sourcing opportunities & risks in myanmar
DESCRIPTION
The analysis is designed to help footwear sourcing managers better understand the socio-economic, regulatory, and political dynamics in Myanmar as they look at alternative sourcing options.TRANSCRIPT
Footwear Sourcing in Myanmar:Opportunities & Risks
CascadeAsia
Photo: ”Sunrise Over Bagan" by Dima Chatrov, http://yourshot.nationalgeographic.com/photos/1543168/
Ryker LabbeeSenior Analyst,
Myanmar
About Cascade AsiaPhoto: "Mahamuni Buddha temple in Mandalay" by Paul Arps, http://flic.kr/p/iWjD4r
Cascade Asia Advisors is a boutique intelligence and strategic advisory firm focused on Southeast Asia.
Intelligence – On-the-ground market insight Industry and/or issue deep dive Supply chain reliability analysis
Risk Management – Monitoring & Mitigation Early Warning System (EWS) Financial & reputational due diligence
Relationships – Enhanced network access Government relations Stakeholder perception audit
Strategy – Optimized competitiveness Market entry/establishment design Corporate positioning
About Cascade Asia
Photo: “Shwedagon at Dusk” by Ryker Labbee, Cascade Asia file photo
Early Warning System
Photo: http://www.rawstory.com/rs/2013/08/07/californians-angered-and-startled-by-first-mobile-amber-alert/
Over 90% of our analysts have advanced degrees.
We speak 10 Southeast Asian languages.
66% of our clients are from the private sector.
Ryker Labbee, Senior Analyst– 11 years experience following Myanmar– MA in international affairs, economics– Splits time between Seattle and Yangon
Jacob Clere, Senior Analyst– Industry experience and network– MS in development economics, emerging
markets– Lives in Yangon
Cascade Asia in Myanmar
What Does Tomorrow Hold?
Footwear Manufacturing in Asia Today …and Tomorrow?
Economic & Political OverviewPhoto: “Irrawaddy Near Inwa” by Ryker Labbee, Cascade Asia file photo
Macroeconomic Outlook
Source: IMF, Cascade Asia
2010 2011 2012 2013 e 2014 f
5.3%
5.9%6.4%
6.8% 6.9%
Gross Domestic Product 2010-2014
Janurary February March April May June July August September October November0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
1600.0
1800.0
2000.0
750
800
850
900
950
1000
Myanmar Imports and Exports 2013 (US$m)
ExportsImportsUSD/MMK
Current Macroeconomic Backdrop
Myanmar’s Export Economy
China, 14193.395
Thailand, 9984.012
U.K., 6458.979
S. Korea, 3055.518
Singapore, 3044.678
Malaysia, 2437.866
Vietnam, 1625.861
France, 511.186
India, 474.36
Japan, 277.282
Netherlands, 249.136
U.S.A., 243.565
Indonesia, 241.497
Philippines, 146.667
Others, 508.637
Cumulative FDI into Myanmar from 1989 to 2013 (US$m)
Foreign Direct Investment
Source: Myanmar Investment Commission
Near-Term Political Outlook
Stability, further liberalization expected in 2014 National elections coming in 2015 Constitutional reform efforts ongoing
– Required for Suu Kyi to run for presidency– No changes to military reservation in parliament
Opposition party fragmentation expected Unrest involving ethnic minority groups
– Conflict persists in hinterland– Buddhist/Muslim tension a problem
Business Climate in Myanmar
Source: WEF, WB, IFC, WJP, TI
Global Competi
tivenes
s Index
, 201
3-2014 (1
48)
Ease
of Doing B
usiness,
2014
(189
)
Rule of Law, 2
013 (9
7)
Logis
tics Pe
rform
ance
Index
, 2012
(155
)
Corruption P
ereption In
dex, 2
012 (174
)
AVERAGE GLO
BAL RANK
Singapore 2 1 11 1 5 4Malaysia 24 6 46 29 54 32Brunei 26 59 - - 46 28Thailand 37 18 54 38 88 47Indonesia 38 120 55 59 118 78Philippines 59 108 64 52 105 78Vientam 70 99 66 53 123 82Lao PDR 81 159 - 109 160 127 Cambodia 88 137 83 101 157 113Myanmar 139 182 - 129 172 156
Global Competi
tivenes
s Index
, 201
3-2014 (1
48)
Ease
of Doing B
usiness,
2014
(189
)
Rule of Law, 2
013 (9
7)
Logis
tics Pe
rform
ance
Index
, 2012
(155
)
Customs
Infrastr
ucture
Internati
onal sh
ipments
Logis
tics qua
lity an
d competen
ce
Trac
king a
nd trac
ing
Timeli
ness
Corruption P
ereption In
dex, 2
012 (174
)
AVERAGE GLO
BAL RANK
Singapore 2 1 11 1 1 2 2 6 6 1 5 4Malaysia 24 6 46 29 29 27 26 30 28 28 54 32Brunei 26 59 - - - - - - - - 46 28Thailand 37 18 54 38 42 44 35 49 45 39 88 47Indonesia 38 120 55 59 75 85 57 62 52 42 118 78Philippines 59 108 64 52 67 62 56 39 39 69 105 78Vientam 70 99 66 53 63 72 39 82 47 38 123 82Lao PDR 81 159 - 109 93 106 123 104 111 118 160 127 Cambodia 88 137 83 101 108 128 101 103 78 104 157 113Myanmar 139 182 - 129 122 133 116 110 129 140 172 156
Why Source from Myanmar?Photo: “Intha Rower on Inle” by Ryker Labbee, Cascade Asia file photo
Ideal Demography
95% literacy rate
46million
Photo: Soe Zeya Tun/Reuters, http://blogs.wsj.com/photojournal/2009/08/04/pictures-of-the-day-233/
Ideal Demography
Median Age: 28
Source: CIA World Factbook
Competitive Wages
$25-$80*month
Photo: "Myanmar Clothing & Textiles,” http://www.myanmarbusinessconsultants.com/clothing-and-textiles
Competitive Wages
Beijing
Mumbai
Kuala Lumpur
Manila
Bangkok
Jakarta
Phnom Penh
Yangon
538
403
344
325
286
209
80
32
Monthly Base Salary(Factory Workers)
Indonesia
Thailand
Bangladesh
Philippines
South Korea
China
Malaysia
Vietnam
Cambodia
India
Hong Kong
Japan
Singapore
Myanmar
58
36
31
27
27
27
24
23
19
16
6
4
3
0
Firing Costs (in Weeks of Salary)
Source: World Economic Forum, Wall Street Journal, Cascade Asia
Proximity
Government Incentives
New foreign investment law (November 2012)– Land leases now possible for 50 (+20) years– Eleven types of tax incentives: e.g., 5-year income
tax exemption, import duty exemptions, etc.– 100% foreign ownership now possible– Remittances of profits much easier, no longer taxed
Changes in trade environment– CMP customs tax exemption on raw material imports– Reduced cargo inspection stations at border
checkpoints
Coastal Ports Over 2,000 kilometers of coastline
9 major ports Dawei Port/SEZ linking
South Asia to Thailand– To rival Singapore?– Interstate highway
Reduced shipping costs versus Strait of Malacca transport
Source: Myanmar Port Authority
Developed Port Capacity
What Challenges to Expect?Photo: “Rail Activity Near Yangon" by Ryker Labbee, Cascade Asia file photo
Mature CMP Capacity, Incipient FOB
CMP:– Sanctions limited manufacturers to CMP orders until
recently– CMP garment exports reached about US$1 billion in
2012 FOB:
– Lifting of sanctions improved prospect for FOB businesses
– Poor banking services complicate FOB– US $114 million FOB exports (2012)
Labor Market Inefficiencies
Cooperation la
bor-employe
r relations
Flexib
ility o
f wage determ
ination
Hiring and firin
g practi
ces
Redundancy co
sts
Pay and pro
ductivit
y
Country ca
pacity t
o retain ta
lent
60
94
28
120
1731
68 71
15
93
324449
106
39
141
2939
131
2341
0
89
148
64 6981
111
15
95
Labor Market Efficiency, 2013 (rank/148)China (34) Cambodia (27) Indonesia (103) Myanmar (98) Vietnam (56)
Source: World Economic Forum
Low Productivity
Myanmar
Vietnam
China
Thailand
Malaysia
$3.20
$5.30
$17.70
$18.30
$25.40
Average Daily Wage Cost for a Factory Worker, 2010 ($ Per Day)
1.5
2.2
7.7
9
11
Annual Labor Productivity in the Aggregate Economy, 2010
(2010 $ Thousand per Worker)
Source: McKinsey Global Institute
A Closer Look at Productivity
Vacant20%
Storage30%
Operations50%
Factory Space Utilization(% of space by activity)
~100 percent space utilized for operations in most advanced and developing countries
Source: Focus group on Myanmar manufacturing firms, April 2013; International Labor Organization; McKinsey Global Institute analysis
Average of Asian comparison countries
Myanmar
20
8
Labor Hours in Factories(number of hours/day)
2-3 shifts of 8 hrs each
Single shift
Lack of new machinery Small-scale operations Limited and inconsistent
internet access Poor telecoms
infrastructure Lack of experience with
21-st century machinery and maintenance
Primitive Machinery, Technology
Photo: "Design Concentration" by abrinsky, http://flic.kr/p/bQZX5a, cropped from original
Poor Electricity Infrastructure
Source: Myanmar Energy Sector Initial Assessment, Asian Development Bank (2012)
Only 22% of roads paved Poor overland connections
to neighboring countries Poor inland water
transport capabilities Abysmal rail infrastructure Dry port plans in
Mandalay being explored
Transportation Infrastructure
Photo: “On the Road to Mandalay” by Ryker Labbee, Cascade Asia file photo
No unified labor code Common complaints of workers in Myanmar:
– Low wages (average $25–$80 per month)– Forced overtime– Poor factory conditions and treatment
Rated a ‘Tier 3 country’* in the 2011 US Department of State 2011 Trafficking in Persons Report
Rapid urbanization without adequate regulatory policies may cause environmental problems– Example: Shwe Gas Pipeline Project
State Department reporting requirements* As defined by the U.S. Department of State’s 2011 Trafficking in Persons Report, a country with a Tier 3 rating is a country whose government does not fully comply with the minimum standards and is not making significant efforts to do so.
Labor Standards & Compliance
Trade Unions
600since 2011
Photo: "Workers Strike from the Myanmar Sunny Clothing Factory" by Mizzima, http://bit.ly/1i0k6Gi
Inexperienced government Little experience working
with western businesses, international regulations
High volume of FDI to process, approve, etc.
Legislation being enacted, yet enforcement is lax
Inadequate judicial system Location of Naypyitaw &
lack of access
Political & Economic Stability
Photo: Shwe Mann in Parliament, Reuters
Industry SnapshotPhoto: “Footwear Manufacturing in Myanmar” by Neena Pathak, PRI: http://www.pri.org/stories/2013-09-16/labor-laws-strengthened-myanmar-workers-still-struggle
Source: Institute of Developing Economies, Japan External Trade Organization, Trade Nosis
Footwear Exports from Myanmar
Myanmar FOB ExportsFootwear, gaiters and the like; parts of such articles
2007 2008 2009 2010 2011 20120
20
40
60
80
100
120
140
OthersThailandSouth KoreaGermanyEU (15 countries)JapanU
S$ in
mill
ions
Yangon has 4,000 hectares of land for industrial zones, ~20 distinct zones– Hlaing Thar Yar (470 hectares, ~500
companies)– Shwe Pyi Thar (435 hectares, ~200
companies)– Dagon (400 hectares)
Hlaing Thar Yar, Shwe Pyi Thar both operating light manufacturing like garments and food processing
Most CMP operations in Yangon are situated in industrial zones within a 30-km radius of Yangon Port, including those listed above
Source: HKTDC Research
Industrial Zones in Yangon
Operating Cost Comparison
Source: Various government and industry park sources
Profile: Royal Rose Footwear
Sells primarily to domestic and Japanese markets
Two large workshops Subcontracting and hiring
temps are common when large orders received
Singer sewing machines only machines in use
30,000 pairs of sandals/ month
Royal Rose Japanese Catalogue
Profile: Royal Rose Footwear
(Left) Cutting & making: not a machine in sight!
(Below) Finished products
Photos: Royal Rose Factory by Jacob Clere, Cascade Asia file photos
What’s on the Horizon?Photo: “Bagan Balloons” by Alex Schwab, http://flic.kr/p/bC7iVQ
Source: http://bit.ly/16bMIES
Laying More Groundwork
Minimum wage law– We have a law in place (effective June 2013)– Wage limits, determined by presidential committee on
per-industry basis, in place by year-end 2014 – Enforcement is likely years away
Improvement of worker skills, productivity– Employment & skills development law– Educational reform
Intellectual property law (major issue) 2015: banking, telecoms improvement
Low wages, political liberalization energizing labor groups– Strike by 600 workers at
shoe factory last week Wages to increase but
remain competitive– Legislation, unions to
push wages higher– Population stabilizer
Much in flux at present
Labor Unrest & Uncertainty
Photo: Laid-off Workers Protest in Yangon by JPAING, The Irrawaddy (http://www.irrawaddy.org/wp-content/uploads/2013/11/workers.jpg)
Myanmar International Terminals Thilawa
Thilawa Special Economic Zone
Ambitious target to be operational by 2015 2,400 hectares Light industry, assembly industry; thermal
plant Connected to MITT
ASEAN Economic Community (AEC)
Economic integration via AEC by 2015 Free labor mobility Removal of cross-border import duties Capital market linkages Interstate transport, including several
Myanmar-Thailand links, to improve Challenges integrating the “six majors” with
the underdeveloped ASEAN 4 (CLMV)
Summary & RecommendationsPhoto: Sule Pagoda at Night by Damir Sagolj, http://damir.photoshelter.com/gallery-image/Heavy-Going-in-Myanmar/G0000foxNHfmepcI/I0000XFrB_yZk9Aw
Summary
Opportunities– Huge long-term potential for industrial relocation– Unskilled but literate workforce eager for jobs– Unparalleled strategic location
Challenges– Infrastructure challenges won’t be solved overnight– Labor unrest likely to continue– Political stability not yet certain– Expectations are high (and the world is watching)
Recommendations
1. Begin monitoring today. Daily media monitoring, rolling coverage of new players, monthly regulatory assessments, quarterly infrastructure updates.
2. Don’t settle for anything but on-the-ground intelligence. What’s percolating on the streets today that your team should know about? What are your key stakeholders saying or thinking? Which factories are adding capacity? Which industrial zones are easiest to do business?
3. Begin considering now how to tailor your market entry strategy. Begin mapping out the process for your market entry that anticipates the uniqueness of Myanmar.
Q & A
t/ 1.360.358.3094e/ [email protected]/ cascadeasia.com
1. Q: How long does it take for a ship from Myanmar to reach the United States?A: Approximately 24–27 days, typically connecting in Singapore
2. Q: What is the flight schedule to Myanmar?A: Daily: Bangkok, Doha, Kuala Lumpur, Singapore, Seoul, Tokyo; at least 3x weekly: Hanoi, Hong Kong, HCMC, Taipei; 2x weekly: Phnom Penh