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Myanmar Crawling Out of Sourcing Shadows

Companies starting to explore manufacturing potential after lifting of import bans.

Burma Apparel Factory

The U.S. and the European Union recently eased sanctions against Myanmar, and the Southeast Asian nation is looking to become a major player in the garment manufacturing industry.

The country’s apparel manufacturers exported $900 million worth of garments in 2012 and that figure is expected to grow 33 percent this year, to $1.2 billion, according to Myanmar Garment Manufacturers Association chairman U Myint Soe. That growth comes against a backdrop of rapid change for the country, which is still ruled by a military-backed government but has shown a willingness to reform and engage with some dissenters. Most notably, Myanmar released democracy leader, human rights activist and Nobel Peace Prize recipient Aung San Suu Kyi from house arrest in 2010. She is currently the opposition leader of the country’s parliament.

Japan is Myanmar’s largest foreign market for apparel. Myanmar exported $770 million worth of garments in 2011, slightly less than half of which went to Japan, according to figures from the Japan External Trade Organization. Myanmar manufacturers are aiming to diversify their revenue stream with the easing of U.S. and EU sanctions, plans to reinstate EU duty-free trade preferences and new local laws that aid foreign investment.

Although there are still significant challenges for companies looking to produce in the country — most notably a lack of solid infrastructure and concerns over workers’ rights and safety — there are signs that major players are starting to consider the country’s potential. American brands are reportedly scouting factories. Japan’s Fast Retailing’s low-priced G.U. brand did a “very small” percentage of its fall production in Myanmar and is keeping an eye on the region, according to a spokesman. Similarly, Marks & Spencer has looked at the country recently, but a spokesman said it was too soon to make a call on whether it would produce there.

“It has good transport links, a large workforce and the changes there are encouraging international businesses to invest,” the Marks & Spencer spokesman said. “However, it’s early days in our research and too soon to say whether or not it will become a major sourcing location for us.”

A Primark spokesman said, “Primark started to do some small trial orders from Myanmar in late 2012, from two factories that met our code of conduct on ethical standards. As an [Ethical Trading Initiative] member, we note the ETI’s comments that ‘companies will have to work particularly hard to mitigate labor rights risks and to protect a still vulnerable workforce.’ We are proactively engaged through a broad range of stakeholders, including the [International Labor Organization] on the challenges of sourcing from this region.”

Kway Win, owner of bra manufacturer Tri-Diamond Trading Co. and secretary of the Myanmar Garment Manufacturers Association, has high hopes for the industry but does not expect progress to be immediate.
“I am optimistic…but major ethical apparel companies cannot easily change their production from other countries like Bangladesh in a short time,” he said.

For many apparel factories, the effects of the U.S. 2003 Burmese Freedom and Democracy Act were immediate and devastating.

“The United States was 100 percent of my business,” said garment manufacturer Khin Tun in an office above the expansive floor of his factory Cherry Garment 2 in Rangoon’s industrial zone. “I had just opened a knitting factory in 2002. I closed it in 2004 and went from 1,300 to 800 workers in a year. Most of them went to Thailand.”

Sanctions imposed to address human rights abuses like forced labor cost the jobs of an estimated 80,000 workers, most of them young women. According to Tri-Diamond’s Kway Win, 1.2 million people were dependent on these workers’ incomes. Although EU sanctions did not compel companies to boycott Burmese labor, the ill will generated by the country’s repressive regime drove international brands to give their business to nations such as Bangladesh or Vietnam.

Much has changed since 2003. Under Myanmar President U Thein Sein’s reformist government, scores of political prisoners have been freed, including high-profile reformer Suu Kyi. Cease-fires have been brokered with numerous rebel ethnic armies. Most recently, U.S. President Barack Obama visited the country in November.

As American and European companies retreated from Myanmar over the last decade, Japanese companies moved in and compensated for part of Burmese manufacturers’ lost revenue.

Japan, which annulled $3.7 billion of Myanmar’s debt last year, accounted for 45.5 percent of Myanmar’s clothing exports in 2011, according to JETRO. In comparison, South Korea was the destination for 30.3 percent of garment exports and the EU for 23.5 percent during this same period.

“We preferred working for U.S. companies,” Tun said. “It was more profitable because their orders were less detailed.”

It is a feeling that Masaki Takahara, JETRO’s executive managing director in Rangoon, is aware of.

“I’m worried Japanese companies will lose factories to the U.S. and EU,” he said. “Japanese quality control is demanding and order numbers are often small and diverse. Factories here don’t really want Japanese orders, but they’ve been taking them for the last five years just to survive.

Takahara said Japanese companies and consumers are generally less concerned with human rights issues and labor conditions than their counterparts in Western countries. European brands are asking potential suppliers in Myanmar whether they adhere to labor laws and use forced or child labor.

Garment workers’ rights and safety are coming under increasing scrutiny, especially after November’s devastating fire at a Bangladesh factory that claimed 111 lives.

Alex Feltham of Washington-based global trade union organization Solidarity Center has grave concerns for workers’ rights at Burmese factories.

“I could envision such a disaster in Myanmar,” he said. “Many of the same contributing factors to the recent fires in Bangladesh and Pakistan are present in Myanmar.”

Also, the threat of industrial action across the industry could concern potential investors. According to Chindwin Banner Textile factory owner and MGMA chairman Myint Soe, 90 of Myanmar’s 261 garment factories were affected by strikes in May and June 2012.

Last year’s ongoing disputes prompted the MGMA to stipulate a minimum monthly wage of 57,600 Burmese kyat, or about $67 at current exchange, after overtime and entitlements. This wage, which is not enforceable by law, is still one of the lowest in the region.

One of the most pervasive problems for Myanmar’s garment industry is infrastructure. Decades of mismanagement by successive military dictatorships have left the nation languishing near the bottom of numerous development indexes. Myanmar’s most populous city, Rangoon, is plagued with electricity shortages. The industrial zone beyond the metropolis is no different. Main power supply barely exists in rural areas. While factories have backup diesel generators, these cause a fourfold increase in electricity costs. Also, the appalling condition of Myanmar’s roads may hamper efforts to establish new industrial zones.

An additional weakness is the industry’s reliance on CMP (cut, make, pack). Myanmar does not manufacture its own fabric. Textiles are commonly imported from China via Singapore. This is detrimental to the industry’s ability to deliver fast turnarounds.

Despite these and other handicaps such as Myanmar’s overvalued currency and rampant corruption, its government is heavily promoting foreign investment. One carrot offered to potential investors is the inclusion of imported machinery in the $500,000 required minimum investment capital to establish a foreign business.

Another upside for Myanmar is its abundance of cheap labor.

“China has a shortage of workers,” said Khin Tun. “We do not. There are lots of new investors here, and the new government cares about the people. Before our workers didn’t have dreams of the future, but now they do.”