PHNOM PENH, Cambodia — Inside a gleaming white-and-blue garment factory in Cambodia stand rows of second-hand Singers — weathered sewing machines transported from a plant in China that closed last year.
The Hong Kong-headquartered Top Form, which has 700 workers at the plant, is one of many businesses that have moved to Cambodia, mostly from China, in the past year or so to take advantage of its lower wages, which are roughly a third of those in China.
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Double-digit wage increases in China and a shortage of labor for factory work have prompted several companies to move to Vietnam, Bangladesh, Indonesia and other cheaper countries.
Angie Lau, chief executive of bramaker Clover in Hong Kong, says that her company has found operating in Cambodia easier than in India, where it also operates a plant, and that productivity at the Cambodian plant is rising fast toward levels seen in its Chinese factories.
Cambodia, a country of just 15 million, is seeing its economy transformed by the influx, and new factories are sprouting up around its capital, Pnomh Penh, and near the Thai border as investment also shifts from Thailand.
The inflow of investment picked up sharply last year, as Hong Kong Chinese companies and Japanese companies sought cheaper labor. Peter Brimble, senior country economist for the Asian Development Bank, estimates that overall foreign direct investment will jump to $1.5 billion in 2012, up from $850 million in 2011, because of investment in manufacturing, agriculture and the financial sector.
Larry Kao, general manager of Medtecs, a Taiwanese company, which produces surgical suits at its 4,000-employee factory in the Kampong Cham province in the central lowlands of Cambodia near Vietnam, quips: “So many foreign companies are competing for workers, we wish the population would double.” Kao estimates factory wages have risen to $110 to $130 a month, compared with $85 to $100 three years ago. However, that is still less than China’s factory wages of $400 a month.
In addition to mainland Chinese and Hong Kong investors moving jobs from China, several Japanese companies have invested in the country in the past year, especially in the area close to the Thai border.
In early December, Hun Sen, Cambodia’s prime minister, attended the groundbreaking ceremony for a mall in Pnomh Penh being built by Japan’s Aeon, whose president promised to invest in four more.
The languid tempo of the city’s traffic is changing with many sport-utility vehicles — some driven by Chinese businessmen — muscling their way through the streets, and Chinese restaurants are packed with executives from mainland China.
However, with such a surge of investment comes problems ranging from wage inflation to land grabs as industrialization proceeds apace. Medtecs saw a three-day strike last year — partly over wages — and Kao considers himself lucky because his factory only has two unions. “I have heard of factories with 14 unions, which would be like having so many wives,” he says.
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