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MARKET OPPORTUNITIES FOR CAMBODIAN HIGH VALUE SILK IN EUROPE

CAMBODIAN EXPORT DIVERSIFICATION AND EXPANSION PROGRAM (CEDEP I): HIGH VALUE SILK COMPONENT

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TABLE OF CONTENT

MARKET OPPORTUNITIES FOR CAMBODIAN HIGH VALUE SILK IN EUROPE .................................... 1

BACKGROUND.................................................................................................................................................... 3 1.1 OBJECTIVE ...................................................................................................................................................... 4 1.2 METHODOLOGY ............................................................................................................................................ 4

2 MARKET CONTEXT ................................................................................................................................. 4 2.1 THE EUROPEAN MARKET FOR HANDMADE PRODUCTS: A CONTINUOUS GROWING

SECTOR ............................................................................................................................................................................ 4 2.2 OVERVIEW OF POLICIES AND REGULATIONS ................................................................................. 5 2.3 MARKET COMPETITION ........................................................................................................................... 7 2.4 PRODUCT DELIVERY .................................................................................................................................. 8

2.4.1 Packaging ............................................................................................................................................................ 8 2.4.2 Export documentation .................................................................................................................................. 9

3 MARKET AND DESIGN TRENDS IN EUROPE ................................................................................ 11 3.1 KEY MARKET DRIVERS ............................................................................................................................ 11 3.2 MARKET TRENDS ...................................................................................................................................... 12 3.3 DESIGN TRENDS ......................................................................................................................................... 15

4 DISTRIBUTION CHANNELS FOR CAMBODIAN HIGH VALUE SILK ....................................... 22 4.1 OVERVIEW .................................................................................................................................................... 22 4.2 DISTRIBUTION CHANNELS FOR ETHICAL FASHION .................................................................................... 23 4.3 IMPLICATIONS OF THE GROWING ETHICAL FASHION MARKET IN THE MARKETING MIX ..................... 24

4.3.1 Product ...............................................................................................................................................................24 4.3.2 Raw material ...................................................................................................................................................24 4.3.3 Production – Minimizing Risk ..................................................................................................................24 4.3.4 Trade channels................................................................................................................................................25 4.3.5 Pricing .................................................................................................................................................................25

4.4 TENDANCY IN EUROPE: A GROWING LOW AND HIGH-END MARKET SEGMENTS ........ 25

5 UNDERSTANDING MARKET EXPECTATIONS: LESSONS LEARNED FROM THE CUSTOMER SURVEY AND MEETINGS WITH BUYERS ........................................................................ 27

5.1 BUYERS’ EXPECTATIONS ........................................................................................................................ 27 5.1.1 The main expectations ................................................................................................................................27 5.1.2 Other considerations from buyers .........................................................................................................28

5.2 THE MARKET ENVIRONMENT ............................................................................................................. 30 5.3 FINANCIAL CONSIDERATIONS ............................................................................................................. 30 5.4 COMMUNICATION ..................................................................................................................................... 31

6 FEEDBACK FROM BUYERS INTERVIEWED AND MET ERROR! BOOKMARK NOT DEFINED.

7 APPENDIX ............................................................................................................................................... 36 7.1 CUSTOMER SURVEY TEMPLATE ......................................................................................................... 36 7.2 LIST OF RELEVANT TRADE SHOWS AND EVENT ......................................................................... 39 7.3 EU RULES OF ORIGIN FOR THE GENERALISED SYSTEM OF PREFERENCES ..................... 40

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BACKGROUND The International Trade Centre (ITC) is the joint agency of the United Nations (UN) and the World Trade Organization (WTO), focusing in particular on developing the export capacities of small and medium-sized businesses in developing countries. Cambodia’s recent WTO Trade Policy Review recognized the role of international trade as the driving force behind much of the country's economic growth and achievements in poverty reduction. While Cambodia strives to deepen its integration into the world trading system, the diversification of export products and markets remain a high priority. Against this background, the Ministry of Commerce initiated the design of the "Cambodia Export Diversification and Expansion Program (CEDEP I)" under the Enhanced Integrated Framework (EIF) Tier II. The main objective of CEDEP I is to strengthen and diversify export supply capacity in sectors identified by the Royal Government of Cambodia (RGC). The silk sector is one of the key priorities for export development and has thus been selected – along with rice – as a key focus sector under CEDEP I. ITC was requested by the RGC to be the Main Implementing Entity for the silk component. The assistance to the silk sector requested by the Government under CEDEP I aims to enhance the competitiveness of the sector and to increase exports of high value silk products with a beneficial impact on poverty reduction and employment, particularly among women. The High Value Silk Project focuses more particularly on:

1. Developing overseas markets for a group of target exporting silk producers and their respective production networks of weavers in rural villages;

2. Strengthening the ability of those same exporters to meet product design and quality requested by import markets;

3. Establishing transparent and consistent channels for direct sourcing of quality yarn by exporters;

4. Formulating a Silk Sector Export Strategy and an Action Plan to help the sector position and market high-value Cambodian silk strategically;

5. Developing a mechanism to organize the stakeholders in the sector – the National Silk Board – in charge of implementing the sector strategy in a coordinated and effective manner.

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1 INTRODUCTION

1.1 OBJECTIVE The objectives of the work carried out to explore market opportunities for Cambodian high value silk in Europe are two-fold:

1. Identify and establish contacts with potential buyers for high value silk products in Europe, targeting fashion houses and brands, as well as buyers of home textiles and decoration;

2. Analyze and understand the design and consumer trends, relevant purchasing patterns, buyers’ characteristics and requirements, distribution channels for high value silk products, suitable trade fairs and shows, taking into account competition from other silk producing countries.

1.2 METHODOLOGY The information was collected through:

Desk research;

A customer survey (available in the Appendix section) distributed to European buyers;

One-to-one meetings with selected buyers.

2 MARKET CONTEXT This section deals with external factors, both macro and micro-economic, that influences the business options and preferences of European buyers.

2.1 THE EUROPEAN MARKET FOR HANDMADE PRODUCTS: A CONTINUOUS GROWING SECTOR

The European Union (EU) is one of the most lucrative markets for fashion accessories and decorative articles in the world. In fact, the EU ranks among the top consumers of this product category in the global market.

Due to the divergences in tastes and interests, there is a significant diversity in the demand for home decoration and accessories in Europe. According to Eurostat statistics, total EU-27 consumption of home decoration and accessories amounted to € 13 billion in 2010. The EU-27 ranks among the leading markets for home decoration and accessories in terms of consumption. Germany was the country with the largest consumption share (23%). Italy was the second largest market for home decoration and accessories, amounting to 16%, followed by the United Kingdom (13%), France (13%), Spain (11%), the Netherlands (3.9%) and Poland (3.5%). Forecasts on consumption of home decoration and accessories indicate that, in the coming years, the market will decrease slightly or show almost no growth. This is mainly due to the worldwide economic crisis and specific related challenges in Europe i.e. financial difficulties in Spain, Greece and Italy. The EU however remains a very substantial market, sufficiently segmented to offer interesting niches, specifically for value rather than price competitive products.

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International market growth for home accessories, increased interest in “global” goods, sustainability, social and environmental responsiveness have opened-up new market opportunities for artisans and handmade products. This market is strongly influenced by fashion trends, consumer purchasing patterns, and economic conditions in the end markets (see chapter on market and design trends).

Changes in the world market may however affect market opportunities for Cambodian handmade products in the European market. These can be broadly summarized as follows:

High competition in the sector and the flood of less expensive goods from China;

Changes in legislation / certification processes affecting export sales;

The financial crisis in some European countries resulting in a downward pressure on prices and reduced capacity of importers to take stock risk;

The market need for more streamlined cost-effective buying practices;

The rise of retail direct-import buying practices that often entails smaller orders. Retailers tend to source directly from the producers, rather than buying through intermediaries such as wholesalers, in order to have better margin;

Negative perceptions about process, communication, services, amongst some international buyers who mentioned there were a lack of follow-up and communication;

Relatively complex supply chain compared to other sectors (since products are handmade, it is challenging for producers to guarantee the traceability of all the materials used), and growing concern amongst importers and consumers regarding supply chain management, related costs and sustainability (re. fair trade and environmental issues);

Low-level of technology and lack of new technical innovations in the craft production area.

2.2 OVERVIEW OF POLICIES AND REGULATIONS This chapter provides information on the EU legislation that Cambodian silk exporters need to comply with as well as information on additional non-legislative requirements that EU trading partners might request. Requirements include legislation and labels, codes and management systems. These requirements are based on environmental, consumer health and safety, and social concerns.

Legislative requirements Product legislation

Product legislation for textiles - including silk - is complex and subject to frequent modifications since textile products are in direct contact with the skin and therefore directly affect consumer health and safety. The best-known example of product legislation is the EU legislation on Azo dyes. Therefore, many producers choose to have their products tested according to labels, such as Öko-Tex 100 or SchadstoffGeprüft. These labels cover a whole set of restrictions, including the most stringent ones required by the EU and its member states, and therefore guarantee full compliance with product legislation.

Textile labeling

For textile products exported to the EU, it is compulsory that a label with washing instructions be attached (the label has to use defined symbols), along with the “made in Cambodia” label (firmly sewed).

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The European Commission has harmonized legislation regarding the names, composition and labeling of textile products in order to ensure adequate information for consumers and prevent differences in national legislations.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES:

When receiving an order, check with the client how he would like to get the labeling. For more information on standards organizations:

ISO (International Standards Organization) (www.iso.org)

GINETEX (Groupement international d’étiquetage pour l’entretien des textiles): www.ginetex.net/ginetex

Eco-label organization: Öko-Tex Association (www.oeko-tex.com) Costs related to laboratory test, if required by the buyer, will usually be paid by the buyer. All kinds of testing are variable and depend on the type of material, color, print and the testing method required from buyers. Hereunder are the most common practices: (1) Laboratory tests are required by buyers who will ask Intertek (internationally accredited laboratory) to conduct the required testing. (2) All expenses related to the laboratory testing are paid by the buyers. Therefore, exporters do not need to make provisions for laboratory testing in their costing and pricing. (3) Exporters will receive feedback information on the results of the tests. The nearest Intertek facility is located in Ho Chi Minh City, Vietnam (www.intertek-cb.com/asiapacific/vietnam.shtml).

The European REACH regulation One important regulation, mostly quoted by buyers, is the European REACH (Registration, Evaluation, Authorization and Restriction of Chemical substances) Regulation, which aims to improve the protection of human health and environment. Buyers expect suppliers to be aware of the relevant standards and requirements in the textiles industry.

Non-legislative requirements Besides legislative requirements, buyers also require specific information from producers, including for example about work conditions at production sites, Corporate Social Responsibility (CSR), vendor audits, fair trade certification. Although these requirements are

not part of official legislation and have no legal basis, they are indispensable to be competitive, secure contracts and maintain long-term relationships with buyers.

Corporate Social Responsibility

CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. It is about enterprises deciding to go beyond minimum legal requirements and obligations stemming from collective agreements in order to address societal needs. CSR covers, among others, the following principles:

A more rational use of natural resources and reduced levels of pollution through eco-innovation, voluntary adoption of environmental management systems and labeling;

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A more positive image of business in society i.e. more favorable attitudes towards entrepreneurship;

Greater respect for human rights, environmental protection and core labor standards;

Consideration of poverty reduction i.e. nationally and internationally, operating companies have a responsibility towards their employees, customers, as well as their supply chain.

SUMMARY OF THE MAIN STANDARDS FOR CAMBODIAN SILK EXPORTERS

Product safety standards

AZO dyes in textiles and leather articles: Textiles and other products that may come into direct and prolonged contact with the human skin or oral cavity need to be dyed with AZO-free dyes (in Cambodia also called German dyes). A supplier of such dyes in Cambodia is the company Dye Star. Ordering such German dyes takes about 30-45 days.

This applies to products such as clothing, bedding, towels, hairpieces, hats, footwear, gloves, scarves, handbags, purses/wallets, briefcases, chair covers, textile or leather toys and toys which include textile or leather garments.

AZO-free dyes became a standard in most industrialized countries. Sometimes, buyers request them even when they are not obligatory, for instance, for sedge mats.

Importers usually ask a laboratory to test for AZO-free dyes.

Ecological standards

Ecological standards, such as organic cotton or the exclusive use of natural dyes, are of growing importance. The use of such standards allows addressing niche markets. But ensure that the additional income from using such standards is higher than the cost involved.

Socio-economic standards

Socio-economic standards, such as Fair trade, also go along with a growing market. Buyers do not always require certification, just compliance with certain standards. They may send you a questionnaire or visit you before buying from you. Membership in the World Fair Trade Organization (WFTO), such as is the case for AAC, is an advantage.

2.3 MARKET COMPETITION

Made in Europe is a new source of competition Competition from European producers (South Europe, emerging East Europe) has been growing, as buyers tend to look for Europe-based production. European producers have the following assets:

Their proximity to the market, which becomes an increasingly important factor of competitiveness;

The change in buying process and approach i.e. demand cycles are getting shorter;

The «Made in Europe» which is becoming a strong selling point which values the European «savoir-faire».

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Competition from Asia and China Cambodian silk may face the competition of neighbored countries, China and India regarding the low and medium market segments. Silk products offered from the competitors are more affordable for a similar design and quality level.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES: A few European buyers mentioned that they are more sensitive to the prices than the product design. They will continue to buy for a cheaper price. Two market segments can be distinguished:

Higher end market segment in some countries, with a strong interest in silk products of higher value, quality and design (prices are less important);

Countries where prices are the main criteria. Cambodian exporters can build their export strategy and develop their product collection based on their abilities and willingness to address one or the other market.

Product substitution is strong but stable The buying decision is influenced by taste, style, trend and functionality. Exporters should therefore follow market trends and be flexible to use different production materials in order to limit the risk of substitution of their products (silk scarf can be replaced by a cheaper cotton scarf for example), especially in the low and medium segments. In the higher market segments, products are considered as “unique” and are therefore less subject to substitution.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES:

Some Cambodian silk products can be positioned in the higher market segments, which are less affected by direct competition and product substitution. This however requires strict product quality management.

Cambodian silk companies should apply to their product categories or concepts a wide range; combine them with other materials to create attractive new designs to differentiate their offer and attract the attention of buyers.

While consumption of large home decoration items such as couches and furniture has been declining/stagnating with the economic crisis in some European countries, products that relate to «giving» or seasonal products such as Christmas gifts or decoration have been less affected. Furthermore, sales of items such as cushion envelopes that contribute to change the atmosphere of customers’ homes have been increasing.

2.4 PRODUCT DELIVERY

2.4.1 Packaging The current transparent plastic sleeves used by Cambodian companies seem sufficient. For high-value market segments, buyers (especially the retailers) may appreciate when each

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item comes in a separate pouch. This is not the case for private labeling, as buyers will have their own pouches and packaging. On top of the plastic sleeves that serve to protect the product, buyers often request a sticker on the plastic bag with information such as the reference of the product and/or name, and color. Buyers provide this type of information after they place an order. Large buyers also often request a bar code to facilitate the dispatching of the products when they receive them.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES: Main considerations for primary packaging:

Product protection: it is recommended to use a proper packaging for better handling, keeping better shape, protecting the product, e.g. each scarf in one plastic cover;

Add value: companies may sell a more profitable product by offering an attractive packaging material, for instance a scarf in a silk pouch;

Product promotion: check with the client whether he would like to have the product already packaged in a particular design and with a special tag;

Labeling: check the kind of labeling required by the buyer on the primary packaging, e.g. a certain barcode or client label

Useful links for general information on packaging:

World Packaging Organization: http://www.worldpackaging.org

ITC PACKit: Modular information system consisting of 40 modules with an extensive coverage of packaging technology, specific product packaging, and regulations. For

further information, visit: www.intracen.org/exporters/packaging/description-of-packit-modules and www.intracen.org/about/e-shop/printed-books.

Centre for the Promotion of Imports from developing countries of the Netherlands (CBI): www.cbi.eu

2.4.2 Export documentation In general, documents for customs declaration of goods exported to the EU include:

1. A commercial invoice with basic information about the transaction, including a description of the goods, the address of the shipper and seller, the delivery and payment terms.

2. A Customs Declaration Form that includes a listing of the products shipped according to the Harmonized System or HS codes. Two originals of the form are required.

3. A packing list itemizing the material in each individual package and indicating the type of package (box, crate, drum, carton, etc.). It should specify the individual net, legal, tare, and gross weights and measurements for each package. One original and one copy of the packing list are required.

4. A Certificate of Origin (C/O): Certain countries require a signed statement as to the origin of the export item. However, in many cases, the buyer requests a C/O issued by the exporter. By showing the C/O to the Customs upon arrival in the importing country, the buyer may be subject to tax exemption or tax reduction depending on the agreements with the importing countries.

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PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES:

To allow import-tax free import to the EU, shipments of goods from Cambodia need to be accompanied by a C/O.

The C/O is issued by the Ministry of Commerce in Cambodia. Only organizations registered under the Ministry of Commerce are entitled to obtain it.

For low value consignments to the EU (less than 6,000 € including transport costs), the C/O can be replaced by an exporter statement, which needs to follow precisely a standard text as per below.

This is a low value consignment of commercial nature. The total value of these goods including product value, shipment costs and insurance is …US$ (or equivalent in €).

According to the Generalized System of Preferences (EC GSP), article 80 (b), “consignments of a commercial nature of a value not exceeding 6,000 € may be accompanied by an invoice declaration in place of Form A (annex 18 of the EC GSP). The importer is advised to check up on the country specific requirements and regulations for low value consignments with his

national customs authorities. The exporter of the products covered by this document declares that, except where otherwise declared, these products are of Cambodian

preferential origin according to the rules of origin of the Generalized System of Preferences of the European Community.

Phnom Penh, Cambodia

Date

Signature and stamp

Remark: EU customs officers may be not aware of this regulation. This can create endless discussions and goods stocked at the customs. To avoid and/or to solve this problem, it is recommended to add to each invoice the following documents:

Cover page “Rules of Origin” (a copy is available below and in the appendix);

Copies of pages 33/34 of the EU regulation about the special provisions for the export of low value consignments (a copy is available in the appendix).

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3 MARKET AND DESIGN TRENDS IN EUROPE

3.1 KEY MARKET DRIVERS

Wellness, sustainability and social responsibility As the world is becoming increasingly complex and people mentally over-challenged, customers have a greater longing than ever not only for more safety, but for a feeling of comfort, calm and balance. In this context, home textile and décor is gaining significance and represents a market segment with growing potential.

The concept of sustainability rests on three pillars: social, ecological and economical. Increased awareness of ecological issues has for instance led to demand for hybrid cars, alternative energies, organic produce, textiles or cosmetics, recycled products, etc. and paved the way for new business ideas and niche markets. A certain category of consumers want to know where the items they buy come from, how they are made and how it can affect their health or wellbeing. They are also concerned about the social impact of their consumption (e.g. child labor, fair wages).

Customers are well informed and increasingly conscious of their responsibility and ability to influence the market with their day-to-day purchase choices. People tend to ask more questions about the source and quality of a product. Historically this has been driven by a core group of fair trade importers, members of the European Free Trade Association (EFTA).

Recently, there has been a significant growth in newer, smaller, fair trade importers, who have a stronger focus on design, rather than solely charity and social aspects as it is the case for traditional fair trade organizations. Mainstream importers and retailers also tend to use the concept of fair trade to sell their products, to benefit from this growing customer demand. Products that have a proper “identity” are therefore more and more demanded.

These are products with cultural or social incorporated values, authentic products, products that use innovative techniques, craftsmanship or which combine art with functionality. This trend, combined with the fact that more and more Europeans are interested in exotic cultures, presents opportunities for - producers from developing countries, including Cambodia.

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Standardization vs. uniqueness and customization Globalization has led to the standardization of products and has blurred the boundaries of national identities. One can find the same brands all over the world; one does not need to travel to find unique designs. However, trend researchers forecast that the “global style” is coming to an end and that people look more and more for unique and authentic products, reflecting their individual taste. Customers want the origin of the products they buy to be recognizable (like for luxury brands).

Prosperity, education and mobility lead to a shift of values towards independency and self-fulfillment. There is a trend towards “mass customization”: clients emancipate themselves from mass production and want to have an influence on the manufacturing of their products. Behind the longing for the special and the unusual is the desire to stand out from the crowd. Special, unusual products are evidence of the owner’s individual taste and character and thus earn him/her recognition. In this context, search for handmade crafted products, that convey personality rather than perfection, and for old craftsmanship is increasing.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES

Most Cambodian silk companies are social enterprises working particularly with weavers in rural areas and women. This is definitely an asset for Cambodian silk companies which should benefit from this trend in the EU market, by strengthening and using strong story telling when liaising with buyers and marketing their products. Suppliers with green strategies also have a chance of gaining competitive advantage. Story telling should however not take precedence over product quality. More and more fair trade buyers are very design, quality and price conscious and no longer solely rely on fair trade credentials to expand their markets. Most fair trade organizations are positioned in the mid-market segment, which is also very priced sensitive. Product design, price and quality on the one hand, and delivery and communication on the other hand therefore remain most important purchasing factors for both fair trade and conventional markets.

3.2 MARKET TRENDS

About market trends and forecasts

Market trends are not about creating something new. They are the observation of what already exists and the interpretation of people’s behaviors and moods. Forecasts of market trends aim to anticipate future consumers’ needs (e.g. what will people want? How will they want to live? What will be important to them?). Inflationary slogans are for instance created every season to describe the latest trends such as: “urban jungle”, “retro future”, “techno folk” or “dark poetry”. This reflects a specific jargon, using catchphrases to describe a source of inspiration.

For companies, trend forecasts are a tool to understand customers’ preferences. They are useful to know and interpret to reduce the risk of bringing a product to the market for which there is no demand.

Shortened product life cycle Style trends in general are not of a long duration. Color schemes change from one season to another, and patterns or shapes do not last more than one or two years. There is not just one but various trends evolving within each style (contemporary design, retro/vintage, ethnic,

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country, etc.). Consumers also expect to have a new offer every time they enter a retail shop. Retailers therefore need to have new products on display very frequently.

Because of these changes in consumers’ expectations, buyers tend to launch new products at short intervals, reducing the lifetime of a product to a few months. Even if a product is fast selling, the retailer might not want to take the risk of reordering it again and will prefer to source new eye-catching products, reducing thus the product life cycle.

The home decoration sector has followed over the years to the characteristics of the fashion industry. It is common that companies bring out two collections a year, one in spring/summer and one in autumn/winter.

Recurrent trends and timeless products Although trends change according to seasons and themes, there are elements that remain, called “recurrent themes” or “timeless products”.

For example, color schemes remain lighter and brighter in spring/summer and darker and soberer in autumn/winter because these correspond to the images that people associate with a season in Europe: winter is generally associated with cold and snow, and summer with sun and warmth. This basic rule will apply to any trend in Europe.

A collection is also often built around a theme that makes it consistent and provides a sense of lifestyle. The theme should find its inspiration in each and every product of the collection. Recurrent themes in European market trends can inspire producers and help them minimize risks, when working on a new collection.

Nature is for instance a recurrent theme in interior design in Europe. This relates to wood leading the way, natural materials (like natural stone, ceramics, leather, bamboo, rattan, cotton, silk and any other natural fibers) which are strongly demanded because they provide a feeling of authenticity and genuine values, in contrast to artificiality. Natural materials combined with traditional craftsmanship convey personality rather than perfection.

Being “Green” and “ethical” is trendy in Europe The total “ethical fashion” - green and ethical - consumption is estimated to be worth more than €1 billion in the EU. This is only an estimated 1% of the total apparel market (source: Textile Exchange Report 2011). The development of ethical fashion is similar to the one in organic food 25 years ago.

Important market drivers are:

Expected higher personal well being through the absence of noxious chemicals in the end product;

Higher awareness and consequently pressure on exporters to comply at a bare minimum with ILO regulations and Human Rights best practices;

Environmental awareness and conservation efforts.

The term “ethical fashion” summarizes a production approach whereby sourcing and production do not pollute through the process of manufacture (including shipping, retail) and do not reduce non-renewable resources, whether those are planetary or human. It therefore refers to responsible, accountable, long-term focused and transparent business ventures.

In this respect, there are four basic requirements, which often also coincide with local

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legislative as well as buyer requirements:

Environmental responsibility: reducing waste and produce environmentally-friendly fabrics, accessories, clothing to the technically best possible standard;

Social responsibility: equity and social fairness, paying living wages to workers, safe working conditions, and adherence to labor standards (anti-child labor, International Labor Organization's (ILO) published labor standards);

Economic responsibility: well-defined and consistent adherence to corporate governance, fair competition among companies.

Accountability and transparency: being unrestrictedly responsible and owning-up to the consequences of all business activities, being opened to (third party) audits and inspections at any given time without prior notice, while giving the auditors access to all data without restrictions, rejecting corruption and practicing complete legal and social compliance.

The typical ‘green fashion’ consumer belongs to one of the following three categories:

Male and female, early 20s up, educated, grown-up socially and environmentally aware (generation “green is cool”), with limited disposable income, not compromising over style, but experimenting with available range, inclined to buy second hand if new is not good enough.

Female, early 30s up, working and with personal disposal income, with or without family, aims to buy the qualitatively best for her and is ready to spend money on quality rather than quantity, environmentally conscious and educated, with interest in sustainable fashion, not compromising over style, but buying into classics rather than continuously changing trends.

Female, late 30s up, some disposable income, idealist, environmental activist, uninfluenced by fashion trends, ready to sacrifice principle over style.

Differences in market trends within Europe

Consumers in Northern Europe tend to focus on value for money. They are more inclined to buy less, items of better quality and higher ethical standards, which last longer due to their more classic designs. In Southern Europe, the price factor is by far the most important decision criteria where consumers expect to pay little, continuously buy the most recent designs, but are satisfied with lower quality, conferring less importance to ethical or ecological aspects.

Southern EU markets represent markets with a high potential, but with higher associated risks due to the impact of the economic crisis and therefore declining purchasing power in countries such as Portugal, Greece, Spain and Italy.

The UK, Germany, France and northern EU countries are steady growth markets. In these countries, ethical fashion is competing with non-ethical, mainstreamed designer and retail brands, which represent another relevant market segment for Cambodian high value silk.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES Companies may choose to offer two or more different product lines/collections, responding to different market segments. For example: a basic line/collection (also called «timeless») with products in various plain colors that run independently from any theme but that could complement each other; a more colorful and experimental line/collection that suits the taste and budget of younger generations; an elegant, high-end line/collection for the settled and higher-income consumer groups.

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An innovative product range – with a strong identity and recognition value – that is able to offer a “surprise” effect to over-saturated consumers can stand by itself, independently from any fashion trend. Unfortunately it is very hard to maintain the “surprise” effects over the seasons, unless producers are able to renew their collections over and over again. It is therefore important that Cambodian silk companies define their own brand style and “DNA” to make their products recognizable to buyers and customers, offering specific design elements that distinguish them from their competitors, while regularly introducing new products, adjusting color range from one season to another. Manufacturers should strengthen their own heritage and traditional style, while giving it a modern twist.

3.3 DESIGN TRENDS

Color trends The season’s color range is ever more sophisticated, addressing consumers now used to subtler or bolder palettes and color combinations.

Example: colors trend book by PECLERS Paris for spring/summer 2014

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Another example: the Pantone color trend book for spring/summer 2015. “Strength in serenity” guides the color ranges. Four main color trends can be described as per below:

“Milky way”, with its pastel tones, which comes across as fresh and young;

“Cool cat”, summer darks like black, silver grey, petroleum and khaki which create a cool effect in this «indie» theme;

“Hollywood summer”, bright, powerful hues like sulphate yellow, fuchsia and brilliant carmine, which dominate this extroverted theme;

“I Robot”, a hard black-white contrast stands alongside a royal blue and sun yellow. This theme reflects a modernity look suitable for both purist and for contemporary contrast.

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Women’s fashion trends For spring/summer 2014, the three fundamental trends are:

The emergence of a more relaxed attitude: willingness to adapt easily to the everyday situations of business trips and work through supple, functional wardrobes with well-thought-out, elegant designs.

The influence of the “Haute-Couture” style: shapes are precisely defined and follow the body’s morphology. Silhouettes are darted, slashed or undulating, sculpted or puffy.

There is a quest for modern strictness with mix and match, through coordinated, total-look outfits with the idea of simplifying.

Women’s fashion trends book by PECLERS Paris can summarized for instance by “sophisticated simplicity”.

Living trends After two seasons guided mainly by a search for pragmatism and functionality imposed by the economic crisis, the keynote for spring/summer 2014 will be the spirited comeback of fantasy. It will express itself in an extreme richness of surface effects, an abundance of patterns.

The living trend book by PECLERS Paris for spring/summer 2014 for instance In the first two basic stories, INTERSECTIONS and SUBLIMED, the richness is manifested in a streamlined and controlled way:

1. Sophisticated embellishment and design refinement in the SUBLIMED story; 2. A profusion of ethnic graphics through a modern filter in the INTERSECTIONS story. The two splashy stories, PSYCHE and EXPLOSIVE, testify to a more ephemeral desire for exuberance inspired by “fast fashion”:

In the PSYCHE story, uninhibited fantasy shows off in happy combinations of colorful patterns;

In the EXPLOSIVE story, the richness comes out in visual vibrations from a blend of pop and luxury codes and special effects that give surfaces a magical, spectacular dimension.

FIND INFORMATION ON AND INSPIRATION FROM DESIGN TRENDS Trend books are the main tools used by professionals in product development. Trend books offer mood boards (see above), a kind of collage combining expressive photos, key words like “urban poetry”, “ethnic chic” or “bohemian rhapsody” and texture samples, like a piece of fabric or paper.

For Europe, famous trend agencies include Peclers Paris and others, which website addresses are listed below:

www.peclersparis.com

www.promostyle.com

www.nellyrodi.com

www.carlin-groupe.com

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www.seasonsparis.fr

www.white-sky.com

www.lizybiz.com

Trend seminars: some leading trend agencies, like Trend Union, Trendbüro, WGSN, Promostyl, Cscout, Influx Insights and others, offer twice a year audiovisual presentations, showing the trends in colors, patterns, fabrics, silhouettes, consumer attitudes, beauty, lifestyles, architecture, well-being, etc. one year ahead. Trend seminars are also organized during international trade shows and are open to visitors. They are free of charge.

Interior magazines, to understand aesthetics and lifestyles abroad:

Elle Decoration. It is published in 24 countries, with Chinese, Japanese, Thai and

Indonesian issues in Asia. Elle Decoration UK, Elle Decor Italy and Elle Decoration Holland are the more edgy ones. Elle Decor USA and Elle Decoration France are more on the classical side;

Marie-Claire Maison (France and Italy);

Côté Sud (France);

House and Gardens (UK, Germany); Digest (Germany);

Homes and Gardens (UK);

Vogue Living;

World of Interiors (UK).

Fashion magazines:

ELLE;

Marie Claire;

Grazia;

In-style;

VOGUE.

All of them can be partially viewed online via their websites.

Trend Blogs: There are endless trend blogs and sites on the Internet. They may however reflect the taste of a particular individual and not necessarily a general trend:

www.color-collective.blogspot.ch

www.design-options.com

www.trendstop.com

www.weconnectfashion.com

www.trendhunter.com

www.style.com

Websites of leading retailers can also help get an idea of what customers are looking for and information on price levels. IKEA’s website (www.ikea.com) is for instance a good start because, despite being very price conscious, it is nevertheless also very trendy and has county-specific websites, showing the differences from one country to another. Other relevant websites are:

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Habitat (www.habitat.co.uk - England or www.habitat.fr - France), a very trend-conscious company in the middle-price segment addressing young professionals and families;

The Conran Shop (www.conranshop.com), operating in the high-end brand-conscious segment;

The Anthropologie (www.anthropologie.eu – UK or www.usanthropologie.com - USA), an interesting website because it combines various “ethnic” styles in a colorful and playful way;

Net-a-porter (www.net-a-porter.com);

Tie Rack (www.tie-rack.co.uk).

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES As a general rule, fashion trends hit the home deco one year later. It is therefore important to follow the fashion trends through fashion magazines, fashion blogs and major fashion retail companies to understand future design trends. They provide a hint on color combinations, prints, patterns, themes, etc.

Trend books do not offer ready-to-go collections, patterns, and design or color schemes. Exporters need to understand the design language and share similar cultural references to make full use of them. Each Cambodian silk exporter should follow the trend that fits best to his/her core business, knowing that there are different trends for a same country (see below examples).

They also require a significant investment since they can sell for as much as EUR 2, 000 per book and season. Trend Books can be purchased either online or during trade fairs. Small companies may find it too expensive to purchase international magazines. Setting-up a library with other silk companies would split the cost and spare the burden of research.

Examples of good sources of information:

For color forecast: the clothing fabric show “Première Vision” held twice a year in Paris for the fashion industry is a good source of inspiration for home textiles. Their color trend cards are highly recommended and can be purchased after the show or online. “Première Vision” has also shows in Beijing and Shanghai.

“Pantone”, the renowned provider of color matching systems, offers various tools online, see the Pantone Fashion Color Report at www.pantone.com.

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4 DISTRIBUTION CHANNELS FOR CAMBODIAN HIGH VALUE SILK

4.1 OVERVIEW The general trends in distribution channels for both textile and fashion accessories could be described as follows:

An increasing dominance of chain store retailers,

Importers and wholesalers face an increasing competition from retailers,

Buyers request transparency in supply chains. Larger chain store retailers are increasingly controlling the entire supply chain - from production in emerging countries to the European retail outlet, in order to benefit from higher margins and cost efficiencies. This general trend entails i) a tougher bargaining position for developing countries as their potential buyers become fewer; ii) an increasing competition for wholesalers and importers.

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Distribution channels

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES A particularly promising target group for Cambodian craft exporters is fair trade-related wholesalers who supply most of the fair trade retailers in Europe and who usually order larger quantities. Even if wholesalers/importers are the main interface between exporters from developing countries and European markets, more and more retailers are trying to import themselves. The self-importing retailers might become a direct target for exporters. This trend of direct sourcing is expected to continue in the future and may create more opportunities for exporters from developing countries. Importing retailers are ordering for their own shops and can thus place orders much more quickly than importers/wholesalers, who first need to show samples to their retailers before exporters receive their orders. Also, given this increasing influence of large retailers; smaller interior retailers will increasingly specialize in order to compete. They will then aim to distinguish themselves by selling customized products that tell a story. Some of them will specialize in order to sell a specific product group to cater specific consumer target groups.

4.2 Distribution channels for ethical fashion

Clothing chains The market growth for ethical fashion is led by significant clothing chains (e.g. M&S, C&A,

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H&M, Inditex group), mostly due to the use of organic and/or fair-trade cotton.

Independent retailers The main drivers behind the development of the ethical fashion market segment are specialists in the ethical sector (fair trade shops, Oxfam, Solidar’Monde, Peopletree, etc.). While there is a declining customers’ interest for these specialists as the products are not attractive, independent fair trade retailers are developing a stronger shopping alternative through boutiques and specialized ethical concept store such as:

Altermundi (www.altermundi.fr)

EKYOG (www.ekyog.com)

Green in the city (www.greeninthecity.fr)

Bazar Ethic (www.bazarethic.com)

Centre Commercial (www.centrecommercial.cc)

Ethical online sellers in Europe More recently, ethical European online sellers represent a shopping alternative to the retailers. The main platforms are:

www.watmooi.nl;

www.asos.com;

www.plumo.com;

www.urbanara.com. High-end and luxury online retailers such as www.net-a-porter.com are expanding their collections with more ethical and fair trade brand.

4.3 Implications of the growing ethical fashion market in the marketing mix

4.3.1 Product

Quality finished materials with a low environmental footprint are most demanded. In most cases, these are higher-end quality organic cotton, organic silk, organic wool, as well as recycled versions of wool, cotton, silk or polyester.

4.3.2 Raw material

Buyers tend to minimize transport ways. It is thus recommended to use as much as possible locally made materials.

4.3.3 Production – Minimizing Risk

There is no unique “ethical fashion label” but there are different product labels that bear relevance for the consumer or the buyer. The most recognized labels are:

Regarding social requirements and standards: ILO labor rights, BSCI, ISO26000, OHSAS 18001, SA8000 (Social Accountability International: for social and work related aspects), WRAP, or fair trade. These investments pay off quickest, as social compliance is highest up on the priority agenda of EU buyers.

Regarding environmental requirements and standards:

The Global Organic Textile Standard (GOTS) for cotton, and since recently also for silk;

Fair trade (FLO) certified for commodities;

WFTO Fair trade registered for production;

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Oeko Tex 100, 100 plus (products) and Oeko Tex 1000 (Management System).

4.3.4 Trade channels

Two kinds of channels could be considered:

Indirect distribution / private label: find the right manufacturer, importer or retailer. A first step is to contact platforms that connect brands and designers with «ethical» manufacturers. Examples of these are:

o Source4Style, New York, USA (www.source4style.com); o Offset Warehouse, London, UK (www.offsetwarehouse.com); o Fashion constructed, New York, USA

(www.belesprit.net/v2/FR/suppliers.aspx); o Ethical Fashion Forum's, London, UK (www.ethicalfashionforum.com).

Direct distribution under the exporter’s brand name, through department stores and independent retailers (shops) specialized or not in fair-trade.

4.3.5 Pricing

Exporter can ask for higher price, notably because of their sustainability credentials as long as the product lines are well designed.

4.4 TENDANCY IN EUROPE: A GROWING LOW AND HIGH-END MARKET SEGMENTS

The traditional middle market has come under pressure in recent years due to the economic crisis in Europe. European consumers are increasingly combining expensive brand accessories (including scarves) with lower end clothing from Zara or H&M for example. There is therefore an increase of a middle-low and middle-high market segments.

For the middle-high segment, exporters should have a strong design value and emphasize their story telling. They could benefit from higher margins but orders are usually small in volume.

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Description of the different market segments and their characteristics

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES

Use locally made raw material whenever possible;

Minimize imports, choose geographically close sourcing destinations;

Be aware of what type of chemicals were used in producing the raw material (fertilizers, pesticides etc.) so as not to breach the REACH regulations;

Fair trade certification is an advantage, but not always needed. A good documentation of the company’s fair trade policy/rules and payments to suppliers is often sufficient for fair trade-related business partners;

Add value to your product offer by focusing on special techniques, materials, values and target mid-high and high-end markets;

Be clear about your own identity to target market segments with matching identities and establish profitable, longer-term relationships.

Focus on the lower end of the market means being able to compete with large producers from China and other Asian countries who benefit from economies of scale. Companies may need to choose and/or propose two kinds of collection: competitive products to target this particular market segment, and high-value items for the high-end market segment.

Differentiate yourself by offering products that tell a story and give a good feeling. Buyers may be then less price-sensitive and more loyal.

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5 UNDERSTANDING MARKET EXPECTATIONS: LESSONS LEARNED FROM THE CUSTOMER SURVEY AND MEETINGS WITH BUYERS

5.1 BUYERS’ EXPECTATIONS This sections aims to give Cambodian high value silk exporters an understanding of how buyers think and act, and what to focus on when dealing with European buyers. Information listed below was collected from desk research but also from interviews and meetings with buyers.

5.1.1 The main expectations

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES Product quality

Compliant with your original samples (in terms of color, quality, finishing and shape)

Compliant with safety standards

Long-lasting with good quality of materials and dyes (products using natural dyes are welcome)

Compliant with EU legal requirements such as AZO-free, PCP-free, textile labeling in the importing country language.

Price

Competitive prices

Prices reflect the quality and design of the product

Prices are guaranteed for at least 6 months

Know how to manage product costing: logistics represent a considerable amount of the total product price (approx. 15 to 20 %) and buyers will be interested in suppliers who know how to well manage these costs

Delivery

Delivery should be on time, and work to meet delivery deadlines

Export documentation should comply with customs requirements

Goods should arrive adequately packed and undamaged

Be ready to produce re-orders on time

Proper packaging and labeling (the specifications are usually provided by the buyers)

Barcode system in place if you deal with wholesalers and large buyers Service

Have a good understanding of the business practices and keep accurate chronological files of your business transactions with your clients

Provide good and professional service to keep your customer satisfied (by anticipating their needs: sending new collection to your customer regularly, quoting for shipping costs before being asked for examples)

Keep your promises

Be able to communicate in English

Maintain regular communication (including bad news such as a delay in the delivery), preferably by e-mail

Make sure you can obtain from your client a deposit that will finance at least your production cost, prior to accepting an order.

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5.1.2 Other considerations from buyers

Suppliers who stand out Buyer’s quote when interviewed: “We stay away from suppliers who say - we can offer and produce anything you want. We much rather work with suppliers who have a clear core business or a strong expertise and savoir-faire”.

Due to the economic crisis, many end consumers on lower incomes will continue to seek low priced products, while the luxury segment is growing continuously. The middle segment is mostly impacted by the economic crisis. Buyers are attracted to suppliers who can differentiate themselves, by either offering low prices and high service or suppliers who have a distinct skill set or a strong identity. Having a clear ethnic identity matches with the current ethnic sourcing trend. It is thus important to be aware of what buyers are looking for, to keep up to date with the latest European fashion trends and customize your products.

Buyers value authenticity and differentiation Authentic and handmade products are a real market trend in Europe. These products have moved away from the niche market and are now becoming mainstream in all product categories from home textiles to fashion accessories.

Proactive suppliers Buyers value suppliers who are proactive, and can take initiative and show commitment throughout the process, from product design up to delivery. A proactive approach from the supplier can help the buyer save costs in developing, producing and shipping products.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES:

Try to know the market position of your buyer: does it belong to the low, middle or high-end market segment? What does this mean for your product (style, price, distribution and communication)?

Share ideas, samples and designs that might suit your buyers’ customers. It is important to show to the buyers that you understand his brand.

Help your buyer to save costs by regularly asking for quotes from a number of transporters and shipping agents. Buyers appreciate it when a supplier can offer several options for shipping such as using Linex in Cambodia that offers more interesting rates.

How do buyers source new products from suppliers? As buyers often lack of time, and they need to produce several collections per year, they usually prefer to receive a pre-selection of products that could fit with their styles. Buyers usually buy from agents and they visit to international trade shows.

The most relevant trade shows according to buyers interviewed are:

For Accessories For Home Textile / Decor Maison et Objet (Paris) Première Classe (Paris) Première Vision - for the raw materials (Paris) Ambiente (Frankfurt)

Maison et Objet (Paris) Première Vision - for the raw materials (Paris) HEIMTEXTIL (Frankfurt)

Pre-production services are highly valued

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There are many suppliers who are good at manufacturing, however it is not enough today. Buyers need extra services to consider a new supplier. Pre-production services such as inputs to the design, fabric management / sourcing and sample making can save a buyer a lot of time, costs and efforts. These services are therefore valued and always underlined by buyers interviewed and met.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES: When do buyers usually place their orders? Sampling process

For Autumn/Winter: September n-1

For Spring / Summer: March n-1 Ordering process

For Autumn/Winter: April n-5 months

For Spring / Summer: September n-5 months Buyers usually require pre-production and productions samples, and require fast sampling process given the fact that they have several collections (2 is the minimum, up to 6) per year. They appreciate to receive information related to their order and production quite frequently - once a week, everyday 2 weeks and once a month.

Buyers allow less and less time Quote from most of the buyers met: «If they understand the key fashion themes and

have integrated this in their collection proposals, much time is saved and sourcing from developing countries becomes then worthwhile»

Speed to market and reduction in lead time are of increasing importance to buyers as there are more and more seasons, sometimes up to six, in a context of «Fast Fashion».

Moreover there is a general tendency to demand shorter delivery terms and smaller volumes of series and orders. Suppliers with short lead times will have a distinctive advantage. For Cambodian suppliers, buyers may expect other time saving measure or cost saving strategies given the distance.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES: A lot of time can be saved by acting proactively. Exporters should not wait for buyers to tell what they wants but should take the initiative by giving the available colors swatch, samples, etc.

Vertically integrated suppliers have an advantage To better control the goods flow and speed to market, a buyer would prefer to work with a supplier who can control a large part of the production process (sourcing raw materials, dyeing, finishing, designing, sewing, cutting) and are able to move fast. Moreover, most buyers tend to reduce the number of factories from which they source in order to minimize this control process, which sometimes is costing.

Availability of local raw material and being a one-stop shopping are a bonus When local materials are available, it saves a buyer the waiting time for the arrival of the materials from other suppliers.

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Buyers are attracted by «one stop shopping» as this saves them trouble, time and costs. They are often reluctant to send a buyer to a country when the country offers a limited product range.

Buyers usually prefer to work with specialists: a supplier with a clear core product and concept Buyers tend to look for specialists, which means suppliers who have a strong identity and who have developed their own core competence. This could be a specific technique, a skill, a style, a focus on particular product category, and a set of values or services. These suppliers will stand out amongst the many «me-too» concept. That will be a way to differentiate from the other suppliers and competitors.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES: Ask yourself: what is my core competence or expertise? What are my “best sellers” and why? The answers to those questions can help formulate your own unique identity.

Turning away from China and towards new sourcing partners Buyers are looking for suppliers in other countries than China because prices in China are rising due to increasing labor and production costs. Another reason for looking at other countries is that Chinese manufacturers are expected to focus more on sales in their domestic market and will be less eager to cater to Western buyers. This offers opportunities for suppliers from other Asian countries and North African countries.

5.2 THE MARKET ENVIRONMENT This section looks at external factors that influence the business options and preferences of buyers.

Country of import When sourcing, buyers’ main focus is on keeping the cost low. The existence of trade agreements plays a big factor in calculating price advantage and selecting a country from which to source products. Buyers favor suppliers in countries that have concluded a Free Trade Agreement (FTA) with the European Union and have 0% import regulations.

The reputation of a country is also critical for buyers. They are looking for countries that have a good business climate and a reputation that fits their own image.

A good business climate implies an efficient banking system, good infrastructure and ease of importing and exporting. It is also necessary for a country to reach a critical mass of business and be able to offer potential suppliers, to make it worthwhile for a buyer to visit a country.

5.3 FINANCIAL CONSIDERATIONS

This section aims at reflecting the financial requirements and considerations from buyers

Faster cycles and more exclusive offers Changing collections just twice a year belongs to the past as the end consumers expects variation throughout the year. Also, buyers tend to introduce special collections to illustrate the idea that consumers can find unique and exclusive offers. Therefore, buyers are aiming at faster cycles and more exclusive products. They are then open to receiving information on

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products throughout the year, not just during trade show. Buyers are also keen to place an extra order with a shorter lead-time.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES:

To assist buyers in more exclusive products to their customers, take initiative and show new design ideas and samples throughout the year.

Be aware of the buying and selling cycles of your buyers, understand when the product will be in the shop and try to help the buyer to shorten this time-to-market.

Subscribe to newsletters of brands and retailers to help you understand the commercial calendar and trends.

Reducing the total costs Being the cheapest suppliers is not anymore sufficient nowadays. They are sensitive to pre-production cost, inspection cost, cost of time delays before they decide to place an order. Therefore, suppliers who can contribute to total cost reduction are highly valued.

Buyers’ quote: «with transport becoming more and more expensive, we are looking for suppliers who can help us save costs. Even more important than proximity is the reliability of deliveries. We need to be sure that orders arrive in the right quantity and quality, in good shape and in time».

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES:

Try to reduce transportation costs (even if it is the buyer who will pay for) by teaming up with solution logistics.

Prevent time delays by clear negotiations / communication, starting in the sample stage.

Offer excellent pre-production services so a buyer can limit his pre-production costs.

Saving on transport cost and proper packing

Payment terms discussion Some buyers may not want to pay a deposit upon their order confirmation as it may not be part of their corporate policy and may request long payment terms. Some of them may not want to negotiate and will just work with suppliers who are able to comply with their terms. In any case, it is worthwhile to negotiate and keep an open conversation. When doing business with this profile of buyers, exporters need to manage carefully their cash flow and take this into consideration when calculating the price. Exporters can also suggest their own payment terms. Usual (although there is no common rule) terms can be, depending on the volume:

25% on purchase order, 50% on shipment and 25% on final delivery

50% on purchase order, 25% on shipment and 25% on final delivery

5.4 COMMUNICATION This section highlights the communication behavior of European buyers sourcing from developing countries, and offers insight into their expectations and practical suggestions as to how to meet those expectations as an exporter.

Long term business relation over quick wins An investment in a new supplier relationship is an investment of time and energy. Buyers

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need to make sure that suppliers are able to fulfill an order properly, according to their requirements.

A buyer’s judgment of a suppliers’ ability to meet the long-term expectations is often an intuitive matter, related to a first impression of a supplier-trading attitude. Suppliers who can convince buyers that they are keen to enter into a long term relationship will be able to maintain a high level of service during repeat orders, will be preferred over other suppliers.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES:

To make a good impression and to demonstrate that you are keen to enter a long term relationship: be flexible in the starting period, accept smaller initial trial orders, invest sampling to give the buyer a good feel of your products and allow him to show a broad range to the retailers.

After the initial order, stay involved and do not take the relationship for granted.

Do not sell your products to direct competitors of long-term good clients that you have.

Lack of communication takes down business European buyers want to act fast, and expect fast communication. When they send an email, they expect an answer within (at most) 2 days, but usually 24 hours would be of their preference. A lack of communication will be taken as a lack of interest in doing business and they might turn to another supplier. Buyers appreciate clear and fast replies, either by email or by telephone. Especially when things do not go as expected or as agreed, they want to be informed so they still have the time to look for solutions.

Taking advantage by being demanding Some buyers may want to take advantage of their position and expect suppliers to go beyond reasonable business agreements. Some buyers for instance expect lower than acceptable low prices, and faster than acceptable fast deliveries; they may ask suppliers about business details that suppliers are reluctant to share.

Most buyers will anyhow understand when a supplier can explain why he cannot go along with a buyer’s request. Other buyers may stick to their demands and will look for suppliers who are willing to accept the conditions. The ones, who are not, might not be the right business partners.

Buyers want a personal, yet professional relationship Most buyers value a personal approach of the business relationship. But it is still a business relationship, so they expect the relationship to be (and remain) professional, and they expect from a supplier to keep a certain distance.

PRACTICAL ADVICE FOR CAMBODIAN SILK COMPANIES: A supplier posting several messages on social media accounts or approaching a buyer through email or telephone too often, crosses the line of professionalism and will be considered as being over-eager and intrusive.

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6 FEEDBACK FROM BUYERS INTERVIEWED AND MET

The general trends in Europe have created new opportunities for Cambodian high value silk exporters, which often require differentiated marketing strategies.

New niche markets are arising;

Each of these niches should be approached with a specific and clear product offer/concept;

Emphasis should be put on « essential products», «added value» and «high-end products».

Feedback collected from buyers (both through interviews and meetings) about the product lines and catalogue, provided interesting input for improving and developing new collections for the Cambodian high value silk exporters. Most of the buyers showed interest in sourcing from Cambodian silk exporters. Some buyers already placed orders and/or bought samples, and a few planned to travel to Cambodia to visit the exporters. 1 The feedback can be summarized as per below:

General feedback Fashion houses interviewed and met in France showed an interest in the silk scarves

and the silk fabrics. Some of them have already requested samples and are keen to try to work with Cambodian silk exporters. In general, they like the idea of being able to have tailored-made products that could fit with their style and collection, and most of these buyers would like new prototypes based on the expertise of the Cambodian silk exporters, rather than buy the products as they are currently.

Most of the buyers showed interest in exploring the expertise and techniques offered by the Cambodian silk companies, such as: the Tie and Dye (Lady Penh), jacquard and Ikat (from KSV, KSPA and Colors of Life), and the silk screening. There is a high demand for fabrics and scarves mixing silk with other materials such as cashmere for fall/winter.

Fair trade wholesalers interviewed in Germany provided a mixed feedback on Cambodian silk products. Some indicated high interest in scarves/silk jewelry, asked for samples and are likely to include new products from Cambodia in their portfolio. Others are more reluctant and gave less good feedback on the silk quality and price level of Cambodian products bought in recent years.

Even if some buyers have shown interest in the Cambodian silk products, most of them mentioned however that the current products remain too ethnic and would need to be improved both in terms of designs and quality. For some companies, prices were not an issue. Some buyers are willing to spend more as long as the quality of the products is good enough, and the materials used look unique, which may justify the promotion of the Cambodian golden silk. Other buyers, particularly wholesalers, are very sensitive to prices.

1 El Puente in October, Les Racines du Ciel in November

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Feedback on prices Wholesalers indicated that they could not sell the products anymore as soon as

prices get slightly higher for more intricate scarves. Some wholesale buyers mentioned that an FOB price of 10 US$ would be the maximum price they would be willing to pay for a Cambodian silk scarf, but they would preferably expect scarves to cost not more than 8-9 US$.

Prices from one exporter to another lack of consistency. Some of the exporters offer similar products but with a discrepancy in the pricing.

It would be relevant for exporters to come up with FOB prices, with discount according to the quantity. An estimate of the shipping cost might be useful as well.

It is recommended to provide a price list in US$ in order to be able to keep prices stable and to avoid problems with production cost calculation in case of changing exchange rates.

Feedback on product categories Silk jewels are of interest of buyers across all the European countries and market

segments (fair trade and others). The designs of the silk jewels would need however to be more diversified, and should be distinctive from one exporter to another. Afesip Fair Fashion and Woman for Woman are selling the same silk necklaces and bracelets but at a different price level for instance.

Scarves are still very popular and in demand, except the expensive ones. KSPAs’ scarves are unique and of high quality according to the buyers, but their wholesale price (58 USD on average) are too high, as buyers would resell them 2.5 to 3 times more. Only very high-end fashion houses or luxury brands would be able to carry this level of prices.

Fringes on the scarves are often too long. Some buyers suggested to 1/ include more fringes but less long (1cm should be a maximum) and 2/ come up with different types of finishing such as: the classic simple or double twisted fringes, the fringes with knots, the fringes with the finishing «rouler mouchoir» or «ourlet poche» like Hermès for instance (see the photos below).

Buyers (especially for private label) stressed the importance for exporters to be able to able to offer different sizes of scarves. The usual standard dimensions for scarves are: 90*90 cm, 70*140 cm, 140*200 cm, 180*65 cm, and 150*50 cm.

Some buyers particularly asked for smaller sizes with the aim to reduce cost. I some consumers prefer smaller sizes as a fashion accessory. One suggestion was to weave a 150 to 180 cm long scarf with a width of 100 cm and then cut and sew the scarf into two pieces of 150x50 cm or 180x50 cm.

Silk bags are not really interesting for buyers as they get damaged too easily in cold and rainy season, which means they do not fit with the European climate.

There is a potential for silk fabrics and home textile products. It would be relevant to

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show a full set of samples to the same buyers and new ones, once the new collections will be ready. This could be done both during trade show participation and B-to-B mission.

The quality of Cambodian silk scarves was not always appreciated in the past. The silk of Cambodian scarves imported in the past was considered to be too rough and did not sell well in European stores. The silk should be very smooth.

Some buyers asked to produce more scarves with the real Cambodian Golden Silk.

Some buyers indicated that the use of natural dyes would be welcome.

Other products that may be of buyers’ interest:

o Silk lounge wear - kimono, pajamas, unique size dresses,

o Silk shirts,

o Home textile: cushion covers, bedspread, and blankets.

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7 APPENDIX

7.1 CUSTOMER SURVEY TEMPLATE On behalf of the High Value Silk Project in Cambodia implemented by the International Trade Centre (ITC) – a United Nations (UN) Organization in Geneva, we would like to send you the enclosed overview on selected exporters of silk scarves, accessories and home textiles.

This independent survey, undertaken by ITC, aims to assess the export potential of Cambodian high value silk to Europe. The information provided will be kept confidential, for project purposes only.

We would like to kindly ask you to take a few moments to answer the following questions. In case, please insert directly in the text below.

COMPANY:

CONTACT/FUNCTION:

EMAIL ADDRESS:

Would some of the products fit to your collection? In case, which ones?

Do you have any feedback on the product lines and price ranges?

What other silk products would you be interested in?

What particular requirements would you have in terms of product quality, dyes,

packaging, design, etc?

What particular requirements do you have in terms of supply quantity, company

profile or else?

Would you be interested in receiving detailed individual company catalogues? If

yes, we would be pleased to send you the complete catalogues.

Are you planning / willing to travel to Asia/Cambodia to find new suppliers?

Would you be interested / willing to also cooperate under the project as part of

your CSR?

QUESTIONS ABOUT YOUR ORGANIZATION: 1. Please indicate which sales channels are used by your company

a. Internet/mail order/retail/wholesale/agents/other - please specify:

2. Please indicate which accessories you are currently buying:

a. Scarves/bags/small accessories/fabrics/clothes/other – please

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specify:

3. For scarves, please specify the dimensions you are usually selling

4. If possible please indicate which of the above product groups are experiencing

most sales growth in your business:

QUESTIONS ABOUT YOUR MARKET: 1. Please indicate which market segment/s your business is mainly targeting

a. Low/low-mid/high-mid/high/niche – please describe:

2. Please indicate all relevant information about your end consumers

a. Sex: mostly women/mostly men/mixed/kids b. Age: under 25/25-35/35-45/45-55/55-65/0ver 65 c. Motives/Interest: trend conscious/slightly influenced by trend/not at all

trend conscious/mixed QUESTIONS ABOUT YOUR PURCHASING DECISIONS:

1. Please indicate how your company normally purchases goods from overseas

suppliers:

a. Imports directly from supplier/via a European based wholesaler/via an overseas agent/via in-country purchasing office/other – please specify:

2. From which countries are you currently sourcing most of your products?

3. Please indicate how your company prefers to source new products from

suppliers

a. Purchasing offices/Internet/trade fairs (please specify which ones)/catalogues/visits from suppliers/visits to suppliers/other –please specify

4. Please indicate what background product or company information you expect

to receive from new suppliers:

QUESTIONS ABOUT YOUR SAMPLING AND ORDERING PROCESS: 1. Please indicate in which months you do your product selection/ordering

a. For Autumn/Winter b. For Spring/Summer

2. Please indicate in which months you start your sampling

a. For Autumn/Winter b. For Spring/Summer

38

3. Please indicate the normal lead time required

a. On bulk orders b. On repeat orders

4. Do you require pre-production and production samples?

a. Pre-production yes/no b. Production yes/no

5. How frequently do you require order updates?

a. Weekly/15 days/monthly/prior to dispatch only/other – please specify

6. Please provide details of your normal payment terms:

7. Do you have specific packaging and labeling requirements?

Thank you for taking the time to fill in this questionnaire

39

7.2 LIST OF RELEVANT TRADE SHOWS AND EVENT

MONTH TRADE SHOW LOCATION HOME DECO

FASHION ACCESSORIES GIFT

JANUARY Maison et Objet Paris France X X X

Who's Next Paris, France

X Heimtextil Frankfurt, Germany X

Top Drawer London, UK

X FEBRUARY Ambiente Frankfurt, Germany X

X

Premère Vision Paris, France

X Spring Fair Birmingham, UK X

X

NY NOW New York, USA X X X

Bags and Accessory Fair Sydney, Australia

X X

Tokyo International Gifts Show Tokyo, Japan X

X

MARCH Première Classe Paris, France

X APRIL Lifestyle Ho Chi Minh City, Vietnam X X X

MAY Design District Amsterdam, Netherlands X X

JULY Who's Next Paris, France

X AUGUST Tendence Frankfurt, Germany X

X

NY NOW New York, USA X X X

Bags and Accessory Fair Sydney, Australia

X X

SEPTEMBER Maison et Objet Paris France X X X

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7.3 EU RULES OF ORIGIN FOR THE GENERALISED SYSTEM OF PREFERENCES COVER PAGE

41

PAGES 33 AND 34

42

43

44

Ms. Sylvie Bétemps Cochin Trade Promotion Officer Office for Asia and the Pacific Geneva, Switzerland Email: betemps@intracen.org Mr. Pheanuroth Sisowath, Project Coordinator Project Coordination Unit Phnom Penh, Cambodia Email: sisowathp@gmail.com International Trade Centre Palais des Nations, CH-1211, Geneva 10, Switzerland http://www.cambodiansilksector.org

H.E. Mr. Pan Sorasak Secretary of State and EIF Focal Point Email: great.lake.kh@gmail.com Mr.SuonPrasith EIF Program Manager Department of International Cooperation (DICO) Email: prasithsuon@gmail.com Ministry of Commerce Lot 19-61, MoC Road (113B), PhumTeukThla, SangkatTeukThla, Khan SenSok Phnom Penh Kingdom of Cambodia