Friday, 11 July 2014

The arithmetic of Greed

“[I hope] this year that the buyer continues to place the same quantity of orders – which I doubt. In reality they will not do that; we will expect 20 to 30 per cent losses of orders. We might expect some buyers to reduce prices because they can say, ‘I take the risk in a place like Cambodia’, because it is a country of risk – which is happening.”

“The intervention of police to secure law and order is appropriate. There must [be] collateral damage, ok, so we have to expect that.”

Van Sou Ieng, president of GMAC (the Garment Manufacturers Association in Cambodia), 7 January, 2014

So, according to Van Sou Ieng, garment factories lost out on some $200 million in profits during the 50 days of industrial upheavals. If he is not lying, he has just forgone $200 million profit to save $79 million in labour cost. It seems GMAC may just be excellent in running a laughing academy.

From some of the industry financials Van Sou Ieng has disclosed, without the loss of the 50 production days, the annualised industry profit would be about $1,460 million, which is approximately 26% of sales.

If GMAC agreed to double the monthly wage to $160 as the workers demand, the extra cost to the whole industry during those 50 days would be about $79 million, assuming that the industry employs a total of 600,000 workers. This means the garment factories would still make $1,381 million – a still handsome 25% of the total sales. Their future profit could be more as the $160 minimum wage would keep their workers happy, healthy, and motivated. Any decent management and school will say nothing can improve profitability like happy, healthy, and motivated workers.

Hence, it seems the tenacious greed – or it may simply be an uncontrollable stupidity – that drives GMAC to shoot themselves in the foot. Now they are facing an unnecessary dark prospect, in addition to the loss of $200 million profit: increased costs in production and delivery catch up, significant loss of orders, future business uncertainty and risks in the eyes of buyers, and damage to reputation of Cambodian garment workers. They become too blind to see the collateral damage done to their industry profit resulting from the barbaric treatment of their workers who have brought them so much profit year in and year out.

Then again, it may just be a display of awesome power of those to whom money is no object.

Ung Bun Ang


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