Sometimes you get lucky and stumble upon great people and companies by accident. I sure did during my first weeks in Cambodia. Walking along the Riverside (the neighborhood I call home) I strolled into a silk garment shop to check out their local wares. The General Manager, Laurence Karatau and I immediately struck up a conversation.

Following that initial encounter we have spawned a friendship. Our discussions range from agriculture to silk, of course. Renowned for its “golden silk”, Cambodia was once the hub of the silk trade…that is until the Khmer Rouge and silk worm disease decimated the industry.

The silk industry is now in the early stages of a revival, and Laurence’s company, Orange River Silk, is reportedly the largest finished silk exporter in the country, growing fast and building its following domestically as well as internationally.

I recently caught up with him to discuss his operation. Enjoy!
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Scott: Laurence you have been in Cambodia now for 11 years. What was the initial draw that attracted you?

Laurence: Scott, I arrived in Cambodia in 2002 to visit my daughter and son-in-law who started up businesses here in the early 1990’s. One of the businesses was producing traditional hand woven silk products.

Scott: Unfortunately, when many people think of Cambodia they think of its less glamorous past compared to the future that awaits it. Silk surely being off many people’s radar, tell me how you got involved in the silk industry and how did Orange River Silk come about?

Laurence: Even though I was very informed about the silk industry and my daughter’s businesses, my direct personal involvement only came about 3 years ago when my daughter and son-in-law decided to take my three young grandsons back to New Zealand to educate them. I was left to run the Orange River silk business in their absence and be on-hand to oversee our other joint-owned business, Jasmine Boutique, which designs and produces very up-market international women’s fashion garments and accessories.

With a strong background in project management, marketing and sales, I warmed very quickly to this industry and the day-to-day challenges it brings with it, as well as the potential it offers for increasing the production of high-quality silk products using traditional methods.

Orange River and Jasmine Boutique were registered officially in 2000, as privately-owned Companies, to produce an organic Cambodian silk product for the manufacture of fashionable silk garments and accessories, to international standards, for local and export markets, giving priority to utilizing Cambodian resources where possible.

Scott: It’s no surprise that the Cambodian silk industry is struggling. Once producing some of the best silk in the world, the Khmer Rouge and silk worm disease has created two of many hurdles to reviving the industry. How much silk is produced in Cambodia today and what methods are local in origin?

Laurence: Yes, the sericulture industry here in Cambodia suffered enormously at the hands of the Khmer Rouge regime, and its difficulties were exacerbated by the silk worm disease.

The beginning of the 70s brought conflict and fighting to the rural areas which resulted in the destruction of villages and shifts of population – another blow to sericulture. For three decades, the conflict and Khmer Rouge regime led to the loss of mulberry plantations, more importantly, the loss of silkworm breeding stock, and also broke the traditional process of knowledge and skills transfer from mother to daughter.

When the period of civil unrest was finally over, it was difficult for families returning to their villages to piece back together the means for silk production. Out of necessity, priority was given to food production, which limited efforts for sericulture activity and a complete revival of a very important Cambodian industry. Following a long tradition, the Cambodian silk industry has, however, survived the country’s political and civil unrest, and is trying to re-establish itself as a major export industry.

It is very difficult to get exact silk production figures. Cambodia exports silk worth $4 million a year. Almost all the silk thread used in Cambodia to produce scarves, sampots (traditional costumes), fashion garments, purses and accessories for local and international markets is imported, with around 90% of imports coming from Vietnam and the remainder from China and India.

A total of 400 tonnes of raw silk was imported in 2008. Only around 4 tonnes of silk thread is produced domestically. Locals buy around 70% of silk products produced in the country, with the remainder bought by tourists or exported. There is an increased demand for Cambodian golden silk, as currently Cambodian golden silk growers provide only 5% of the need for silk in Cambodia, 95% is bought in from China and Vietnam.

The local processing methods are very traditional and are the ones Orange River uses for its silk production process. Silk is a natural fibre, and in Cambodia, it is hand woven on traditional wooden looms. These looms are constructed to provide a full width (1 to 1.4 m only) of silk fabric.

Orange River and Jasmine Boutique’s branding and mission statement strongly supports artisans that use authentic, cottage industry methods passed from one generation to another, following traditional Cambodian cultural practices through the ages.

Scott: The Cambodian silk industry is still widely fragmented, what type of competition exists in the space?

Laurence: There is no real competition within the Cambodian silk industry. Silk is a very special, high-quality fabric, very durable and long lasting, for the production of “high-end” products. Other textiles do not really compete with silk, as the markets are very different in scope.

Scott: I have lots of people ask me about doing business on the ground in Cambodia. Having a number of friends who have started projects here, the answer varies from “easy and straightforward” to one of “what was I thinking.” It seems to depend on which industry one is in and whether or not it is politically connected. What hurdles have you had growing Orange River to this point?

Laurence: Setting up a business in Cambodia is relatively easy and straight forward. However, the ultimate success of a business in Cambodia does have certain limitations that have to be managed accordingly. As a family, we have been involved in the silk industry in Cambodia now for over 15 years and have had a lot to do with its development in all areas. We have two successful, privately funded & managed silk retail & export businesses here and feel the same issues apply to them as apply to many other retail and manufacturing businesses in Cambodia, and they are as follows:

• Reliance of imported silk thread means we have no control over the cost, and the silk prices increase all the time, which makes it very hard to set an export retail price and maintain it. Five years ago, 1kg of raw silk from Vietnam cost between $20 and $22. Now, it costs up to $55 a kilogram;
• Increased local prices for labor & raw goods;
• Lack of local design and marketing skills that would make Cambodian Silk products stand out in the international market;
• A Lack of capital to help produce large quantities of Cambodian silk to exploit a burgeoning export market for the fabric. There is no support from the financial sector, specific to the silk industry to help facilitate business loans in order to help the industry develop and be sustainable.

After working with Khmer golden silk for many years, we have found it very hard to work with escalating prices, which are due to the very difficult production process. Although I believe it is very special & has a place in the market, at the very high end, I think that it is and will be very difficult to develop as the only silk thread produced in Cambodia.

It was discussed in meetings held with ITC, NZ AID & UNDP back in 2008, that there would be further research into developing a white silk thread, a hybrid that would be able to produce a finer, more usable silk, like what we buy now from neighboring countries.

As a private producer and retailer of high-quality silk products that rely on imported white silk yarn, for local and export market end use, the Royal Cambodian Government needs to continue its research into introducing the white silk worm into the Cambodia Sericulture industry so that more white silk is available for silk production. This will provide wider opportunities for silk diversity in product designs for which we are experiencing an increasing demand from international customers.

For example, in the last 6-8 months we have had strong buyer demand from Malaysia and Indonesia for our products. They do not have a viable silk industry and have to import all of their silk requirements from China, Thailand or Vietnam. There is a huge potential market opportunity in these two neighboring countries for Cambodian Silk.

Scott: Those are some great points Laurence. Your company is vertically integrated from silk production to selling finished garments and fashion accessories. What led you to become vertically integrated? Was it due to a lack of existing talent and suppliers, the ability to control quality or both?

Laurence: When my daughter first became interested in the silk industry, she started buying silk fabric from the local markets. She soon realized that, unless you were a silk expert, it was very difficult to verify whether the silk offered was pure 100%. After trying to buy “ Pure 100% silk” fabric and seeking information about the silk available in Cambodia, she came to the conclusion that: (a) the silk was not 100%; (b) it was not produced in Cambodia; and, (c) it was not the quality that she was looking for to support her product brand.

She was very enthusiastic about the industry and its potential, so she decided that the only way to guarantee the silk quality to support her brand was to weave her own. With help from expert artisans who were well-trained in producing high-quality silk and in the dyeing process, she set out to accomplish her goals.

During this initial development stage, she sought advice from as many people and local organizations associated with silk production, including many visits to villages and silk farms throughout Cambodia who were producing silk fabric, and sensed a need to bring as many of these groups under one “umbrella” as possible in order to pool resources and information. To this end, my daughter was instrumental in establishing “The Cambodian Silk Forum” which is a non-governmental, non-profit, independent association of silk producers and businesses aiming to promote the silk sector of Cambodia. Silk forum provides training, networking and support to weavers and silk producers in Cambodia.

It also became very apparent to her during the Orange River set-up stage, that the silk she required, was the “white” silk yarn, and that this was not available in Cambodia and would have to be purchased from Vietnam, Thailand or China.

The standard had been set for Orange River and Jasmine Boutique to produce high-quality silk fabric and the next hurdle was to try to find local, organic, dyes for the color ranges required. There were natural dyes available in Cambodia but not in large quantities and a wide range of colors. After an extensive worldwide search for a dye that was as close to a natural organic dye as possible, yet still color-fast, Germany provided the best options. The next step was to look for skilled weavers and dyers to start producing the various types of silk required for Orange River product designs and a production manager to oversee operations.

Weavers were selected from a number of Cambodian provinces depending on the type of silk required, and provided these communities with increased livelihood opportunities. A dye specialist from Australia was brought to Cambodia to teach our weavers the true art of dyeing, including special tie-dye/shibori designs. Production units for the various products were then required, and these included Cambodian individual artisans, local NGO workshops which employed disabled and poor Cambodian staff who were desperate for work. Other employment opportunities in Orange River for local Cambodians were provided in the customer service, administration, export, marketing and design areas.

Scott: Chris & Mark did an interview with our friend, Chip Feiss on impact investing recently. Through previous conversations about the employment opportunities Orange River is creating, as opposed to an NGO giving things away for free, what impact have you made on rural communities where your products are produced?

Laurence: Orange River produces silk fabric for our four shops in Cambodia and for export to Australia, NZ, Norway, Singapore, Malaysia, UK, USA and Japan. Being vertically integrated we employ approximately 200 Cambodian skilled workers directly for our different production units and at times sub-contract our production to at least two or three NGO artisan production organizations.

Scott: That’s great. Nothing is better than training unskilled workers and giving them a skill. They surely not only work hard to impress but have a vested interest in making the best products they can.

Laurence, can you define your target market for me?

Laurence: Our target market is the more affluent foreign tourist who appreciates high-quality silk products locally produced. Our products are generally more expensive than the run of the mill locally made “silk” products because of our designs, dyeing techniques and production quality, which is far superior. It has been interesting though, in the past six months we have had increased patronage from the more affluent Khmer customers who have in the past relied on overseas destinations to buy the high-quality products.

Scott: As a leading provider of Cambodian silk, do you have any intentions of franchising your brand?

Laurence: This is our next step in developing our business strategies in this region. We will offer our Siem Reap shop as the initial franchise outlet, and if we are successful we will look at other opportunities in areas where we have had strong buyer interest for our brand, and where market research tells us that there is a high chance of our product and brand being successful.

Scott: Is it safe to say that you are also looking to do this abroad in the future? If so, what markets are you most excited about?

Laurence: Yes, we have had strong interest from Australia, Japan, Singapore, Malaysia and Indonesia over the past few months. Our research has found that there is not a viable Silk Industry in these countries, as I mentioned earlier, and they have to import their silk . Interestingly, Singapore, Malaysia and Indonesia have wealthy upper-class residents who would be very receptive to high-quality silk products and fashion designs.

Scott: Retail is not an easy business. Factor in that your company is based in Cambodia – most people can’t find the country on a map – and how do you intend to educate the silk community and for that matter, prospective customers?

Laurence: I believe that our successful marketing and branding over the years has produced an excellent “personal referral” business which we will continue to develop through sustaining high-quality silk production and long term customer service relationships. For our new customer destinations we will exhibit our products at selected venues that will attract our type of customer. We are also planning to sell our products online as a sales and marketing alternative.

Scott: Being in Cambodia for 11 years, what is some advice you can give to aspiring entrepreneurs looking to start an enterprise in Cambodia?

Laurence: The best advice I can give is to place a very high priority on market research for the product or service you are looking at providing in this part of the world, and the culture and environment that you will be working in. Be prepared to spend some time in Cambodia initially, to feel, smell, taste and endure the country, its people and the conditions you will be working under. Network as much as possible with people and organizations that have existing business experience in Cambodia. Lastly, prepare a good business plan with built-in risk and exit strategies.

Scott: Laurence, thank you for taking the time to speak with me. I look forward to catching up at our upcoming event.

Laurence: You are most welcome. It has been a pleasure to share our experiences in Cambodia with you, and I look forward to meeting some of your readers soon!
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This is a niche industry, but one with massive upside potential. Focusing on industries where there exists pent-up demand but few players is a solid strategy for investment. Companies like Orange River Silk have positioned themselves as leaders in a sector that holds immense potential.

Chris, Mark and I aim to associate ourselves with people like Laurence because they are not only experts in their fields, but are likely to create substantial value in their companies.

– Scott

“The best way to make a silk purse from a sow’s ear is to begin with a silk sow. The same is true of money.” – Norman Ralph Augustine