Understanding Cambodia

Cultural intelligence is key to achieving sustainable business outcomes. Being able to read cultural clues and respond appropriately helps develop relationships, communicate effectively and build trust. While cultural and communication norms are changing as virtual modes of engagement increase, core cultural values remain an important factor in business. Not understanding the particularities of doing business in Cambodia could lead to missed opportunities, delays and lost engagements.

Communication

Consistent with other Southeast Asian countries, communication styles in Cambodia are often indirect. It is considered improper to openly criticise others in public, show strong emotions, approach situations aggressively or give outright refusals to others. Instead, Cambodians may smile and give affirmative answers. Foreigners should be aware that ‘yes’ can have multiple meanings and smiling may indicate happiness or politeness. ‘Yes’ may indicate agreement, or simply that one is listening. It is important to interpret these interactions in context and seek clarification when necessary.

When greeting someone or expressing gratitude, it is customary to perform the sompeah, a prayer-like gesture with palms together in front of one’s chest or face. Hierarchy determines how one performs this gesture. The higher the hands and the lower the bow, the more respect is being shown. This greeting is commonly used for new introductions or after long absences, although it may be replaced with a handshake. Whether it be the sompeah or a handshake, it is important to return the gesture; not doing so is considered rude.

Though English fluency rates are rising in Cambodia, it is polite to determine whether someone is fluent in English and employ an interpreter if they are not. Businessmen and women tend to be addressed with ‘Mr’ and ‘Madam’, respectively, followed by a first name. Some senior government leaders may carry the title ‘Your Excellency’, whilst senior business leaders may hold titles of Oknha or Neak Oknha.

Punctuality is important and Cambodians may arrive early to events when senior people are in attendance. Meetings are generally unstructured and will continue until all parties feel satisfied. Decisions may take a considerable amount of time, as they are deliberated through the organization’s hierarchy. When exchanging business cards or gifts, use the right hand or both hands. The care with which one handles cards and other items presented is considered indicative of how one will treat the giver. 

Although Cambodians prefer to conduct important business in person, staying connected through multiple communication channels can help build and maintain relationships. Cambodians frequently use messaging apps including WhatsApp, Telegram and Messenger.

Navigating culture in business – the importance of core cultural values

Relationships

An important element of doing business in Cambodia is building strong relationships with suppliers, distributors, clients and business partners. Fostering and maintaining a sense of harmony is highly valued in business relationships. Cambodians accomplish this through face-to-face interaction, getting to know one another through social interaction and avoiding confrontation. If Cambodians disagree, they often remain silent instead of openly voicing their dissent. It is polite to do the same. Disagreements are frequently resolved through a third party and not spoken of again once they are settled. This process can be time-consuming but should not be rushed.

Hierarchy

Hierarchy is a defining feature of the Cambodian business landscape. Deference is generally shown to senior leaders for important decisions as well as everyday interactions. Visitors can show respect through greeting gestures.

The importance of partnerships

Successfully navigating the Cambodian business landscape often requires local talent, knowledge and expertise, and partnerships can be an important model for doing business.

Identifying a potential partnership requires having relationships in place that can facilitate introductions. After a potential partner has been identified, it is essential to conduct due diligence. This includes understanding their customers and clients, reach across Cambodia, support for product localisation and in-market reputation. It is essential to undertake reference checks and risk assessments before formalising any local partnerships.

The strength of a local partnership brings advantages across multiple aspects of a commercial operation – from procurement and contracting to gaining credit. Importantly, a local partner can often assist with bureaucratic requirements, including company and product-specific registration processes. Building a long term and sustainable partnership takes time and patience but is very advantageous in the Cambodian market.

Doing business in Cambodia comes with many risks. The economy is growing quickly but is also highly uncertain due to anti-competitive institutional practices, corruption, weak regulatory enforcement and underdeveloped infrastructure. However, these risks can be identified, mitigated and managed through careful research and planning.

Risk factors in Cambodia

Economic – including the potential for government default (sovereign risk), fiscal, monetary and exchange rate risk.

Cambodia’s riel (KHR) enjoys a relative degree of monetary stability, although a stronger US dollar has affected its value. Cambodia is still highly reliant on the US dollar for transactions, including lending. The National Bank of Cambodia (NBC) does not guarantee the ability to exchange riels for US dollars or other foreign currencies, making the exchange outlook uncertain. The government has indicated it plans to ‘de-dollarise’ the economy. Moody’s rates Cambodia’s sovereign credit as B2, indicating a high level of credit risk. Its outlook on the country’s external position is negative, noting current risks posed by an uncertain geopolitical environment.

Potential mitigations for foreign exchange risk include forward contracts, foreign currency options and utilising foreign bank accounts and loans to manage currency inflows and outflows. Seek advice on the level of currency risk and potential mitigations.

Political – including the potential for political instability and restrictive government policies.

The Cambodian People’s Party (CPP) has been in power since 1979, operating under a largely autocratic regime. Basic administrative structures are present in Cambodia, although their effectiveness is limited by bureaucratic inefficiency and corruption. Cambodia is ranked 119th out of 137 countries on the BTI Political Transformation Index.

It is essential to perform political risk due diligence for any major investments and be mindful of political affiliations of potential partners. For significant investments, political risk insurance may provide potential mitigation.

Corruption – including the potential for bribery, embezzlement and conflicts of interest.

Transparency International’s Corruption Perceptions Index ranks Cambodia 163^th out of 180 countries. While improvements are being made, the government does not provide a high degree of transparency to the business community. Informal payments remain a common part of doing business in Cambodia.

You should familiarise yourself with Australia’s foreign corruption and bribery legislation and ensure you have a robust anti-corruption strategy. The Australian government recommends that businesses resist making facilitation payments, which are often difficult to distinguish from bribes.

Regulatory – including the potential for regulations that increase the cost of doing business, reduce the attractiveness of an investment or change the competitive landscape.

Cambodia ranks 98^th out of 184 nations of Heritage International’s Index of Economic Freedom. Cambodia’s 2021 Law of Investment Policy laid the groundwork for ongoing regulatory improvements, but the institutional environment remains weak. Regulatory enforcement can be hampered by cronyism and nepotism. Similarly, regulatory proceedings can be uncertain due to corruption and inefficient systems.

A trusted local partner can help you understand, navigate and secure complex regulatory processes.

Intellectual property (IP) – including the potential for weak or underdeveloped IP protections and enforcement mechanisms.

Cambodia has established a solid legal framework for intellectual property (IP) rights and has a relatively efficient online registration process. Cambodia is a World Intellectual Property Office member. In 2024, Cambodia launched the IP Rights Recordation System, enabling owners of IP to record their rights with customs to facilitate the identification of counterfeit goods at the border. Even so, internationally agreed IP standards are not consistently enforced, and the sale of pirated products persists.

Registration for patents, trademarks and copyrights can help mitigate IP risk. Continual product development and brand updates can deter counterfeiting. There are also technology solutions such as RFID tags and QR codes to authenticate products.

Geopolitical – including the potential for trade relationships, security partnerships and territorial disputes to impact business activities.

Cambodia has been a WTO member since 2004 and has eleven free trade agreements in force, mainly with countries in the Asia-Pacific. Despite its openness to foreign investment, Cambodia has struggled to attract FDI from Western countries. The country is now heavily dependent on China to fulfill its FDI needs. This has increased competition for Australian businesses and investors and may result in more complex geopolitical risk assessments.

Boards and leadership teams should familiarise themselves with geopolitical issues that may impact your business and, if relevant, develop plans in response to potential scenarios. You may also wish to seek external advice.

Supply chain – including the quality of infrastructure, levels of corruption, corporate governance, supply chain visibility and timeliness.

Supply chain risk is moderately high in Cambodia due to underdeveloped infrastructure, low supply chain visibility, and persistent corruption. FM Global’s Resilience Index ranks Cambodia 118th out of 130 countries.

Although risks are moderately high, advice from a local partner can help to navigate a novel logistics environment to ensure you are able to take full advantage of Cambodia’s sophisticated environment.

Climate – including the potential for extreme weather events and rising sea levels to impact trade routes, supply chains and infrastructure.

The Notre Dame Global Adaptation Initiative rates Cambodia as the 61^st most vulnerable to climate change and the 35^th least prepared out of 187 and 192 countries respectively. The most severe risks stem from Cambodia’s vulnerability to river floods, but droughts, extreme heat, wildfires and sea level rise are also a concern. These risks are likely to affect the agricultural sector and may disrupt supply chains.

Identifying and mitigating climate change risks–including their socioeconomic consequences–should be embedded in all elements of your strategy and operating model.

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