Development Policy and International Relations
By Khov Ea Hai
Phnom Penh, Jan 11, 2016
The ideas of moving Japanese labor-intensive production bases from both China and Thailand has been widely discussing around. There are at least number of reasons could explain this relocation of their labor-intensive productions. In Thailand, the political unrest, natural disasters, rising wages and labor shortages have sparked up a new economic outlook for Japanese business community for their consideration on finding new bases. Japanese companies have set out its plans and strategies to move some parts of its productions to put in some Thai neighbours such as Cambodia, Laos and Myanmar. This is so called “Thailand-Plus One strategy.”
Ideally, it has been inspired by China-Plus One concept. The rising of labor cost, ongoing structural reform in China, and disputes over islands in the East China Sea causing the anti-riots in Beijing and Shanghai have brought Japanese the backup plans for their labor-intensive production bases.
Thailand has strategically managed to capture the outflowing investment to its neighbours by establishing lots of Special Economic Zones along the border areas of Cambodia, Laos and Myanmar. As reported by the Bangkok Post, Thailand plans “to establish five special economic areas along the borders and have seven more in the next phase.” To do so, it is able to keep some production bases in its territory while at the same time probably exploiting cheap labor from CLM countries.
What should be done
In order to capture the outflowing investment from Thailand-Plus One, Cambodia should have a generous policy supporting industries by reviewing investment law, establishing more Special Economic Zones both in towns and border, and providing other incentives. There is a need to reexamine regularly on the investment law, policies, and incentives to keep it more attractive for foreign investors.
Nevertheless, the condition of infrastructure and the connectivity of Cambodia with its neighbours are also imperative to attract more investment to come in. Cambodia geographically locates in between Thailand and Vietnam. It is therefore important for Cambodia to make use of it. On the top of that, maintaining stable macroeconomic condition, securing energy supply, promoting transparency and accountability are the key to draw Japanese firms for more relocating inside Cambodia. Cambodia actually has a very dynamic and young population in which it produces opportunities for long-term investment for labor-intensive productions. Simultaneously, young and cheap labor are not attractive enough. Cambodia also have to have a package of policies to invest on vocational training and capacity building to promote skill and competitive labor force.
Although the Thailand-Plus One is motivated by the concept of business community, but the vigorous diplomatic relations of both governments is another integral part in this connection. Additionally, the domestic political stability and foreign investment protection from government are additional ingredients for foreign investors’ consideration as well. The government, therefore, has a role to play and intervene on providing security for their production bases in this sense.
Since the Royal Government of Cambodia has recently introduced Industrial Development Policy aiming to provide a guiding principle to build up an industrial foundation for boosting the economic growth in long term perspective and at the same time moving to join the Lower Middle Income Countries. Therefore, the Thailand-Plus One and probably also China-Plus One in this regard are matching with objectives to seize the opportunities in diversifying its economic base and to catch up with regional and global value chains.
 Board of Investment of Thailand (BOI), Issued on 2015-25-03