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The chapter delves into the economic impact of the COVID-19 pandemic on firms in Cambodia, focusing on key performance indicators such as expenditures, profits, revenues, and employment. It explores the strategic responses adopted by businesses to cope with disruptions in supply chains, customer access, and cash flow, with a particular emphasis on the role of digital technologies and government interventions. The study reveals that most firms experienced declines in financial performance due to the pandemic, with service sector firms and SMEs being particularly affected. The chapter also highlights the importance of business networks, access to finance, and infrastructure in enhancing firm resilience. The findings suggest that while the government's measures were generally well-received, there is a need for targeted support to improve digital infrastructure, skills development, and access to finance, especially for SMEs and firms outside the capital. The chapter concludes with recommendations for policymakers and business associations to strengthen the private sector's resilience to future crises.
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Abstract
The COVID-19 pandemic significantly impacted Cambodia’s economy, leading to a contraction of -3.1% in 2020, with sharp declines in the service and industry sectors. Cambodian businesses, particularly small and medium enterprises, faced considerable turmoil while already grappling with challenges. This study examined firm performance—including expenditure, profits, revenues, and employment—and investigated the strategies firms employed during crisis periods such as the pandemic. It draws on original firm-level survey data from 361 enterprises in the industry and service sectors, conducted in mid-2022. The findings show that most firms experienced rising expenditures, low revenues, and reduced profits between 2019 and 2021. Employment slightly increased in services in Phnom Penh but declined significantly in provinces. Firms reported low investment in skills development and innovation, with few employees participating in training. Telecommunication and internet access were perceived as major operational barriers. Most firms lacked business networks and access to financing, with 66% identifying financial access as a key constraint due to the complex lending procedures and unfavorable credit conditions. The study recommends targeted business support, skills development, crisis management strategies, infrastructure development, and greater engagement with industry actors to strengthen firm performance.
4.1 Introduction
In 2020, the world witnessed the global health crisis resulting from COVID-19, which led countries around the world to adopt serious measures such as lockdowns, cross-border restrictions, and strict health protocols to contain the spread of the virus. These measures drastically limited human interaction and economic activity both within and across borders, disrupted global supply chains, and resulted in economic slowdowns in countries around the globe (MEF, 2021b).
Cambodia was no exception during the pandemic era. Despite a high annual GDP growth rate of around 7% for more than two decades, the country recorded a contraction of -3.1% for the first time in 2020. The service and industry sectors experienced severe declines (−6.7% and −1.2%, respectively), while the agriculture sector recorded a very modest growth of 0.5% (MEF, 2021a). The economic downturn in tourism, construction, and manufacturing exports—key economic drivers—caused significant losses of employment and income, especially among those working in the informal economy (Ivan et al., 2022). Since 2020, the government has introduced various stringent measures and initiatives, including financial and fiscal policies, as well as vaccination campaigns, to contain the pandemic and maintain the country’s social and economic stability. These efforts enabled Cambodia to resume its economic growth, reaching 3% in 2021 (MEF, 2022).
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Sluggish global economic growth is expected to persist due to a variety of reasons including: the spread of COVID-19 variants and other viruses; the ongoing Russia-Ukraine war; the escalation of the China-US trade war; widespread economic sanctions; and other chronic conflicts around the globe. These challenges contribute to a broader economic slowdown and have had indirect effects on Cambodia’s economy through supply chain disruptions, oil price shocks, and reduced investment inflows. As a result, Cambodia’s economy was estimated to grow by 5.4% in 2022; however, this growth remains highly dependent on regional and global stability (MEF, 2022). In this context, strengthening economic foundations through competitive and sustainable local production and enterprise development is key to promoting Cambodia’s socioeconomic development. A favorable business environment may also further attract and stimulate both local and foreign capital investments, nationally and provincially.
Small and medium enterprises (SMEs) play a particularly significant role in private sector development, accounting for more than 90% of businesses in Cambodia. They contribute substantially to employment, income generation, poverty reduction, and GDP growth (Baily, 2008; Thy, 2021). Despite their crucial role, SMEs have encountered significant obstacles to sustaining and expanding their operations both before and during the pandemic, particularly when compared to larger firms and multinational enterprises (MNEs) (ITC, 2022; Thy, 2021). Major challenges include high levels of informality, limited access to financing, inadequate human resources, and a lack of technological and innovation capacity (Thy, 2021; UNIDO, 2020). These challenges have limited the ability of SMEs to compete, scale their business models, and access broader domestic and international markets. Many of their goods and/or services also frequently lack process or product innovation.
Like SMEs in other developing—and even developed—economies, many Cambodian SMEs operating in tourism and other service sectors were severely affected by the pandemic, with many suspending operations or permanently closing in 2020 (Ivan et al., 2022; UNIDO, 2020). On average, manufacturing firms started to recover in 2021, following government interventions to maintain macroeconomic stability and support local firms’ performance (MEF, 2021b, 2022).
Using original survey data, this study aims to examine how firms performed during critical events such as the COVID-19 pandemic. Specifically, it explores the pandemic’s impact on business performance indicators, including expenditures, profits, revenues, and employment. The study also investigates the strategies and responses firms adopted to cope with such crises. In addition, the study examines the role of external factors, such as government responses, infrastructure, business networks, and access to financing, which are critical for firm resilience. Finally, the paper concludes by proposing preliminary policy directions and suggesting areas for future inquiry.
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4.2 Literature Background
4.2.1 COVID-19 Impacts on the Cambodian Economy and Business
The COVID-19 pandemic has caused substantial human and economic costs globally. Preventative measures such as lockdowns and border closures led to a worldwide economic downturn, with global manufacturing and trade declining significantly (CCSA, 2020; Hing, 2023; Kong et al., 2023; MEF, 2021b). The global economy contracted by 3.1% in 2020 (IMF, 2021), and Cambodia's economy was not spared, experiencing a 3.1% drop. The country’s key sectors such as industry and services saw contractions of 1.2% and 6.7%, respectively, while agriculture marginally grew by 0.5% in 2020 (MEF, 2021a). The garment and construction sectors declined by 6.4% and 2.4%, respectively, and the hotel and restaurant sector faced a -36% drop (ADB, 2021; MEF, 2021a).
Cambodia's economy recovered to a 3% growth rate in 2021, supported by government stimulus, strong exports, and foreign direct investment (FDI) (Hing, 2023; MEF, 2022; Veung & Sean, 2023). The industry sector, particularly garment and non-garment manufacturing, showed growth rates of 10.8% and 13.9%, respectively (MEF, 2022). However, the service sector continued to struggle due to ongoing travel restrictions and emerging COVID-19 variants (Hing, 2023). The country's economic growth persisted, reaching 5.2% in 2022, with projected growths of 5.6% in 2023 and 6.6% in 2024 (MEF, 2023). This recovery is fueled by increased manufacturing exports, a revival in travel and tourism, and FDI, mainly in apparel, footwear, and bicycles (Hing, 2023; World Bank, 2022). As a small, export-dependent economy, Cambodia remains vulnerable to external shocks like global economic slowdowns, financial restrictions, China's slow recovery, and geopolitical tensions (Hing, 2023), all of which could adversely affect its future economic growth.
Despite their substantial presence and GDP contribution, local SMEs face challenges such as limited access to finance, a shortage of skilled workers, informality, and low innovation capabilities (Hatsukano & Tanaka, 2014; ITC, 2022; Thy, 2021). Furthermore, innovation in production processes is often lacking, limiting the growth of these businesses (Ivan et al., 2022; UNIDO, 2020). COVID-19 and other rising crises have compounded these persistent challenges, creating additional obstacles for SMEs and hindering competition and market access. In particular, many Cambodian SMEs in the tourism and services sectors were severely affected during the pandemic, leading to business suspensions, increased expenses, and closures in 2020.
With disruptions to global supply chains, a sharp decline in tourism, and restrictions on mobility, the impact on Cambodia’s 520,000 SMEs has been particularly severe. A staggering 74% of SMEs reported a decline in revenues, and 53% experienced a shortage of cash flow due to the pandemic (Thy, 2021). Similarly, The Asia Foundation (2020) conducted a rapid survey on 997 Cambodian MSMEs in tourism, finding that over 90% experienced a reduction in sales and revenues by July 2020. In another survey of 1000 tourism MSMEs conducted in 2022, 72% reported significant revenue declines, while about 32% temporarily suspended operations, around 20% laid off employees, and others decreased production and service supplies in 2021 (The Asia Foundation, 2023).
4.2.2 Business Strategies and Responses to the Pandemic
The COVID-19 pandemic exposed businesses globally, particularly small enterprises, to turmoil due to limited resources and the absence of proper crisis planning (Childs et al., 2022; Josephson et al., 2017). Companies were forced to adapt to supply chain disruptions, shifts in customer demand, and workforce health risks (Margherita & Heikkilä, 2021). In Cambodia, survey findings revealed varied results on the ability of MSMEs to mitigate impacts and sustain operations. According to DAI and Ipsos (2022), by mid-2021, 45% of MSMEs used digital tools, and 73% of online MSMEs reported these tools helped them sustain and grow. However, The Asia Foundation (2021) found that 8% saw increased online business by April 2021. Around 50% invested in new technologies, with 80.2% adopted digital payments. Most businesses remained at a basic level of digital technology adoption.
Digital adoption is crucial for business resilience in Cambodia, but significant barriers remain. According to DAI and Ipsos (2022), businesses face poor internet connectivity, insufficient knowledge, high costs, and limited access to digital tools. Other barriers include a lack of skilled personnel, weak business cases, unclear returns on investment, budget constraints, insufficient time for skills acquisition, and low digital literacy (The Asia Foundation, 2023). Additionally, a poor understanding of intellectual property, low investment in research and development, financial barriers, legal and regulatory constraints, and bureaucratic procedures hinder advanced technology transfer (MISTI, 2023). These studies illustrate the diverse experiences of SMEs amid crises. While some businesses successfully adopted adaptive strategies, others faced significant challenges. This paper highlights different approaches firms adopted in times of crisis, providing insight into responses not yet captured in previous research in Cambodia.
4.2.3 Governmental Responses to the Pandemic
Governments worldwide faced significant challenges in addressing the public health and economic impacts of the COVID-19 pandemic. They implemented cross-border travel restrictions, lockdowns, preventive public health protocols, vaccination campaigns, and fiscal and financial interventions to mitigate these effects. In Cambodia, the government adopted the National Social Protection Policy Framework (NSPPF) 2016–2025, focusing on strengthening social protection and social security (RGC, 2017). The government also implemented various fiscal, monetary, health, and policy measures, including cash transfers, cash-for-work programs, wage subsidies, skills training programs, tax relief, low-interest loans, loan restructuring, and payment deferrals (Huot, 2023). These measures aimed to support both citizens and businesses while controlling the spread of COVID-19 through widespread vaccination strategies (MEF, 2021a, 2021b).
To support long-term recovery, the government has adopted the “Strategy on Living in a New Normal” and the “Strategic Framework and Programs for Economic Recovery in the Context of Living with COVID-19 in a New Normal 2021–2023” (MEF, 2021b). These frameworks were designed to revitalize Cambodia’s economic growth potential and build socio-economic resilience (MEF, 2021b). Over ten intervention measures were introduced, targeting key sectors such as garment, tourism, aviation, and vulnerable families (Huot, 2023; Sean, 2023). Between 2020 and 2022, the government invested significant public resources to mitigate the pandemic’s socioeconomic effects and support business continuity and post-pandemic recovery (Huot, 2023).
4.3 Research Methodology
4.3.1 Data Collection Methods
This study is based on original firm-level survey data collected using a CSPro platform on tablets to conduct face-to-face interviews with business owners or their representatives. In a few exceptional cases, respondents requested to complete hard copy questionnaires; these responses were later verified by enumerators for clarity and completeness. The data collection was conducted between July and August 2022.
4.3.2 Sampling Strategy and Sample
Small, medium, and large enterprises in this study are defined according to the Sub-committee on SME Secretariat as follows: small enterprises employ 11–50 employees; medium enterprises employ 51–100 employees; and large enterprises employ over 100 employees (Baily, 2008, pp. 5–6). The definition includes full-time and part-time employees currently hired and working at the business enterprise.
The sampling frame was derived from the 2021 Cambodia Economic Census Listing by the Ministry of Planning. Firms with fewer than 11 employees, those that did not report the number of employees, those whose primary business activities fall outside the scope of the study,1 and unregistered firms were excluded.
The sample size was determined using the formula as follows: \(n=\frac{\text{N}}{1+\text{N}({e)}^{2}}\), where n = sample size and e = margin of error.
Given a sampling frame of 3979 firms and a margin of error at 0.05, we obtained \(n = \frac{{3979}}{{1 + 3979(0.05)^{2} }} \approx 364.\) Stratified sampling was applied based on sector, size, and region. The first stratification divided firms into the two main economic macro-sectors: industry and services. The second stratification categorized firm sizes into small, medium, and large based on the number of employees. The final stratification grouped firms into five regions in which the firm’s primary facilities are based: Capital City (Phnom Penh), Central Plain (Kandal), Tonle Sap (Siem Reap), Coastal and Sea (Preah Sihanouk), and Plateau and Mountains (Kampong Speu). Although the sampling technique and stratification expected to have a sample size of 364 firms, this study surveyed 361 firms in total, including 235 small, 31 medium, and 95 large firms in services (178 firms) and in industry (183 firms).2
4.3.3 Data Analysis
This study employed a variety of descriptive statistics and graphical presentations to illustrate variations across firms by size, sector, and location. Key performance indicators such as expenditures, profits, revenues, and employment were examined to assess the effects of the COVID-19 crisis. The analysis also explored firms’ adaptive strategies during crisis and their perceptions of external factors—such as governmental responses, infrastructure, business networks, and access to finance—that influenced their operation and resilience in times of crisis.
4.3.4 General Characteristics of the Surveyed Firms
Figure 4.1 presents the distribution of firms by size and sector. Small firms constitute the majority, accounting for 65%, followed by large firms (27%), and medium-sized firms (9%). Geographically, 59% of the firms were based in Phnom Penh, while the remainder were located in the other four provinces of Kandal (15%), Kampong Speu (10%), Preah Sihanouk (11%), and Siem Reap (6%).
As shown in Fig. 4.2, 79% of the surveyed firms were male-owned, while 21% were female-owned. Khmer nationals owned 59% of firms—primarily in the service sector—with 59% of industry firms were foreign-owned. Only 20% of the total sample were export-oriented, most of which were large foreign-owned manufacturers serving international markets, whereas most small service and industry primarily catered to domestic consumers.
Figure 4.3 shows that 24% of firm owners held a bachelor’s degree, 16% held a master’s degree, and 8% a PhD. Owners in the industry sector had a higher share of bachelor’s degrees, while those in services more frequently held master’s degrees. In contrast, only 2% had obtained a TVET (C1–C3) certificate or an associate’s degree.
Fig. 4.3
Share of owners by education level. Note About 27% of firms chose “don’t know”.
Figure 4.4 indicates that 63% of employees had not completed high school education and/or were illiterate, while 24% held a bachelor’s degree and 11% a high school diploma.
Fig. 4.4
Share of employees by education level. Note About 2% of firms did not reply to each item of the question. “Others” includes those had not completed high school education and those were illiterate.
Source Authors’ firm survey 2022
Full size image
Noticeably, large firms were more likely to employ workers with lower (or no) educational attainment, whereas smaller firms were more likely to hire individuals with higher education levels. This reflects the broader trends in Cambodia’s labor market, where low-skilled workers comprise the majority of the total workforce.
4.4 Research Findings
4.4.1 Firm Performance During the Pandemic
4.4.1.1 Impacts on Business Operations
Most firms reported negative impacts from the COVID-19 pandemic, as shown in Fig. 4.5. In Phnom Penh, industry firms were more affected than service firms, with 89% of industrial businesses reporting “completely” or “mostly” negative impacts, compared to 81% of service firms. By contrast, in the other provinces, service firms experienced more of a disruptive impact (22% completely negative and 65% mostly negative) than those in the industrial sector (10% completely negative and 72% mostly negative). In terms of firm size, large manufacturers in particular were negatively affected while service SMEs-especially tourism-were strongly impacted due to travel restrictions, lockdowns, and other public health measures.
Fig. 4.5
Firms’ perceptions of COVID-19 impacts on businesses.
Figure 4.6 depicts that the most commonly affected business aspects included access to domestic customers, cash flow, and local supply chains. Service firms and SMEs reported greater impacts in these areas, while large export-oriented industrial firms faced disruptions to international supply chains and import/export operations. Geographically, provincial firms were more likely to report the impact on their local supply chain and cash flow, while firms in Phnom Penh were more likely to mention the impact in accessing domestic customers and international customers.
4.4.1.2 Change in Expenditures, Profits, Revenue, and Employment
As shown in Fig. 4.7, 42% of firms experienced increased expenditures during the pandemic, while 34% reported a decrease Large manufacturers and small service firms were the most likely to report increased costs. Firms in Phnom Penh were more likely to report higher expenses (45%) than those in other provinces (37%), reflecting the added cost of maintaining operations during disruptions.
Fig. 4.7
Share of firms reporting change in their total expenditures due to the COVID-19 outbreak. Note 8 firms chose “don’t know” and “refuse to answer”.
Figure 4.8 illustrates that more than 75% of surveyed firms reported a decrease in profits in 2021 compared to 2019. Small service firms are the most affected. While 15% of firms, particularly those in manufacturing and financial sub-sectors, registered an increase in their profits. Nonetheless, as shown in Fig. 4.9, over half of the firms expected profit growth in 2022, in line with national economic recovery projections (MEF 2022). Service sector firms, especially SMEs, were more optimistic than those in industry.
Fig. 4.8
Share of firms reporting change in their profits in 2021 relative to 2019. Note 8 firms chose “don’t know” and “refuse to answer”.
In terms of revenue (Fig. 4.10), 75% of firms reported a decline in 2021. Medium industry firms and small service firms were the most affected. Regionally, firms outside the capital reported higher rates of revenue decline, although service firms in Phnom Penh were also heavily impacted.
Fig. 4.10
Share of firms reporting revenue change in 2021. Note 12 firms chose “don’t know” and “refuse to answer”.
Employment trends varied by firm type and location (Fig. 4.11). Between 2019 and 2022, employment rose by 11.3% in large industry firms, and a slight increase of 1.1% in small service firms. However, medium and large service firms saw employment decline. Overall, employment increased in industry but declined in services, particularly in provinces where the tourism sector was severely affected. As Fig. 4.11 reports, industry firms in the capital had a higher increase in employment than those in other provinces, while firms in services outside of Phnom Penh recorded a more pronounced drop. Correspondingly, travel restrictions negatively impacted services, particularly the tourism sector, leading to many closures or suspensions since 2020.
Fig. 4.11
Average percentage of change in total employment between 2019 and 2022. Note The number of total current employees was collected as of August 2022.
Firms adopted a variety of strategies to mitigate the pandemic and maintain their business operation (Fig. 4.12). The most common included reducing unnecessary costs, restricting travel to the affected areas, and increasing use of digital technologies were. Service sector firms, particularly in the provinces (45% in Phnom Penh and 52% in the others), were more likely than firms in the industrial sector (32% in Phnom Penh and 30% in the rest) to adopt digital technologies to maintain their business operations during the pandemic. Furthermore, more service firms in the capital used e-commerce platforms and diversified their sales channels (online marketing, sales, and delivery) to further reach wider customers during the pandemic time. The results reflect the digital divide between sectors and regions.
Fig. 4.12
Coping strategies in response to COVID-19 adopted by firms.
As indicated in Figs. 4.13 and 4.14, approximately 20% of surveyed firms introduced or developed new products and/or services, and 22% implemented new processes between 2019 and 2021. Among the 73 firms that had introduced or developed new products and/or services, more than 50% were small service firms, followed by large industry companies (approximately 25%), as shown in Fig. 4.14. Out of the 81 firms that reported having implemented new processes, small service firms were again the largest share while only 17% of large firms in industry reported doing the same. However, the majority of firms made no innovations, likely due to heightened uncertainty during the pandemic.
Fig. 4.13
Share of firms introducing new products and/or implementing new processes (2019–2021). Note 73 firms reported having new products and/or services, and 81 firms claimed to have new processes.
As Fig. 4.15 illustrates, not many firms in either macro-sector invested in innovation, and overall, industry firms invested less than those in services. Among those that invested, the most common target was new advanced machinery or equipment. Service sector firms were more likely to invest in market research, marketing, and organizational changes. Industry sector firms focused more on purchasing intellectual property rights and changing product design. A higher share of service firms also reported investments in research and development and new software adoption.
Fig. 4.15
Types of innovation investment in 2021 by sector. Note The total for each item of the question is not 100% as a few firms chose “don’t know”.
Figure 4.16 presents average shares of employees participating in training. As shown below, 13% of employees across all firms participated in internal or external training in 2021. Service firms had almost double the participation rate compared to industry firms. Exporters and large firms reported higher training rates than SMEs and non-exporters. The limited overall training suggests firms deprioritized workforce development during the crisis.
Fig. 4.16
Average percentage of employees participating in training in 2021 by sector, location, type, and size. Note Two firms that did not reply the question were excluded from the calculation.
Firms identified key skills needed (Fig. 4.17), including marketing and customer relations, foreign language skills, basic computer literacy, human resource management, and communication skills. Service firms emphasized more general skills, while industry firms reported a higher need for technical skills and occupational health and safety skills, as manufacturers are dependent on production aspects in the workplace. Language skills were also desired by industry firms as many are foreign-owned and employees are more likely to communicate in a second language. About one-third of firms reported no skills needs—particularly SMEs and firms in the provinces—which may reflect hiring freezes during the crisis.
Fig. 4.17
Firms’ current skills needs by sector. Note About 1.7% of firms answered “others” and “don’t know”.
Figure 4.18 highlights different strategies used to address skills gaps, regardless of the COVID-19 context. However, the most adopted strategies in both sectors were reskilling existing staff, hiring new employees, and reassigning workers. Very few firms opted for solving skills gaps by laying off individuals without the necessary skills, using freelancers, or outsourcing. Firms of all sizes had a similar pattern of shifting employees to new roles when facing potential skills gaps.
Fig. 4.18
Strategies/methods for solving potential skills gaps by sector and size.
Figure 4.19 below indicates how firms managed their data during the COVID-19 crisis. The most common data management method across both the service and industry sectors was the use of local computers, followed by paper-based systems. A smaller proportion of service firms, compared to industry firms, used both data management methods. Cloud-based solutions and the use of multiple data centers remained relatively rare. In Phnom Penh, a larger percentage of firms relied on local computers, while firms in the provinces were more inclined to use paper-based forms of data management. The use of local servers and cloud-based technologies was relatively consistent across geographic locations. Overall, the findings point to a generally low adoption of advanced data storage and management practices across all firm sizes and sectors.
Local computer usage was the most used method for firms of all sizes (81%). Among large firms, local servers were also commonly used (62%). In contrast, multiple data centers were the least utilized used method of data management, followed by cloud-based solutions, regardless of firm size, sector, or location. These results suggest that highly advanced methods of data management may not be needed or accessible for the majority of Cambodian firms during crisis periods.
4.4.2.4.2 Workplace Arrangement
Figure 4.20 shows data on firms’ preparedness for alternative workplace arrangements for employees during disruptions. Only 23% of firms reported having access to an alternative worksite in the case their primary location became inaccessible. Firms in the service sector were more likely than those in industry to report having such alternatives (23% vs. 9%), and firms in the capital demonstrated greater preparedness in this regard than those in the provinces. Interestingly, small firms comprised the highest percentage of those reporting access to alternative worksites, although the overall proportion remained low.
Fig. 4.20
Alternative worksite for employees by sector, location, and size.
Figure 4.21 indicates that approximately 31% of firms reported having technology resources available to facilitate remote work. These resources were more commonly available in the service sector than industry. As anticipated, firms in the capital of Phnom Penh were more likely to report the availability of remote work infrastructure than those location in other provinces. By firm size, large firms were the most likely to have such technological capabilities, reflecting greater resource availability and perhaps a higher capacity to invest in digital resilience strategies.
Fig. 4.21
Availability of technology resources by sector, location, and size.
Figure 4.22 illustrates the strategies firms employed to prepare for future crises. The most common measure included reserving financial resources and preparing personnel, however, relatively few firms had a defined a formal crisis response plan. A larger percentage of service sector firms reported preparing personnel and facilities for crises, while a significant percentage of large firms were more likely to reserve financial resources. Firms in both Phnom Penh and the provinces reported similar levels of financial preparation, but firms in the capital reported to have prepared personnel. Overall, large firms exhibited the highest levels of preparedness across all categories. Notably, only a small minority of surveyed firms reported taking steps to preparing telecommunication systems, suggesting a gap in digital readiness for crisis contexts.
Fig. 4.22
Preparation plan for crisis by sector and location. Note 31 firms chose “don’t know” and “others”.
As shown in Fig. 4.23, only 24% of firms reported having diversification plans in place for crisis periods. Services firms and firms in the capital city were more likely to report such strategies. Medium-sized firms reported having diversification plans more frequently than both small and large firms. Diversification efforts commonly included expanding products and services, particularly among service firms and those based in Phnom Penh. Industry sector firms were comparatively less likely to plan for market expansion in times of crisis. These findings underscore the vulnerability of small firms and the limited strategic planning capabilities within many Cambodian enterprises. The external shock of COVID-19 exposed the fragility of businesses lacking the resources or foresight to develop robust crisis mitigation strategies—an issue consistent with previous literature on SMEs in developing countries (Childs et al., 2022; Josephson et al., 2017).
Fig. 4.23
Share of firms having diversification strategies for crisis, by sector, location, and size. Note 8 firms chose “don’t know”.
4.4.3 Perceptions of Governmental Response and Support
In addition to internal coping strategies, businesses also benefited from the government’s measures and initiatives aimed at mitigating the effects of the pandemic. Figure 4.24 indicates that most firms held positive perceptions of the government’s response to COVID-19, including fiscal policies, vaccination campaigns, and other containment measures. Large firms in both the service and industry sectors exhibited the highest levels of satisfaction, while small firms in both sectors were the least likely to hold favorable views. Regionally, service firms in the provinces expressed more negative perceptions of the government’s responses than in the capital. In contrast, industry sector firms in both Phnom Penh and the provinces were generally more likely to perceive the measures positively in reducing the effects of COVID-19 on their business. Overall, the results reflect broad support for the government’s crisis response, particularly among larger and more industrial enterprises.
Fig. 4.24
Share of firms perceiving governmental responses to mitigate COVID-19 impacts on their business. Note Two firms chose “don’t know”.
4.4.4 External Factors Influencing Business Operations
4.4.4.1 Infrastructure
Although the majority of firms indicated that they did not perceive infrastructure as a major constraint to their operations, many reported minor or moderate challenges (Fig. 4.25). Telecommunication and internet access posed the most significant obstacle, with almost 70% of firms citing these as problematic. Electricity and clean water systems were also mentioned as constraints by 60% and 43%, respectively. Other infrastructure, such as roads and bridges, waste management systems, and transportation facilities (ports, airports, railways), were also identified as obstacles.
Fig. 4.25
Firms’ perceptions of obstacles to the current operations. Note The total for each item of the question is not 100% as some firms chose “don’t know”.
When asked to compare the quality of infrastructure in 2022 to that of 2019 (Fig. 4.26), many firms reported either no improvements or deterioration, particularly in telecommunication and internet services. Given the increased reliance on digital technologies and platforms as their coping strategies during the pandemic, these findings highlight the importance of improving the coverage and quality of internet and electricity services to enhance business operations’ resilience to future crises.
Fig. 4.26
Perception of infrastructure quality changes relative to 2019. Note The total for each item of the question is not 100% as some firms chose “not applicable”.
Approximately 30% of firms reported membership in a business network or association (Fig. 4.27). In general, firms in the industry sector had a more extensive business networks than firms operating in service. Industry firms reported receiving tangible benefits from their networks or associations (Fig. 4.28), including information about changes in government policies and legislation, opportunities for common problem solving, and receiving training or technical support. Regardless of crises like COVID-19, this reflects the critical role that business associations play in the private sector to support firm resilience, especially during crises.
Fig. 4.27
Share of firms being a member of business network/association. Note Only 111 firms replied to this question.
Beyond formal business networks, firms were also found to use other informal channels to exchange information and address shared challenges (Fig. 4.29). However, it is not widespread. Geographically, firms in Phnom Penh seem to be more inclined to establish links and leverage their networks to exchange information and work collectively to solve bottlenecks than firms in other provinces. This geographic disparity suggests a need to strengthen networking opportunities for firms outside the capital.
Fig. 4.29
Share of firms exchanging information and working to solve problems in their sector.
The findings reveal that approximately 49% of firms reported using e-banking tools (Fig. 4.30), with higher adoption rates in Phnom Penh (55%), than in other provinces (42%). Larger firms across both regions were more likely to use online banking systems for their transactions (Fig. 4.31), while fewer than 40% of SMEs in other provinces utilized these technologies. This reflects ongoing digitalization challenges among smaller firms, despite the widespread adoption of mobile payments such as KHQR following the pandemic.
At the time of the survey, only 28% of total firms held a loan from a bank or financial institution, as shown in Fig. 4.32. Industry firms were more likely than service firms to access loans, and those operating in the province had slightly higher loan uptake (32%) compared to those based in Phnom Penh (25%). In terms of firm size, medium-sized firms were the most active borrowers, with 48% reporting outstanding loans (Fig. 4.33).
Fig. 4.32
Share of firms having loans with banks/financial institutions by sector and location.
The perceptions of access to financing through banks and credit institutions revealed several barriers. As presented in Fig. 4.34 and Fig. 4.35, approximately half of the firms in both Phnom Penh (51%) and other provinces (54%) thought that lending procedures were overly complex. Furthermore, 43% of firms outside of Phnom Penh—compared to 36% in the capital—viewed credit conditions as unfavorable for their businesses. Across firm sizes, complicated procedures and stringent credit terms were commonly reported constraints, particularly among industrial firms located in the provinces.
Fig. 4.34
Lending procedures are very complicated. Note 69 firms said they don’t know about this statement.
When asked about alternative sources of finance, 43% of firms stated borrowing money from their relatives or friends as their primary fallback option (Fig. 4.36). This was particularly common among industrial firms, with 51% in Phnom Penh and 46% in other provinces relying on informal family networks. Service sector firms reported a lower reliance on this option (36% in Phnom Penh and 38% in other provinces). Additionally, firms in the service sector in the provinces were more likely to sell assets to raise capital. More medium and large firms borrowed money from their relatives or friends than small firms, while informal lending was also a commonly cited secondary option. A smaller proportion of firms reported asset sales or shareholder investment as alternative financing strategies. These results indicate that, in times of crisis, formal financial channels are insufficient for many businesses, pushing them to rely on informal networks or personal resources to sustain their operations.
Fig. 4.36
Alternative loan sources by location, sector, and size.
The study investigated firm performance in Cambodia during the COVID-19 crisis, focusing on changes in expenditures, profits, revenues, and employment, as well as strategies adopted in response. The study findings indicate that most firms experienced declines in financial performance due to the disruptions in domestic customer access, cash flow, and local supply chains. In 2021, profits and revenues fell for most firms and maintaining normal business operations was generally perceived as costly. Furthermore, the study found that while employment increased slightly in the service sector, a sharp decline was observed in the provinces between 2019 and 2022, largely due to business closures and suspensions during the pandemic. However, many firms still expressed positive expectations of profit growth in 2022, reflecting broader macroeconomic recovery (MEF, 2022).
In response to the crisis, most firms adopted various coping strategies, including cost reduction, travel restrictions, and increased use of digital technologies. Most firms also viewed the government's pandemic responses-such as vaccination campaigns and fiscal policies—positively, particularly large firms in both service and industry sectors. However, the pandemic also revealed several structural weaknesses in the private sector’s resilience. Few firms introduced new products or processes between 2019 and 2021, suggesting limited innovative capacity. Investment in employees training was also low, and a significant number of surveyed firms had no skills needs, implying limited workforce planning. Despite the lack of investment in training, most firms preferred internal reskilling over hiring new staff or restructuring roles. Adoption of advanced data management tools and preparation of alternative work arrangements remained limited, further reflecting a lack of preparedness and long-term planning.
Most firms relied on reserving cash and personnel as a crisis response strategy, while relatively few had formal crisis management plans or diversification strategies. This lack of planning not only limited operational adaptability but also weakened competitiveness and recovery capacity. External factors, including underdeveloped digital infrastructure, especially outside Phnom Penh, further constrained firm performance. Many respondents identified telecommunication and internet networks as significant obstacles to their operations, hindering business performance and opportunities during critical events like the pandemic. Moreover, business networks and associations were underutilized especially among service firms and those in the provinces, reducing opportunities for information sharing, coordination, and support during the crisis.
Access to finance also emerged as a critical constraint. Only a small number of firms—mostly medium-sized and in the industry sector—had loans from banks or financial institutions. Many firms, especially SMEs outside Phnom Penh, struggled with complicated lending procedures and unfavorable credit conditions, leading them to borrow from relatives and friends for financing. These financing barriers limited firms’ ability to respond effectively to the crisis and invest in recovery.
Based on the key findings of the study, the following recommendations merit consideration from policymakers, business associations, and relevant stakeholders.
The differential experiences of firms inside and outside of Phnom Penh call for a territorial approach to business support—relevant beyond pandemic contexts—with greater emphasis on the specific economic structure and compositions across provinces.
A comprehensive policy framework should address challenges related to skills upgrading, reskilling, and broader human capital development in the business sector. The most urgently needed skills identified by firms include soft and generic skills such as marketing, customer relations, sales, foreign languages, and digital/ICT competencies. The government is currently implementing a skills development initiative aimed at training 1.5 million learners from poor and vulnerable groups, offering monthly stipends and focusing on TVET Certificate Level 1 (C1) programs to bridge the skilled workforce gap and improve youth livelihoods. Ensuring the quality and relevance of these programs is essential, alongside robust monitoring and evaluation mechanisms.
Developing a robust crisis management strategy—including contingency planning, technological investment, and operational diversification—is essential for mitigating risks and ensuring long-term business sustainability. Moreover, increased investment in research, innovation, and skills development will help firms adapt to changing market conditions and develop innovative solutions.
Targeted public and public–private investments in both hard and soft infrastructure development—especially outside Phnom Penh—are urgently needed to support rapid digitalization and improve digital connectivity.
Strengthening and expanding regionally based institutions such as development agencies, industry associations, and intermediary brokers is crucial for encouraging greater engagement among firms, particularly SMEs and start-ups, to generate positive externalities. Furthermore, enhanced collaboration and coordination among stakeholders—including government, business associations, development partners, and enterprises—are key to improving the business environment and supporting private sector development.
To expand e-banking adoption, efforts must focus on building trust, raising awareness, improving service quality, and ensuring security. A national financial inclusion strategy, supported by strengthened ICT infrastructure, is needed. In this regard, the government has recently established short-term solutions such as Credit Guarantee Schemes and Participating Financial Institutions to assist SMEs lacking collateral during the COVID-19 pandemic. Moving forward, these tools should be evaluated for efficiency and considered for long-term expansion to promote equitable financial access across all regions of Cambodia.
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The International Standard Industrial Classification (ISIC, Rev.4) is used to categorize the sectors in which firms operate based on their reported primary business activities. Firms in the industry sector include food and beverages (C10-11); textiles, apparel, and leather (C13-15); electronic, electrical equipment, and machinery (C26-30); and construction (F41-43). Firms in the service sector include those in transport and communications (H49-53, J58-63); hotels and restaurants (I55-56); real estate (L68); and finance and insurance (K64-66) subsectors. In this study, firms were defined on the basis of their registration with the Ministry of Commerce and/or other relevant government bodies.
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