Sourcing Opportunities & Risks in Myanmar

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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.

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  • Photo: ”Sunrise Over Bagan" by Dima Chatrov, http://yourshot.nationalgeographic.com/photos/1543168/
  • Photo: "Mahamuni Buddha temple in Mandalay" by Paul Arps, http://flic.kr/p/iWjD4r
  • Photo: “Shwedagon at Dusk” by Ryker Labbee, Cascade Asia file photo
  • Photo: http://www.rawstory.com/rs/2013/08/07/californians-angered-and-startled-by-first-mobile-amber-alert/
  • Photo: “Irrawaddy Near Inwa” by Ryker Labbee, Cascade Asia file photo
  • Photo: “Intha Rower on Inle” by Ryker Labbee, Cascade Asia file photo
  • Soe Zeya Tun/Reuters, http://blogs.wsj.com/photojournal/2009/08/04/pictures-of-the-day-233/
  • Photo: "Myanmar Clothing & Textiles,” http://www.myanmarbusinessconsultants.com/clothing-and-textiles
  • Photo: “Rail Activity Near Yangon" by Ryker Labbee, Cascade Asia file photo
  • Photo: "Design Concentration" by abrinsky, http://flic.kr/p/bQZX5a, cropped from original
  • Photo: “On the Road to Mandalay” by Ryker Labbee, Cascade Asia file photo
  • Photo: "Workers Strike from the Myanmar Sunny Clothing Factory" by Mizzima, http://bit.ly/1i0k6Gi
  • Photo: Shwe Mann in Parliament, Reuters
  • Photo: “Footwear Manufacturing in Myanmar” by Neena Pathak, PRI: http://www.pri.org/stories/2013-09-16/labor-laws-strengthened-myanmar-workers-still-struggle
  • Photos: Royal Rose Factory by Jacob Clere, Cascade Asia file photos
  • Photo: “Bagan Balloons” by Alex Schwab, http://flic.kr/p/bC7iVQ
  • Photo: Laid-off Workers Protest in Yangon by JPAING, The Irrawaddy (http://www.irrawaddy.org/wp-content/uploads/2013/11/workers.jpg)
  • Photo: Sule Pagoda at Night by Damir Sagolj, http://damir.photoshelter.com/gallery-image/Heavy-Going-in-Myanmar/G0000foxNHfmepcI/I0000XFrB_yZk9Aw
  • Sourcing Opportunities & Risks in Myanmar

    1. 1. Footwear Sourcing in Myanmar: Opportunities & Risks CascadeAsia Photo: ”Sunrise Over Bagan" by Dima Chatrov, http://yourshot.nationalgeographic.com/photos/1543168/ Ryker Labbee Senior Analyst, Myanmar
    2. 2. About Cascade Asia Photo: "Mahamuni Buddha temple in Mandalay" by Paul Arps, http://flic.kr/p/iWjD4r
    3. 3. 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
    4. 4. Early Warning System Photo: http://www.rawstory.com/rs/2013/08/07/californians- angered-and-startled-by-first-mobile-amber-alert/
    5. 5.  Over 90% of our analysts have advanced degrees.  We speak 10 Southeast Asian languages.  66% of our clients are from the private sector.
    6. 6.  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
    7. 7. What Does Tomorrow Hold? Footwear Manufacturing in Asia Today …and Tomorrow?
    8. 8. Economic & Political Overview Photo: “Irrawaddy Near Inwa” by Ryker Labbee, Cascade Asia file photo
    9. 9. Macroeconomic Outlook Source: IMF, Cascade Asia 5.3% 5.9% 6.4% 6.8% 6.9% 2010 2011 2012 2013 e 2014 f Gross Domestic Product 2010-2014
    10. 10. 750 800 850 900 950 1000 0.0 200.0 400.0 600.0 800.0 1000.0 1200.0 1400.0 1600.0 1800.0 2000.0 Janurary February March April May June July August September October November Myanmar Imports and Exports 2013 (US$m) Exports Imports USD/MMK Current Macroeconomic Backdrop
    11. 11. Myanmar’s Export Economy
    12. 12. China, 14193.395 Thailand, 9984.012 U.K., 6458.979 S. Korea, 3055.518 Singapore, 3044.678 Malaysia, 2437.866 Vietnam, 1625.861 France, 511.186 India, 474.36 Japan, 277.282 Netherlands, 249.136 U.S.A., 243.565 Indonesia, 241.497 Philippines, 146.667 Others, 508.637 Cumulative FDI into Myanmar from 1989 to 2013 (US$m) Foreign Direct Investment Source: Myanmar Investment Commission
    13. 13. 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
    14. 14. Business Climate in Myanmar Source: WEF, WB, IFC, WJP, TI Global Com petitivenessIndex, 2013-2014 (148) Ease of DoingBusiness, 2014 (189) Rule of Law, 2013 (97) Logistics Perform ance Index, 2012 (155) Corruption Pereption Index, 2012 (174) AVERAGEGLOBAL RANK Singapore 2 1 11 1 5 4 Malaysia 24 6 46 29 54 32 Brunei 26 59 - - 46 28 Thailand 37 18 54 38 88 47 Indonesia 38 120 55 59 118 78 Philippines 59 108 64 52 105 78 Vientam 70 99 66 53 123 82 Lao PDR 81 159 - 109 160 127 Cambodia 88 137 83 101 157 113 Myanmar 139 182 - 129 172 156 Global Com petitivenessIndex, 2013-2014 (148) Ease of DoingBusiness, 2014 (189) Rule of Law, 2013 (97) Logistics Perform ance Index, 2012 (155) Custom s Infrastructure International shipm ents Logistics quality and com petence Tracking and tracing Tim eliness Corruption Pereption Index, 2012 (174) AVERAGEGLOBAL RANK Singapore 2 1 11 1 1 2 2 6 6 1 5 4 Malaysia 24 6 46 29 29 27 26 30 28 28 54 32 Brunei 26 59 - - - - - - - - 46 28 Thailand 37 18 54 38 42 44 35 49 45 39 88 47 Indonesia 38 120 55 59 75 85 57 62 52 42 118 78 Philippines 59 108 64 52 67 62 56 39 39 69 105 78 Vientam 70 99 66 53 63 72 39 82 47 38 123 82 Lao PDR 81 159 - 109 93 106 123 104 111 118 160 127 Cambodia 88 137 83 101 108 128 101 103 78 104 157 113 Myanmar 139 182 - 129 122 133 116 110 129 140 172 156
    15. 15. Why Source from Myanmar? Photo: “Intha Rower on Inle” by Ryker Labbee, Cascade Asia file photo
    16. 16. Ideal Demography 95%literacy rate 46million Photo: Soe Zeya Tun/Reuters, http://blogs.wsj.com/photojournal/2009/08/04/pictures-of-the-day-233/
    17. 17. Ideal Demography Median Age: 28 Source: CIA World Factbook
    18. 18. Competitive Wages $25-$80*month Photo: "Myanmar Clothing & Textiles,” http://www.myanmarbusinessconsultants.com/clothing-and-textiles
    19. 19. Competitive Wages 538 403 344 325 286 209 80 32 Beijing Mumbai Kuala Lumpur Manila Bangkok Jakarta Phnom Penh Yangon Monthly Base Salary (Factory Workers) 58 36 31 27 27 27 24 23 19 16 6 4 3 0 Indonesia Thailand Bangladesh Philippines South Korea China Malaysia Vietnam Cambodia India Hong Kong Japan Singapore Myanmar Firing Costs (in Weeks of Salary) Source: World Economic Forum, Wall Street Journal, Cascade Asia
    20. 20. Proximity
    21. 21. 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
    22. 22. 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
    23. 23. What Challenges to Expect? Photo: “Rail Activity Near Yangon" by Ryker Labbee, Cascade Asia file photo
    24. 24. 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)
    25. 25. Labor Market Inefficiencies 60 94 28 120 17 31 68 71 15 93 32 44 49 106 39 141 29 39 131 23 41 0 89 148 64 69 81 111 15 95 Cooperation labor- employer relations Flexibility of wage determination Hiring and firing practices Redundancy costs Pay and productivity Country capacity to retain talent Labor Market Efficiency, 2013 (rank/148) China (34) Cambodia (27) Indonesia (103) Myanmar (98) Vietnam (56) Source: World Economic Forum
    26. 26. Low Productivity $3.20 $5.30 $17.70 $18.30 $25.40 Myanmar Vietnam China Thailand Malaysia Average Daily Wage Cost for a Factory Worker, 2010 ($ 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
    27. 27. A Closer Look at Productivity Vacant 20% Storage 30% Operations 50% 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 20 8 Average of Asian comparison countries Myanmar Labor Hours in Factories (number of hours/day) 2-3 shifts of 8 hrs each Single shift
    28. 28.  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
    29. 29. Poor Electricity Infrastructure Source: Myanmar Energy Sector Initial Assessment, Asian Development Bank (2012)
    30. 30.  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
    31. 31.  No unified labor code  Common complaints of workers in Myanmar: – Low wages (average $25–$80 per month) – Forced overtime – Poor factory conditions and treatment  Rated a ‘Tier 3 country’* in the 2011 US Department of State 2011 Trafficking in Persons Report  Rapid urbanization without adequate regulatory policies may cause environmental problems – Example: Shwe Gas Pipeline Project  State Department reporting requirements * As defined by the U.S. Department of State’s 2011 Trafficking in Persons Report, a country with a Tier 3 rating is a country whose government does not fully comply with the minimum standards and is not making significant efforts to do so. Labor Standards & Compliance
    32. 32. Trade Unions 600since 2011 Photo: "Workers Strike from the Myanmar Sunny Clothing Factory" by Mizzima, http://bit.ly/1i0k6Gi
    33. 33.  Inexperienced government  Little experience working with western businesses, international regulations  High volume of FDI to process, approve, etc.  Legislation being enacted, yet enforcement is lax  Inadequate judicial system  Location of Naypyitaw & lack of access Political & Economic Stability Photo: Shwe Mann in Parliament, Reuters
    34. 34. Industry Snapshot Photo: “Footwear Manufacturing in Myanmar” by Neena Pathak, PRI: http://www.pri.org/stories/2013-09-16/labor-laws- strengthened-myanmar-workers-still-struggle
    35. 35. Source: Institute of Developing Economies, Japan External Trade Organization, Trade Nosis Footwear Exports from Myanmar Myanmar FOB Exports Footwear, gaiters and the like; parts of such articles 0 20 40 60 80 100 120 140 2007 2008 2009 2010 2011 2012 US$inmillions Others Thailand South Korea Germany EU (15 countries) Japan
    36. 36.  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
    37. 37. Operating Cost Comparison Source: Various government and industry park sources
    38. 38. 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
    39. 39. 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
    40. 40. What’s on the Horizon? Photo: “Bagan Balloons” by Alex Schwab, http://flic.kr/p/bC7iVQ
    41. 41. 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
    42. 42.  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)
    43. 43. Myanmar International Terminals Thilawa Thilawa Special Economic Zone  Ambitious target to be operational by 2015  2,400 hectares industry; thermal plant  Connected to MITT
    44. 44. 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)
    45. 45. Summary & Recommendations Photo: Sule Pagoda at Night by Damir Sagolj, http://damir.photoshelter.com/gallery-image/Heavy-Going-in- Myanmar/G0000foxNHfmepcI/I0000XFrB_yZk9Aw
    46. 46. 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)
    47. 47. 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.
    48. 48. Q & A t/ 1.360.358.3094 e/ rlabbee@cascadeasia.com w/ 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

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