Myanmar manufacturing set for takeoff
Garment industry leads the way as investment piles in
MOTOKAZU MATSUI, Nikkei staff writer
YANGON -- With the end to economic sanctions triggering an investment boom and an abundance of low-cost labor, Myanmar's nascent manufacturing industries look set for major growth.
In the space of less than two years, Japanese clothing retailer Honeys has increased the number of production lines at its second factory in Myanmar from five to 34. The workforce at the Yangon plant, which produces shirts and jackets destined for Japan, has also increased to some 2,600 from about 300 since it started operating in the spring of 2015.
Moreover, skill levels within the workforce have risen markedly. "We used to see productivity [at the plant] decline every time a new product was introduced," said Takeshi Iguchi, head of the company's local unit. "Now, we can even handle trench coats, which require the highest level of skill."
Honeys began outsourcing production to China on a large scale in the early 2000s. As labor costs began to rise, however, the company decided to shift part of its production to Myanmar, where wages were less than one quarter of the level in China.
In 2012, Honeys became the first Japanese manufacturer to start production in Myanmar. It now operates two plants in the country, churning out around 18,000 pieces of clothing a day, accounting for 20-30% of the company's sales in its home market. Honeys is now considering the construction of a third Myanmar plant.
Labor costs in the Southeast Asian country are also now beginning to see an upward trend and its first legal minimum wage was introduced in 2015.
For the time being, however, monthly wages in Myanmar's garment industry stand at around 200,000 kyat ($147), lower than in Bangladesh or Vietnam, according to Iguchi.
Foreign clothing manufacturers are now heading there in droves to capitalize on the cheap labor. The Myanmar Garment Manufacturers Association, comprising both domestic and foreign makers, now has some 400 members, up by around 100 since 2015.
The surge in the MGMA's membership was triggered by the lifting of economic sanctions.
In 2003, the U.S., the largest market for clothing exports, imposed a total ban on imports from Myanmar. Many European countries also took punitive measures against the military junta, stripping the country of its Generalized System of Preferences status.
For a long time, this meant Japan and South Korea were the only major markets for Myanmar exports.
A decade on, Europe reinstated Myanmar as a GSP beneficiary country in response to the start of the democratization process. Washington followed suit in October 2016, fully lifting sanctions against the country.
This led to a rush of Chinese and South Korean contract clothing manufacturers expanding into Myanmar. The likes of Hennes & Mauritz and other major global brands started paying visits to the MGMA to find local contractors.
In fiscal 2015, Myanmar exported some $900 million worth of sewn products. That only represents around one-thirtieth of the amount exported by Vietnam and one-sixth the figure for Cambodia. But Myanmar has all the hallmarks of becoming a new garment manufacturing hub.
The new government, led by State Counsellor Aung San Suu Kyi, is intent on promote job-rich, export-oriented manufacturing industries to wean Myanmar off its heavy dependence on oil and gas exports.
The textiles industry is set to be the first to take off, as cost advantages can easily translate into international competitiveness.
But the country's most pressing need is to widen the scope of industries that both import technology and also create jobs, said Aung Naing Oo, director general of the Directorate of Investment and Company Administration, which issues investment permits.
There are some encouraging signs. Asia General Electric Holding, a major local heavy electric machinery maker, has its electric transformer plant running at full tilt to meet surging demand due to the government's infrastructure investment drive. The company tripled the plant's production capacity in 2013.
Khin Maung Myat, the company's managing director, founded the company in 2008 after years of learning about paint and plastics manufacturing and it is now the country's largest maker of transformers.
AGEH expects monthly transformer production to double to 800 units in fiscal 2018. Production capacity was increased also with an eye to export growth.
The company is currently marketing its products in Southeast Asia, with a deal in the pipeline to export 200 transformers to the Philippines. This would mark the first export of heavy electric machinery by a Myanmar company.
The information technology industry also appears to have strong growth potential.
In the summer of 2015, FPT, Vietnam's largest IT company, set up a product development center in Yangon. FPT plans to increase the number of engineers at the center to around 1,000 from the current 200. The center is designed as a development outsourcing service provider.
Just like textiles and countless other industries, IT sought to tap China's pool of low-waged engineers in the 1990s. As labor costs rose, the Philippines and other Asian countries emerged as new centers of outsourcing services. Since the turn of the century, Vietnam has been the region's fastest-growing provider of offshore development outsourcing.
FPT has been expanding operations rapidly by riding on the wave and now employs some 10,000 engineers.
Growing contact with foreign players now stimulates technological innovation in Myanmar. Thein Oo, chairman and CEO of Ace Data Systems, Myanmar's largest IT company, sees huge growth opportunities and aims to mimic FPT's success.
When it was founded in 1992, Ace Data Systems mainly worked on the development of packaged software. But the company gradually expanded its software development outsourcing services for overseas customers and is now turning itself into an integrated system developer.
Working with overseas companies such as Germany's Wincor Nixdorf, which sells automatic teller machines in Myanmar, and Japan's Daiwa Institute of Research, Ace Data Systems has been involved in the development of computer systems for Yangon Stock Exchange, which opened in March last year, and major local banks.
Ace Data Systems has doubled its workforce to 600 in three years. Thein Oo now has his sights set on overseas markets like Singapore.