Can Myanmar Become The World's Leading Manufacturing Hotspot?

A lot has been going on with Myanmar as of late and it looks set to once again become a manufacturing hotspot for outsourcing companies. I thought it would be useful to highlight some of the more recent events and find out if anyone from the community plans to take advantage of opportunities available?

Does anyone here currently outsource their manufacturing needs to Asia? If so how does Myanmar’s attractive incentives for foreign manufacturers weigh up?

Previous success in manufacturing

When looking at Myanmar’s outsourcing potential today, we should firstly note prior to sanctions put in place by the US, the country had a solid manufacturing base with a strong apparel industry.

Up until 2004 its garment manufacturing sector relied heavily on exports to the US. Around 85% of its total exports were apparel and textiles, of which an estimated 25% went to the US.

Leading to sanctions, the US imported approximately USD $356.4 million and USD $275.7 million from Myanmar in 2002 and 2003 respectively.

It’s industry continued to deteriorate in 2005 following China joining the World Trade Organization. With its massive workforce pool and superior supply chain, garment manufactures moved production to China. Although this had a negative impact on most Southeast Asian countries, Myanmar was hit the worst with export values compared to such as that of Cambodia dropping by 60%.

Can the US manipulate Myanmar’s business environment?

As of 28th July 2012 the US lifted Myanmar’s general import ban with amendments on the 7th August restricting the import of ruby, jade and jewelry containing such.

Reopening trade has injected a new lease of life into Myanmar’s manufacturing industry, it has also sparked criticism concerning its influence on enabling US companies to do business with people or entities on the Specially Designated Nationals (SDN) blacklist.

Although any such activities are currently regulated by the US Treasury Department, many of those listed still are suspected of having ties with the previous military rule and being involved in human rights abuse.

With the US discreetly lifting bans on US investment prior to trade, it seems that US corporates, particularly in manufacturing, were given an open window to reestablish hold on factories in anticipation of exporting products back to the US.

The question is will such actions support or hinder Myanmar’s democratic reform? Political stability is a key consideration for businesses looking to set up for outsourcing needs.

Low labour costs, is Myanmar what China used to be?

A reverse swing in low cost labour is also refuelling manufacturing potential in Myanmar.

Wage increases in ASEAN countries have rose modestly compared to China’s average annual increases of 10-15%.

Although a new minimum wage bill was approved in March this year, to date Myanmar’s daily minimum wage rates have not been enacted.

Daily rates currently vary anywhere between USD $0.50 (National Wages and Productivity Commission) and USD $2.3 for certain labour sectors (ASEAN Briefing).

Minimum monthly salaries for labour in the developing Thilawa SEZ were temporarily increased to around USD $65.

Even with a generous national rate coming into effect, Myanmar looks set to offer an attractive lower cost labour solution to foreign manufacturers compared to China’s daily minimum wage range of USD $4.7-8.11.

A major downside currently facing manufactures considering relocation is the lack of basic infrastructure. Factories still often combat unreliable grid power with diesel backups which cost four times that of regular electricity.

Most factories can only do CMP (cut, make, pack) although with more foreign (mainly Korean and Taiwanese) owned factories being established, advanced production methods are becoming more common.

With this being said until more factories gain SA8000-certification, Myanmar will not be able to offer international standards and compete globally.

Most are likely to continue waiting for the minimum wage rates to be released before even considering relocation as an option, but at what point will the benefit of low cost labour outweigh other problematic areas?

Furthermore how uncommon are these factors with outsourcing to other competitive manufacturing hotspots across Asia?

Special Economic Zones (SEZ), concept or reality?

Over the previous two years 6 SEZs have been proposed by various countries and investment corporations, but are such parties jumping the gun or simply following suit?

Currently only SEZs in Dawei, Thilawa, and Kyuakpyu are under development and each with unclear lead times to completion. It seems major stakeholders funding these SEZs look set to firstly secure what they’re after before honouring developments in full.

As such, you have to question whether later installments of investment needed to mature each SEZ fully will arrive?

Take Kyuakpyu SEZ for example. Predominantly funded through China National Petroleum Corporation, both oil and gas terminals along with pipelines back to China are nearly complete, yet infrastructure for logistics and services industries needed for Myanmar to begin processing natural resources more independently have fallen behind.

China has long been the leading supporter for Myanmar’s development, but have they simply been playing the global resources game and realized ahead of other securing such nowadays comes at a price?

More recently other potential players sitting on the side lines have now picked up the tempo.

Following Japan’s waiver of Myanmar’s 3.7 billion yen debt in April 2012, they have upped the ante with an additional $3.2 billion in new lending.

The injection will support development of the 2,400 hectare Thilawa SEZ and deep-sea port of Dawei SEZ. Plans aim to mature southern Myanmar as Southeast Asia’s largest industrial complex, with Thilawa SEZ being host to textile and manufacturing industries.

Japan’s actions made them a major player overnight with their combined offering of $5 billion, which dwarfs the US’s $76 million and the EU’s $200 million investments over the last two years.

Textiles and Apparel, will Myanmar return on top?

There is a strong case for the return of a successful textile and apparel market in Myanmar. Japan, Hong Kong and South Korea amongst other seem to see Myanmar as what it is, a country with a previously profitable manufacturing base and good reputation for garment production at the quotas needed.

This coupled with the low cost labour incentives seem to provide a good all round package for these manufacturing and distribution giants.

The Hong Kong Apparel Society and the Hong Kong Trade Development Council recently continued talks for establishing a special Hong Kong Industrial Zone that will allow 50-80 manufacturers to set up within the next 2 years.

Key export markets will be Japan and South Korea which turnover approximately USD $348 million and USD $232 million each year respectively.

Latest signs of acceptance over Myanmar’s manufacturing potential comes from the EU. Earlier this July, Myanmar was reinstatement in the EU’s Generalised System of Preferences (EU GSP) with retrospective effect from 13th June 2012.

All products originating in Myanmar, except ammunition and arms will benefit from full duty-free and quota-free access to EU markets. Claims for refunds of duty paid on imports from the 13th June 2012 will be possible under certain circumstances.

Reinstatement comes less than 3 months after the EU’s decision in May to formally lift its sanctions on Myanmar with the exception of the arms embargo, internal repression controls and related ancillary services.

Such actions offer serious consideration to manufacturers looking to outsource across the ASEAN region. How do such freedoms compare to trading incentives offered by other Southeast Asia manufacturing bases?

Do Myanmar’s FDI incentives favour relocation?

In preparation for SEZ development, Myanmar approved both the SEZ Law and Dawei SEZ law back in 2011. Both have boosted foreign direct investment (FDI) through the following incentives;

  • 5 year tax holiday

  • 50% income tax relief on exports for 5 years

  • 50% tax relief on reinvestment profits for 5 years

  • 5 year exemption on duties for approved products

  • Access to 30 year land leasing agreements for foreign corporates.

Such incentives, particularly those relating to duties favour manufacturing, as imported machinery can be written off against the USD $500,000 investment capital requirement for new foreign businesses.

This will be beneficial to such who decide to relocate and who already manufacture to ISO standards.

Currently most factories still use dated machinery and as a result there has been no demand for major equipment suppliers to establish regional support in Myanmar.

Although this will almost change overnight as more reputable customers move into the market, this tax relief will help justify initial relocation costs and even internal standard upgrades.

I’m interested in hearing your thoughts on Myanmar’s rise below.

Land and Property Investment Opportunities in Lithuania
World Wide Second Passport, Residency & Citizenship Options
SEO For SaaS

Written by SaaSicorn

Ranking SaaS Websites like it's our job (because hey, it is our job).

Posted in

You May Also Like...

Smash Digital – Our New Brand

How to Set Up a Catch-All Address in G Suite (Google Apps) – 2019

How to Nail Product Validation for your SaaS Company

7 Smart Ways to Reduce SaaS Churn

Understanding the Pain Points of SaaS Customers

14 Must Have Sales Tools For B2B SaaS Startups

arrow-dotted-curved-down

Ready To Kick SaaS?

underline-marker-light-green

If you’re tired of the empty promises… Tired of the mediocre results…
Tired of SEO companies taking you for a ride…

Let Smash Digital Help