For decades, Cambodia’s economic growth has been stitched together by the garment and footwear industry. The sector employs more than 700,000 workers—mostly women—and contributes roughly 40% of the country’s total export revenue, according to government and World Bank figures. Low wages and preferential trade access helped Cambodia become a global apparel hub, but by 2026, that model is showing its limits. Rising competition, shifting global supply chains, and pressure to improve labor standards are pushing the country to look beyond low-cost manufacturing.
Cambodia is now actively repositioning itself as a more diversified manufacturing base. New investment data from the Council for the Development of Cambodia (CDC) shows rising approvals in electronics assembly, bicycle manufacturing, agro-processing, and light industrial components. Foreign direct investment inflows reached an estimated USD 4 billion in 2024, with China, South Korea, and Japan among the largest contributors. Much of this investment reflects the broader “China+1” strategy, as multinational firms seek to reduce concentration risk by expanding production elsewhere in Southeast Asia.
“Garments will remain important, but they are no longer enough,” said an economist at the Cambodia Development Resource Institute. “The country is moving up the value chain, slowly but deliberately. What matters now is productivity, skills, and reliability.”
Special economic zones (SEZs) near the Thai and Vietnamese borders are playing a critical role in this transition. These zones offer tax incentives, streamlined customs procedures, and improved transport links to regional ports. As a result, they have become magnets for export-oriented manufacturers. Bicycle manufacturing stands out as a success story: exports have grown at double-digit rates annually since 2022, making Cambodia one of the world’s top suppliers to European markets under preferential trade schemes.
The government sees SEZs as testing grounds for broader industrial reform. “We want to create ecosystems, not just factories,” said a senior official at the Ministry of Economy and Finance. “Investment must come with skills transfer and better jobs.”
Yet significant constraints remain. Skills shortages are among the most pressing. The Asian Development Bank estimates that only about 20% of Cambodia’s workforce has received formal vocational or technical training. Many firms still rely on on-the-job training, limiting productivity gains and deterring higher-value investment in electronics and precision manufacturing.
Wages are another balancing act. Cambodia remains competitive compared with Thailand and Vietnam, but rising living costs have increased pressure for wage growth. Labor unrest in the garment sector has underscored the need for better worker protections as the economy diversifies.
In response, the government has expanded public–private training partnerships, updated technical curricula, and revised labor regulations to improve compliance while maintaining investor confidence. International development partners are also funding skills programs focused on engineering, quality control, and industrial management.
Whether Cambodia can sustain this transition will depend on execution. Diversification offers a path to resilience, but only if productivity gains are shared broadly. As one factory supervisor in an SEZ put it, “We don’t want to leave garments behind—we want to build on them.” Cambodia’s challenge in the coming years will be ensuring that moving beyond the garment floor lifts workers, not just output.
