Tiffany & Co. is quietly building a diamond-polishing factory in Cambodia, a country popularly associated more with killing fields and land mines than baubles.
Some of Japan’s biggest manufacturers are also rushing to set up operations in Phnom Penh to make wiring harnesses for cars and touch screens and vibration motors for cellphones. European companies are not far behind, making dance shoes and microfiber sleeves for sunglasses.
Foreign companies are flocking to Cambodia for a simple reason: They want to limit their overwhelming reliance on factories in China.
Problems are multiplying fast for foreign investors in China. Blue-collar wages have surged, quadrupling in the last decade as a factory construction boom has coincided with waning numbers of young people interested in factory jobs. Starting last year, the labor force has actually begun shrinking because of the “one child” policy and an aging population.
“Every couple days, I’m getting calls from manufacturers who want to move their businesses here from China,” said Bradley Gordon, a U.S. lawyer in Phnom Penh.
But multinationals are finding that while they can run from China’s rising wages, they cannot truly hide. The populations, economies and even electricity output of most Southeast Asian countries are smaller than in many Chinese provinces, and sometimes smaller than a single Chinese city. As companies shift south, they quickly use up local labor supplies and push wages up sharply.