Reliability

Reliability is concerned with the consistency and accuracy of the results. It

refers to the extent to which the measurement process is free from random errors. It is

a prerequisite for validity. An investigation with good reliability that get the impact by

whom it is conducting it or by the surrounding circumstance. To some extent, if

research is reliable, this means that the same results was obtained if the research were

carried out again under the same circumstances. To increase the reliability of an

investigation, the measurement process has to be performed as identically as possible

every time to avoid random errors. Techniques to measure reliability are internal

consistency, test-retest and alternative forms. The collection of primary data from the

survey was compared to secondary data from various sources in order to check the

reliability.

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CHAPTER 4

DATA ANALYSIS AND RESULT

In this chapter, we will discuss the result of analysis of primary research from all

the questionnaires and secondary data, based on the conceptual framework mentioned

in chapter 3 to prove the research objectives.

In this chapter, the results of the data analyses are presented in three sections:

Section 1 : Response Rate and General Business Profile

Section 2 : Analyzing the performance of garment industry in Cambodia

Section 3 : Firm competitive measure

Section 4 : Hypothesis Testing and Interpretation

Section 5 : Strategic Analysis

The questionnaires were conducted at the end of the years 2006 and early of

year 2007, a peak time of every garment industries so the response rate expected to be

lower than normal. Timing of conducting questionnaire is about one month from 25

December 2006 to 24 January 2007.

The difficulties of low responses rate if conducted by mail and fax. The

researchers tried to ask colleagues and friends to distribute and collect all the

questionnaires directly to all garment companies. The researchers also made

appointment first by calls or letters and collected the questionnaires directly from all

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garment companies by mail and fax. Other tools conducted the surveys: mail, email,

interview by phone and fax.

Data in this part have been organized into different types according to the

distinctive characteristics of the variables under consideration. The data are presented

in term of number and percentage of respondents as below.

4.1 Response Rate and General Business Profile

Response Rate

After 132 questionnaires were delivered. Consequently, the researcher got

back only 112 qualified filled questionnaires, leading to a response rate of 84.85 %

percent (112/132).

General Business Profile

The purpose of this section is to analyze and interpret data from questionnaire

in order to prove the research objectives.

Data in this part have been organized into different types according to the

distinctive characteristics of the variables under consideration. The data are presented

in term of number and percentage of respondents as shown in table 4.1.

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Totally, seven factors are related to general business profiles of garment

industry in Cambodia as shown in table below. Those factors are type of company,

registered capital, years of company establishment, percentage sale through join

marketing officer, main export market, percentage of customer growth in year 2006, and

number of sale return through out 2006 toward out total sale.

Table 4.1 General Business Profile

Detail Frequency Percent Type of Company - Private Enterprise 4 3.57 - Joint Venture 108 96.43 - Others 0 0.00 Registered Capital - Less than 100 Million Riles 4 3.57 - More than 100 Million Riles 108 96.43 Year of the Company establishment - Less than 10 years 59 52.68 - More than 10 years 53 47.32 - Others 0 0.00 Percentage Sales through Join Marketing officer - Lower 25% 100 89.29 - Between 25-50% 12 10.71 - Between 50-75% 0 0.00 - More than 75% 0 0.00 The Main Export Market - USA 93 83.04 - EU 19 16.96 - Canada 0 0.00 - Other 0 0.00

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Detail Frequency Percent Percentage of garment industry Grow in Year 2006 - Lower 25% 108 96.43 - Between 25-50% 4 3.57 - Between 50-100% 0 0.00 - More than 100% 0 0.00 Number of Sales Return Through Out 2006 Toward Total Sale - Lower 5% 31 27.68 - Between 5-10% 81 72.32 - Between 10-15% 0 0.00 - More than 15% 0 0.00

Type of Garment industry

4%

96%

Private Enterprise Joint Venture

Figure 4.1 The type of the company size

Type of the company : shows that there were 96.43 % of joint venture on large

firms and only 3.57 % for enterprise. If we look through the garment structure, there

are now around 200 garment firms operating in Cambodia, of which about 90% are

foreign-owned.

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Registered Capital

4%

96%

Less than $US 1M More than $US 1 M

Figure 4.2 registered capital

Registered Capital: most of the firms registered in large amount. As shown in

table 4.1 there are only 3.57 % registered with amount less than 100 million Riels

(23,809 United States Dollars) and most of the firms registered with capital more than

100 million (96.43%).

The establishment of garment industry

53%

47%

Less than 10 Years More than 10 Years

Figure 4.3 The establishment of the garment industry

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Year of company establishment: as shown in table 4.1, there are 59 garment

firms opened less than ten years during Cambodia got quotas and GSP from United

State and EU. There are 53 garment firms were established more than 10 years.

Percentage of sales through marketing officer

89%

11%

Lower 25% 25%-50%

Figure 4.4 percentage sales through marketing officer

Percentage Sales through Join marketing officer: in table 4.1 shows that the

marketing strategy is in weak position. Before quota phase out, most of the garment

firms did not focus on marketing strategy. All firms enjoyed with quota. The government

and GMAC play the important role in lobbying and making agreement with USA and

EU, so most of the firms have not been controlled properly on garment sectors. ลิขสิท

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The main garment export market

USA Market 83%

EU Market 17%

Figure 4.5 Main export market

The main export market: the majority of garment companies export to United

States (83.04) but there is only 16.96 % of garment firm’s export to EU. If we look to

the statistic from ADB, there is around 80 % of Cambodia garment export United

States.

Figure 4.6 The percentage of garment industry growth in year 2006

Garment industry growth in 2006

96%

4%

Lower than 25% 25%-50%

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The growth of garment industry in Year 2006: as shown in table 4.1, garment

industries growth, most of the respondents did not know well about new industry

growth. So they just estimate by counting from the previous year. The garment

industries grew less than 25% in years 2006.

Sales return through out 2006

28%

72%

Lower 5% 5-10%

Figure 4.7 Number of sales return through out 2006

Number of sales return through out 2006 toward total sale: as shows in table

4.1 in sales return, it presented that there are 72.32 % of sales return through out 2006

caused more National and public holiday in Cambodia. Garment firms complained to the

relevant government agencies related to issuance of C/O. There are only 27.68 % from

respondents argued that their sales were return through out 2006 about 5%.

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4.2. Analyze the Performance of Garment Industry in Cambodia

4.2.1 Macro Environment

As depicted in table 4.2, the findings from the questionnaires were indicated that

there are several factors related to Macro environment factor that contributing to

achievement of the competitiveness of garment industries in Cambodia. As the top

ranks of those factors were dominated by factors conditions such as economic growth,

government legislation and regulation and technical change with mean 6.07, 5.86 and

5.57 were scored fairly by respondents respectively.

Table 4.2 The Importance Score of Macro Environment Factors

n= 112

Macro Environment Factors Min Max Mean Std. Dev. 1. Economic grow 2 7 6.07 1.374 2. Interest rate 2 3 2.37 0.484 3. Inflation rate 2 5 3.39 0.853 4. Technological change 4 7 5.57 1.063 5. Environment issues 2 5 3.74 1.038 6. Government legislation and

regulation 5 7 5.86 0.826

With regard to the favorability score of each prearranged factors towards the

competitiveness of garment sectors in Cambodia, as shows in table 4.3, the

respondents deemed economic growth was scored very high by the highest mean of

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favorability with mean 1.96 (favorable) followed by technological change with mean 0.87

as average favorable.

Cambodia's garment industry represents less than 1% of the global industry,

but it is of great importance to the country because it employs 230,000 workers,

represents more than 80% of the country's total exports and 12.4% of GDP.

Real GDP grew well in 1995 and 1996 but declined in 1997 and 1998. It has

picked up again to grow strongly. GDP increased by 6.3% in 2001 and 5.5% in 2002

and is expected to grow by 6% in 2003 (RGC, 2003). The country is undergoing a

gradual shift from the agricultural economy of the 1980s towards one emphasizing

textiles, tourism and services. Agriculture remains the dominant sector, contributing

28.4% to GDP in 2001 and employing 80% of the working population. Nevertheless,

other sectors, for example manufacturing, tourism and services, are growing steadily.

Technological factor was judged as moderate favorability score for the

responded. In this context, the respondents had mix up, technology applied in

Cambodia is at the lowest level in sewing and inspection sections. A few attachments

are applied to the machines that could aid workers to operate more effectively, both in

volume and quality terms. This is characteristic of countries where labor costs are very

competitive as management considers it cheaper to employ people than to invest in

machines or specific machine attachments. A few garment firms in Cambodia work with

CAD systems and laying/cutting machines to minimize waste, but this type of

technology is not widespread.

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Grübler states that there are no textbooks on technology and global change,

and technology's treatment in global change models is rather poor.

Technology relates to all major drives to global change such as population

growth, economic development, and all source use. Technology is also central in

monitoring environmental impacts and implementing response strategies. So at least,

the technological changes should be judged as favorability score for garment firms.

As predicted, the government legislation and regulation was deemed as positive

factor for garment industries. All respondents were believed that government legislation

and regulation and environment issues were scored with most unfavorable score. The

garment companies with mean of -2.33 and environment issues with mean -1.56.

Table 4.3 The Favorability Score of Macro Environment Factors

n=112

Macro Environment Factors Min Max Mean Std. Dev. 1. Economic growth 1 3 1.96 0.770 2. Interest rate -1 2 0.33 0.649 3. Inflation rate -1 2 0.54 1.039 4. Technological changes -1 3 0.87 0.915 5. Environment issues -2 1 -1.56 0.641 6. Government legislation and

regulation -3 -1 -2.33 0.810

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4.2.2 National Environment

As depicted in table 4.4, the findings from the questionnaires indicated that

there were several national environment factors keep contributing to achieve the

competitiveness of garment industries in Cambodia in garment and textile business.

The top ranks of these factors were dominated by factors conditions such as

infrastructure by mean of 5.68 (Upper important), Corruption, collusion, nepotism with

mean 3.84 (Average), investment climate with mean 2.72 (not important), Political/

security stabilities (2.52), skilled labor (1.85), and government subsidy (1.82).

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Table 4.4 The Importance Score of National Environment Factors

n=112

National Environment Factors Min Max Mean Std. Dev. 1. Investment climate 0 7 2.72 3.094 2. Industry location 0 7 0.40 1.345 3. Production 0 2 0.05 0.324 4. Skilled labor 0 7 1.85 2.826 5. Arable land for material plantation 0 5 0.36 1.293 6. Natural resources 0 0 0.00 0.000 7. Debt and capital 0 7 0.88 1.714 8. Infrastructure 0 7 5.68 2.045 9. High educated labor 0 6 0.89 1.646 10. Network and alliance among local

producer 0 5 0.74 1.374

11. Country and brand image as garment producers

0 6 1.31 2.018

12. Impact domestic rivalry over lowering cost, improving quality, creating new product

0 7 1.44 2.213

13. Government subsidy 0 7 1.82 2.243 14. Political/ security stabilities 0 6 2.52 2.122 15. Bureaucracy 0 4 1.53 1.542 16. Corruption, collusion, nepotism 0 7 3.84 2.388 17. GMAC relation 0 5 0.83 1.445 18. ILO intervention 0 7 1.49 1.836

Surprisingly, in term of favorable score as mentioned in table 4.5, only few

factors were judged as favorable for respondents such as, the Cambodia investment

climate can benefit them in doing garment business with the mean of 1.48 (favorability)

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followed by network alliance between local garment producers by the mean 0.80 (above

average) is the next position. In this context, the government of Cambodia corporate

with ILO tries to lobby or negotiated in Free Trade Agreement on garment and textile

products with United States or EU to keep supporting Cambodia by using quotas or

MFN.

The Royal Government of Cambodia has given the opportunity of private-led

growth and the challenges of improving the business environment and the

government has begun to design and implement a broad reform strategy anchored in

its successful bid to join the WTO. As H.E. Sr. Minister Cham Prasidh described in a

recent speech, the Protocol of Accession requires the Government to undertake 98

separate legal and policy reforms on an accelerated schedule, improvements in the

regulator)' framework for foreign direct investment and taxation, and a framework for

open consultations with the private sector on investment climate issues. However, WTO

only sets the stage for competition. An efficient, low-cost investment climate is needed

in order for domestic firms to be able to take advantage of market access opportunities

(Conference on seizing on the global opportunity).

An efficient investment climate, as has been proven throughout the world, will

lead to increasing levels of formalization and employment growth. This will broaden

the tax base for the government, which will in aim strengthen institutions required to

support a continually more competitive economy.

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Table 4.5 The Favorability Score of National Environment Factors

National Environment Factors Min Max Mean Std. Dev. 1. Investment climate 0 3 1.48 1.004 2. Industry location -1 2 -0.30 0.919 3. Production -1 0 -0.07 0.259 4. Skilled labor -3 0 -2.05 0.879 5. Arable land for material plantation -3 0 -0.49 0.783 6. Natural resources -2 0 -0.66 0.778 7. Dept and capital -2 1 -0.44 0.733 8. Infrastructure -3 -1 -2.59 0.679 9. High educated labor -2 1 -0.25 0.678 10. Network and alliance among local

producer -1 3 0.80 0.957

11. Country and brand image as garment producers

-2 1 0.14 0.758

12. Impact domestic rivalry over lowering cost, improving quality, creating new product

-2 1 -0.52 0.805

13. Government subsidy -3 -1 -2.17 0.642 14. Political/ security stabilities -3 0 -1.97 0.811 15. Bureaucracy -3 -1 -2.12 0.761 16. Corruption, collusion, nepotism -3 -1 -2.58 0.595 17. GMAC relation -2 1 -0.02 0.930 18. ILO intervention -1 3 0.72 1.261

Most respondents above investment climate (1.48) and follow by network

alliance among local garment firms with mean 0.80 scored most favorable factors

(favorability score) and the next position for national environment is ILO intervention

with mean 0.72 (favorable score).

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As predicted, there were some factors believed that as an unfavorable aspects

concerned by respondents. These aspects were infrastructure (-2.59 most unfavorable),

corruption, collusion, nepotism (- 2.58 most unfavorable), government subsidy (-2.17

most unfavorable), bureaucracy (-2.12 unfavorable), skilled labor (-2.05 most

unfavorable), Political/ security stabilities (- 1.97 unfavorable).

It is widely understood that the global garment competitiveness must focus on

goods and services to be successful strategy in global competition, but Cambodia is

labor-intensive industry, so the garment firms have focused on good service to compete

in globalization on garment industries. Cambodia poorly positioned in terms of

infrastructure compared to the other countries. Both Cambodia and Bangladesh face

constraints in that they do not have a deep sea port so all imports and exports need to

be trans-shipped through a third country, especially Singapore.

In addition, Cambodia's infrastructure is viewed as one of the poorest in the

region. Both transportation and energy costs significantly increase production costs. The

number of shipping companies is still limited, which prevents competition and keeps

prices high. Moreover, Cambodia is also naturally disadvantaged because of it relative

distance to the important US markets. The shipping time from Cambodia to the US

takes longer than from China, Hong Kong and Taiwan.

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Table 4.6 Private sector perception on infrastructure quality

Country General

infrastructure Railroads Port

facility Power supply

Postal system Telecom

Bangladesh 2.7 2.6 2.6 2.3 2.7 2.5 Cambodia 2.4 1.5 2.7 2.6 2.7 4.7 China 3.2 3.6 3.6 3.7 5.0 5.5 India 2.9 4.2 3.1 3.3 4.9 6.3 Indonesia 3.3 3.1 3.3 3.6 4.1 4.4 Vietnam 2.6 2.3 2.8 3.5 5.3 5.8

Source: World Economic Forum, Executive Opinion Survey 2005-2006 Note: 1: is worse, 7 is the best

Furthermore, as being garments producers, there are some issues associated

with government activities such as bureaucracy, corruption, collusions, and nepotism. All

respondents argued that the top priorities of private companies in Cambodia involved

governance the rule of law, and corruption. Corruption in Cambodia was the main major

shows that corruption was ranked as the number one constraint for business.

As reported from World Bank, there are around 82% of companies reported that

they needed to pay bribes in order to conduct business, and the average level of such

payments amounted to between 5% and 6% of total sales. This places Cambodia

significantly higher than Bangladesh – at around 50% of Cambodia levels – one of the

country’s main competitors in the garment industry. In addition, companies operating in

Cambodia viewed the integrity of the bureaucracy as very weak, reinforcing the widely

held view that dramatic reforms in all areas of public sector governance are required to

improve the business environment.

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As complained, all the garment firms have been requiring in applying C/O at

several places at the Ministry of Commerce, and Ministry of Industry, Mine and Power.

It take long time for getting C/O and have many national holiday caused long delay in

issuing of C/O or export license.

The above table shows the private sector’s perception of infrastructure in

selected Asian countries. Cambodia’s infrastructure is rated low and only comparable to

Bangladesh, while lagging behind other competitor countries such as China, Indonesia

and Vietnam. Railroads, port facilities, power supplies and the postal system are just

some of the areas which are considered underdeveloped and require substantial

investment.

Table 4.7 Number of document and time required to export

Country Document Signature Time (days) Bangladesh 7 15 35 Cambodia 8 10 43 China 6 7 20 India 10 22 36 Indonesia 7 3 25 Vietnam 6 12 35 Source: World Bank, doing business 2006

All garment firms were dialed with intricate and bureaucracy system from

government agencies that lower responsiveness toward market condition and vulnerable

to corruption, collusion, and nepotism. These could bring about high cost and non-

valued activities to the garment firms.

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The government subsidy policy was expected to be positive factor in facilitate

garment firms in order to compete with global garment, but in fact, this factor was

judged as negative factor for garment sectors with mean -2.17 (Most unfavorable

score).

4.2.3 Industry Environment

Threat of New Entry

Concerning threat of entry, some factors were deemed critical as entry barriers

for newcomers. As shown table 4.8, the garment respondents scored the most

important factor is economies of scale with mean very high 6.13 follow by Government

policy by mean 6.06 (Upper important).

Some factors were judged as the next positions are government incentive with

mean 4.31, industry growth (4.00 and tariff and international restriction with mean 3.56.

Cambodia economic of scale achievement plays an important role in garment sectors

was vital for being able to produce the products at very competitive cost of production.

In addition to the economic of scale, the government policy was also accepted as true

for another key entry barrier ลิขสิท

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Table 4.8 The Importance Score of Threat of New Entry Factors

n = 112

Threat of New Entry Factors Min Max Mean Std. Dev. 1. Economies of scale 4 7 6.13 0.969 2. Tariff and international

restriction 2 5 3.08 1.194

3. Capital requirement 2 5 3.56 0.792 4. Government incentive 2 7 4.31 1.605 5. Industry growth 2 6 4.00 1.611 6. Government policy 4 7 6.06 0.852

According to the favorability of each entry barrier, the major of respondents

argued that the economic of scale as the favorability factor one with score 1.36 follow

by capital requirement 1.00 (average). To enter the industry, the new candidate meets

some issues in producing the product with competitive cost, because some of the

transferring of quotas from one factory to another factory. All new comers are required

to have huge amount of money to invest in this sector. They have to pay good money

at CDC for applying investment certificate with intricate system. The new applicants

have to spend more money such as rent for factory, office, buy machineries, office

equipment and Office supply. So definitely they need a huge amount of money to invest

on this field. Additionally, the cost of land and house in Cambodia are higher if compare

to the neighboring countries.

On the other hand, relating to negative factors that involved with government

agencies. Those sectors are government policy, government incentive, tariff and

restrictions, and industry growth with mean as (-2.31) most unfavorable, -2.04

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unfavorable, and 0-96. Cambodian government is not yet ready for setting forth enough

strict regulation and other requirement in doing business on garment sector.

The government allows new industries use black money moving over the

country caused affecting to high inflation. New comers have ability to be own for

hundred percent. In couple years ago, government is careless to control all investors to

use their incentive. Some firms, they register the company at CDC but they use

government incentive and they sell to other firms easily. When they finish their

incentive, they would close factory and transfer their money to their home countries

easily. New applicants they invest in Cambodia because of quotas, GSP or WTO

membership benefits (tariff, MFN) only. When quotas phase-out, they move to the other

countries, just like, Vietnam and China.

Table 4.9 The Favorability Score of Threat of New Entry Factors

n = 112 Threat of New Entry Factors Min Max Mean Std. Dev. 1. Economies of scale 0 3 1.36 0.837 2. Tariff and international

restriction -3 -1 -2.04 0.758

3. Capital requirement 0 3 1.00 0.671 4. Government incentive -3 -1 -2.31 0.736 5. Industry growth -3 0 -0.96 0.670 6. Government policy -3 0 -2.31 0.771

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Intensity of Rivalry among competitor

Asked for the importance of factors associated with intensity rivalry among

existing competitors, most of respondents identified that the crucial factor for intensity

rivalry among competitors are existing barriers with mean of 6.27 and follow by number

of competitors by mean 5.32 (upper important), industry/market growth 4.78 (important),

and divers competitor with mean 4.29 (average). Meanwhile, business size of

competitor and product differentiation, switching cost and pressure from substitute

product was scored at 3.68, 2.15, and 1.52.

Table 4.10 the Importance Score of Intensity of Rivalry among Existing

Competitor Factors

n=112

Intensity of Rivalry Among Existing Competitor Factors Min Max Mean Std. Dev.

1. Number of competitors 3 7 5.32 0.988 2. Business size of Competitors 0 7 3.68 1.514 3. Industry / market growth 2 7 4.78 1.511 4. Product differentiation and

switching cost 1 4 2.15 0.785

5. Diverse competitor 1 7 4.29 1.852 6. Exist barriers 2 7 6.27 1.057 7. Pressure from substitute

product 1 5 1.52 0.920

Nonetheless, generally speaking the rivalry intensity among existing competitors

and substitute products was obviously unfavorable for the respondents. None of factors

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were considered providing advantageous influence toward garment business in

Cambodia.

Those are existing barriers (-2.40.Most unfavorable), industry or market growth

(-2.02Unfavorable), diverse competitor with mean -1.83, number of competitor with

mean business size of competitor with mean -1.09. And the next factors followed by

pressure from substitute product (-0.90) and product differentiation and switching cost (-

0.25).

All garment producers have right to use tariff and international restriction

equally. The government never uses tariff and trade restrictions (antidumping rules,

local content requirements, quotas, etc) to raise entry barriers for foreign firms and

protect domestic producers from outside competition. The government agencies could

not limit even bar entry by requiring licenses and permits. The regulated industries like

cable TV, telecommunications, electronic and gas utilities, radio and government did not

control television broadcasting and railroads properly.

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Table 4.11 The Favorability Score of Intensity of Rivalry among Existing

Competitor Factors

Intensity of Rivalry Among Existing Competitor Factors

Min Max Mean Std. Dev.

1. Number of competitors -3 1 -1.50 1.031 2. Business size of competitors -3 1 -1.09 0.906 3. Industry / market growth -3 0 -2.02 0.502 4. Product differentiation and

switching cost -3 1 -0.25 0.915

5. Diverse competitor -3 -1 -1.83 0.879 6. Exist barriers -3 -1 -2.40 0.677 7. Pressure from substitute

product -2 0 -0.90 0.910

Bargaining Power of Buyer

By using statement questionnaires form, the respondents were asked some

factors with respect to bargaining power of buyers. As displayed in table 4.12, it is the

fact that most of respondents argued that the quality and quantitative information are

available toward their products were the most significant aspects in assessing the

bargaining power of buyer with mean considerably high 6.41 (most important). Normally

all information about price, quota, product name, label are kept by Ministry of

Commerce and GMAC. The Ministry of Commerce and GMAC play the important role in

advertising, promoting and assisting garment product by using Ministry of Commerce

website, export Department website and GMAC website.

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The next position is the buyers have the right to postpone or cancel purchase of

garment products with the mean by 5.48 (upper important).

The company sells product to limited number of buyer by mean of 4.77

(important), the buyers have a chance to do backward integration by mean 3.64, and

the products are identical among competitors with mean 3.42, switching cost spent by

the buyer is low (2.42), and the buyer gain low profit (1.65). According to the lead-time

and poor productivity, buyers canceled most of products.

Table 4.12 The Importance Score of Power of Buyer Factors

n = 112

Bargaining Power of Buyer Factors Min Max Mean Std. Dev. 1. Your company sells product to limited

number of buyer but in large size 1 7 4.77 1.495

2. Your products are identical among competitors

0 7 3.42 1.505

3. Switching cost spent by your buyer is low

1 5 2.42 1.001

4. Your buyer gain low profit 1 4 1.65 0.824 5. Your buyers have a chance to do

backward integration 0 7 3.64 1.935

6. Your buyers have ability to postpone purchase your products

3 6 5.48 1.013

7. Your buyers have full information 5 7 6.41 0.896

In general, the impact of buyer of bargaining power over the competitiveness of

Cambodia’s garment industry was mix up. It is shown in table 4.13 was scored by

respondents. The garment products are identical among the competitors was

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considered as the most favorable mean for them with the mean 1.88 (Favorable) and

the next position follow by the buyers have full information with mean 0.99 (above

average). The buyers have a chance to do backward integration (0.54), the company

sells product to limited number of buyer but in large size (0.50), the buyers have ability

to postpone purchase your products (0.45), and switching cost is low (0.32).

Table 4.13 The Favorability Score of Power of Buyer Factors

n = 112

Bargaining Power of Buyer Factors Min Max Mean Std. Dev. 1. Your company sells product to limited

number of buyer but in large size 0 2 0.50 0.569

2. Your product are identical among the competitors

0 3 1.88 1.002

3. Switching cost spent by your buyer is low

-1 2 0.32 0.661

4. Your buyer gain low profit -3 1 -0.72 0.961 5. Your buyers have a chance to do

backward integration -1 2 0.54 0.746

6. Your buyers have ability to postpone purchase your products

-1 2 0.45 0.938

7. Your buyers have full information -3 3 0.99 1.227

Bargaining power of suppliers

Lastly, on the question of the importance of factors connected with suppliers’

bargaining power, the result shows that most of responses placed the significance of

supplier’s products are in short supply over respondent’s business in first position with

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mean 5.36 (upper important). There are some factors followed by rely on suppliers

products with the mean of 5.02 (important).

The next position is few suppliers for a specific input for garment companies

with mean 4.05 (important). The supplier group’s products are differentiated or build

switching costs with mean 402, the factory is dominated by limited number of supplier

that sell in large amount (3.93), the company is not important customer for supplier

(2.82) and the last is the supplier threaten the company to integrate forward (2.80).

Table 4.14 The Importance Score of Power of Supplier Factors

n = 112

Bargaining Power of Supplier Factors Min Max Mean Std. Dev. 1. Your factory is dominated by limited

number of supplier that sell in large amount

1 7 3.93 2.396

2. There are few supplier for a specific input for your company

2 7 4.05 1.659

3. The suppliers’ product is an important product to your company

4 6 5.02 0.300

4. Needed products are in short supply 3 6 5.36 0.967 5. The supplier group’s products are

differentiated or build switching costs 1 7 4.02 1.986

6. Your company is not important customer for supplier

1 7 2.82 1.254

7. Your supplier threaten your company to integrate forward

1 7 2.80 2.731

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By in large, the bargaining power of suppliers over the respondents was weak. It

could be witnessed from the positive mean for almost all factors suppliers’ bargaining

power factors raised. It is not hard to understand with this finding. The industry is

almost 100% dependent on imported yarns (for knitwear), finished woven and circular

knitted fabrics (for woven and knitted cut and sew garments), all accessories, and

almost all packaging and presentation materials. The domestic material content is

limited to some cardboard cartons and poly bags.

The domestic value added content of the Cambodian garment industry amounts

to 28.6% of garment exports. The garment industry buys materials, yarn, and all

accessories from outside country by doing contract. So the suppliers have no strong

bargaining power toward garment industries. Recently, Bangladesh government

encourages the garment factories to consume local material and not all material and

yarn are allowed to import.

The supplier group’s products are differentiated or build switching cost was

judged as the most unfavorable factors for respondents by the mean of -2.14 (most

unfavorable). The supplier threaten the company to integrate forward with mean -

2.03(most unfavorable), factory is dominated by limited number of supplier that sell in

large amount (-1.49), There are few supplier for a specific input for these companies

(-1.48).

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Table 4.15 The Favorability Score of Power of Supplier Factors

n = 112

Bargaining Power of Supplier Factors Min Max Mean Std. Dev. 1. Your factory is dominated by limited number of

supplier that sell in large amount -3 0 -1.49 0.644

2. There are few suppliers for a specific input for your company

-3 1 -1.48 0.890

3. The suppliers’ product is an important product to your company

-2 3 0.29 0.990

4. Needed products are in short supply -2 0 -1.42 0.624 5. The supplier group’s products are differentiated

or build switching costs -3 -1 -2.14 0.500

6. Your company is not important customer for supplier

-3 1 -0.58 1.386

7. Your supplier threaten your company to integrate forward

-3 -1 -2.03 0.716

Surprisingly almost all factors were scored in negative way. The suppliers have

no right to be threatening to integrate backward. It performs very low in term of supply

factor.

4.3 Firm Competitive Analysis

4.3.1 Financial Measure Factor

The most important factor was availability of capital investment with mean 6.29

(Most important) follow by total sales by the mean 6.11 (upper important). The most of

respondents deemed that the value of government incentive benefits them in doing

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garment business in Cambodia. Garment factories will get incentive for 5 years after

registering the company at CDC. They can import more items to Cambodia without

paying taxes or with very low taxes. Another factors were regarded as the most

significant for respondents is availability of long term investment with the mean 4.32

(important factor) and the next position are customer and product line profitability, cost

of working capital, cost of long term investment, percentage of unprofitable customer

with the following rate 3.73, 3.63, 2.52, and 1.34 (not important) respectively.

Table 4.16 The Importance Score of Financial Measure Factors

n = 112

Financial Measure Factors Min Max Mean Std. Dev. 1. Total sales 3 7 6.11 0.904 2. Cost of working capital 1 7 3.63 1.302 3. Customer and product line

Profitability 1 7 3.73 0.986

4. Profit from operation 0 4 1.34 0.926 5. Availability of long term

investment 1 5 4.32 1.364

6. Cost of long term investment 1 5 2.52 1.200 7. Capital investment 2 7 6.29 1.297

The favorability of each factor as displayed in table 4.18, the majority of

respondents argued that the value of government incentive as the most favorable factor

with high score 1.63 (favorable). The next factors are total sales with mean 0.49 (above

average), cost of working capital 0.15 (average), Availability of long term investment by

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mean (0.07), Cost of long term investment by mean -0.21, % of unprofitable customer

with mean -0.36, Customer and product line Profitability by mean -0.46 (below average).

In the above table shows that the majority of the respondents argued that the

value of capital investment benefit them in doing garment business under investment

climate. The incentive that the firms get from the government can support them in

running business, such as (1) a corporate tax rate of 9 per cent except the tax rate on

the exploration and exploitation of natural resources, timber, oil, mines, gold, and

precious stones which shall be set in separate laws, (2). a corporate tax exemption of

up to 8 years depending on the characteristics of the project and the priority of the

government which shall be mentioned in a Sub- Decree. Corporate tax exemption shall

take effect beginning from the year the project derives its first profit. A 5-years loss

carried forward shall be allowed. In the event the profits are being reinvested in the

country, such profits shall be exempted from all corporate taxes, (3). Non taxation on

the distribution of dividends or profits or proceeds of investments, whether they will be

transferred abroad or distributed in the country, (4) 100 per cent import duties

exemption on construction materials, means of production, equipment, intermediate

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Table 4.17 The Favorability Score of Financial Measure Factors

n =112

Financial Measure Factors Min Max Mean Std. Dev. 1. Total sales 0 3 0.49 0.644 2. Cost of working capital -2 1 0.15 0.750 3. Customer and product line

Profitability -1 1 -0.46 0.709

4. Profit from operation -3 1 -0.36 1.089 5. Availability of long term

investment -2 2 0.07 1.152

6. Cost of long term investment -3 1 -0.21 0.969 7. Capital investment 0 3 1.63 0.783

4.3.2 Customer Measure Factor

Asked for the importance of factors associated with customer measurements,

most of respondents identified the customer satisfaction as the most critical factors with

mean 6.50 (Most important) and follow by market share by mean 5.60 (upper

important), Customer profitability by mean 5.33 (important), customer retention (4.14)

and the last is customer acquisition with 3.35 (below important).

Throughout the global Internet marketplace, customer satisfaction surveys often

regard as the most accurate barometers to predict the success of a company. Because

they directly ask about the critical success factors of a business, if done effectively,

customer satisfaction surveys can deliver powerful incisive information and provide ways

to gain a competitive edge.

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By implementing, the customer satisfaction surveys powered by garment confirm

it into a customer relationship management, the enterprises are able to gather measure

and analyze valuable information with more accuracy, consistency and in less time than

using traditional telephone or paper surveys.

Obviously, GMAC plays the important role to link between garment firms with

customers, such as, feedback, comment, relationship, what customer want and need,

and trade network.

Table 4.18 The Importance Score of Customer Measure Factors

n = 112

Customer Measure Factors Min Max Mean Std. Dev. 1. Market share 3 7 5.60 1.127 2. Customer retention 3 6 4.14 0.535 3. Customer acquisition 3 6 3.35 0.756 4. Customer satisfaction 3 7 6.50 0.930 5. Customer profitability 2 7 5.33 1.052

Most of the factors were considered as the most important for respondents such

as customer satisfaction with mean 6.50, followed by market share (5.60), and customer

profitability by mean 5.33. Even if, Cambodia gain only 1% from the global market on

garment industry but it is the most beneficial for Cambodia to develop economic. It

account for 80% of total national export.

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Table 4.19 The Favorability Score of Customer Measure Factors

n = 112

Customer Measure Factors Min Max Mean Std. Dev. 1. Market share -2 2 -0.32 1.246 2. Customer retention -3 1 -0.76 0.998 3. Customer acquisition -3 1 -0.09 0.717 4. Customer satisfaction -3 3 -0.53 1.382 5. Customer profitability -3 3 -0.23 1.513

Nonetheless, in the customer measure factor were obviously unfavorable for all

the garment respondents. Absolutely, none of factor was considered giving

advantageous influence toward Cambodia’s garment firms. In term of customer

retention, was considered as the least beneficial factor with mean quite low -0.76

(Above average). In this context there are some factors that affect to the customer

retention such as poor brand awareness, brand loyalty, brand switching, lead-time,

delay time, poor performance, poor productivity, and bureaucratic in import and export

procedure. In addition, customer satisfaction also was scored so low that cause effect to

customer retention.

4.3.3 Internal Business Measure Factor

Table 4.20 shows respondent’s opinion on internal business factor in garment

industry in Cambodia. In this case, the respondents were asked to rate their internal

measurement in their garment firms.

The mean of the opinion score for each variable indicates the effective level of

internal business that the firms have known lead time was the most effective factors for

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internal business management with mean by 5.76 (upper important) and the next

position was followed by number of production by having mean 5.38 (upper important).

Meanwhile, some factors were ranked in the next position as the capability utilization,

productivity, and Import & export procedure with the mean 4.34, 4.31, 4.21, respectively.

Table 4.20 The Importance Score of Internal Business Measurement Factors

n=112

Internal Business Measurement Factors Min Max Mean Std. Dev.

1. Number of production 2 7 5.38 1.639 2. Capability utilization 3 7 4.34 1.249 3. Worker motivation & Productivity 2 7 4.31 1.178 4. Lead time 3 7 5.76 1.239 5. Import & export procedure 2 7 4.21 1.233

The most unfavorable factors was ranked very low was lead time with mean of -

1.21 (unfavorable) and motivation & productivity by mean (-.33). Another negative

impact, were ranked at the next position was import and export procedure by mean -

0.25. Basically, the unofficial payment relating to import and export procedures, the

respondents were raised their concerns that the bureaucracy associated with importing

raw materials and exporting the finished products often results in significant time

wasting and unacceptable delays. The amount of time that senior management needs

to spend on government-related matters represents a serious misallocation of

resources.

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The major structural problem ranked as very high concerning the issue of lead

times. These concerns were especially serious for knitwear and circular knit cut and

sews cut. In a comparative sense, garment lead times from Cambodia remain lengthy,

with other major competitor countries able to offer reduced delivery times. The lead-time

issue relates largely to the almost complete absence of backward linkages.

Table 4.21 The Favorability Score of Internal Business Measurement Factors

n =112

Internal Business Measurement Factors Min Max Mean Std. Dev.

1. Number of production -3 2 -0.13 1.507 2. Capability utilization -3 3 0.52 1.401 3. Worker motivation & Productivity -3 0 -0.33 0.702 4. Lead time -3 0 -1.21 1.052 5. Import & export procedure -3 1 -0.25 1.061

4.3.4 Learning and Growth Measurement Factor

The Last but not least, measures for evaluating garment firms in Cambodia’s

competitiveness learning and growth was found in table 4.22, most of respondents

scored to factors differently. But the factor was scored highly is human resource

development with men 6.34 (most important) and the employee productivity was the

next position by mean 6.27 (most important). The next positions were employee

motivation 4.76, employee motivation (4.76), and market research 2.95, employee

retention with mean (2.73). Obviously, the garment firms believed that human resource

is the most an important activity and it plays the important role in competition on

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garment industry in Cambodia. The Human resource development (HRD is key factors

for Cambodia’s efforts to sustain the textile and clothing industries in long run for

respondents.

In term of productivity for employee reach the industry are too low but similar to

Bangladesh, and Pakistan. Due to the skills development, culture/communication gaps

between workers and expatriate production supervisors and other management, low

motivation of workers, the large production (Chinese and Vietnamese style) halls in

many companies, low levels of technology, lack of engineered work places, and high

number of national and personal holidays.

Table 4.22 The Importance Score of Learning and Growth Measurement Factors

n = 112

Learning and Growth Measurement Factors Min Max Mean Std. Dev.

1. Employee productivity 4 7 6.27 0.794 2. Employee retention 1 5 2.73 1.633 3. Employee motivation 2 7 4.76 0.932 4. Market research 0 6 2.95 1.457 5. Investment training 1 6 2.66 1.182 6. Investment development 1 4 2.15 0.988 7. Human resource development 3 7 6.34 0.935

In general, the net impact of learning and growth measure was mix. It was

summary of their respondents at table 4.23, the employee motivation was judged

beneficial for the respondents by mean 0.10. It makes sense that the training methods

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and low levels of skill development; cultural and communication gaps level of

technologies used; level of worker motivation; the work environment, large sized

operations appear to have more problems in motivating workers and achieving

productivity levels. The firms have to work hard in motivating the garment workers to

improve productivity and good performance in companies. Most of factors were judged

as the most unfavorable point for respondents, just like, Human resource development

with mean (-2.35), Employee productivity with mean (-1.26), Investment training (1.09).

HRD in Cambodia is still poor if we compare to neighboring countries. According to the

reported from CDRI, the garment workers were paid US$ 38 US$ 38 (about one month

wage) just obtain the job at in garment industry only. This is an important management

practice with regard to the issue of skills upgrading, since, if it is necessary in any case

to “buy” a job, the benefit to a job seeker of developing greater skills is clearly lower

than if jobs are allocated to applicants with greater skills. Obviously, the garment firms

do not have specialist human resource managers. This is a major concern when

increasing productivity in garment factories becomes important and calls for the injection

of improved human resource management practices into the garment companies.

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Table 4.23 The Favorability Score of Learning and Growth Measurement Factors

n = 112

Learning and Growth Measurement Factors

Min Max Mean Std. Dev.

1. Employee productivity -3 1 -1.26 1.558 2. Employee retention -2 1 -0.80 0.708 3. Employee motivation -1 1 0.10 0.671 4. Market research -3 3 -0.04 1.404 5. Investment training -3 0 -1.09 0.991 6. Investment development -3 1 -0.70 0.868 7. Human resource development -3 0 -2.35 0.779

In short, the primary data analysis earlier reveals that predetermined factors of

four of environments were generally considered affecting to garment products business

competitiveness. However, some factors in each environment were judged as the critical

aspects in the garment factories. The factors included economic growth, government

legislation & regulation, technical issues in macro environment, infrastructure,

corruption, collusion, nepotism, investment climate, political/security stabilities, skilled

labor and government subsidy in national environment. Regarding industry environment

considered as the most influential one, some factors in each 4 factors were regarded

highly important.

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4.4 Testing Hypotheses

H1: The effect on macro environment based on performance of garment industry

H0: The economic growth has no significant effect on Macro environment based on

performance of garment industry in Cambodia.

Ha: The economic growth has a significant effect on macro environment based

performance of garment industry in Cambodia

Table 4.24 Economic Growth * Macro Environment Cross Tabulation

Type of Company Private Enterprise Joint Venture Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 0 0.00 0 0.00 0 0.00 Level 2 0 0.00 7 6.48 7 6.25 Level 3 0 0.00 0 0.00 0 0.00 Level 4 0 0.00 8 7.41 8 7.14 Level 5 0 0.00 7 6.48 7 6.25 Level 6 4 100.00 27 25.00 31 27.68 Level 7 0 0.00 59 54.63 59 52.68 Total 4 100.00 108 100.00 112 100.00

Chi-square = 10.839, P-Value = 0.028*

As show in table 4.24 there are 112 respondents from private enterprise and

joint venture were asked to rate for macro economic environment. There are 4

respondents have their own business as private garment industry rated economic

growth in level 6 with 100%. Anyways, 108 respondents are joint venture companies

were regarded the economic growth in different level. There are 7 respondents rated

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the economic growth in macro environment in level 2, and respondents judged

economic growth as the important in level 4 with 7.41%. On the other hand, there re

respondents from joint venture regarded the economic growth as the fourth level in

macro environment. The 27 respondents from joint venture considered the economic

growth as the important level 4. Remarkably, there are 54.63% from the joint venture

regarded the economic growth as the most important level (level 7) for garment

producers in macro environment. Based on Chi-square = 10.839, P-Value = 0.028*

There are relationships significantly between the type business of the company and

economic growth at 90% confident.

There are no relationship significantly between the experience in the

international market and domestic consumption at 90% confident.

H2: The effect on National Environment based on performance of garment

industry

H0: Infrastructure has no significant effect on efficiency on national environment

based performance of garment industry in Cambodia.

Ha: Infrastructure has a significant effect efficiency on national environment based

performance of garment industry in Cambodia

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Table 4.25 Infrastructure * National Environment Cross Tabulation

Type of Company Private Enterprise Joint Venture Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 4 100.00 7 6.48 11 9.82 Level 2 0 0.00 0 0.00 0 0.00 Level 3 0 0.00 3 2.78 3 2.68 Level 4 0 0.00 0 0.00 0 0.00 Level 5 0 0.00 7 6.48 7 6.25 Level 6 0 0.00 45 41.67 45 40.18 Level 7 0 0.00 46 42.59 46 41.07 Total 4 100.00 108 100.00 112 100.00

Chi-square = 38.088, P-Value = 0.000*

In table 4.25 shown that there are only 4 respondents from private enterprises

regarded the infrastructure is the less important factor for garment producers in level 1.

There are 108 respondents from joint venture enterprise scored the infrastructure in

different ways. There are only seven respondents considered the infrastructure is the

less important factor in national environment. There are around 88% of respondents

judged the infrastructure is the important level in different ways just like 7 (6.48%)

respondents regarded infrastructure as the important in level 5, 45 respondents

(41.67%) in level 6 and 42 respondents (42.59%) regarded infrastructure in 7th level.

Based on Chi-square = 38.088, P-Value = 0.000* so most of respondents from joint

venture enterprises considered the infrastructure in macro environment as the most

important level for competition on garment industry (level 6 & 7) so here are

relationships significantly between the type business of the company and infrastructure

in macro environment at 84.26% confidence.

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H3: The effect on Threat of new entrant based on performance of garment

industry

H0: The economic of scale has no significant effect on threat of new entrant based

performance of garment industry in Cambodia.

Ha: The economic of scale has a significant effect on threat of new entrant based on

performance of garment industry in Cambodia.

Table 4.26 Economic of Scale * Threat of New Entrant Cross Tabulation

Type of Company Private Enterprise Joint Venture Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 0 0.00 0 0.00 0 0.00 Level 2 0 0.00 0 0.00 0 0.00 Level 3 0 0.00 0 0.00 0 0.00 Level 4 0 0.00 8 7.41 8 7.14 Level 5 0 0.00 22 20.37 22 19.64 Level 6 0 0.00 30 27.78 30 26.79 Level 7 4 100.00 48 44.44 52 46.43 Total 4 100.00 108 100.00 112 100.00

Chi-square = 4.786, P-Value = 0.188.

In table 4.26, there are 4 respondents which is 100% from private enterprises

regarded the economic of scale the most important factor in macro environment (level

7). Conversely, economic scale was scored in different levels by joint venture. There

were 8 respondents judged the economic growth as important factor in level 4. In level

5, there were 22 respondents (20.37) regarded the economic of scale as the important

factor in level 5. There are 30 respondents in which 27.78% considered economic of

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scale as important factor in level 4. Notably, there are 48 respondents (44.44%) judged

the economic of scale as the most important factor for threat of new entrant.

Based on Chi-square = 4.786, P-Value = 0.188, There are no relationships

significantly between the type business of the company and economic of scale in threat

of new entrant.

H4: The effect on Intensity of Rivalry among Existing Competitor based on

performance

H0: The number of competitor has no significant effect on intensity of rivalry among

competitor-based performance of garment industry in Cambodia.

Ha: The number of competitor has a significant effect on intensity of rivalry among

competitor based on performance of garment industry in Cambodia

Table 4.27 Number of Competitor * Intensity of Rivalry among Existing Competitor

Cross Tabulation

Type of Company Private Enterprise Joint Venture Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 0 0.00 0 0.00 0 0.00 Level 2 0 0.00 0 0.00 0 0.00 Level 3 4 100.00 0 0.00 4 3.57 Level 4 0 0.00 10 9.26 10 8.93 Level 5 0 0.00 64 59.26 64 57.14 Level 6 0 0.00 14 12.96 14 12.50 Level 7 0 0.00 20 18.52 20 17.86 Total 4 100.00 108 100.00 112 100.00

Chi-square =112.000, P-Value = 0.000*

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In table 4.28 shows that there are 4 respondents (100%) from private

enterprises was asked to rate the number of competitor. The number of competitor was

regarded as the important factors in level 3 only. But the number of competitor was

scored in different type such as 9.26% in level 4, 59.26% in level 5, 12.96% in level 6

and 18.52% in level 7. So most of respondents from joint venture company considered

the economic of scale was the most factor in competition on garment industry in

Cambodia.

Based on Chi-square =112.000, P-Value = 0.000* there are relationships

significantly between the type business of the company and the number of competitors

in Intensity of Rivalry Among Existing Competitors.

H5: The effect on power of buyer based on performance of garment industry

H0: The buyer has the ability to postpone purchasing the garment product have

no significant effect on the power of buyer-based on performance of garment

industry in Cambodia.

Ha: The buyer has the ability to postpone purchasing the garment products have a

significant effect on the power of buyer based on performance of garment

industry in Cambodia.

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Table 4.28 The buyer has ability to postpone to purchase garment product * Power of

Buyer Cross Tabulation

Type of Company Private Enterprise Joint Venture Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 0 0.00 0 0.00 0 0.00 Level 2 0 0.00 0 0.00 0 0.00 Level 3 0 0.00 12 11.11 12 10.71 Level 4 0 0.00 7 6.48 7 6.25 Level 5 4 100.00 4 3.70 8 7.14 Level 6 0 0.00 85 78.71 85 75.90 Level 7 0 0.00 0 0.00 0 0.00 Total 4 100.00 108 100.00 112 100.00

Chi-square = 53.926, P-Value = 0.000*

Table 4.29 shows that there are 4 respondents (100%) from private enterprise

were asked to score the buyer have ability to postpone or cancel the purchase of the

garment products from the respondents. Anyways, in joint venture, this factor was

judged as the important in different level just like. There are 12 respondents (11.11%)

considered this factor as the importance in level 3, 7 respondents considered it as the

importance in level 4, there are 4 respondents in which 3.70% judged this factor in level

5 and notably there are 85 respondents (78.71%) regarded the buyer has ability to

postpone or cancel the purchase from garment products.

Most of respondents from joint venture believe that the Cambodian garment

industry have faced the problems in competition the global garment industries. So

definitely, the buyers have ability to postpone purchasing the garment products from the

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buyer unless. The producers set up competition strategy in performing the standard on

garment industry such as a) Vocational training on garment skills, b) improve skill labor

and reducing unskilled labor, c) human resource development, d) the buyers require

faster deliveries to meet increasing levels of consumer demand and ever decreasing

product cycle times. c). reduce transportation cost. The factors are the key strategies in

maintaining or protecting the buyer to postpone or cancel garment products from

respondents.

Based on Chi-square = 53.926, P-Value = 0.000* there are relationships

significantly between the type business of the company and the buyers have the ability

to postpone or cancel the purchase products from respondents.

H6: The effect on power of suppliers based on performance of garment firms

H0: The supplier’s product is important products to garment firms have no significant

effect on the power of supplier based on performance of garment industry in

Cambodia.

Ha: The supplier’s product is an important product to garment factory have a

significant effect on the power of supplier based on the performance of garment

industry in Cambodia.

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Table 4.29 The suppliers’ product is an important product to your company * Power of

Supplier Cross Tabulation

Type of Company Private Enterprise Joint Venture Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 0 0.00 0 0.00 0 0.00 Level 2 0 0.00 0 0.00 0 0.00 Level 3 0 0.00 0 0.00 0 0.00 Level 4 0 0.00 4 3.70 4 3.57 Level 5 4 100.00 98 90.74 102 91.07 Level 6 0 0.00 6 5.56 6 5.36 Level 7 0 0.00 0 0.00 0 0.00 Total 4 100.00 108 100.00 112 100.00

Chi-square = 0.407, P-Value = 0.816

In table 4.30 shows that in private enterprises, there are 4 respondents in which

100% considered the supplier’s product is an important product to the respondents in

level 5. But in joint venture, there are 4 respondents regarded the suppliers’ product is

an important product to garment firms account for 3.70%. Conversely, most of

respondents in joint venture considered the supplier’s products as the important just in

level 5 only for the firm producers and just only 6 respondents in which 5.56% judged

the supplier’s products as the important factor for garment companies in level 6 only.

Totally most of respondent from both private enterprises and joint venture considered

the supplier’s products as the important factor just only in level 5 only. Meaningful, even

if, global garment sectors are in the global concern since the quotas phase-out by early

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2005, but the suppliers still have no ability to threat the garment firm in term of prices,

quality, services.

Based on Chi-square = 0.407, P-Value = 0.816 there are no relationships

significantly between the type of the company and the supplier’s product from

respondents. Obviously, all raw materials such as yarn, accessories and machineries

have been imported from ASEAN countries and China, but the price of raw material are

not concerned to the demand of global garment firms. Some countries such as Sri

Lanka, Bangladesh and China, their government encourage and subsidy to the raw

material growers by offering land, seeds, and fertilizers. All import raw materials are

reduced to import by government. In last couple year ago, the Ministry of Commerce in

Cambodia cooperated with garment factors to encourage the cotton growers. The cotton

growers association controls the price of cotton based on the price of the contract. So

the price of yarn raise up and go down base on international market or neighboring

countries such as Vietnam, Laos and Thailand.

H7: The effect on macro environment based on performance of garment industry

H0: The economic growth has no significant effect on macro environment based on

performance of garment industry in Cambodia.

Ha: The economic growth has a significant effect on macro environment based on

performance of garment industry in Cambodia.

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Table 4.30 Economic Growth * Macro Environment Cross Tabulation

Number of Year that the Company Established Less than 10 years More than 10 years Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 0 0.00 0 0.00 0 0.00 Level 2 7 7.00 0 0.00 7 6.25 Level 3 0 0.00 0 0.00 0 0.00 Level 4 8 8.00 0 0.00 8 7.14 Level 5 3 3.00 4 33.33 7 6.25 Level 6 27 27.00 4 33.33 31 27.68 Level 7 55 55.00 4 33.33 59 52.68 Total 100 100.00 12 100.00 112 100.00

Chi-square = 18.683, P-Value = 0.001*

In table 4.31 shows that the respondents from private enterprise to rate on

economic growth. There are 7 respondents that established the company less than 10

years, considered that the economic growth as the important factor for garment

producer (level 2).

The economic growth was regarded as the fourth level of important factor by 8

respondents whom established the garment company less those 10 years. There are

only 3 respondents that operated their garment business less than 10 years judged the

economic growth as the important factors for garment industry in competition in global

industries in level 5. Surprisingly, most of respondents those started their garment

business less than 10 years considered the economic growth as the most important

factor in level 6 (27 respondents) and level 7 (55 respondents).

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Notably, the garment firms those are operating their garment business more

than 10 years have judged the infrastructure as the important factors in three different

level such as 4 respondents that have experience in doing business more than 10 years

have regarded the infrastructure as the important factors in level 5. The infrastructure

also be regarded as the important level in level 6 by 4 (33.33%) respondents that have

their business more than 10 years in garment sector. Moreover, there are 4 (33.33%)

respondents from 10 years experiences in doing garment business have considered the

infrastructure as the important factor in level 7. Based on Chi-square = 18.683, P-Value

= 0.001*, there are relationship between the number of the company that the company

establish and the economic growth in macro environment.

H8: The effect on national environment based on performance of garment

industry

H0: Infrastructure has no significant effect on national environment based on

performance of garment industry in Cambodia.

Ha: Infrastructure has a significant effect on macro environment basing performance

of garment industry in Cambodia.

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Table 4.31 Infrastructure * National Environment Cross Tabulation

Number of Year that the Company Established Less than 10 years More than 10 years Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 11 11.00 0 0.00 11 9.82 Level 2 0 0.00 0 0.00 0 0.00 Level 3 3 3.00 0 0.00 3 2.68 Level 4 0 0.00 0 0.00 0 0.00 Level 5 7 7.00 0 0.00 7 6.25 Level 6 41 41.00 4 33.33 45 40.18 Level 7 38 38.00 8 66.67 46 41.07 Total 100 100.00 12 100.00 112 100.00

Chi-square = 4.821, P-Value = 0.306

Table 4.32 shows that there are 11 respondents, established their business less

than 10 years, considered that the infrastructure as less important factor for them

(level 1). There are 3 respondents that ran their business less than 10 years judged the

infrastructure as important factor for them in level 3 only. 7 respondents that do their

business less than 10 years considered that the infrastructure as the important factor in

level 5, there are 41 respondents in level 6 and 38 respondents in level 7. Obviously

the infrastructure was considered as less important factors for garment producers. As

mentioned early, Cambodian infrastructure factors are very poor in performance in

garment industry. There are only 4 respondents that has their business less that 10

years regarded that the infrastructure as the important factor in level 5 and 8

respondent (66.67%) considered that the infrastructure as the important level 7 for

garment firms. So based on Chi-square = 4.821, P-Value = 0.306 there are no

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relationships significantly between the number of the company that establish the

company and the infrastructure in macro environment.

H9: The effect on threat of new entrant based on performance e of garment

industry

H0: The economic of scale has no significant effect on threat of new entrant basing

performance of garment industry in Cambodia.

Ha: The economic of scale has a significant effect on the threat of new entrant

basing performance of garment industry in Cambodia.

Table 4.32 Economies of Scale * Threat of New Entrant Cross Tabulation

Number of Year that the Company Established Less than 10 years More than 10 years Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 0 0.00 0 0.00 0 0.00 Level 2 0 0.00 0 0.00 0 0.00 Level 3 0 0.00 0 0.00 0 0.00 Level 4 8 8.00 0 0.00 8 7.14 Level 5 14 14.00 8 66.67 22 19.64 Level 6 30 30.00 0 0.00 30 26.79 Level 7 48 48.00 4 33.33 52 46.43 Total 100 100.00 12 100.00 112 100.00

Chi-square = 20.186, P-Value = 0.000*

In table 4.33 ( 8%) shows the 8 respondents that has their business less than

10 years considered economic of scare as the important factor in level 4 for them and

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14 respondent (14%) judged that the economic of scale as the important factor in level

5. There are 30 respondents (30%) ran their business less than 10 years, regarded that

the economic of scale as the important factor in level 6 for them and 48% that has their

business less than 10 years judged the economic of scale as the important level in level

7. Remarkably, there are only 2 levels of economic of scale were advantageous for

garment firms. There are 8 respondents that have their business since less than 10

years have considered that the economic of scale as the important factor for them in

doing business and only 4 garment respondents those have their garment business

more than 10 years considered that the economic of scale as the most important factor

for trade barrier for new entrants. Based on Chi-square = 20.186, P-Value = 0.000*

there are relationship between the number of the company that the company establish

and the economic growth in macro environment.

H10: The effect on intensity of rivalry among exiting competitor based on

performance

H0: The number of competitor has no significant effect on intensity of rivalry

among exiting competitor basing on performance of garment industry in

Cambodia.

Ha: The number of competitor has a significant effect on intensity of rivalry among

exiting competitor basing of garment industry in Cambodia.

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Table 4.33 Number of Competitors * Intensity of Rivalry Among Existing

Competitor Cross Tabulation

Number of Year that the Company Established Less than 10 years More than 10 years Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 0 0.00 0 0.00 0 0.00 Level 2 0 0.00 0 0.00 0 0.00 Level 3 4 4.00 0 0.00 4 3.57 Level 4 10 10.00 0 0.00 10 8.93 Level 5 56 56.00 8 66.67 64 57.14 Level 6 10 10.00 4 33.33 14 12.50 Level 7 20 20.00 0 0.00 20 17.86 Total 100 100.00 12 100.00 112 100.00

Chi-square = 8.960, P-Value = 0.062

Table 4.34 shows that the number of competitors was rated in different level

such as 4 respondents operated business less than 10 years were asked to score the

number of competitors factors. They considered that the number of competitor was

regarded as the 3rd important level. In level 4, there are 10 respondents that their

business was run less 10 year considered that number of competitors as the

importance in level 4 in which 10%. Mostly, there are 56% (56 respondents) that ran

their business less than 10 years considered that the number of competitor as the

important factor in level 5. There are 10 respondents those ran their business less than

10 years considered that the number of competitor as the upper important level (level 6)

for garment competition in threat of new entrant. But there are 20 respondents in which

20% of respondents that have their business less than 10 years were asked to rate on

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the number of competitor. They judged that the number of competitors as the most

important factor for them (level7). There are only two level of number of competitor

were regarded by garment respondents that have operated their business more than 10

years. There are 8 respondents considered the number of competitor as the important

factor for garment firms in level 5 and 4 respondents regarded the number of competitor

as the important factor in level 6.

H11: The effect on the power of the buyers based on performance of garment

industry

H0: The buyer has ability to postpone purchasing the garment products have

no significant effect on power of buyer based on performance of garment

industry in Cambodia.

Ha: The buyer has ability to postpone purchasing the garment products have

a significant effect basing on performance of garment industry in Cambodia.

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Table 4.34 The buyer has ability to postpone to purchase product * Power of

Buyer Cross Tabulation

Number of Year that the Company Established Less than 10 years More than 10 years Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 0 0.00 0 0.00 0 0.00 Level 2 0 0.00 0 0.00 0 0.00 Level 3 12 12.00 0 0.00 12 10.71 Level 4 7 7.00 0 0.00 7 6.25 Level 5 4 4.00 4 33.33 8 7.14 Level 6 77 77.00 8 66.67 85 75.90 Level 7 0 0.00 0 0.00 0 0.00 Total 100 100.00 12 100.00 112 100.00

Chi-square = 15.337, P-Value = 0.002*

In table 4.35 shows that there are 12 respondents who have their business as

the garment producers less than 10 years, considered that the buyers have ability to

postpone or cancel to purchase the garment products as the import factor in level 3.

There are 7 respondents from their business less than 10 years have considered the

buyer have ability to postpone to purchase the garment products as the important factor

in level 4, less than 10 years business operation of 4 respondents judged the buyer

have ability to postpone or cancel to purchase the garment products from them in level 5.

Remarkably most of respondents that their business less than 10 years

regarded buyers have ability to postpone purchasing the garment product as important

factors (level 6). Surprisingly, the respondents from their business more than 10 years

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considered the buyer have ability to postpone purchasing the garment product as the

important factor in (level 5).

In addition, 8 respondents (66.67%) that they operated their business more than

10 years regarded the buyers have ability to postpone to purchase the garment

products as advantageous for garment firms in competition.

Base on Chi-square = 15.337, P-Value = 0.002* there are relationship between

the number of the company that the company establish and the buyers have ability to

postpone to purchase the garment products.

H12: The effect on powers of supplier based on performance of garment

industry

H0: The supplier’s product is an important product for garment industry has

no significant effect on power of supplier basing on the performance of

garment industry in Cambodia.

Ha: The supplier’s product is an important product to garment industry has a

significant effect on power of supplier basing on the performance of garment

industry in Cambodia.

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Table 4.35 The buyers have full information * Power of Buyer Cross Tabulation

Number of Year that the Company Established Less than 10 years More than 10 years Total

Important Level

Frequency Percent Frequency Percent Frequency Percent Level 1 0 0.00 0 0.00 0 0.00 Level 2 0 0.00 0 0.00 0 0.00 Level 3 0 0.00 0 0.00 0 0.00 Level 4 0 0.00 0 0.00 0 0.00 Level 5 23 23.00 8 66.67 31 27.68 Level 6 4 4.00 0 0.00 4 3.57 Level 7 73 73.00 4 33.33 77 68.75 Total 100 100.00 12 100.00 112 100.00

Chi-square = 10.313, P-Value = 0.006*

Table 4.36 shows that the buyers have full information were considered as the important factors in different levels. There are 23 respondents (23%) that their garment business has been run less than 10 years has considered the buyers have full of information as the important factor in level 5. Moreover, there are 4 respondents are also have been running garment business less than 10 years judged that the buyer have full information about garment product as important level (level 6). Most of respondents around 73 respondents (73%) whose garment business have been run less than 10 years regarded the buyer have full information about garment products as the most important level (level 7) for the garment firms in competition in global garment. If look at the respondents whose have run their business more than 10 years, considered the buyer have full information about garment product as the important factor (level 5) and there are only 4 respondents that have business almost more than 10 years regarded the buyers have full information about garment sectors as the most important level (level 7).

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4.5 Strategy Analysis

SWOT Analysis

To be able to provide recommendation related to strategy that garment industry

in Cambodia should do practice in the near future, it is definitely important to begin with

mapping the recently company position in the competition. For doing so, this research

proposed using SWOT analysis as examining tool. How to come up with the weight and

score for each parameter of strength, weakness, opportunity, as well as threat is

already explained in chapter 3 under section data analysis. As described at the same

section, once the weight and the score were determined, the weighted rate for each

particular parameter could be calculated. Eventually by summing up those entire

weighted rates, the total weighted for opportunity-treat and strength-weakness of each

garment firms could be obtained.

In table 4.37, it shows that it draws together the analysis in strengths,

weaknesses, opportunities and threats (SWOT) framework. The basic elements

identified in the SWOT table are outlined in this study. However, drawing together the

key constraints supports the view of the whole of garment industry in order to be a key

success factor for competition with the global garment industry under free trade

environment.

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Table 4.36 SWOT Analysis of the Cambodian Garment Industry

Strengths • Total sale • Capital investment • Cost of working capital • Capital utilization • Financial measure

Weaknesses • Lead-time • Human resource development • Employee productivity • Customer retention • Customer satisfaction • Investment training • HRD • Customer measure • Internal business measure

Opportunities • Economic growth • Technical change • Investment climate • Network alliance among producers • ILO intervention • Bargaining power of suppliers • Threat of new entrants

Threats • Environment issues • Government legislation • Skill labor • Land for material • Debt and capital • Infrastructure • Impact of domestic • Government subsidy • Political/security stability • Bargaining power of buyers Bureaucracy • Corruption • Intensity of rivalry among existing

competitors & substitutes products • Learning and growth

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CHAPTER 5

CONCLUSION, DISCUSSION, AND RECOMMENDATION

The chapter comprises five sections. Section 1 presents the conclusion of the

research, particularly answering the research objectives. Section 2 discusses the

research findings in relation with previous research. Section 3 is recommendations to

related parties, and then section 4 elaborates the limitations of the study. Lastly, section

5 provides some suggestions to future studies.

5.1. Conclusions

Answering the first objective of the research, that is to identify factors affecting

competitiveness of garment industry in Cambodia. Some conclusions have been found

as follows:

1. Regarding macro environment, economic growth has been judged as the

most important factors followed by government legislation issues, technological

changes, environment issues, inflation rate issue that occupied the second, third, fourth

and the fifth position correspondently. Meanwhile, interest rate was regarded as the last

least important. Nevertheless, economic growth was considered as the most favorable

and the last three factors, technological issues, inflation rate and interest rate were still

deemed benefit (average) them.

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2. For the national environment, the top rank factor’s importance was

dominated by factor condition such as Infrastructure and Corruption and collusion

nepotism with very high score. Investment climate, Political/ security stabilities, Skilled

labor, Government subsidy, Bureaucracy , ILO intervention, Impact domestic rivalry,

Country and brand image as garment producers , were commonly judged as the last

least critical factors for national environment. With regard to the favorability, the

Cambodian garment industry has achieved great success over a short of time. The

garment industry has become the engine driving the national economy (accounting for

around 12% of GDP), is making the greatest national contribution to poverty reduction

by creating some 230,000 direct jobs (65% of manufacturing employment). It generates

the largest share of the country’s foreign currency earnings (80% of total exports in

2003). The most favorable of national environment were followed by availability of

investment climate with more favorability and next position were followed by network

and alliance among local producer, ILO intervention moderate factors were judged by

the majority of garment firms as moderate factors for national environment. The last

factors were Infrastructure, corruption, government subsidy, political stability, the

respondents regarded bureaucracy as unfavorable factors. Obviously, Cambodia’s

infrastructure is not strong at all. Compared to relatively well-prepared FDI law, a weak

infrastructure is a serious barrier to attracting more FDI and further developing the

Cambodian textile and clothing industry. In the reality, Political stability in Cambodia

does not fully extinguish foreign investors' concerns about expropriation. Foreign

investors are still afraid that opaque practices and the processes of implementing

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the system can generate indirect costs for them and provide room for bureaucrats'

arbitrariness.

3. With respect to threat of entry as a part of industry environment, economic

of scale was regards as the most important factors and government policy was deemed

as the next position in upper important factor. The government incentive and industry

growth were judged as the moderate crucial, and for the favorability, the economic of

scale and capital requirement were regarded as the favorability and above favorable

factor. On the other hand, government policy, government cooperation, tariff and

international restriction, and industry growth were judged as the most unfavorable

factors from the garment industry in Cambodia.

4. All prearranged factor in competition among existing competitors and

substitute products were considered as important parameters, however, exist barriers,

the number of competitors were ranked the two first decisive aspects for the

respondents. The industry / market growth, diverse competitors were ranked as the

important factors only. Conversely, all predetermined factors were assessed as an

unfavorable factor by the majority of garment firm in Cambodia, especially business size

of competitors, product differentiation and switching cost, pressure from substitute

product were ranked as the three last least important. With regard to the favorability

there were not favorable for intensity of rivalry among existing competitors. Conversely,

all factors were judged as the most disadvantageous factors.

5. In this part, most of respondents argued that all information were available

toward their products was the most significant aspect in assessing the bargaining power

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of the buyers, followed in the next ranked was the ability of the buyer in postponing the

purchase of the products. In term of favorability factors, most of the respondents

thought that products are identical among the competitors was judged as advantageous

for them and the second factors was their products are identical with competitors

product with above favorable. On the other hand, the buyer gain low profit was the

most detrimental factors.

6. Most respondents place the significance of needed products in short supply

product over respondents’ business in the first position, followed by respondents’ rely on

suppliers and the importance of respondents in the next rank. Largely, bargaining power

of suppliers over the garment respondents was weak. However, garment firm import

totally 80% of raw material but the bargaining power of supplier still is weak. The most

unfavorable factor was supplier group’s products are differentiated or build switching

costs.

Concerning the second data objective of the research about the investigation

toward Cambodia’s garment industry competitiveness within the industry, this study

provides some important findings as follows:

1. Generally, the competitiveness of the garment industry in Cambodia from

financial perspective can be evaluated as critical factors for respondents. These factors

were judged as most important factors just like, capital investment as the most crucial

one and total revenues was the next position. Concerning favorability, the capital

investment was judged advantageous for them and of working capital and availability of

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long term; investment was regards as disadvantageous factor.

2. With regard to the competitiveness of garment factories from customer

perspective evaluated by all respondents were customer satisfaction were ranked in the

first position, and the second position followed by market share, the third position was

customer profitability in upper position. On the other hand, the customer retention was

scored as the moderate factor and the customer acquisition was judged as not

important for respondents. Largely, customer measure factor over the respondents was

weak.

3. Surprisingly in term of internal business measure, all factors were scored at

least in moderate. The two factors were thought as the more important factors followed

by lead-time present in the first rank and the second rank is production. In addition

there three factors were regarded as moderate score are capital utilization, worker

motivation & production and import and export procedure respectively. The most of

respondents argued that most favorable factor is capital utilization in rank of above

average. Conversely, some factors were judged as disadvantageous for respondents

were production, import and export procedure, worker motivation & productivity and the

last position is lead time as advantageous for garment firms.

4. With regard to the learning and growth, the findings revealed that there were

two factors as the most important factors for the respondents such as human resource

development present as the first rank and employee productivity was ranked the second

position. With regard to most favorability, there was employee productivity present as

moderate factor and followed by market research, investment development, employee

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retention, investment training, employee productivity and human resource was regarded

by majority of firms as disadvantageous factors.

Meanwhile, SWOT analysis exposed that all garment industries in Cambodia

were having positive factors for all opportunity-threat. It can be interpreted that they all

were facing a handful opportunities from the environment. However, further garment

business in Cambodia image shows that opportunities were dominated by macro and

national environment. For the time being, industry environment believed as the most

influential and critical factor causes disadvantageous for garment factories. Probably it

will not be able to settle the problem or give the strong competitive edge for the

garment producers. Conversely, SWOT analysis also presented the fact that all garment

producers were suffering from serious and various weaknesses that need to be

addressed or settled. It was made clear by negative score for total strength-weakness

were scoring. Despite each garment firm had different score for both opportunity-threat

and strength-weakness rating, so those garment firms occupied the same quadrant of

the SWOT structure.

Given insight from the SWOT analysis, the strategy that the management and

the government should employ in which way that is able to bring the firms’ position to

the quadrant that provides positive factors for both opportunity-threat and strength-

weakness scoring. Another word, the both government and firms should strive in

mending the internal weakness while creating better and more opportunity for the firms.

Lead-time is the most negative factors that can effect to customer satisfaction and

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customers retention. In term of govern involvement with threat of new entrant, there are

some factors that make the new entrant be stronger in competition with Cambodia

garment firms. Obviously, the root was explained in detail in chapter 4.

5.2 Discussion

This study found many interesting about the competitiveness of garment industry

in Cambodia. This investigation was conducted by questionnaire. The strength of this

study can be considered in not only primary data but also secondary data. In this part

the results and findings from the study will discuss as following

Macro Environment

The result of the study actually comes from the primary data. According to the

result in previous chapter, shown that there were several sectors were judged as the

important factor for respondents such as economic growth, government legislation and

technological changes. In term of economic growth, the world market for garment

products continues to grow by 5% but, that while competition in the US market after the

end of the quota system will be strong, with the implementation of sound economic and

legal reforms Cambodia garment producers will remain competitive and maintain their

market share in the world market. Notably, Cambodia garment export has been

increased steadily $USD 0.90 in year 2000, $USD 1.30 Billion in 2002, $USD 1.76

Billion in 2005 and expected to be increased in $USD 2.60 in 2010.

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The respondents judged that government involvement was considered awarding

negative impact to the firms. In table 4.3, shows that the government legislation and

regulation in garment sector was in the negative impact with mean very low. The

government agencies plays the important role in cooperation, facilitation, supports

garment firm in enhancing garment export. Conversely, the government performs in

negative aspect such as intricate law, import and export procedure, official and unofficial

payment for appliance Certificate of Origin or export license. Therefore, the government

involvement at least should be in the positive way perspective.

National Environment

Surprisingly, in term of favorable factor as display in national environment, there

are some factors were regards as advantageous such as investment climate. With

regard to investment climate, the government strives to have bilateral talk with USA or

EU in order to gain benefits from the WTO. Recently Cambodia received GSP and

quota from WTO member just like, USA, EU, China, and Korea. Obviously, the

investment climate was regarded as good environment for garment business. ILO

intervention was judged as benefits for in the third position factor of respondents of

remediation activities introduce six modules for improvement in seven garment factories

and observe the impact on productivity and product output. Additionally, it plays a vital

role in monitoring adherence to core labor standards in the garment sector in order to

promote compliance with and effective enforcement of Cambodia’s Labor Code, as well

as internationally recognized core labor standards. It was estimated that adherence to

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ILO labor standards have improved considerably in Cambodia in recent years. One

estimate suggests that this results a possible annual increase of 18% in the export of

garments to the U.S. On the other hand, some factors were judged ass unfavorable

factors such as government agencies with negative aspect. These factors are

infrastructure, government subsidy, bureaucracy, political/security stability. Since 1993,

Cambodia has initiated fundamental reforms in many crucial areas and significant

progress has been made in promoting economic recovery, and reducing inflation to low

levels. However, much remains to be done to rebuild a society and economy shattered

by almost three decades of civil strife and to address the country’s areas of

vulnerability. Sustained development, and the alleviation of pervasive poverty, will

critically hinge upon continued implementation of broad based actions aimed at

strengthening governance, deepening fiscal and bank restructuring, and establishing a

sound legal framework.

Industry Environment

1. Threat of new entry: there were 2 factors were considered as the more

significant factors for garment producer such as economic of scale and government

policy. But in fact economic of scale was judged as the first position advantageous and

the second position was capital requirement was scored the next position in above

average. In term of government sectors were judged as negative point by most of

respondents. The government agencies should play an important role in private sectors

by setting high barriers for new entrance.

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2. Intensity of Rivalry among existing competitor factor: Most of respondents

considered the exist trade barriers was regarded as the most crucial factors in the first

rank and followed by number of competitors and the third is industry/growth for the next

position. On the other hand, all factors from intensity of rivalry among existing

competitor were judged as disadvantageous for the respondents. With regard to the

garment industry, grow notably because the new comers can be strong in doing

business. Existing barriers was considered in negative aspect. The government not yet

set up the high barriers for new applicant such as export tax, tariff, and regulation.

3. Inter of power of buyer: There are full information, only one factor was

considered as the most significant one for the respondents. Buyers have ability to

postpone purchase your products, company sells product to limited number of buyer but

in large were regarded as the most important factor for garment producers. There are

several factors were deemed as advantageous for respondents such as product are

identical among the competitor, the buyer have full information, and the buyer have a

chance to do backward integration. These factors were rated above average.

4. Power of suppliers: in this context, almost all factors were considered as

negative favorability points for respondent. The power of suppliers was regarded as

weak position. The power of suppliers has no ability to threat integrate backward in

negative way. The suppliers’ products are differentiation or building up the switching

cost is in negative perspective.

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Financial Measure

1. Financial Measure: The most of respondents were deemed that there were

only 2 chapter were considered as the most important factors for the respondents

followed by capital investment was ranked in the first position and total sale was judged

as significant factor for them. On the other hand, in term of favorability, there were three

factors were regarded as advantageous for them. These factors were capital investment

was ranked in the first position, total sales revenue in the second position (above

average) and the last position is customer and product line profitability with in the same

rank with total sales revenue.

2. Customer Measure: there are five sectors were scored as the important for

respondents but except customers acquisition was judged as not important for

producers. The most important were customer’s satisfaction with the first rank and

followed by market share in the second position and customer profitability. Nonetheless,

all factors were considered as negative effect to the firms. Market share and customers

satisfaction were considered the most unfavorable for respondents. In the reality, the

customer measure is the most important factors in playing important role in retaining

and measuring the customer’s want and needs. With regard to the customer’s

retention, consider as the most negative factor. The customer retention measures

tracks, in absolute or relative terms, the rate at which a business unit retains or

maintains ongoing relationship with its customers. In this perspective, managers identify

the customers and market segment in which the business will compete and the

measures of the business unit’s performances in these targeted segments. So all

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factors related to customers measure, should be take into account in order to measure

and retain the mechanism of the customers.

3. Surprising noticing all factors were considered as important factors for

respondents at least in average rank. Nevertheless, lead-time was judged as the most

important one for them. One the other hand, in term of favorability, most of factors were

regarded as disadvantageous for firms producers except capability utilization was

considered benefit them in above average rank. The major of the structural problem

was ranked as very high concerning the issue of lead times. In a comparative sense,

garment lead times from Cambodia remain lengthy, with other major competitor

countries able to offer reduced delivery times. The lead-time issue relates largely to the

almost complete absence of backward linkages. With regard to the Cambodia

production, regarded as poor condition. The both government and firms should create

a system that has production costs comparable to its neighbors. This involves not

only keeping wages at a competitive level, but also providing institutional settings to

suit international businesses. As far as the wage level is concerned, labor costs in

Cambodia are relatively more competitive than in other competing countries.

4. Learning and Growth: the last but not least, there were only 3 factors

were considered as the most important score for respondents such as human

resource was scored in the first rank in most important, followed by employee

productivity present the second position and the last position was employee

motivation was in the last position. Additionally, employee motivation was deemed

as moderate factor for respondent. In spite of impressive economic growth in recent

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years, Cambodia has one of the lowest human development performances in the

region. Cambodia human resource is ranked in the second lowest in Southeast Asia.

Cambodia is a plentiful supply of female labor available for garment production. The

level of education is generally quite low and operator skills are limited. Most companies

in all of the countries prefer to train employees in-house by placing new recruits

alongside ‘experienced’ workers rather than by using in-house training facilities for

formal training. Additionally, the management training is a general problem and

vocational training schools (VTS), especially in the public sector, are not well supported

by the garment industry as the curricula rarely matches the needs of the industry.

Suitable training of teachers in the VTS should be a priority, so that they can work

within companies and train employees in the necessary skills to achieve the needed

standards of quality and work speed. Such employee training will create confidence

which, combined with in individual bonus payment schemes, will bring about motivation.

With regard to productivity levels, serious need of improvement in several countries, as

matches the needs of the industry. Suitable training of teachers in the VTS should be a

priority, so that they can work within companies and train employees in the necessary

skills to achieve the needed standards of quality and work speed. Such employee

training will create confidence which, combined with individual bonus payment schemes,

will bring about motivation. Significantly, Human resource management includes many

activities that affect by traditional and nepotism way such selecting garment worker

base on their relationship, nepotism and corruption to the top managers. Some factors

of garment industry were lack of vocational training. Most of the workers and staffs work

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for garment factory without training on garment skill. Most of them are uneducated

people.

5.3 Recommendation

With regard to the result of SWOT analysis in previous chapter, the following

recommendations are believed necessary to be done in order to move out the garment

industry in Cambodia from current with weak position to better position in where the

garment firms are creating more opportunities and hold more strength.

Recommendations should present to management as daily decision-maker and to the

government policy makers. The garment quota expired since last couple of years back,

however, the global market environment is in a transitional stage and these changes will

create new challenges for the garment industry. The quota premium cost competitive

advantage will disappear and, although Cambodia will continue to enjoy some

preferential market access, suppliers offering lower costs through higher productivity

levels, human resource development, skilled labor, good infrastructure and shorter lead

times which under good investment climate will gain the advantage.

For creating more abundant and sustainable opportunity, the management

and the government not only concentrate on macro environment and national

environment but also concentrate on industry environment by strengthening tie with

the customers, among the existing competitors, as well as with the suppliers.

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1. Recommendations to the management

1) For creating more abundant and sustainable opportunities, the

management must concentrate on industry environment by strengthening tie

between the industries with the buyers, among the existing competitors.

2) The garment firms should set up specific new development strategy for

garment competition when quota system was expired since couple years ago. It means

that garment strategy before quota ended and strategy after quota end are not the

same. So the firms should set up the strategy to follow the post-quota period.

Cambodian Garment Industry Development Strategy (Development Strategy) should

focus on addressing the competitiveness of the industry and on developing policies and

actions to address key weaknesses and to harness key opportunities. Strategy must

recognize with macro and national environment that have proposed policy measures

and actions and should focus on all aspects of the garment industry cluster.

3) The firms should request to the government to cooperate in building

up workers management skills in production development, distribution channel,

training adequate human resource to carry out product design and development

process, and, not least important, expanding to highly-demanded from domestic

market.

4) The firms’ strategies should include quality improvement, efficiency

increasing, response to customers, production cost reduction, product development to

meet with market requirements, human resource development, and production

technology improvement.

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2. Recommendations to the government sectors

Institutional creation

An important element of the Development Strategy will involve bringing key

stakeholders into the development and implementation of actions and policies to

enhance the competitiveness of the garment sector. In this process, a number of

important aspects will need to be considered (in the short to medium term):

1. Special Economic Zones and Free Trade Zones, the Cambodian

government has been considering establishing one or more special promotion zones

geared to attracting domestic and foreign investment. Industrial zones are to be

developed in Phnom Penh, Sihanoukville, Koh Kong, Poipet, and Pailin, which would

include export processing and free-trade-zone. In order to solve institutional issues and

corruption problems, the plan for SEZs is achieve high economic growth through export

promotion. Since LDCs such as Cambodia lack of sufficient funs to finance their

investments, the country should attract foreign investors. Through this important image,

first strongly recommend to the government policy makers coordinate the failure, which

raises a significant time lag between the planning and implementing the significant

policies. Second, the government should think carefully about the benefits and cost of

tax incentives. Tax incentive for many Asian countries, including Cambodia, are not

significantly effective. Furthermore, incentives are costly as they are a loss of

government incentive.

2. The government should develop the high level of comprehensive policy

reform and a donor coordination mechanism to (a) oversee implementation of the

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elements of the Action Plan, (b) coordinate and plan allocation of donor interest and

resources to the garment industry, and (c) develop an action oriented public-private

sector dialogue.

3. The government should set up specific goal by focusing on addressing of

competitiveness of garment industry and developing policies.

4. With the huge amount of raw material import such as cotton, yarn and

some accessories materials, the Royal Government of Cambodia should cooperate

with firm to promote local cotton and raw material growers by financing or subsidy to

the growers. Some of garment factories singed sub-contract with the cotton growers

by providing loan and offering cotton seeds free to the growers in couple year ago.

Some countries such as Bangladesh, Cambodia and Sri Lanka possess have no

indigenous textile fibers, the other countries have an abundance of cotton, or man-made

fibers (MMF), or both. Nevertheless, China and Pakistan have to import MMF in order

to have the specific material needed for particular garment products and to achieve the

necessary price levels. Pakistan imports cotton in order to have the correct lint cotton

quality and staple length, whilst Indonesia has only a limited cotton crop and, therefore,

needs to import cotton. Bangladesh is totally dependent on cotton imports.

5. Recommend that the government take an active part in promoting

export development and assistance in marketing, information technology, and the

acquisition of know-how. Expanding textile and clothing exports requires sustained

efforts on both the macroeconomic and microeconomic levels. We recommend

establishing a trade information agency that would gather and distribute information

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and knowledge on the preferences of the final consumers in developed

economies, production network, buyers, and the like.

6. This would also be designed to provide information about the

Cambodian textile and clothing industry. Providing systematic knowledge and

information to foreign investors as well as to potential local entrepreneurs

contributes to realizing investment opportunities in Cambodia.

Infrastructure:

Cambodia is poor positioned in terms of infrastructure compared to the other

countries. Definitely, the production costs and shipment cost of goods severely affected

by an insufficient and unreliable power supply and expensive electricity costs.

- Current transportation infrastructure consists of road, railways, inland water

transport, and air transport. These factors affect to overall cost just like shipment cost,

lead-time, and power supplies and so on. Through the inadequate infrastructure,

recommend to the government to look for some part of technical assistance for donor

countries to supporting or subsidy on garment firms such as electricity cost, water cost.

As mentioned by GMAC official, the government planed to buy electricity from Vietnam,

but now this plan has not been process because of bureaucratic government

involvement. Importantly the government should eliminate corruption and drastically

reducing the administrative complexity of doing business in Cambodia. In the reality,

there is corruption throughout the world and especially elsewhere in Asia. Cambodia

simply cannot afford the luxury of corruption. And if the Cambodian government were

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to make a serious effort to combat it many foreign investors would start turning away

from China, Vietnam, and Thailand and start setting up shop here.

- Government involvement (Corruption, political issues, bureaucracy, bribes)

According to the World Bank report recently suggested that the policy uncertainly,

corruption, bribes as a percentage of sales, and crime are the major constraints to

doing business in Cambodia. Obviously, the override priorities in Cambodia are

decrease policy uncertain and corruption. Importantly, the government should improve

through these negative or endogenous factors by using all relevant policy just like

motive economic reforms, trade reform, administrative reform, legal and judicial reform,

and banking and exchange rate reforms. These are important factors for the firms.

Through this image, the government should implement quickly. Specially, Cambodia

corruption law has not yet adopted by National assembly. These factors are important

for firms and people but the government has tried to delay in adopting this law because

they can continue to do corruption.

Human resource

It is a key for Cambodia's efforts to sustain the textile and clothing industry in

the long run The Cambodian garment industry is working on human resource

development to improve productivity. There is an abundance of labor in Cambodia.

However, there are insufficient skills when it comes to the use of many high-speed

machines used in the industry. Far too little has been spent on training of staff with

skills that are transferable across the industry. By increasing, the salary for better skilled

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staff will lead to happier staff and more productive staff, which in turn will lead to an

increase in production.

Suggestions for Further Studies

This study contains a lot of the fact and findings for garment competitiveness

in Cambodia while the global garment has faced with quota phase-out. So further

studies will be implemented in the near future as following:

First, it is necessary to augment and enlarge the number of respondents to

other stakeholders within the industry such as both owner and regulator. It is

undisputedly vital to present far-reaching, integral, and comprehensive views about

the topic.

Second, the whole of garment picture should be excavated by employing

deep analysis to all industry players. It is needed to assess the firms’

competitiveness relative to the industry.

Third, the relationship among the garment producers that are involved in the

research should be examined by employing more various statistical tools to acquire

more profound understanding from different perspectives. From this analysis, more

precise recommendations and suggestions will be able to be awarded.

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Limitations of the study

Despite presenting better understanding about the garment industry in

Cambodia and providing some insightful information as well as useful findings, this

research is subject to some limitation as mention follows:

1. Limited scope of respondents that included garment industry and some

officers need to be expanded to private enterprises and other stakeholders in the

industry such as suppliers, buyers, government as policy maker and so forth to gain

much deeper and broad perspective especially concerning the factors affecting

competitiveness.

2. To measure the garment industry in Cambodia’s competitiveness relating

to the industry, it requires real industry standard as tool of comparison. Because of

limited time and information available publicly, this study use only some big

companies as benchmarks and assumed the average of all prearranged companies

as industry average.

3. Relationship among all factors involved in the research, its will be

examined by employing more various statistical tools to acquire more profound

understanding from different perspectives. From this analysis, more precise

recommendations and suggestions will be able to be awarded.

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An Investment Guide to Cambodia “ Opportunities and Conditions “ September 2003.

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http://www.moc.gov.kh

http://www.gmac.com

http://www.epd.gov.kh

http://www.wto.asean.kh

http://www.cdc.gov.kh

http::// www.worldbank.org

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APPENDICES

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Appendix A LETTER FOR QUESTIONNAIRE SURVEY

To whom it may concern:

As a MBA ( Masters of Business Administration) student in International

Business Program at The University of the Thai Chamber of Commerce, Bangkok,

Thailand, I am conducting a study topic entitle “ Competitive analysis of Garment

Industry in Cambodia under free trade environment”.

I would appreciate your willingness to take part in this study, as the information

made available would be critical to the successful completion of my thesis.

Please take time in answering the questionnaires. If there are any queries,

kindly contact the undersigned at email address: yannowto@yahoo.com.

Finally, I would like to extend my sincere gratitude for your valuable time and

kind cooperation.

I look forward to receiving any recommends from you for being useful of

academic purpose.

Yours sincerely, Yin Yanno

MBA in International Business

The University of the Thai Chamber of Commerce Bangkok, Thailand

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APPENDIX B

QUESTIONNAIRES

“COMPETITIVE ANALYSIS OF GARMENT INDUSTRY OF CAMBODIA

UNDER FREE TRADE ENVIRONMENT”

Thank you very much for spending your time and effort to fill this form. Your

support will help give valuable information in completing my thesis entitle “Competitive

analysis of garment industry in Cambodia under free trade environment”. All of these

following questions are only related to Garment industry in Cambodia. All of your

information is intended for academic purpose only.

Part I General Business Profile 1. Please Indicate symbol into the { } which regarding your business.

• Company’s name ………………………………………………………………

• Position …………………………………………………………………………

2. Type of your company (Can answer more than 1)

{ } Private enterprise { } Joint venture { } others

(Please specify)…

3. Registered capital

{ } Less than 100 Million Riels { } More than 100 Million Riels

4. Number of year that the company established

{ } Less than 10 years { } More than 10 years { } Other……

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5. Percentage Sales through Join marketing officer

{ } < 25% { } 25-50% { } 50-75% } { > 75%.........

6. The main export market

{ } USA { } EU { }CANADA { } Other

Percentage of garment industry grow in year 2006

{ } < 25% { } 25-50% { }50-100 }{ >100

7. Number of sales return through out 2006 toward total sale

{ } <5% { } 5-10% { } 10-15% { } >15%

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Part II

In this part, you will be asked to answer series of questions concerning on some

factors affecting the competitiveness of your company where you work for. There are

two kinds of question for each point. First, please indicate the IMPORTANCE of each

item to sustain in competition by writing number within range 1 to 7 (1 is for NOT

important at all and 7 VERY important). SECOND, please rate the IMPACT of the each

item over your company by giving (X) signal within the determined range (-3 most

unfavorable, 0 average and 3 most favorable). Number 1 is giving example

Most unfavorable Most favorable

No

A. Macro environment

Important Level

-3 -2 -1 0 1 2 3

1 EXAMPLE 1 X 2 Economic grow 3 Interest rate 4 Inflation rate 5 Technological change 6 Environment issues 7 government legislation and

regulation

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Most unfavorable Most favorable

No

B. National Environment

Important

Level -3 -2 -1 0 1 2 3

1 Investment climate 2 Industry location 3 Production 4 Skilled Labor 5 Arable land for material plantation 6 Natural resources 7 Dept & Capital 8 Infrastructure 9 High educated labor 10 Network& alliance among local producer 11 Country & brand image as garment

producers

12 Impact domestic rivalry over lowering cost, improving quality, creating new product

13 Government subsidy 14 Political/security stabilities 15 Bureaucracy 16 Corruption, collusion, nepotism 17 GMAC relation 18 ILO Intervention

How do the following factors regarding the presence of new competitors affect to

your company? (if the following factors encourage or support the new competitors to

present in the competition, you should answer unfavorable, reversely, if these following

factors discourage the new competitors for competing, you should answer favorable (-3

most unfavorable, 0 average and 3 most favorable).

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Most unfavorable Most favorable

No

C. Threat of new entrant

Important

Level -3 -2 -1 0 1 2 3

1 Economies of scale 2 Tariff & international

restriction

3 Capital requirement 4 Government incentive

5 Industry growth

6 Government policy

How do you think the following factor regarding intensity of rivalry among exiting

competitors affect to your company? (-3 most unfavorable, 0 average and 3 most

favorable)

Most unfavorable Most favorable

No

D. Intensity of rivalry among existing competitor

Important

Level

-3 -2 -1 0 1 2 3 1 Number of competitors 2 Business size of competitors 3 Industry / market growth 4 Product differentiation

&switching cost

5 Diverse competitor 6 Exist barriers 7 Pressure from substitute product

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How do you think about these following statements related to the power of your

products buyer and please indicate the significance of each item over the power of your

products buyer?

Strongly disagree Strongly agree

No

E. Bargaining Power of buyer

Important

Level -3 -2 -1 0 1 2 3

1 Your company sells product to limited number of buyer but in large size amount

2 Your products are identical among your competitor

3 Switching cost spent by your buyer is low

4 Your buyer gain low profit

5 Your buyers have a chance to do backward integration

6 Your buyers have ability to postpone purchase your products

7 Your buyers have full information

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How do you think about these following statements related to the power of your

raw material suppliers please indicate the significance of each item over the power of

your input suppliers?

Strongly disagree Strongly agree

No

F. Bargaining power of supplier

Important

Level

-3 -2 -1 0 1 2 3

1 Your factory is dominated by limited number of supplier that sell in large amount

2 There are few supplier for a specific input for your company

3 The suppliers’ product is an important product to your company

4 Needed products are in short supply

5 The supplier group’s products are differentiated or build switching costs

6 Your company is not important customer for supplier

7 Your supplier threaten your company to integrate forward

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Part III

In this part you will be asked to answer series of questions concerning on some

factors related to performance of the company where you work for. There are two kinds

of question for each point. FIRST, please indicate the IMPORTANCE of each item to

sustain in competition by writing number within range 1 to 7 (1 for NOT important at all

and 7 VERY important). Second, please rate the POSITION of your company

COMPARE TO INDUSTRY by giving (X) sign within the determined range, -3 for every

poor, 0 average and 3 for excellent. Number one is given as an example.

Very weak Very Strong

No

A. Financial Measure Important

Level -3 -2 -1 0 1 2 3

1 EXAMPLE 7 X 2 Total sales 3 Cost of working capital 4 Customer and product line

Profitability

5 Profit from operation 6 Availability of long term

investment

7 Cost of long term investment

8 Capital investment

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Very weak Very Strong

No

B. Customer measure Important

Level

-3 -2 -1 0 1 2 3

EXAMPLE 7 X

1 Market share

2 Customer retention

3 Customer acquisition

4 Customer satisfaction

5 Customer profitability

Very weak Very Strong

No

C. Internal business Measurement

Important Level

-3 -2 -1 0 1 2 3

1 Number of production

2 Capability utilization

3 Worker and production

motivation

4 Lead time

5 Import & export

procedure

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Very weak Very Strong

No

D. Learning & growth

Measurement

Important

Level -3 -2 -1 0 1 2 3

1 Employee productivity

2 Employee retention

3 Employee motivation

4 Market research

5 Investment training

6 Investment

development

7 Human Resource

development

Thank for your time and kind cooperation!

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sMnYr

karsikSaviPaK GMBI karRbkYtRbECg elIvis½yvaynP½NÐ km<úCa kñúgTIpSar BaNiC¢kmµesrI

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- eQµaHRkumh‘un………………………………… - tYnaTI ………………………………………

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vaKþTI2 EpñkenH sUm elak elakRsI emtþapþl;nUv cMelIytamlMdab; EdlTak;Tg dl;plb:HBal;

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APPENDIX C

LIST OF GARMENT INDUSTRY IN CAMBODIA

THE GARMENT MANUFACTURERS ASSOCIATION IN CAMBODIA

LIST OF GARMENT FACTORIES IN CAMBODIA NO. NAME OF THE COMPANY OWNER BY 1 ACE APPAREL CO.,LTD. KOREA 2 ALL SUPER ENTERPRISE (CAMBODIA) LTD. TAIWAN 3 ANN TAYLOR SOURCING FAR EAST LTD. CHINA 4 APPAREL PLACE PTE LTD. SINGAPORE 5 ARCHID GARMENT FACTORY CAMBODIA LTD. HONG KONG 6 ASD (CAMBODIA) CO.,LTD KOREA 7 ATAX (CAMBODIA) GARMENT CO.,LTD. BRITISH 8 BC CAMBODIA GARMENT CO.,LTD. KOREA 9 BERRY APPAREL (CAMBODIA) CO., LTD. MALAYS 10 B & N GARMENT (CAMBODIA) CO.,LTD. HONG KONG 11 BOREY KAMKOR CO., LTD. CAMBODIA 12 BORIC GARMENT (CAMBODIA) CO., LTD. HONG KONG 13 BRIGHT SKY PTE LTD. SINGAPORE 14 BROADLAND CAMBODIA GARMENT INDUSTRIES CO.,LTD. MALAYSIA 15 (CAMBODIA) BOLAN GARMENT & HOME TEXTILE C/L CHINA 16 (CAMBODIA) HONGMEI IMP & EXP CO., LTD. CHINA 17 (CAMBODIA) SENBAO GARMENT MFG CO., LTD. TAIWAN 18 CAMBODIA SPORTSWEAR MFG. LTD. HONG KONG 19 CAMBODIAN HOI FU GARMENT & KNITTING FACTORY MACAU 20 CAMITEX (CAMBODIA) MFG CO., LTD. TAIWAN 21 CAMWELL MFG CO., LTD. TAIWAN 22 D.A CORPORATION LTD. KOREA 23 DA JOO CAMBODIA LTD. KOREA 24 DAE KWANG GARMENT CO., LTD. KOREA 25 DAI YOUNG CAMBODIA CO.,LTD KOREA 26 DIAMOND TOWER ENTERPRISE LIMITED. TAIWAN 27 EUROPEAN TREND FASHION (CAMBODIA) LTD. GERMANY

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28 EUROGATE GARMENT LIMITED GERMANY 29 E GARMENT CO., LTD. CHINA 30 EAST OCEAN GARMENT FACTORY LTD. HONG KONG 31 EAYUAN (CAMBODIA) GARMENT CO., LTD. CHINA 32 EDA ENTERPRISE CO.,LTD. MALAYSIA 33 ECLAT HIGHTER INTERNATIONAL GARMENT(CAMBODIA) TAIWAN 34 EUROPEAN TREND FASHION (CAMBODIA) LTD. GERMAN 35 FINEGIS CAMBODIA GARMENT CO.,LTD. KOREA 36 FLYING DRAGON (CAMBODIA) GARMENT LTD. KOREA 37 FOREVER WIN GARMENT CO., LTD. HONGKONG 38 G.W ENTERPRISE LIMITED TAIWAN 39 GLOBAL TEXTILES CO.,LTD. CANADA 40 GOLDEN JET (CAMBODIA) GARMENT LIMITED HONGKONG 41 HAGAR DESIGN LTD. SINGAPORE 42 HYUNJIN (CAMBODIA) CORP. KOREA 43 HAN SUNG (CAMBODIA) GARMENT CO., LTD. KOREA 44 HIGH BORN ENTERPRISE CO.,LTD. TAIWAN 45 HENG YU KNITTING FACTORY CO., LTD. CHINA 46 HORUS INDUSTRIAL CORP. TAIWAN 47 HS ENT (CAMBODIA) CO. PTE LTD. TAIWAN 48 HUA HSI GARMENTS CO., LTD. TAIWAN 49 JIANGSU DIAO (CAMBODIA) GARMENT CO.,LTD. CHINA 50 JIN CHAN (CAMBODIA) CLOTHING CO.,LTD. CHINA 51 JUSCA GARMENT (CAMBODIA) LIMITED MALAYSIA 52 JRB ACTION TEXTILE & CLOTHING LTD. TAIWAN 53 J K FOREVER CO., LTD. TAIWAN 54 KONG HONG GARMENT CO.,LTD. CAMBODIA 55 KP APPAREL MANUFACTURING CO., LTD. VIETNAM 56 KINMA INDUSTRIES PTE.LTD. MALAYSIA 57 KA HING GARMENT KNITTING FACTORY CO.,LTD. BRITISH 58 KIN TAI GARMENT CO.,LTD. TAIWAN 59 KUN KOOK (CAMBODIA) CO., LTD. KOREA 60 L.A. (CAMBODIA) GARMENT PTE.,LTD. MALAY 61 LEADER'S INDUSTRIAL CO., LTD. TAIWAN 62 LEADING INTERNATIONAL CO., LTD. TAIWAN 63 MEKONG TEXTILES LTD. CAMBODIA

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64 MARLYN INDUSTRIAL CORPORATION TAIWAN 65 MING HUI GARMENT CO., LTD. CHINA 66 MIN KUAN TEXTILE CO.LTD. TAIWAN 67 NEW WIDE (CAMBODIA) GARMENT CO., LTD. TAIWAN 68 NAN KUANG GARMENT (CAMBODIA) CO.,LTD TAIWAN 69 NEW ISLAND CLOTHING (CAMBODIA ) LTD BRITISH 70 NEW MAX GARMENT CO.,LTD TAIWAN 71 NOW CORP. KOREA 72 NEW WIDE (CAMBODIA) GARMENT CO., LTD. TAIWAN 73 NIMBUS TEXTILE (CAMBODIA) CO., LTD. CHINA 74 PHNOM PENH GARMENT CITY LTD. CAMBODIA 75 PHNOM PENH KNITTING (CAMBODIA) CO., LTD. CHINA 76 PHONG WAN ENTERPRISE CO.,LTD. TAIWAN 77 PANTESSA GARMENT (CAMBODIA) TAIWAN 78 PAK SHUN KNITTING FACTORY LIMITED CHINA 79 PERFECTA (CAMBODIA) GARMENT CO.,LTD. TAIWAN 80 P.D.C. GARMENT LTD. HONG KONG 81 PINE GREAT (CAMBODIA) GARMENTS CO., LTD. CHINA 82 PEACE GLORY (CAMBODIA) MANUFACTURING CO., LTD. CANADA 83 PCCS GARMENTS LIMITED HONG KONG 84 QSP APPAREL LTD. USA 85 QUALITY TEXTILES CO.,LTD. MALAYSIA 86 ROYAL CROWNTEX INTERNATIONAL INC. USA 87 RAO YUAN GARMENTS CORP TAIWAN 88 RIVER RICH TEXTILE LTD. CHINA 89 RAO YUAN GARMENTS CORP. TAIWAN 90 SAN FONG INTERNATIONAL CO.,LTD TAIWAN 91 SANGWOO (CAMBODIA) CO., LTD. MACAO 92 SUN SHINE CO.,LTD. TAIWAN 93 S.H. INTERNATIONAL CO.,LTD. KOREA 95 SAN SAN GARMENT (CAMBODIA) CO.,LTD. INDONESIA 96 TACK FAT GARMENT (CAMBODIA) LTD. HONGKONG 97 TACTICIAN INTERNATIONAL CO., LTD. TAIWAN 98 UNIVERSAL APPAREL (CAMBODIA) CO., LTD. CHINA 99 VINSTAR GARMENT INDUSTRY CO., LTD. TAIWAN 100 VIVATINO DESIGN (CAMBODIA) PTE. LTD. MALAYSIA

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101 VIOLET APPAREL (CAMBODIA) CO.,LTD. MALAYSIA 102 VOLOMECOCOMO APPAREL (CAMBODIA) INC. KOREA 103 WALL MARK ENTERPRISE (CAMBODIA) CO.,LTD HONGKONG 104 W & D (CAMBODIA) CO., LTD. TAIWAN 105 WEARWEL ( CAMBODIA ) LTD. INDONESIA 106 WONREX (CAMBODIA) CO.,LTD. TAIWAN 107 WOOSU CNS (CAMBODIA) CO., LTD. KOREA 108 XIN FANG (CAMBODIA) GARMENT MANUFACTURING LTD CHINA 109 XIN LAN (CAMBODIA) GARMENT CO., LTD. CHINA 110 YAKJIN (CAMBODIA) INC. KOREA 111 YEE WO (CAMBODIA) GARMENT & WASHING CO.,LTD HONGKONG 112 YGM (CAMBODIA) LTD. HONGKONG

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BIOGRAPHY

Yin Yanno was born on the 2nd of June 1968 in Phnom Penh, Kingdom of

Cambodia.

He holds the degree in Bachelor of Business Administration (BBA) from the

National University of Management, Cambodia in 1994.

He worked for ASEAN Department, Ministry of Commerce of Kingdom of

Cambodia since 1994 to July 2005.

July 2005, he received a scholarship from Thailand International Development

Cooperation (TICA), Ministry of Foreign Affairs, Kingdom of Thailand for his Master of

Business Administration (MBA), in the field of International Business at the University of

Thai Chamber of Commerce (UTCC), Bangkok, Thailand.

Currently he is completing his Master of Business Administration (MBA) at

UTCC and is expecting to graduate in 2007.

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