Sustainability has become more than a trend as consumers around the world start to prioritize where and how their goods are produced over cheaper price points. However, for some sustainable SMEs hoping to find investment and scale-up in Cambodia, this trend doesn’t yet seem to be bearing fruit.
Micheal McKay, a co-founder of BeeBee+Bongo, a sustainable toy brand registered in Singapore with operations in Cambodia, said it’s an uphill battle, especially in the Kingdom.
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Mckay said sustainable businesses currently only occupy niche markets, something that can make them a hard sell for traditional investors.
“It’s a much longer runway in terms of the return. If you want to maintain sustainability and social impact, it’s a much longer wait. You’re probably not going to see a return within three years, maybe not even five years. You’ll get there, but it’s a much slower incline than what people like to see,” he said.
Yekowave, a sustainable sportswear company based in Cambodia, is facing a similar struggle. The company’s CEO Dikra Yagoubi said sustainable startups can be risky for investors because of the typically smaller markets for sustainably produced goods.
They often come with higher price tags and if customers in a market like Cambodia aren’t able or willing to prioritize sustainability over price, the market isn’t large enough to attract investors.
Yagoubi said local investors don’t believe sustainable companies are profitable because customers are ultimately drawn to readily available unsustainable products that offer more variety at a lower price.
Appeasing impact investor requirements
Sourcing material for the is another issue, as Cambodia doesn’t produce raw materials like yarn or cotton.
McKay said: “If you want to be eco-friendly and buy materials that are good for the planet, it comes at a higher cost for a place like Cambodia. A lot of material isn’t locally available. We don’t have locally available raw materials like yarn or cotton, or even packaging.”
Impact investment is another buzz term that’s surfaced over the past five years, but that hasn’t made it any easier for McKay to track down investors.
“One of the challenges with the social side of it is the impact measurement. Depending on who you’re talking to, they can be sticklers about how you’re measuring impact. What are your impact metrics?
For small businesses trying to do good things, you don’t necessarily have those things in place yet,” he said.
Impact investors sometimes have their own demands that simply can’t be met. McKay gave an example of an investor who would only invest if the material used in the products was end-of-roll fabric or leftover fabric from factories.
Since the company’s toys are aimed at children, the material needs to be tested and traced back to its source, and this isn’t possible with end-of-roll fabric.
The problem with shipping from Cambodia
BeeBee+Bongo has found success in the US, but it hasn’t been easy. One of the reasons why the company registered in Singapore was to find a way around the exorbitant prices it costs to ship products directly from Cambodia.
To read more about increasing logistics costs in Cambodia click here.
By sending products via Singapore in bulk to a warehouse, the company can ship their products free to states within the US. If they were to ship orders directly from Cambodia, the shipping costs alone would make the operation unsustainable.
Shipping a “Sleepy Animal” plush toy to Singapore via DHL costs between $37 and $54. To ship to the US, the price was between $52 and $77 using DHL. The dolls cost between $18 and $25.
It was even cheaper to send products to Singapore via the US than directly from Cambodia to Singapore. An item sent from Cambodia to Singapore costs about $50, whereas the same item costs $10.45 to ship from the US to Singapore.
Another reason the company is registered in Singapore is because of the city-state’s reputation as a business hub, whereas Cambodia is still lagging in this regard and doesn’t yet instill widespread confidence in global investors.
“The Cambodia system is definitely not geared towards entrepreneurs and small companies, which is unfortunate because you have this informal economy that’s operating and there’s no incentive to formalize,” McKay said.
He said complicated registrations, surprise fees, and unclear tax information make operating a small business in Cambodia a headache. While there are modern tools available, he said they clash with traditional practices creating a confounding system that needs to be simplified.
Expanding Cambodian products globally
Looking to expand globally from Cambodia represents another set of problems for sustainable SMEs trying to scale up.
Obtaining globally recognized certifications is one issue. Cambodia Knits, the Cambodian-based social enterprise that employs marginalized workers to produce toys for BeeBee+Bongo, recently was approved for provisional membership in the World Fair Trade Organization, an important step that could help the company expand.
After speaking with investors, McKay said many of them are looking for a competitive business advantage when deciding to invest.
While sustainable products can be attractive in local markets, competing globally comes with its own set of challenges, including competing with sustainable companies offering similar products from other countries.
Yagoubi said there is interest from western investors, where sustainability has become more mainstream.
“Western investors in Europe and North America are more conscious of sustainability and believe in our success. This isn’t the case in Cambodia, unfortunately, because the market is still not mature and conscious enough. However, international expansion requires much more funding and that leads to more difficulties in finding the right investor,” she said.
For now, McKay is hoping he can find the right investor to scale up while keeping BeeBee+Bongo’s social impact and turning a profit.
“I want to know how to scale a social enterprise because if we can do it with this, we can help other people do it,” he said.
“We look around and we see all these small SMES trying to do good things and being stuck in the same place we’ve been stuck. We’ve had different tools and opportunities now, but that’s my personal goal. If we can build a model that works, just think about how many more businesses can do this too,” he added.