Wages have been spiralling upward for years in Cambodia but regional economic uncertainty reflecting locally, things are about to change. Cambodia’s labour market is at a crossroads, with a number of powerful forces converging in a nexus that has the potential to drag us into a new phase of the perpetual business cycle.
Across the board, the quality of local employees – from entry-level to executive – continues to rise, matching, and in many cases exceeding, the foreign counterparts who have long held a near-monopoly on the most sought after positions. The competition is strong, however, and middle managers – good middle managers—are harder than ever to find; their salaries have spiked due to their scarcity, making them more difficult than ever to retain.
The Labour Law, developed in 1997 but mostly dormant for 10 years after that, is being applied more fully than ever, with international companies demanding international standards, allowing employees to do the same. Expectations have risen across the board. On the back of many consecutive years of intense growth, the private sector has now well and truly taken over as the greatest driver of salaries in the Cambodian economy, displacing the non-profit sector by enticing the best employees across the divide with the means to offer better remuneration and benefits than ever before.
The key in a slowdown phase is to reduce fixed costs, which employers will do immediately – they are always first to adjust – and wages are one of the first places to make cuts
But the economy – both globally and regionally – is slowing, and investment here is sure to take a dive. As a leading investor, all eyes are on China as its economy wavers in uncertainty. The situation is tense.
Locally, two pillars of the Cambodian economy – tourism and agriculture – are in the midst of a noticeably poor season, with visitor numbers slowing at the number-one drawcard, Siem Reap, and a long dry season restricting the yields of rice and other crops. The other two pillars – garments and construction – are on unsteady ground, with the newly-signed Trans Pacific Partnership set to shake up global trade patterns, including the garment sector, Cambodia’s biggest employer, while a scent of doubt drifts across the construction sector even as buildings continue to rise into the Phnom Penh skyline despite many remaining partly vacant.
This all amounts to a test of the Cambodian economy, perhaps the biggest since it modernised more than 20 years ago. Things are changing fast and something has to give.
“The economy – both globally and regionally – is slowing, and investment here is sure to take a dive.”
– Amaury de Saint Blanquat, Managing Director, Saint Blanquat & A.
Why Is Middle Management So Expensive?
The short answer is that it’s because they are the best. The explanation is not so simple. As employers do not place all their faith in resumes and diplomas, most university graduates go into a professional setting on roughly the same entry-level salary of $180 to $300, regardless of what they have studied or how well they performed (Cambodians who have studied overseas receive slightly more, up to $400, because they are seen to be further in tune with international standards and expectations).
Those who show something extra – the faster thinkers and advanced English speakers – have been quickly identified and given extra responsibilities in their job and then, in turn, extra pay. It really does not take much to stand out from the crowd, get the attention of the bosses, and then the salary can just go boom. Your fast tracker then becomes a recruitment target for other firms, who might offer them up to $600 and a title of supervisor or junior manager, capitalising on your work. So, you are left with a decision: raise the salary or lose your young achiever.
Employers have been forced, as such, to adapt very quickly to rising costs, with some young achievers able to almost double their salaries every time they move – which many are doing every couple of years, or sooner. This process repeats itself all the way up the employment ladder and is one of the main reasons we now have a class of young, relatively inexperienced Cambodian middle managers, earning anywhere between $500 and $1,200 a month – better than in many other ASEAN countries.
Local companies that might have started here 15 years ago with a team of two are expanding operations, and staff, which has also stretched resources. These employers and others are more than ever leaning toward an increasingly capable class of young Cambodian professionals, who also come with the obvious benefits – language, local knowledge – of hiring local. And with the international companies have come the international standards and a focus on corporate social responsibility, which employees have certainly tapped into.
When I founded my company in 2012, Cambodians did not ask for insurance; now it’s completely different. Local employees demand insurance, annual leave, public holidays, allowances and phones. And so they should – that’s all in the labor code. The game changed and we have seen the candidates driving the market, completely, with many executives calling for salaries up to $4,000.
To Get Where You’re Going, Know Where You’ve Been
This economy we now work within was rebuilt with the money of foreign donors and NGOs, which have remained one of the biggest and most consistent employers since arriving some 24 years ago. Prior to that, there were literally almost no jobs in post-war Cambodia – the only formal higher education came for the lucky few sent to countries such as the USSR, East Germany and Cuba. Then, in 1992, the first non-profits arrived, employing thousands of locals and injecting a much-needed boost into a stagnant economy.
In the late 90s, the garment industry took off, with employers making use of a large pool of cheap labour; and then tourism became a serious money-spinner, employing people across a range of industries as Cambodia became open to the world. But until recently the non-profit sector remained the greatest driver of salaries, handpicking the best talent and paying them much more than anyone else could offer, equipping them with all sorts of skills along the way.
Then, after a number of false starts, the private sector began to truly emerge in 2008 and 2009, with international companies and investors following a wave of local success into Cambodia, causing the labour law to be dusted off and eventually turning the labour market on its head.
The non-profits no longer dominate the employment market; it is often the private companies doing the headhunting, targeting the best from among the pool of professionals and offering salary packages too good to refuse. As a result, an avalanche of technical skills has rushed back into a thriving private sector over the past three years, and with it, salaries have rocketed.
Salaries in the Construction Industry
The boom in construction has two immediate effects on staff and their employers:
– Salaries have increased by upwards of 30% in the past three years.
– Technical competencies are more essential as projects increase in size and complexity.
As a result, attracting staff with skills and profiles has become increasingly difficult, and the shortage has driven expectations even higher. Employers need to provide more than just a competitive salary to get basic staff, and workers are demanding as much: accommodation, food allowances ($1/day), insurance, and a safe working environment.
The Coming Shift
Global stock markets have been off to a shaky start in 2016. China, which pours hundreds of millions of dollars into the Cambodian economy each year via investments, loans, grants and employment, experienced its slowest growth rate in a quarter century in 2015. Across Asia, investors are warily waiting out the economic slowdown, including here, where the number of construction cranes in the city skyline could be a false guide to the future. The four pillars of the Cambodian economy – garments, tourism, agriculture and construction – are each experiencing some turbulence, and that is only compounding the worries of investors, who are already holding their collective breath as the construction industry threatens to fall off the edge, global trade deals come into effect, and elections loom in 2017 and 2018.
The non-profits no longer dominate the employment market; it is often the private companies doing the headhunting, targeting the best from among the pool of professionals and offering salary packages too good to refuse.
Being a small market, Cambodia’s economic cycles are fairly brief and equally dramatic – as we have seen, when we are growing, we are growing fast, people are being employed and up-skilled. And when there is a slowdown, it strikes fast and companies go bankrupt, leaving employees out in the cold. We are entering a new part of the cycle.
Growth is predicted to slow in 2016, and that will have an immediate effect on salaries, which have peaked alongside years of intense growth. Expensive expats are already losing jobs. The hiring of executives on $7,000 salaries with schooling packages for the children will stop, for a while at least. People are going to have to reassess.
The key in a slowdown phase is to reduce fixed costs, which employers will do immediately – they are always first to adjust – and wages are one of the first places to make cuts. Employees tend to adapt slowly, however, and will likely continue to demand the same salaries they have become accustomed to, for a few months at least. And many of them will not find a job. In the long run, though, the market will adjust, as it always does, and, one way or another, our employment cycle will have entered a new era.
A remuneration package is more than just a salary: Each job offers fringe benefits that must be taken into account, and some of them are more important than others. The following are becoming more entrenched in the Cambodian employment market, and are worth considering.
– Respect of annual leave (18 days per year) and public holidays.
– No work on Saturday. More and more companies work from Monday to Friday, 40 hours per week, even though the legal working time is 48 hours.
– Decent accident and health insurance.
– A phone allowance ($10 to $50 per month), as most Cambodians will use their personal phone at work.
– Paid sick leave, often limited in internal regulations to five to seven days per year.
– Meal/travel allowance of $1 to $2 per day, particularly for those travelling from the provinces (specific to the construction industry).
Illustration by Hamid Saatchi