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| Chhim Thoeun was beaten and jailed. Credit: Megha Bahree |
Wage Wars Unravel Stitches Of Cambodia's $5B Garment Sector
This story appears in the September 8, 2014 issue of Forbes Asia.
In
mid-August a team of lawyers for U.S. private equity firm Carlyle Group
arrived in Phnom Penh to look into operations of a Korean garment
manufacturer with factories in the Cambodian capital. The company,
Yakjin Holdings, was at the pivot of labor disputes that rocked the
country at the start of the year. Five people were killed and 38 injured
in an army crackdown on strikers. One is still missing.
Since then a key investor in Carlyle–the California Public Employees’
Retirement System, or Calpers–has been raising questions on the labor
strife and use of military force. Activist groups got the pension fund’s
ear, and Carlyle, nearly eight months after the fact, sent in the team
to find out what exactly happened. (The firm didn’t respond to e-mailed
inquiries about its findings.)
Chhim, 27, works at Yakjin, in which the Carlyle Group through one of
its funds had just picked up a 70% stake. He had spent the morning at a
rally outside the Yakjin factory, where he’d been employed a year.
Others had been arrested, but he was back in his room when he heard that
opposition parliamentarians were at the factory. Chhim made the
five-minute walk back but was quickly surrounded by five men in military
uniform and two in plain clothes. They threw him down, beat him with
batons and kicked him with their heavy military-issue shoes, he says.
“I was covering my head with my hands,” he recalls. By the end of the
thrashing, which lasted for what he thinks was several minutes, “my
hands were bruised, the skin and knuckles torn and covered in blood.”
On that and the next day the military put down protests there and in
another part of the city–the Canadia Industrial Park, which has close to
120 factories–firing assault rifles, according to news accounts and
activists. Demonstrations had started on Christmas Eve–the same day that
Carlyle announced its stake in Yakjin–when the government refused to
double the monthly minimum wage to $160. Chhim was one of 23 people
arrested and jailed for five months.
Cambodia, where half the population of 15 million is under the age of
25, is one of Asia’s poorest countries. But it was an early qualifier
for membership in the World Trade Organization and has been averaging a
growth rate near 7% since 2010, driven by the garment sector, as well as
construction, agriculture and tourism.
Garment work employs 400,000 people. Last year it led to export of $5
billion in goods, accounting for nearly a third of GDP, says U.K.-based
risk analysis firm Maplecroft. Companies from Korea and Greater China
own many of the factories. While this has helped pull hundreds of
thousands out of abject poverty, the sector has some of the lowest
industrial wages in the region (China’s have risen far ahead) and
working conditions that aren’t much better.
Evenhanded rule of law is particularly suspect in Cambodia, and when
the army was called in to the garment protests last January some said it
was at the behest of Korean employers. (In response to detailed
questions a Yakjin spokeswoman only pointed to an earlier statement:
“Yakjin was not involved with this tragedy, either directly or
indirectly. We did not ask either the Korean or Cambodian government to
intervene.”)
Garment sector workers protesting in Phnom Penh. credit: Tang Chhin Sothy/AFP/Getty Images
Observing that “the longer the government waits, the more force it has to use,” Loo adds, “Some unions have said to us the police shouldn’t use guns if the demonstrators don’t have guns. You have to be crazy to say that.”
Yakjin, a 35-year-old company, was founded by the father of CEO Yong-Ro Cho, who retains a 30% interest. It manufactures for Gap (including its sister brands Old Navy and Banana Republic), American Eagle Outfitters, Wal-Mart and Victoria’s Secret. In the year ending last September it netted $18 million on revenues of $361.5 million, the highest to date.
Yakjin set up its first factory in Phnom Penh in 2005, soon after Cambodia joined the WTO in the face of skepticism. Although the trade status, normally reflective of a more established economy, helped attract foreign capital, “it has also failed to drastically improve working conditions,” says Ryan Aherin, senior Asia analyst at Maplecroft. “Workers are getting fed up with a situation where investments are coming in, but they’re not seeing as much benefit.”
The January killings weren’t the first for the sector. In February 2012 authorities shot to death three workers protesting at a factory that supplies to Puma, according to a report by the Asia Monitor Resource Center in Hong Kong, a labor NGO. Last November military police shot ten people, killing one, at a march by striking workers at a factory that supplies Levi Strauss, Gap and H&M, the group says.
On a Saturday in August Chhim and others were back at work at Yakjin’s older factory. (A second opened miles away in 2012.) Cambodian and Korean flags were flapping at the compound. A dozen or so plants dot the road on the outskirts of Phnom Penh. At lunchtime workers streamed out and hawkers sold soup, rice, baguettes, raw meats and vegetables from stalls outside the factory gates. Along an unpaved, rutted road, an open sewer competed with the food for buzzing flies.
Chhim takes his hour break back in his nearby room, down a corridor with others just like it. He stops outside to check the pockets of a few clothes, including a pair of jeans, hanging on a rope to dry. That’s where he and his three roommates store the shared key.
There’s not much to steal inside. One corner of the 9-by-10-foot space, which includes a toilet, has a small stove and some dishes piled up. In another there’s a sewing machine and small plastic bags stuffed with clothes. One wall, against which green mosquito net is rolled up, is plastered with posters of Cambodian, Thai and Korean actresses.
A native of Svay Rieng province that borders Vietnam, Chhim came three years ago in search of work, in the footsteps of a sister who moved to Phnom Penh and found a job at Yakjin, where she, too, remains. Their parents are farmers who could barely feed their six kids.
In his job Chhim stands for eight hours (or more, if he’s doing overtime), six days a week, counting and packing clothes in a box. There’s scant opportunity for promotions or growth. Ever since he rejoined after his jailing, he says, supervisors at the factory have denied his requests to be transferred to another team that is a part of the union, which he backs.
“They repeatedly tell me not to join the union,” he says.
(In an Apr. 25 letter that Carlyle cofounder David Rubenstein wrote to a Calpers official, which was shown to FORBES ASIA, Rubenstein says that Yakjin, after the protests, reaffirmed in meetings with its employees their right to form unions.)
Chhim earns roughly $150 a month after 30 hours of overtime. Between his sister and him, $100 a month gets
sent home.
While Chhim is content to be back at Yakjin despite the beating and jail time, a worker in the Canadia district who was behind bars with him, Pang Vanny, is still soured. He suffered in the worse violence that happened on Jan. 3 in that area of town. Pang lives in even lesser quarters there and, though he was grudgingly rehired by a Hong Kong-owned company after his release, he’s had enough.
“After everything that has happened, I don’t want to work in the factory anymore,” he says. “But I need the money and don’t have the ability to do anything else.”
The workers’ squalor and meager meals, together with what activists say is poor ventilation, high temperatures and toxic fumes on the job, have led to reports of mass faintings at some plants.
Workers recovering from “mass faintings”. Credit: REUTERS/Samrang Pring
High temperatures, poor ventilation, toxic fumes lead to “mass faintings”. Credit: REUTERS/Samrang Pring
In February the government agreed to increase the minimum wage to $100 a month, from $80, but still far short of the $160 that was demanded for 2014.
Since January the government has banned public gatherings, and the ministry of labor has been slow in approving any new unions. For their part, companies terminated jobs of 168 workers (many were reinstated after pressure from foreign buyers) who are members and leaders of plant-level unions, activists say. Loo’s group, meanwhile, filed lawsuits against unionists, seeking damages for lost profits and alleged property damage.
And it’s not over. Negotiations for next year’s pay hike will start this fall. The unions are demanding $177 a month. The owners have said they cannot afford that. Will having America’s largest public pension fund as an indirect investor make a difference? There may be stronger forces at play in a world waiting for new clothes.
