A survey of clothing, footwear and travel goods factories in Cambodia has found that almost three-quarters have been seeking new buyers from outside the United States to cushion the impact of looming US tariffs.

In March, Eurocham Cambodia estimated that the US market accounted for 39% of the sector’s exports, which came to US$13.6 billion last year.

The survey by the International Labour Organization ( ILO ) and the International Finance Corporation ( IFC ) finds that 26% of respondents have secured new buyers or markets. A further 44% have been actively looking but have not found any yet.

Published on June 27, the 12-day survey in May received responses from 315 factories, of which 203 were deemed valid for analysis.

‘Generally positive’

“Many are seeking to diversify their customer base and exploring new markets beyond the United States, while engaging in ongoing dialogue with existing buyers,” says the report on the survey, conducted by Better Factories Cambodia, a joint ILO-IFC initiative.

Some factories, however, remain constrained by limited resources and are awaiting government direction before making significant changes.

“Despite the difficult environment, the survey indicates a generally positive short-term business sentiment, with 65% of respondents expressing optimism about their factory’s outlook over the next three months.”

The survey finds that 55% of the factories had confirmed orders for the next three to six months and 30% had secured orders for six months or more. But 25% either had no confirmed orders or orders for only a few weeks.

Regarding operational sustainability, 44% could continue operating at current capacity for at least three months, 40% were able to sustain operations for one to three months, and 8% for less than one month.

“In the context of a sector already characterized by flexible and fast-moving production decisions, these results suggest firms are vulnerable to a sudden reduction in orders that could result from the imposition of significant tariffs within a major export market,” the report says.

“As witnessed during the demand shock prompted by the Covid-19 pandemic, sudden disruptions in orders hold the potential for negative business outcomes and repercussions for workers, including the possibility of retrenchments, worker suspensions, and dismissals.”

In terms of buyer relationships, 22% of the factories reported orders discontinued by at least one buyer in the first quarter of this year. Almost half of these had their orders halted by multiple buyers.

Buyers seeking discounts

On pricing pressures, 27% reported buyers seeking discounts for new orders this year, “which provides some indication of the willingness of buyers to shift costs on to suppliers in an environment where new tariffs could increase costs to buyers importing goods”.

Under Cambodian law, all clothing and footwear factories exporting their merchandise must partner with the Better Factories Cambodia initiative. For companies in the travel goods sector, such partnerships are optional.

Twenty-five of the 45 international brands partnering with the initiative are based in the US.

Under the “reciprocal tariffs” on merchandise imports announced by the US government on April, Cambodia faces a levy of 49% – the highest in  Southeast Asia – in addition to baseline tariffs of 10% on most goods entering the United States that went into effect on April 5. Initially scheduled to start on April 9, the tariffs are now expected to come into effect on July 9.

Framework agreement

Cambodia says it has already agreed with the US on a draft joint statement on a framework for reciprocal trade.

According to the Office of the Council of Ministers, the agreement came during a virtual meeting on July 4 between an ad-hoc working group led by Deputy Prime Minister Sun Chantol and Sarah Ellerman, the assistant US trade representative for Southeast Asia and the Pacific.

The draft joint statement on the framework agreement “will be released to the public soon”, the office says.

Chantol is also first vice chairman of the government investment agency, the Council for the Development of Cambodia.