Cambodia has introduced a minimum wage for workers in the garment and footwear industry. So, global brands that source their products from the country have to play a part in helping the industry to absorb the increase in costs. Wage bills will go up by approximately 18.7 per cent. The new minimum wage came into effect on January 1, 2015.

The rise comes in the wake of other adjustments since 2012 that have seen minimum wages increase. At the same time, prices that Cambodian factories receive in their main markets have been stagnating or declining. Caught between these two forces, factories have seen a substantial fall in their operating margins over the past three years.

In principle, factories can respond by increasing efficiency, using measures that range from better work organization to energy conservation. However, these steps will only enable factories to cover a small share of the expected wage increase. The expected wage increase is far higher than what can be generated through efficiency gains.

To cover the shortfall, and assuming other costs remained the same, its estimated global brands would need to pay Cambodian factories between 2.4 and 3 per cent more. Factories can handle the raised wages only if labor productivity goes up sufficiently.