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Garment Industry as an Entry Point to SME Development in Myanmar_ First Draft

ABBREVIATIONS

ADB Asian Development BankAIS Agriculture, Industry and ServiceASEAN Association of Southeast Asian NationsCLMV Cambodia, Lao PDR, Myanmar and VietnamCMP Cutting, Making, PackagingCPI Consumer Price IndexCSO Central Statistical OrganizationERIA Economic Research Institute for ASEAN and East AsiaEU European UnionFCEC Foreign Capital Evaluation CommitteeFDI Foreign Direct InvestmentFEC Foreign Exchange CertificateFIL Foreign Investment LawFOB Free on BoardGDP Gross Domestic ProductGSP Generalized System of PreferenceJETRO Japan External Trade OrganizationK KyatKWh Kilowatt HourLDCs Least-Developed CountriesMCIL Myanmar Citizens Investment LawMFA Multi-fibre AgreementMFN Most Favoured NationMGHRDC Myanmar Garment Human Resource Development CentreMGMA Myanmar Garment Manufacturers AssociationMIC Myanmar Investment CommissionMIDC Myanmar Industrial Development CommitteeMNPED Ministry of National Planning and Economic DevelopmentMTGD Myanmar Textile and Garment DirectoryMW Mega WattNIEs Newly Industrialized CountriesSMEs Small and Medium EnterprisesU.S. United StatesUMEHL Union of Myanmar Economic Holding Co., Ltd.,UMFCCI Republic of the Union of Myanmar Federation for Chamber of Commerce and

IndustryUSD United States Dollar

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EXECUTIVE SUMMARY

Structure of Myanmar’s economy has been improving throughout the period since early 1990s, starting point of transition to market economy. The proportion of industry sector in GDP increased from 13.4 percent in 1991/92 to 22.6 percent in 2009/10. Yet, the country still needs endeavor to catch up other similar level countries in the Asian region such as Cambodia, Lao PDR and Vietnam where the share of industry sector in the economy comprises 23.1 percent, 25.6 percent and 40.2 percent respectively. Amongst the processes to industrialization, low-tech and labour-intensive industries such as garment play an important role at the initial stage. It is proved by the well-known Flying Geese Model.

By considering garment industry as an entry point to the export-oriented SME development, main theme of this research is to investigate the development issue of business environment for SMEs with a specific focus on garment industry, and the specific objective is to map out the technical facts about the garment industry and its market chain identifying where the major technical obstacles and opportunities are positioning for growth.

Myanmar transformed its economic system from centrally control to market-oriented economy in late 1988. The government allowed the private sector to participate in various economic activities but garment industry significantly emerged in Myanmar after about five-year period of liberalization. Then, total number of garment firms increased from only 25 in 1994 to its peak of 291 in 1999, more than ten times within five years. Major motives of rapid increase are (1) relatively low investment requirement, (2) shorter payback period and return on investment, (3) easy access to main inputs and market provided by the clients (buyers), (4) uncomplicated technologies and accessibility at low cost, (5) easy access to labour, and more importantly (6) revenue in terms of foreign currency (USD).

It was starting point of hardship for Myanmar garment industry after the U.S. imposed trade and financial sanctions on Myanmar in late 2003. An increase of export value from Kyat 300 million in 1995/96 to 3,800 million in 2000/01 began to decline at Kyat 2,000 million in 2003/04 and then at about 1,250 million in 2004/05. Export share of garment industry in total exports also decreased from its peak of 30 percent in 2000/01 to less than 5 percent in 2009/10.

Thanks to Thanks to CMP garment orders provided by Japan and Korea, total number of garment firms increased again from 109 in 2009 to 135 in 2011. Out of them, only 91 firms could deal with direct export of their production. These firms include two joint-ventures with the Union of Myanmar Economic Holding Co., Ltd., (UMEHL) of the Ministry of Defence, two joint-ventures with Myanmar Private investors, 21 fully foreign owned companies and 66Myanmar private national companies.

Regarding input availability of garment firms, land for those entrepreneurs who met golden age of Myanmar garment in 1999-2002 could acquire some pieces of land in various industrial zones. Nowadays, investment for land will be very high and impossible for small-scale industries to locate in existing industrial zones as land price in the zones of Yangon skyrocketed more than 20 times (2,000%) on average within twelve-year period whereas consumer price index (CPI) went up just 6 times (600%) during the same period.

Labour, the most important input in garment industry, was abundant at the early stage and could be recruited as much as demanded. Underemployed labourers in periurban and rural areas migrated to urban industries to search for job and better income. It is at present a challenge for garment factory owners, especially to have skilled labour. The situation is worse in small-scale firms.

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As garment industry is not capital-intensive compared to other export-oriented manufacturing industries, initial capital requirement for factory establishment has not been yet the priority. On the other hand, a survey disclosed that only 8 out of 142 garment firms received bank loan. An outlandish finding from interview survey also revealed that factory owners are also not willing to accept bank loan at present because of two reasons at least: (1) expansion or establishment of garment business without getting enough orders will be problematic for them, and (2) bank interest rate is not covered by current return on investment.

In order to have technology requirement, mostly clients provide necessary technology with their trainers. Because technologies used by labour-intensive industries are commonly low, the training or technology acquisition for garment firms is not problematic.

Regarding to the export and market chain in these days, after imposing US economic sanction, Myanmar garment export share to Japan and Korea has been increasing from 5.7 percent in 2003 to 62.8 percent in 2010. Myanmar garment export increased from USD 490 million in 2010 to USD 766 million in 2011.

Looking at foreign investment, although total cumulative investment approval reached more than USD 40 billion as at end of February 2012, FDI in manufacturing sector is very low at about 5 percent as most investment lead to resource extracted sectors such as mining (7%), power (45%) and oil & gas exploration (33%).

One of significant feature in garment industry is labour-owner relationship. It was not serious in the past as both sides seemed controlled by religious, tradition and nature of the blood. However, such good relation has collapsed when there became conflict of interests: owners want to reduce cost while labours want higher salaries, and that leads to labour strikes in recent days. Yet, most labour strikes currently happening are in those factories of foreign-owned or large local owned.

Concerning laws and regulations related to industry establishment, Myanmar Companies Act 1914, Special Companies Act 1950, Foreign Investment Law 1988 and revised draft 2012, Private Industrial Enterprise Law 1990, and Myanmar Citizen Investment Law 1994 are applicable. Similarly, labour-related laws including Employment Statistics Act 1948, Employment and Training Act 1950, Leave and Holidays Act 1951, Social Security Act 1954, and Labour Association Law 2011, as well as Income Tax Law 1974 and Commercial Tax Law 1991 are governing business operation.

Relevant institutions and policy framework to support garment industry operation development consist of Myanmar Investment Commission (MIC), Myanmar Industrial Development Committee (MIDC), Small and Medium Industries Policy, Myanmar Garment Manufacturers Association (MGMA), Myanmar Garment Human Resource Development Centre (MGHRDC), and Japan External Trade Organization (JETRO).

According to the survey results, the most binding constraint faced by the garment firm owners is severe power shortage. Not only power cut but also wide fluctuation of voltage is highly upset by manufacturing industries. It affects all businesses rising their cost of production and pulling down competitiveness.

Second most constraint is unfavourable exchange rate which appreciated by 27 percent during 2008-20012 April. Within exchange rate appreciation, export value of Myanmar garment skyrocketed from USD 490 million in 2010 to 766 million in 2011, mainly contributed by Japanese orders with higher price offer. Myanmar garment firms argued that a minimum exchange rate of 900 Kyat per USD will benefit for them and is possible to maintain labour stability.

Order availabilities of oversea buyers are life or death of garment industry. Economic sanction of U.S. and inaccessibility to GSP of E.U discouraged international buyers to offer orders to

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Myanmar garment firms. As well, foreign companies were reluctant to invest in Myanmar’s export-oriented manufacturing sector including garment industry. These two factors mainly blocked Myanmar garment firms to access adequate orders to sustain and develop.

In the early 1990s, required amount of workers for garment factories in Yangon was easily available. At that time, wage rates in garment industry were attractive and a number of people especially female workers from rural areas migrated to Yangon to employ in garment factories. However, along with economic sanction, several garment firms were closed down, and many of labours became became jobless. Some of surplus labours were then attracted to work in neighbouring countries’ garment factories. The others shifted to the different industries such as construction, cold storage and entertainment. Therefore, garment firms have currently to face labour problem especially to get skilled labours.

Last but not least, tax and other transaction costs are expected as potential issues to the businesses including garment industry. , income tax is flat rate of 25 percent on income before deducting any relief. At the same time, burden of other charges, mostly unofficial expenses, is chronic obstacle to reduce transaction costs.

Nevertheless, current period is indeed the time for Myanmar garment industry to start again for taking off the ground because various push factors such as government’s policy drive and potential workforce from underemployed rural economy and pull factors such as economic liberalization and low labour cost are coming out in the economy.

Among the government initiatives, one of the importance policy drives is formulation of “Small and Medium Industries Policy” which recognizes the development of SMIs as a strategy to promote the country’s economy and improve living standard of the people. Garment industry is one of the Competitive Industries, and concerned ministries will support to seek market and export opportunities, to create opportunities for 'business matching or market linkages, to send overseas market search missions, and to reduce tariffs and procedures that will cause barriers on the export.

On the other hand, large range of disguised-unemployment or underemployment is expected in the country especially in agriculture sector. Underemployment occurs when there is no adequate job activity to employed full capacity of workers or there is no equal compensation for workers’ efforts. These people together with migrant workers who are eager to come back will contribute necessary labour force to the labour-intensive industries including garment.

It is in no doubt that garment as a labour-intensive industry will greatly shift to such low-wage countries as CLMV, India and Bangladesh. Among them, Myanmar is probably more favourable country. Wage rate in Vietnam is relatively low but rapidly increasing. Vietnam government also seems more prefers capital and technology intensive industries in the future. In Cambodia, garment firms in the country have already congested with over 3,000 factories and about 400,000 workers. Likewise, Lao is a landlocked country as well as has limited labour forces. Bangladesh is the country with the lowest wage rate over the world but political unrest and frequent labour strikes make reluctant for foreign entrepreneurs.

Additionally, this is the time of expectation to access large markets, especially U.S. and EU, as they gradually relax restrictions on Myanmar economy. Firstly, the EU agreed in last April to suspend most sanctions on Myanmar in response to recent progress of economic and political reform. Similarly, the U.S. also eased selected financial and travel restriction in April followed by suspension of its ban on U.S. investment in Myanmar in May 2012.

All in all, there are vicious circles in Myanmar garment industry harming to all stakeholders: factory owners, employees and the government as well. These cycles include low order – low income – low wage – low skilled labour for garment factory, low income – low tax revenue – low provision for infrastructure – high cost for the government, and low skill – low productivity – low

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wage for employee. Therefore supportive measures should be taken by the government, external entities and NGOs for sustainability and development of garment industry as a whole.

Synergetic approach by coordination and cooperation of all related bodies are the most effective way to facilitate for growth of garment industry and to move the industry towards an entry of export-oriented SME development in Myanmar.

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Table of Contents

ABBREVIATIONS................................................................................................................................. i

EXECUTIVE SUMMARY......................................................................................................................ii

Table of Contents.............................................................................................................................vi

List of Tables...................................................................................................................................vii

List of Figures..................................................................................................................................vii

1. Introduction.............................................................................................................................1

2. Trend and Experiences of Garment Industry in Myanmar (1988-2010)...................................5

2.1 Trend of Garment Industry Establishment (1990-2010)...................................................5

2.2 Trend of Garment Export (1990-2010).............................................................................9

3. Review on Current Situation..................................................................................................11

3.1 General Profile of Garment Industry in Myanmar Economy (After 2010).......................12

3.2 Input Availability of Myanmar Garment Industry...........................................................15

3.3 Export and Market Chain................................................................................................17

3.4 Foreign Investment in garment Industry........................................................................20

3.5 Owner-Labour Relationship............................................................................................21

4. Legal and Institutional Framework.........................................................................................23

4.1 Laws and Regulations related to Industry Establishment...............................................23

4.2 Laws and Regulations Related to Industry Operation.....................................................24

4.3 Institutional Support.......................................................................................................25

5. Key Constraints to the Development of Garment Industry....................................................27

5.1 Power Shortage..............................................................................................................28

5.2 Unfavourable Exchange Rates........................................................................................29

5.3 Order Scarcity.................................................................................................................31

5.4 Labour Shortage.............................................................................................................33

5.5 Tax and Other Charges...................................................................................................35

6. Growth Potentials of Garment Industry in Myanmar............................................................35

6.1 Policy Drive.....................................................................................................................36

6.2 Forces to Be Surplus Labour for Industrial Sector...........................................................36

6.3 Last Resort for Labour-Intensive Industries....................................................................37

6.4 Prospect for Better Access to the Bigger Markets..........................................................38

7. Policy Recommendations.......................................................................................................40

References......................................................................................................................................47

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Annex (1) Survey Questionnaire.................................................................................................49

Annex (2) List of Garment Firms in Questionnaire Survey..........................................................53

Annex (3) Relevant Sections Responded to Research Questions................................................58

List of Tables

Table 1. Economic Structure of CLMV countries (2009) 2

Table 2. Established Industries/Enterprises in Myanmar by Size (March 2010) 3

Table 3. Garment Industry Establishments in Manufacturing Sector 12

Table 4. Some Factories with Labour Strike 21

Table 5. Income Type and Applicable Withholding Tax Rates 23

Table 6. Development Differential between Myanmar and Cambodia 30

Table 7. Average Wage Rates of Garment Industry in Selected Asian Countries

(2010) 36

Table 8. The Needs of Myanmar Government Supports 41

Table 9. The Needs of Outside Entities’ Supports 43

Table 10. The Needs of Non-State Actors’ Supports 43

List of Figures

Figure 1. Economic Structure of Myanmar (Selected Years) 2

Figure 2. Stages of Industrial Development in Flying Geese Model 4

Figure 3. Depreciation of Local Currency and Comparison with Rate of Inflation

(1994-2001)

7

Figure 4. Garment Firm Establishment Trend (selected years of 1994-2009) 8

Figure 5. Export Performance of Myanmar Garment Industry (selected years of

1990-2009)

9

Figure 6. Garment Exports of Myanmar and Cambodia (1990-2006) 10

Figure 7. Myanmar Garment Export Market Share by Country (1997-2010) 10

Figure 8. Market Share of Very Large Garment Firms (share in total export

value 2011)

12

Figure 9. Location Distribution of Garment Industry in Myanmar 13

Figure 10. Comparison between Consumer Price and Land Price (2000&2012) 15

Figure 11. Garment Export during Transition Period and New Administration 17

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(2007-2012)

Figure 12. Market Chain in Different Types of Operation 18

Figure 13. Structure of FDI Permitted (as at end of February 2012) 19

Figure 14. Severity of Possible Constraints in Garment Industry Development 26

Figure 15. Per Capita Power Consumption in Selected Asian Countries (KWh) 27

Figure 16. US Dollar Value against Kyat, Baht, Yuan and S$ (2008-2012) 29

Figure 17. Garment (Apparel) Imports of U.S. and EU from Myanmar’s

Contemporary Countries (2011)

38

Figure 18. Vicious Circles in Myanmar Garment Industry 40

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1. Introduction

All economies are structured by three broad main sectors namely Agriculture, Industry and

Service (AIS) which cover each and every economic activity. The AIS ratio is also an important

indicator measuring the level of economic development and this indicator in time series explains

success or failure of economic transition. Agriculture sector is the most important in less

developed countries as it contributes with high proportion to the gross domestic product (GDP),

employment creation and export of these countries. Along with growth momentum, the country

needs to transform its economic structure from more reliance on agriculture sector to more

dependence on industry and service sectors. Therefore, industrial development or

industrialization is very important for a developing country like Myanmar in order to achieve

structural change to economic development. In a word, In order to transform the country into a

more developed one, the country’s GDP must grow at pretty level of sustained rate but relative

share of primary sector (agriculture) should decline while that of secondary sector (industry) and

tertiary sector (service) should replace.

Myanmar officially distinguishes its GDP with three major components namely goods, services

and trade. Activities under these components are further broken down and grouped with

fourteen sectors: (1) Agriculture, (2) Livestock and Fishery, (3) Forestry, (4) Energy, (5) Mining,

(6)Processing and Manufacturing, (7) Electric Power, (8) Construction, (9) Transport, (10)

Communications, (11) Financial Institutions, (12) Social and Administrative Services, (13) Rental

and Other Services, and (14) Trade Value. The first eight sectors are organized as Goods, the

subsequent five sectors as Services, and the last one namely Trade Value stands alone itself. In

parallel, the country makes out its economic structure bringing proper agriculture, livestock &

fisheries and forestry as the Agriculture, energy, mining, processing & manufacturing, power and

construction as the Industry, and services and trade as the Service. Comparing statistical

description and structural perspective, the first three sectors are included in Agriculture while

later five sectors in Industry and the remaining five sectors in Service.

According to the official statistics, the structure of Myanmar’s economy has been improving

throughout the period from early 1990s, starting point of transition to market economy. The

proportion of industry sector in GDP increased from 13.4 percent in 1991/92 to 22.6 percent in

2009/10 (See Figure 1). Yet, agriculture sector is still dominant in the economy with a large

proportion of about 40 percent on which as much as 70 percent of total population rely in direct

or indirect means. More than it, the increase of share of industry sector was not because of

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processing & manufacturing, which could make productive value addition, but because of

resource extraction such as mining and oil & gas.

Figure 1. Economic Structure of Myanmar (Selected Years)

1991/92

1995/96

2000/01

2005/06

2006/07

2007/08

2008/09

2009/10

0

10

20

30

40

50

60

70

80

90

100

ServiceIndustryAgriculturePe

rcen

t

Source: MNPED, Myanmar’s Socio-economic Development

There is a limitation in working out Myanmar’s economy with official data and statistics due to

outdated system of national accounting, long untouched census and other complex reasons

including a wide range of unorganized economic activities. Notwithstanding the data problem,

Myanmar’s economic structure could demonstrate an improvement during past couple of decade

but it still needs endeavor to catch up the countries in the Asian region such as Cambodia, Lao

PDR and Vietnam which have similar levels of economic and human development of Myanmar

(See Table 1).

Table 1. Economic Structure of CLMV countries (2009)

CountryAgriculture Share as

the Percentage of GDP

Industry Share as the

Percentage of GDP

Service Share as the

Percentage of GDP

Cambodia 35.7 23.1 41.3

Lao PDR 32.5 26.5 41.0

Myanmar 39.9 22.6 37.5

Vietnam 20.9 40.2 38.8

Source: MNPED & ADB

With the aim to transform the nation into a modern industrialized one, the first national

economic objective shifts its focus by indicating “Building of a modern industrialized nation

through the agricultural development and all round development of other sectors of the

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economy.” Rapid development of processing and manufacturing sector is indeed essential for

proper industrialization, and in turn, the development of small and medium enterprises (SMEs) is

the key in developing countries.

As well, as much as 99 percent of industrial establishments in Myanmar as at March 2010 were

made up of micro, small and medium sized factories. Among them, micro scale industries with

less than 10 employers accounted for 95 percent and the remaining two were just four percent

(See Table 2). Large scale enterprises which accounted for only 1 percent of total establishments

were more or less equally distributed by the state and private sectors. All these figures clearly

indicate that the small scale industries will be key players and call for concrete development

agenda.

Table 2. Established Number of Industries/Enterprises in Myanmar by Size (March 2010)

Size of Industry State Cooperative Private TotalNumber Percentage

Micro (Below 10 workers) 170 20 111,890 112,080 95%

Small (10-50) 181 65 3,734 3,980 3%

Medium (51-100) 139 11 605 755 1%

Large (Over 100) 273 3 328 604 1%

Total 763 99 116557 117419 100%

Source: MNPED

Out of these small scale industries (simply called as SMEs), only a few are able to engage in

export activities. Many of them target merely domestic market and local consumption due to lack

of competitiveness in the international market. Among export-oriented SMEs, garment is rapidly

growing and the most important industry in Myanmar as it employs relatively low technology and

surplus labours from both urban and rural area as well as could access wide external market.

Moreover garment industry can be said as an environmentally friendly industry because it is likely

smokeless and generally utilizes no natural resources for input.

The most important justification to emphasis the growth of garment industry is its nature as an

entry point to export-oriented SME development for Myanmar, as demonstrated by high

performing economies of Asia such as Japan, Korea, Malaysia, Thailand, etc. A famous argument

for industrialization, Flying Geese Pattern, also suggests to kick off low-tech labour-intensive

industries at the beginning stage.

The Flying Geese Model explains industry life cycle and the shift of industries from the countries

with less comparativeness to those with more comparativeness. The model emphasizes on the

industrial development of Asian economies led by Japan as a goose flying at the forefront of the

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group. Well known four Asian tigers namely South Korea, Singapore, Taiwan and Hong Kong

followed Japan, and Asian emerging economies such as Thailand, Malaysia, Indonesia and China

flew after four tigers. Cambodia, Lao PDR, Myanmar and Vietnam (CLMV) are potential

latecomers in this industry life cycle. In the process, labour-intensive industry like garment is

indicated as a desirable choice for industrial development.

Figure 2. Stages of Industrial Development in Flying Geese Model

At the initial stage of industrial development, garment, labour-intensive manufacturing, was

focused by Japan as one of initial industries but dropped later due to the rise of labour cost.

While Japan’s focus moved to capital-intensive such as iron & steel production, newly

industrialized economies (NIEs), for example, South Korea developed labour-intensive industries

like garment. In the same way, when the economies became advanced and existing industries

were no longer competitive, they shifted their specialization from labour-intensive to capital-

intensive, and then to technology-intensive (such as electronic goods) to knowledge-based (such

as IT products). In this regard, this is the right time for Myanmar to promote garment industry in

various means so as to enjoy its comparative advantage and encourage export-oriented SME

development which is crucial for employment creation, inclusive growth, poverty reduction and

industrialization.

Aiming at investigation of the development issue of business environment for SMEs with a

specific focus on garment industry, the specific objective of this research study is to map out the

technical facts about the garment industry and its market chain identifying where the major

technical obstacles and opportunities for growth. To accomplish the objective, past experiences

of Myanmar garment industry, current status as well as related legal and institutional framework,

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and key constraints throughout market chain are analyzed and appropriate policy suggestions are

worked out for better performance of garment industry.

2. Trend and Experiences of Garment Industry in Myanmar (1988-2010)

It was a remarkable turning point for Myanmar that the political economic system shifted from

centrally planned economy to market-oriented economy after 1988 demonstration over the

country and taking the power by the military government. Soon after military coup, the

government initiated various economic policy changes and reform agendas. The earliest step to

the market economy was promulgation of the Union of Myanmar Foreign Investment Law (FIL)in

November 1988. Though, regulatory framework for the investment of Myanmar nationals was

endorsed only in April 1994 by adopting the Myanmar Citizens Investment Law (MCIL).

Nonetheless, along with revoking Law of Establishment of Socialist Economic System 1965, the

private sector from both domestic and abroad was allowed to participate in various economic

activities including foreign trade which was entirely monopolized by the state in the past regime.

Myanmar investors engaging in larger-scale manufacturing were permitted under the Private

Industrial Enterprises Law 1990 while those in smaller-scale were under the Promotion of Cottage

Industries Law 1991.

With opening up Myanmar economy to the private sector, both domestic and foreign investors

actively entered such sectors as trade & commerce, construction, mining, tourism, retail sales,

banking and manufacturing. At that time, Myanmar had to attempt early recovery from negative

growth of the economy, and encouragement to the private investments was seemed as a growth

strategy. In parallel, the policy was called for employment creation, export promotion and

industrial development. These policy targets were in fact fulfilled by a unique private investment,

that was garment industries.

2.1 Trend of Garment Industry Establishment (1990-2010)

At the primary stage of economic openness in Myanmar, local investors were not keen to engage

garment industry due to lack of experience in this sector. In 1990, very first garment industry

started to be established in Myanmar in the form of joint venture between the government and

foreign companies such as Daewoo and Segye from South Korea. Thanlyin Garment Factory No

(1), (2) and (3) owned by the government, particularly the Ministry of Industry (1), can be said as

the originators of garment in the country. While Daewoo and Segye were operating garment

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business in their own factories, government factories also worked on CMP (Cutting, Making,

Packaging) basis.

Remarkably, Crocodile Garment was an entrepreneur of private sector in operating garment

industry in Myanmar that initiated its operation in 1993. Later on, national private entrepreneurs

realized that garment industry in CMP basis was advantageous compared to other manufacturing

industries. Accordingly, number of garment industries increased from only 25 in 1994 to 291 in

1999 (Myint Soe 2007).

According to an interview survey with a Myanmar garment entrepreneur who started its business

with about 50 sewing machines in 1995 and developed to more than 500 in 2001, the following

incentives induced him to establish and gradually expand his private own garment industry:

(1) Investment requirement is not very big: The entrepreneur launched his business in an

empty warehouse that he rented from a public institution. Majority of fixed cost was

injected into sewing machines (most of them were used or reconditioned), plant

decoration and installation of power line. Believe or not, an estimated amount of USD

25,000 was adequate to initiate the business and settle down immediate costs.

(2) Payback period and return on investment is not so long: Since the business is operating

CMP orders provided by the large-scale garment industries which directly achieve orders

from oversea customers, maximum operation cycle of most CMP orders is about three

months ora minimum turnover rate of four times a year. If there is reserve money for

variable costs (most parts are wages and salaries), the business will be workable.

(3) Main inputs and market are readily provided by the clients: Major inputs for garment

operation process are fabric, thread and other accessories such as label, button, etc., and

all of them are provided by the customers. Moreover, the entrepreneur does not need

any worry for market access because of the nature of CMP contract.

(4) Technologies are not complicated and accessible at low cost: There are different types

of order i.e. jacket, raincoat, sport shirt, trouser, etc., which call for different techniques.

In many cases, the customers provide these techniques how to correctly make the

selected design. If the technology is not provided by the customers, it is possible to hire

experts from large-scale garment factories for necessary technology transfer during

his/her spare time.

(5) Labours are easily available: At the time of early and mid 1990s, it was not very difficult

to recruit necessary quantity of labours because of massive internal migration. Higher

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income and work environment under the roof could induce female labour force to

migrate from rural to urban areas. Cross-border and oversea migration was not very

popular at that time.

(6) Earnings are in the form of foreign currency: No small-scale industry can enjoy foreign

exchange earnings except garment industry because it is the only export-oriented SMEs

in Myanmar. Earnings in the form of foreign currency, particularly US Dollar, make double

profits to the business. Explicit profit comes from normal profit and loss account while

implicit profit is the result of local currency depreciation. Since depreciation rate of Kyat

value was faster than percentage change of consumer price index (CPI) as the proxy for

inflation rate, net gain from exchange rate became an extra bonus for foreign exchange

earners including garment industry (See Figure 3). In those days, exchange rate

depreciation was happening all the time and such situation strongly supported to enrich

Myanmar garment industry. For instance, a sewing machine purchased by a garment

factory on credit in the last three months might be priced at Kyat 40,000 equivalent to

USD 100 as exchange rate was at Kyat 400 per USD. On due date, if exchange rate

depreciated to Kyat 500 per USD, cost for credit-purchased sewing machine would

decrease to USD 80 which also would be equal to Kyat 40,000.

Figure 3. Depreciation of Local Currency and Comparison with Rate of Inflation (1994-2001)

19941995

19961997

19981999

20002001

20020

100200300400500600700800900

Kyat per USD

19941995

19961997

19981999

20002001

-20

0

20

40

60

Percent

Depreciation RateInflation Rate (CPI)

Source: CSO for CPI; Self-observation for exchange rate

Garment industry in Myanmar had been growing throughout the period up to 1999 reaching its

peak of total number of establishment to 291 factories. It clearly indicated that garment industry

in Myanmar was less vulnerable to Asian Financial Crisis of 1997 that continued to the next year.

In contrast, the garment as a major export industry of Cambodia was affected by the crisis that

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made shut down or scale down to some factories but not total export (Chan Sophal and et. al.,

1999).

Some declination of garment factory establishments occurred after peak period of 1999 but

severe effect on Myanmar garment industry began when the United States imposed economic

and financial sanction on Myanmar in 2003.Myanmar’s exports to US were banned. The use of US

Dollar by Myanmar for transaction through proper international banking channel was restricted.

Such constraints to access market and to conduct financial transaction in the form of US Dollar

forced many small-scale garment industries to leave from manufacturing sector as well as make

tens of thousands of labourers, mostly female, to be jobless. The trend of garment firm

establishment during 1997-2004 is shown in Figure 4.

Figure 4. Cumulative Number of Garment Firm Establishment (selected years of 1994-

2009)

1994 1997 1998 1999 2000 2001 2002 2003 2004 20090

50

100

150

200

250

300

350

Source: Myint Soe (2007) and (2011)

Apart from economic sanction, phasing out of multi-fibre agreement (MFA)1 starting from

January 2005, that adjusted export of textiles and clothing from developing countries by imposing

quota, affected on Myanmar garment industry. Abolition of MFA would neglect country of origin

of garment products due to cancellation of export quota system. Therefore, oversea clients rarely

chose Myanmar to offer their production order on CMP basis.

Another reason for decreasing trend of garment industry was inconsistency and frequent changes

of trade policies and regulations without prior notice as well as complicated procedures to import

raw materials and to export finished products of garment. The authorities usually treated

1 The MFA which was introduced in 1974 and ended in 2004 let major importing countries impose export quotas of textiles/garments of the developing countries. It favoured some less efficient poor countries to access global fibre markets. Removal of MFA as per WTO rule could negatively affect on these less efficient countries which have to compete with the others.

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garment industry as a special case as it is a re-export business. Unlike the other import procedure

for other items, import of raw materials for garment required prior approval of Foreign Capital

Evaluation Committee (FCEC) before applying for import license. Authorities’ argument for such

restriction was that some dishonest businessmen tried to import raw materials but they failed to

re-export finished goods, and instead, they sold imported raw materials in local market. Because

raw material imports for re-export business such as garment could enjoy preferential tariff,

selling them domestically made unusual high profits.

An additional problem in Myanmar garment industry was labour hopping from one factory to

another, and later, cross-border labour migration to Thailand and oversea migration to middle

east countries. Along with difficulties to be awarded CMP orders and to enjoy reasonable price

from clients due to western sanction, most of garment factories were unable to offer attractive

wages and salaries to labours. Finally, small-scale garment firms were powerless to sustain skilled

and qualified labours so that they were out of list of reliable firms for clients. Such chicken-and-

egg problem wiped out investment in garment sector.

2.2 Trend of Garment Export (1990-2010)

Traditionally, Myanmar’s exports have been dominated by products of primary sectors such as

agriculture, fishery, forestry and mining. Export of manufacturing and processing sector was

negligible, if not nothing, up to early 1990sbefore garment industry started to grow in Myanmar.

Export value of garment sector rapidly increased from just Kyat eight million in 1990/91 to 300

million in 1995/96 and then to about 3,800 million in 2000/01. After that, along with decrease of

the number of garment firm as mentioned above, export value also declined to less than Kyat

2,000 million in 2003/04 and about 1,250 million in 2004/05. Shares of garment export in total

export increased from almost nothing (0.3%) in 1990/91 to its peak (30%) in 2000/01 (Figure 5).

Figure 5. Export Performance of Myanmar Garment Industry (selected years of 1990-2009)

1990/91

1995/06

2000/01

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

05

101520253035

05001000150020002500300035004000

Percent

% of Total Export Export Value

Kyat Mil-lion

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Source: CSO, Statistical Yearbook 2010

Although Myanmar’s garment export performance boomed in early 2000s, it is far below that of

Cambodia. Myanmar’s garment export declined beyond its peak of 2000/01 but Cambodia kept

on its trend increasing all the time. At the early 1990s, export values of both Myanmar and

Cambodia were nearly zero but it is quite diverse within one and half decades. According to UN

Comtrade and World Trade Atlas, garment exports of Myanmar was less than USD 400 million

while that of Cambodia reached about USD 3,400 million in 2006 (See Figure 6).

Figure 6. Garment Exports of Myanmar and Cambodia (1990-2006)

Source: Kudo (2010) and UN Comtrade and World Trade Atlas as original source

Regarding export destinations, western countries such as the United States, United Kingdom,

France and Germany were major importers of Myanmar garment. After economic sanction

started in 2003, Myanmar garment’s export share to the United States decreased to the ground

at zero percent whereas EU (15 countries) took up 70 to 80 percent. In the second half of year

2000s, two Asian countries – South Korea and Japan – became major destinations and export

share to these two countries increased to more than 50 percent. Myanmar garment export share

to EU became decreasing but remained significant portion.

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Figure 7. Myanmar Garment Export Market Share by Country (1997-2010)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

102030405060708090

100

Percent

US EU (15) Japan Korea Others

Source: World Trade Atlas

Establishment and enhancement of garment industry is in fact very fundamental step in

transition to industrialization, and many Asian countries, both less and more developed

economies, achieved certain growth through expansion of garment industry but such growth

model failed in Myanmar. An imagination is that if there were no economic sanction on Myanmar

garment, much faster development of the industry could be expected beyond 2003 as Kyat

depreciation, major pull factor for investors, had skyrocketed at that time. External blockage

(economic sanction of the US and some EU countries)hindered Myanmar’s rising industry, and

internal mismanagement (such as red tape and complicated procedures) as well as scarcity of

skilled labours also exacerbated the dreadful situation.

3. Review on Current Situation

Change of new government assuming the office on 30 March 2011 offered a hope for revival of

private sector which was previously monopolized by a handful of special interest group. The

president mentioned in his inaugural address that the government will make sure all economic

forces including private enterprises to be able to work in the framework of the market economy,

and will give all-round encouragement to small and medium enterprises that play an important

role in Myanmar economy. Then, the government initiates a series of policy reforms including

disbanding of the Trade Council, tax reduction on foreign currency incomes of CMP businesses,

reduction of withholding tax, cut of bank interest rates, permission to the private banks to

provide hire-purchase service to the customers, relaxation on foreign exchange transaction and

amendment of Foreign Investment Law. All these reforms seem positively impact on garment

industry.

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3.1 General Profile of Garment Industry in Myanmar Economy (After 2010)

Processing and manufacturing sector is an important backbone in Myanmar’s industrial structure

and garment industry is main component of manufacturing sector. As stated earlier, there were

only 25 garment factories in 1994 that increased to 291 in 1999, peak period. Then, the industry

had decreasing trend all the time and only 107 firms could sustain as at 2009. Thanks to CMP

garment orders provided by Japan and Korea, the number of firms increased again to 135 in 2011

(Myint Soe, 2011).Out of them, only 91 firms could deal with direct export of their production.

These firms include two joint-ventures with the Union of Myanmar Economic Holding Co., Ltd.,

(UMEHL) of the Ministry of Defence, two joint-ventures with Myanmar Private investors, 21 fully

foreign owned companies and 66Myanmar private national companies. The remaining firms have

to rely on direct buyers, most of them are above 91 companies, which contract out the orders

they will not manage.

According to the Myanmar Garment Manufacturers Association (MGMA), there are a total of 233

members and only 174 are still undertaking garment business. Because the nature of garment

industry is labour-intensive, many of firms employ more than 100 workers, the minimum number

of a criteria to be listed as large-scale enterprise. Composition of garment industry

establishments in total manufacturing firms is shown in Table 3.

Table 3. Garment Industry Establishments in Manufacturing Sector# Micro

(Below 10 workers )

Small(10-50)

Medium (51-100)

Large(Over 100)

Total Total (Excluding

Micro Enterprises)

Total 112,080 3,980 755 604 117,419 5,505Garment 1 19 22 125 167* 166Composition (%) 0.00 0.48 2.91 20.70 0.14 3.02*Out of 174 active firms, 167 revealed information about number of workers they employ.Source: MNPED and MGMA

The share of garment industry in manufacturing sector in terms of firm establishments is not

significant with 0.14 percent. It is because Myanmar’s manufacturing sector is extremely

dominated by micro firms with 95 percent of total establishment. Yet compositions of garment

industry in small, medium and large enterprises are more significant, especially in large-scale

firms. If micro scale enterprises are excluded, composition of garment industry in manufacturing

sector will be more than 3 percent. As per available data, one out of five large-scale

manufacturing enterprises is garment.

Assuming that garment firms operating with more than 900 workers are very large, there are 25

very large firms. Among them, 9 firms are under the ownership of foreign investors (6 from

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Korea, 1 from Japan, 1 from HK and 1 from Malaysia) followed by 7 in private JV, another 7 in

Myanmar private owned, and 2 in JV with UMEHL. If total export values of each group are an

indicator to predict market power in large-scale garments, power sharing can be seen in the

following Figure.

Figure 8. Market Share of Very Large Garment Firms (share in total export value 2011)Myanmar Private

(7)16% UMEHL JV (2)

16%

Private JV (7)26%

Foreigner (9)42%

Source: Data from MGMANote: Firm with more than 900 workers are assumed as very large

It can be presumed that about 80 percent of garment industry in Myanmar is preoccupied by

foreign investors or joint ventures with foreign companies. Regarding those garment industries

accompanying with foreign investments, 11 percent is held by only two joint ventures forming

with UMEHL. In the case of Cambodia, more than 90 percent of garment industry establishments

are owned by foreign investors, and 60 percent of which are Chinese related origins such as

Taiwan, Hong Kong and Macao. In contrast to Myanmar, not only the owners but also skilled

labours in Cambodia garment industry are foreigners especially Chinese.

Labour is the most important input in garment production but supportive infrastructure such as

transport route, seaport, electric power and communication are also key factors in consideration

to settle a garment factory. Therefore almost all garment firms are located around Yangon,

former capital city of Myanmar, as it was supported with the best infrastructure compared to any

other areas in Myanmar. There were more favorable electricity, better road network, accessibility

to port and well establishment of industrial zones. Although there were garment operations in

civil settlement areas and public compounds, many firms were established in various industrial

zones, mostly in Hlaing Tharyar and Shwe Pyitha.

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Figure 9. Location Distribution of Garment Industry in Myanmar

Hlaing Tharyar28%

Shwepyitha18%Mingalardon

9%N-Okkalapa

9%

Dagon Seikkan4%

S-Dagon4%

Shwelinban4%

Shwe Paukkan3%

Thaketa2%

Civil Rest Areas14%

Out of Yangon5%

Source: MGMA

HlaingTharyar and Shwepyitha industrial zones are located asthe outskirts of Yangon but good

road connection networks, easier to recruit labours as well as convenience for labours to search

for their staysaround and meals at low costs are advantages of these two zones.

Map 1. Industrial Zones in Yangon Area

Note: DGSKN-Dagon Seikkan; HLTA-HlaingTharyar; MDGN-Mingalardon; NOKA-North Okkalapa;SDGN-South Dagon; SPK-ShwePaukkan; SPTA-Shwepyitha

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3.2 Input Availability of Myanmar Garment Industry

Same as other manufacturing businesses, garment industry also needs to utilize land & building,

labour, capital for long-term and short term, and technology. Because of different sizes and

different ownerships, sources of these inputs are also very diverse. Nevertheless, interviews with

owners of relatively smaller size of garment industry have provided the following information:

Land & Building: Although it is not a problem for wealthy businessmen and FDI to acquire plots

of land to build a factory, a smaller-scale entrepreneur at the beginning has to hire unused

factory or vacant warehouse to operate garment business. For those entrepreneurs who met

golden age of Myanmar garment in 1999-2002 were able or decided to buy some pieces of land

in various industrial zones. At that time, Human Settlement and Housing Development

Department of the Ministry of Construction developed new industrial zones around Yangon and

directly sold to the investors. It was the time before 2003 banking crisis in Myanmar, bank loans

to purchase land and to build building were also accessible without much difficulty. Nowadays,

investment for land will be very high and impossible for small-scale industries to locate in existing

industrial zones. Figure 10 discloses growth of land price and growth of general consumer price.

Figure 10. Comparison between Consumer Price and Land Price (2000&2012)

Consumer Price Index Land Price Index0

500

1000

1500

2000

2500

Price Index (Base 2000=100)

20002012

Source: CSO for CPI and Interview Survey for land price

In year 2000, the government sold land plots in the industrial zones at the price of Kyat 9 million

per acre and CPI in the same year was 152 (base 1997=100). After a bit more than one decade,

lands in the hand of private investors (or speculators) in the industrial zones increased more than

22 times to Kyat 200 million per acre while CPI increased only more than 6 times to 951 (same

base 1997=100). When price indexes of both are set at 100 each in 2000, the price index of

general consumer goods will be at 627 and that of land will be at 2,222 as shown in above figure.

15 | P a g e


Labour: Recruiting necessary amount of workers was not a challenge before 2003 economic

sanction. Because of economic blockage of U.S. and some EU countries, orders of foreign buyers

severely decreased as well as the price of rare orders fell down even beyond subsistence level.

These hardship forced many garment factories shut down or scale down and many workers had

to face uncertainty for their job security and sufficient salaries. Finally, large numbers of skilled

labours migrated to negihbouring countries’ garment factories and general labours moved to the

other sectors such as construction.

At present, it is not an easy work to gather sufficient amount of workers, especially skilled or

even semi-skilled ones, without offering attractive pays. As there are a variety of sewing

machines, skilled labour with capability to handle any kinds of machine is real bonus for garment

operation. Because of scarcity of operator-level workers (who can operate sewing machine well),

factory owners have to train helpers (who assist operators in operation lines) with some extent of

service in factory. Lack of skilled labours makes severe difficulty to produce quality products,

mostly ordered by Japan.

Investment Capital: Since garment industry is less capital-intensive compared to other

manufacturing industries, it is appropriate for Myanmar entrepreneurs, most of them are in

limited capital. Most local garment firms and all foreign invested firms operate their business on

their own investment. According to an industrial survey of December 2004, eight out of 142

garment firms received bank loan (MTGD 2010). In contrast to Cambodia, where 90 percent of

total garment factories are owned by foreign investors, private nationals possesses about 90

percent in Myanmar garment sector but very few rely on bank loan for their capital requirement.

Investment capital supported by proper financial sector to the development of garment industry

is very low in Myanmar.

According to the interview survey, a strange reason for low rate of bank loan availability is that

garment factory owners are also not willing to accept bank loan at present because (1) expansion

or establishment of garment business without getting enough orders will be problematic for

them, and (2) bank interest rate is not covered by current return on investment.

Technology: For on-going garment factories, experts or supervisors who could make up sample

units for clients distribute techniques of each step to operators. If the processes are special and

weird, clients usually provide necessary technology with their trainers. Garment operation

processes are not very complicated and need no high-tech (except for computerized sewing

machines but they are rarely used) but expertise or repeated operation is very important and

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contributes to quality as well as efficiency in production. Therefore, factory owners frequently

prefer bigger lots rather than higher prices.

3.3 Export and Market Chain

Before the most serious economic sanction of US that was imposed in 2003, around 50 percent of

Myanmar garment export directed to the United States and more than 40 percent went to EU

countries. Myanmar garment market share to Asian countries was very minimal and just less than

10 percent. After imposing US economic sanction, Myanmar garment export share to Japan and

Korea has been increasing from 5.7 percent in 2003 to 62.8 percent in 2010.

Nevertheless, garment export of Myanmar after changing new government tends to increase

together with positive perceptions on political improvement and better business environment as

well as gradual relaxation of sanction on Myanmar. According to the provision of World Trade

Atlas, Myanmar garment export increased from USD 490 million in 2010 to USD 766 million in

2011.Immediate increase of garment export during the move to new government as shown in

Figure 11 also supports better prospect in coming days. Yet, the increase of garment exports in

these days remains mainly due to increased imports of Myanmar garment by Japan and Korea.

Figure 11. Garment Export during Transition Period and New Administration (2007-2012)

2007 2008 2009 2010 20110

100

200

300

400

500

600

700

800

900

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000Thousand Number

Export to Japan (USD Million) Export to Korea (USD Million)Export Value (USD Million) Quantity (thousand)

USD Million

Source: World Trade Atlas for Export Value and CSO, Selected Monthly Economic Indicators, February 2012forQuantity

There are two types of operation in export-oriented garment business: Cutting, Making and

Packaging (CMP) and Free on Board (FOB). The CMP garment industries are usually smaller than

FOB garment firms. Clients, whether domestic or abroad, offer their orders to CMP garment to

accomplish as per their requirements, and they also provide all necessary raw materials. CMP

17 | P a g e


garment is responsible to complete and ship the quantity passed by buyers’ quality inspection.

Therefore, CMP garment could enjoy service fees only. In contrast, FOB garment devotes its

investments in all sorts of raw materials so that it could enjoy much higher return. Sometimes,

FOB garments offer sub-contracts to smaller garments at low rate. For all garment firms, to meet

designated shipping date is very important. If a firm missed to meet agreed date of shipment, the

firm has to compensate for it, and sometimes compensation is higher than service fees received.

Since about 90 percent of garment establishments are relatively small and invested by local

entrepreneurs, they are unable to conduct FOB garment. As well, international apparel

corporations also outsource to large garment firms so that small firms are able to enjoy sub-

contract from these large firms. In Cambodia, since 90 percent are foreign-invested firms, about

60 percent is direct CMP garment followed by FOB at 25 percent and sub-contracted CMP at 15

percent.

Up on these types of operation, market chain is different from one type to another. Different

market chain can be seen not only export-oriented garments but also local market targeted firms.

Common market chains are as shown in Figure 12.

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Figure 12. Market Chain in Different Types of Operation

Source: Interview Survey

According to the diagram, garment firms (except those owned by branded apparel companies)

have no relationship at all with wholesalers, retailers and end consumers. Therefore, these firms

generally do not need to conduct market survey about consumers’ preference. Instead, they

must have good relationship with their clients or need to know clients’ preference.

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Direct CMP Garment

Direct CMP

Client

(e.g. AMBRO)

Headquarters

Wholesalers Super Markets and Retailers

Consumers Processing with

Labours

Shipping

Client

Branch Office

(e.g. in Hong Kong)

Offer Order, Provide Raw Materials

FOB Garment and Sub-Contracted CMP Garment

FOB Garment

Client (e.g. AMBRO) Headquarters

Wholesalers Super Markets and Retailers

Consumers/ end user

Processing with

Labours

Shipping

Client Branch Office

(e.g. in Hong Kong)

Offer Order

Processing with

Labours

Offer Order, Provide Raw Materials

Sub-Contracted CMP Garment

Send Back to FOB Garment


3.4 Foreign Investment in garment Industry

Enacting Myanmar Foreign Investment Law 1988 was very first initiative to transform into market

economy and foreign investments inflow into Myanmar has gradually increased since 1989/90.

However, it started to contract after 1997, mainly due to Asian financial crisis and then due to

investment restriction by the U.S. and some EU countries. FDI commitment and approval then

again increased in 2010, thanks to investment in mega infrastructure projects such as China oil &

gas pipeline, Kyaukpyu deep seaport and Dawei deep seaport & special industrial zone projects.

Although total cumulative investment approval reached more than USD 40 billion as at end of

February 2012, FDI in manufacturing sector is very low at about 5 percent as most investment

lead to resource extracted sectors such as mining (7%), power (45%) and oil & gas exploration

(33%) as shown in Figure 13.

Figure 13. Structure of FDI Permitted (as at end of February 2012)

Agriculture0%

Fishery1%

Mining7%

Oil and Gas33%

Manufacturing5% Power

45%

Transport1%

Hotel & Tourism3%

Real Estate Development3%Industrial Estate

1%Construction

2%Others

0%

Source: MNPEDNote: 0% means less than 0.5%

There are 164 foreign enterprises operating in manufacture sector, and 22 of them are engaging

in garment industry in the form of 100 percent foreign investment or joint venture with

government-backed or private companies (MGMA, Feb 2012). Before 2003, there were five

foreign joint ventures with state-owned enterprise namely Myanma Textile Industry but they

were closed down along with economic sanction. Currently, two Korean companies – Daewoo

and Segye – formed joint ventures with the Union of Myanmar Economic Holding owned by the

Ministry of Defence. The other five joint venture garments are established with Myanmar private

20 | P a g e


companies. The remaining 15 garment factories are running as 100 percent foreign ownership.

Most of foreign investment in Myanmar garment industry comes from Korea, Singapore and

China.

Small garment firms owned by Myanmar national view foreign companies as necessity for them

because these foreign garment firms play as the intermediates between branded apparel

corporations and sub-contracted CMP garments like them. Moreover, FOB garments of foreign

investors usually outsource part of their production to small firms in CMP basis. Sometimes,

these FDI firms provide certain portion of service fees as advance payment during production in

process, that help solving financial problem for current expenditure such as wages and salaries

for workers.

According to the amended Foreign Investment Law which is not yet enacted, tax exemption and

relief, land use right and foreign exchange transaction are specifically highlighted to induce more

foreign investors. Tax exemption for the first five years of investment, accelerated depreciation

rates, relief for reinvestments, exports and R&D expenditures are considerable factors for

investors. The Law also provides alternatives to acquire land from the government and private

individuals as well as private organizations and co-operatives. A maximum of 60 years with initial

30 years and two renewable 15 years of land use right will be offers to the foreign investors.

However, such provisions alone cannot provide to attract sufficient amounts of investment. High

costs for set-up capital (such as current land price2), expensive public utility (such as current

prices of phone and internet access), poor infrastructure (such as current power shortage) and

instability (such as current labour strikes) would draw negative sense of foreign investments.

3.5 Owner-Labour Relationship

General situation of owner-labour relationship in Myanmar was not serious in the past. Myanmar

workers are obedient, hard-working and friendly so that not only domestic Myanmar employers

and foreign investors but also industrialists in other countries prefer to employ them. In some

cases, owner and labours treat each other as relatives after long-term relation. However, such

good relation has collapsed when there became conflict of interests.

When economic sanction was imposed, garment orders were seldom to come into Myanmar. A

handful orders were then sought by various garment firms and such seeking pulled down the

price of orders. Under this circumstance, exchange rate appreciation after late 2010 exacerbated

the profit and loss account of garment firms. Additionally, frequent power shortage has been a

2 Land prices of industrial zones in Yangon vary from Kyat 160 million to 250 million per acre depending on location. Land prices in small cities’ industrial zone are much cheaper at around Kyat 50 million per acre but infrastructure and accessibility to the seaport are very poor compared to those around Yangon.

21 | P a g e


chronic problem and it was solved by private generators, for which fuel cost is as much as more

than three times higher than cost for government-supplied electricity consumption. In order to

survive within low income, garment factory owners trimmed down labour wages, overtime

compensation and other facilities such as ferry for transport because the other expenditures such

as fuel cost and investment in generator were out of their control.

As a result, labour strike to increase wages and to support other welfare such as better meal and

ferry bus. Such labour strike has experienced since the military government but it was very rare.

The strikes become frequently in these days, especially after promulgation of Law for Labour

Association (similar to Trade Union) and consequent formation of various labour organizations.

However, when these labour strikes are observed, most are taking place in the factories owned

by foreign investors. Some labour-intensive manufacturing factories where labour strikes

happened are shown in Table 4.

Table 4. Some Factories with Labour Strike

# Name of Factory No. of

Workers

Ownership Location Length of

Occasion

From To

1. High Art (Hi Mo)

Wig Factory

About 2000 Foreign

(China)

HlaingTharYar May 9

May 15

May 17

May 10

2 Taiyi (Shoe

Production)

1863 Foreign (Hong

Kong)

HlaingTharYar May 29 May 30

3 Myanmar YES

Garment Factory

1055 Foreign

(Korea)


4 Yangon Crown

Steel Industry

More than

800

Foreign

(China)

Hmaw Bi May 20 May 28

5 MOZ Garment More than

500

Foreign

(Korea)


6 Nay Min Aung

Garment

More than

400

Myanmar HlaingTharYar May 16 May 20

7 Pearl Garment 1169 Myanmar HlaingTharYar May 15 May 17

8 Moon Crab

Garment

405 Myanmar HlaingTharYar May 24 May 27

Source: Weekly Eleven Journal (various issues during May and June 2012)

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Some observers remark that labour strikes are based on not only low wages but also lack of direct

relationship between owner and workers. The note is supported by an clarification of small

garment factory owner who is always in touch with the workers and educates about updated

situation of the factory as well as takes care good or bad affairs of workers. In contrast, owners of

large-scale or foreign-owned factories delegate authorities to factory head, general manager and

managers to instruct to the workers but unlikely allocate power to look after workers’ welfare.

Therefore, the promise of management, i.e. to raise wage rate, is repeatedly a trick for workers

and leads to anger for strike.

4. Legal and Institutional Framework

Legal and regulatory arrangements in the economy after 1988 have undergone significant

transformation with increased emphasis on the market and private sector participation in

economic activities. A number of liberalization policy measures were progressively instituted for

transition to market economy. The policy reforms and liberalization measures are widespread

and further speed up after devolving national power from the military government to the new

administration. Although many laws are newly enacted or amended, some outmoded laws and

regulations are still working in practice. Among them, the following laws, regulations and

procedures are applicable in garment industry establishment, operation and related activities.

4.1 Laws and Regulations related to Industry Establishment

Myanmar Companies Act 1914: A Myanmar investor wishing to carry out business in Myanmar

through a limited company or a foreign investor wishing to carry out business in Myanmar

through a locally incorporated limited company may register the company under this act.

Special Companies Act 1950: If a foreign investor intends to carry out business through a locally

incorporated limited company which is a state-owned enterprise or involves the government in

any mean, it must be incorporated under the Special Companies Act, and also must be approved

in accordance with the Foreign Investment Law.

Foreign Investment Law: The Myanmar Foreign Investment Law (FIL) was firstly promulgated in

1988. Since the law was not matching with current situation and changes, it was reviewed and

revised as a new one. The drafted law was finalized and is expected to be passed during the next

parliament session to be commenced in July 2012. Before appearing new foreign investment law,

the Notification of the Right to Use Land and the Notification Concerning the Foreign Currency

were released. The FIL allows foreign investment to engage in all economic activities with the

23 | P a g e


exception of those reserved for the State sector. However, these activities reserved for the State

sector are also can be applied by the investor stating its interest and demonstrating that such an

enterprise would be beneficial to the State. The FIL offers a wide range of incentives and

guarantees to foreign investors as well as more relaxation of repatriation. New FIL defines

components of local workers and staff in companies’ labour force, that did not include in old law.

Private Industrial Enterprise Law 1990: It enables the establishment of small, medium and large

scale enterprises in private sector. The law intends to promote national private industrial

enterprises excluding those industrial enterprises conducted only as joint venture with the State.

Myanmar Citizen Investment Law 1994: This law intends to promote development of Myanmar

private and co-operative sectors in the production of goods by utilizing the natural resources of

the country with the aim to establish enterprises for import substitution as well as to promote

and expand export. Opening up more employment opportunities and contribution towards

regional development are also part of the objectives of the law.

4.2 Laws and Regulations Related to Industry Operation

Labour-related Laws: Existing applicable laws concerning with labour issue are Employment

Statistics Act 1948, Employment and Training Act 1950, Leave and Holidays Act 1951, Social

Security Act 1954, and Labour Association Law 2011. These laws governs labor relations problems

and deal with such subjects as work hours, holidays, leaves of absence, woman and child labor,

wages and overtime, severance pay, workmen’s compensation, social welfare, work rules and

other matters. A social security act established a fund with contributions by employers,

employees and the government.

Income Tax Law 1974: The Ministry of Finance and Revenue released a notification on 15 March

2012 that imposed a flat rate of 25 percent of net profit to be applied to those enterprises

operating under the Private Industrial Enterprises Law and Foreign Investment Law as well as

those forming under the Myanmar Companies Act and Special Companies Act. However, the

export tax levied on foreign exchange earnings of the enterprises running in CMP system were

previously charged at 10 percent and it was reduced to 2 percent, affecting from 19 August to 18

February 2012, and it was extended another six months to August 2012.

Under the Income Tax Law, the Ministry of Finance and Revenue issued notification in March

2010 for withholding tax which is to be deducted by the person responsible for disbursement of

defined types of payment and to be remitted to Inland Revenue Department. Types of payment

applicable for withholding tax and tax rates are as follow:

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Table 5. Income Type and Applicable Withholding Tax Rates

Sr. No. Type of Income

Rate of Tax to be deducted from

payments to Resident Nationals and Foreigners (%)

Rate of Tax to be deducted from

payments to Non Resident Foreigners

(%)1. Interest - 15.0

2. Royalties for the use of Licenses, Trademarks, Patent Rights, etc.,

15.0 20.0

3. Payments for purchases of goods and services under a deed of contract, deed of agreement or any agreement by State Organizations, Development Committees, Co-operatives, Partnerships, Companies and Organizations established under any existing law.

3.0 3.5

4. Payment for services and purchases of goods in the country, under a deed of contract, deed of agreement or any agreement by a foreign entrepreneur or a foreign company.

3.0 3.5

Source: The Ministry of Finance and Revenue, Notification No 41/2010

A three percent withholding tax charged on local purchase is reduced to 2 percent, as per

announcement of the Ministry of Finance and Revenue on 1 September 2011.

Commercial Tax Law 1991: All enterprises with sales of taxable goods and services exceeding or

expected to exceed the applicable threshold in a year are required to pay commercial tax. Tax

rates range from zero (for exempt items), 5 to 25 percent for specified goods, and 30 to 200

percent for luxury goods.

4.3 Institutional Support

Supporting institutions are formed in different sectors including government, private, NGOs,

INGOs and international cooperation agencies of foreign governments. The following institutions

are the most significant in supporting to the development of garment industry.

Myanmar Investment Commission (MIC): It is the governing agency responsible for reviewing

most types of foreign investment and for coordination with other government agencies.MIC’s

objectives include to develop the State’s economy by promoting investment projects; to get more

opportunities on investment, technical knowhow and job prospects; to prepare in advance to

incorporate and cope up with ASEAN countries and to be more efficient on investment under the

market oriented system.

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Myanmar Industrial Development Committee (MIDC): The MIDC was established by the

previous government with the aim to develop manufacturing sector. The committee supervised

the establishment of 18 industrial zones for private sector in outskirts of Yangon city as well as

towns throughout the country. The MIDC is responsible to formulate the industrial policy, to

coordinate various ministries for industrial development and to supervise implementing the

policy for the development of industrial zones including small and medium industries.

Small and Medium Industries Policy: The policy is formulated by the MIDC and so far drafted

third version. The objectives of the policy include to lay down and implement laws, regulations

and systems that conform to the various aids for financial management needed for start-ups,

sustainability and development of enterprises, and also aid for technology and market search; to

officially adopt it as " the State Policy that will serve as a road map for those who will be sharing

the responsibility as manufacturers in the state economy; and to integrate a clause of 'safety net'

in the law in order to protect the small and medium enterprises from collapse.

Myanmar Garment Manufacturers Association (MGMA): The Myanmar Garment Manufacturers

Association is a subordinate organization of the Union of Myanmar Federation for Chamber of

Commerce and Industry (UMFCCI). It plays as medium between garment factories owned by its

members and foreign buyers to disseminate market information. The association also aims to

cooperate with government agencies and other internal organization for the development of

garment industry.

Myanmar Garment Human Resource Development Centre (MGHRDC): It is a private sector

entity and was established in March 2009 with the support of 75 members of MGMA. The centre

aims to develop human resource from Myanmar garment industry. The MGHRDC with the

assistance of Japan External Trade Organization (JETRO) organizes various trainings and seminars

regarding garment production and management. Although intention of MGHRDC is good and

relevant for garment industry improvement, there are limitations argued by some factory

owners. They point out that they have to send their labours to the training with full payment as

the training period is to be assumed as on-duty, and the owners have to provide training fees

(Kyat 20,000 per person) plus cost transportation and meal. Also they view the training as less

effective because the centre could train about 200 basic operators a year while the industry

demands hundreds of thousands of operators.

Japan External Trade Organization (JETRO): Because garment orders from Japan to Myanmar has

been increasing, JETRO (Yangon) provides MGHRDC’s training with garment experts,

26 | P a g e


management professionals and mechanical technicians. JETRO provides not only training courses

but also ethics such as how to clean up the products.

5. Key Constraints to the Development of Garment Industry

Myanmar seems having comparative advantage in labour-intensive industries including garment

industry. Myanmar garment industry should have developed over the last decades and

contributed to industrialization but it did not happen due to various constraints and limitations

blocking the industry’s development. Most of these challenges are still persisting in the economy.

In order to make out the most binding constraints, discussions with garment factory owners were

conducted before questionnaire survey. Based on results from discussions and literatures of

other countries’ experience, selected areas to be tested through questionnaire survey include (a)

Electric power, (b) Garment orders, (c) Labour, (d) Exchange rate, (e) Investment capital, (f)

Technology (g) Government tax (h) Market, (i) Access to land and building, and (j) Government

regulation.

Respondents were requested to evaluate the degree of constraint in these ten areas by rating 10

points for the highest severity to zero point for no more constraint at all. A total of 31 garment

firms (17 Local, 13 FDI and one JV) were organized for questionnaire survey and 11 firms (9 Local

and two FDI) responded properly and timely. These firms include two from foreign-owned and

the remaining nine from Myanmar owned. Average score of above ten points are illustrated in

Figure 14.

Figure 14. Severity of Possible Constraints in Garment Industry Development

0123456789

10

9.7 8.5 8 9.2

0.700000000000001

2.2

5.6

0

3.5

Score

Source: Survey

27 | P a g e


Survey results reveal that the most serious constraints at present is Power Shortage (9.7 points)

followed by Unfavourable Exchange Rates (9.2 points), Order Scarcity (8.5 points), Labour

Shortage (8 points), and Tax Burden (5.6 points). The remaining areas such as investment

limitation, technology difficulty, less access to market and difficulty to access land and building

seem no more or moderate problems. Therefore, six most binding constraints for the

development of garment industry in Myanmar will be analyzed in depth. Coalition

5.1 Power Shortage

It is the most serious issue for garment industry, and almost all respondents score its degree of

severity at maximum point. Regarding power generation in Myanmar, an installed capacity of

electricity from hydropower, coal, gas and diesel increased by two times within two decades from

804 MW in 1990 to 1610 MW in 2011. However, Myanmar is still the country with very low per

capita power consumption, about 90 KWh on average. Comparison of per capita power

consumption of Myanmar with selected Asian countries is shown in Figure 15.

Figure 15. Per Capita Power Consumption in Selected Asian Countries (KWh)

China (2011)

Malaysi

a (2009)

Thaila

nd (2008)

Vietnam

(2011)

India (2010)

Philippines

(2009)

Indonesia (

2008)

Laos (

2010)

Bangla

desh (2

009)

Cambodia (

2008)

Myanmar

(2008)

3410

3305

1972

1113

938

579

535

324

167

105

79

Source: World Factbook

Per capita power consumption in Myanmar is the lowest in the region. The situation is supported

by a survey on investment climate of major cities in CLMV country conducted by the Economic

Research Institute for ASEAN and East Asia (ERIA) in 2008 that investors’ perception on electricity

for Myanmar was rated at 2.18 while 3.00 for Vietnam, 3.03 for Cambodia and 3.57 for Laos,

where score ranged from 5.00 as excellent to 1.00 as very poor.

28 | P a g e


Even though the stage of industrialization in Myanmar is as low as at the bottom, power

distribution to the manufacturing industries, mostly located in the industrial zones, is severe

shortage, especially off monsoon season from November to May or about eight months a year.

Although regular power distribution is expectable in rainy season, the voltage is fluctuating with a

maximum of 220 to a minimum of 100 that shortens lifespan of machines used in manufacturing

productions.

In these days, particularly the second half of May 2012, government electricity in industrial zones

is mostly cut off the whole day while civil residential areas are distributed in rotation system. The

situation was officially announced by the government through state-run news papers on 22 May

2012 stating that state-owned steel plants, cement plants, fertilizer plants, electric irrigations and

private industries will be cut off the power due to less generation of hydropower plants in dry

season and break down of transmission line towers mined by insurgency.

Therefore, private manufacturing firms including garment have to rely on their owned generators

for necessary power to stabilize the operations. Such owned power generation requires not only

costs for fuel but also other expenses such as capital investment for generator, maintenance cost

and depreciation. Costs for fuel to generate electric power through owned generator is about 30

percent of total labour costs in a garment factory with more than 1000 workers and about 35

percent in a garment factory with about 500 workers. It means that if full access to the

government electricity is available, garment industry will be more profitable as well as can take

care more on workers for their wage increase as well as other welfares.

For example, interview survey informed that a garment factory with 300 workers has to spend

more than 3,000,000 Kyat per month for diesel fuel of owned generator to operate 16 hours a

day if government electricity is accessible 5 hours a day. As monthly cost for regular electric

power is expected at about 1,000,000 Kyat, unnecessary expenditure of more than 2,000,000

Kyat per month may be saved. If this cost savings are allocated to 300 workers, each worker will

get an additional amount of about 7,000 Kyat as additional wage. For factory owners, the benefit

will be cost-cut through reduction of investment for generator, maintenance cost and

depreciation.

5.2 Unfavourable Exchange Rates

Kyat exchange rates against US Dollar had been depreciated all the time up to probably 2007, due

to the financing practice of printing money to recover budget deficit of previous government. As

mentioned earlier, Kyat depreciation was a major cause of garment industry development in

Myanmar throughout 1990s and early 2000s. Beyond 2008 in which international economic

29 | P a g e


downturn occurred, the United States attempted to stimulate its economy through devaluation

of dollar aiming at enhancement of export and production. It makes dollar exchange rate

depreciation especially in Asian economies.

In fact, US Dollar value itself has downward trend in the Asian currency market after 2008but it

worsens more in Myanmar. Taking 2008 as base year, US Dollar value against Myanmar Kyat

depreciated by 27 percent point while 8 percent with Chinese Yuan, 11 percent with Thai Baht

and 14 percent with Singapore Dollar in 2012 (Jan-Apr average) as shown in Figure 16.These

three countries in comparison - China, Thailand and Singapore - are the most significant trading

partners of Myanmar. While the other countries’ government or central bank intervened directly

to prevent the risk of their respective currency’s appreciation, Myanmar authority did just

indirect involvement by relaxing some imports such as automobile. Myanmar government’s

measure to ease exchange rate appreciation cushioned in some extent but it is less effective

compared to the other observed countries.

Figure 16. US Dollar Value against Kyat, Baht, Yuan and S$ (2008-2012)

2008 2009 2010 2011 2012 (Jan-Apr)707274767880828486889092949698

100102

Baht 89

Yuan 92

Sin $ 86

Kyat 73

Exch

ange

Rat

e In

dex

100

Source: exchangerate.com for other countries’ currency; Self-observation for Kyat

More than 25 percent appreciation of Kyat value against US Dollar explains a one-fourth of total

income disappears from conversion of Dollar to Kyat. Smaller-scale garments which are sub-

contractors of larger-scale garments in Myanmar have more bitter experience because they

receive US Dollar or FEC, whichever lower exchange rate. Although the government imposed FEC

technically equivalent to US Dollar but it is always different in the market.

30 | P a g e


It is true that export value of Myanmar garment skyrocketed from USD 490 million in 2010 to 766

million in 2011 with more than 50 percent increase in the midst of the most depressed exchange

rate in 2011. Apart from the hope for better exchange rates by factory owners, higher piece rate

of Japan orders and constant receipt of orders from abroad as well as more reliable electricity in

2011 encouraged to produce and export Myanmar garment more than before. Myanmar

garment firms argued that a minimum exchange rate of 900 Kyat per USD will benefit for them

and is possible to maintain labour stability.

5.3 Order Scarcity

Order availabilities of oversea buyers are life or death of garment industry, especially in emerging

economies. Development differential between Myanmar and Cambodia garment industries is the

magnitude of order availability. After Japan followed by four Asian Tigers, the international

garment industry shifted in 1990s to developing countries including Myanmar and Cambodia. At

the initial stage, the influential factors including quota system resulted from Multi-fibre

Agreement (MFA), low labour cost and low tariff resulted from Generalized System of Preference

(GSP)of EU and Most Favoured Nation (MFN) status of the U.S. were more or less the same in

Myanmar and Cambodia garment industries. However, Cambodia got rapid growth more than

Myanmar over the period as shown in Table 6.

Table 6. Development Differential between Myanmar and Cambodia

Year

M y a n m a r C a m b o d i a

No. of Firm1

Export Value2(USD Mil)

Export per Firm

(USD Mil)

No. of Firm3

Export Value3

(USD Mil)

Export per Firm

(USD Mil)1994 25 50* 2.0 20* 27* 1.4

1997 94 189.8 2.0 67 227 3.4

1998 230 257.2 1.1 129 359 2.8

1999 291 369.1 1.3 152 661 4.3

2000 279 745.5 2.7 190 985 5.2

2001 230 829 3.6 185 1156 6.2

2002 220 668.5 3.0 187 1338 7.2

2003 210 661.8 3.2 197 1607 8.2

Source: 1 MGMA, 2 World Trade Atlas, 3 Cambodia Ministry of Commerce* 1995

At the initial stage, Myanmar garment industry with 25 factories and USD 50 million of export

value in 1994 was ahead to Cambodia with 20 factories and USD 27 million of export value in

1995 but Cambodia surpassed Myanmar after that. During that decade, export per firm in

31 | P a g e


Myanmar increased only 1.5 times while that in Cambodia increased 5.5 times. Stronger growth

of Cambodia than Myanmar may have at least two reasons: ownership pattern and market

accessibility.

Out of garment firms in the two countries, about 90 percent was owned by foreign investors in

Cambodia whereas only around 10 percent was fully foreign-owned in Myanmar. Naturally,

foreign garment firms are much easier to access orders than local firms due to their wider

contacts and supports of mother company.

Likewise, economic sanction of U.S. and inaccessibility to GSP of E.U discouraged international

buyers to offer orders to Myanmar garment firms. As well, foreign companies were reluctant to

invest in Myanmar’s export-oriented manufacturing sector including garment industry. These two

factors mainly blocked Myanmar garment firms to access adequate orders to sustain and

develop.

After 2006, garment orders from Japan and Korea came increasingly into Myanmar, and

consequently, garment export shares to these two markets went up from 25 percent in 2006 to

75 percent in 2011. In parallel, total garment exports also increased from USD 362 million in 2006

to USD 766 million in 2011. However, oversea orders in Myanmar seemed stagnated in late 2011

and first half of 2012 as small and sub-contracted garment firms complained in the interview

surveys that they have been struggling with small lots of foreign orders and some orders for local

markets.

Decreasing trend of export orders is actually happening not only in Myanmar but also in other

countries such as Thailand, Vietnam, India, etc. Thai Garment Manufacturers Association released

that garment exports declined 6.9 percent in the first quarter of 2012. Also the Ministry of

Industry and Trade of Vietnam reported that 80 percent of Vietnamese garment companies

received export orders until the end of the first quarter but quantities are small, showing a sharp

decline in volumes. At the same time, Federation of Indian Exporters Organization stated that the

exports of readymade garment have declined by 9 percent in April 2012 compared to the same

month last year. Yet, garment orders received by these countries are still far higher than that

received by Myanmar garment industry.

The economy of Japan, the most important buyer and CMP contract supplier of Myanmar

garment industry, is sluggish due to its currency appreciation and consequent decline of export as

well as the time to recover from shocking disaster. Although garment order from Japan is the

largest and expectable in the future, its slow economic recovery may fail to support strong

growth of Myanmar garment industry. Similarly, economic downturn of the U.S. as well as

32 | P a g e


financial crisis and political changes in EU countries may slowdown their imports from emerging

economies even though U.S. and EU have committed a one-year postponement of economic

blockade on Myanmar.

5.4 Labour Shortage

Labour cost is an important determinant in location choice and establishment of labour-intensive

with export-oriented industries including garment. Myanmar garment industry has emerged in

early 1990s and grown in late 1990s and early 2000s taking advantage of low labour wage rates

together with other incentives such as Foreign Investment Law. Due to the country’s flaw in

infrastructure, garment factories were established around Yangon where transport and power

were better than the other areas.

For necessary labour force, garment firms whatever foreign-owned, joint venture or national-

owned have to recruit on their owned ways. Although there was no labour organization in

Myanmar at that time, Department of Labour was responsible to register unemployed persons so

as to connect them with reported firms which need employees. In reality, the department was no

longer reliable to take on necessary quantity of workers with firms’ criteria.

In the early 1990s, required amount of workers for garment factories in Yangon was easily

available from periurban and other townships outside Yangon. At that time, monthly income of

garment labour at about Kyat 1,000 was comparable with graduated gazette junior officer from

public sector. As wage rates in garment industry were attractive, a number of people especially

female workers from rural areas migrated to Yangon to employ in garment factories.

Along with economic sanction, Myanmar garment industry had declined and several firms were

closed down. Consequently, a lot of labours were laid off and became jobless. These surplus

labours were then attracted to work in neighbouring countries’ garment factories especially in

Mae Sot of Thailand bordering to Myanmar. Some of these jobless people shifted to the other

industries such as construction, cold storage and entertainment. Because wage rates of garment

factories in Mae Sot were higher than those in Yangon, labours in on-going garment factories

successively moved to Mae Sot.

Until now, local garment firms are unable to compete with Thai garment firms to raise wage rates

in order to induce the return of Myanmar migrant workers from Thailand. Moreover, monthly

income of average operator about kyat 60,000 (about USD 75) is lower than that of general

labour in construction earning about Kyat 90,000 (about USD 110) so that job in garment industry

is chosen when there is no other option. Fortunately, relative job stability and wide range of

vacancy are favours for garment industry to recruit labours for operation.

33 | P a g e


More important issue is to get skilled labours. The following positions required skilled labours and

their capabilities are also part of determinant for gain and loss of garment factory:

(1) Cutter: Apart from spreading layers of fabric, cutting them and preparing bundles for

sewing line, a professional cutter could design layout patterns to cut spread layers of

fabric. Depending on skills of cutter, factory owner could enjoy surplus fabric which does

not need to return to clients.

(2) Supervisor: Those sewing machine operators with long experience and high skill are

promoted as supervisors. They could produce sample products to be satisfied by clients.

Moreover, they monitor the work flow and production levels as well as train general

workers or new labours to become operators. Rate of production mainly depends on

capability of supervisors.

(3) Operator: Number of steps to produce a piece of wear depends on type of product

ordered, and some are very complicated. As well, there are tens of types of sewing

machine. Some sewing machine operators could produce only simple steps as well as

could handle certain sewing machines. A skilled sewing machine operator could be

assigned in any of steps or any of machines to produce difficult design which is in better

price.

(4) Quality Controller: In order to avoid horrible rejection of buyers or clients, quality control

staff is key person who ensures the quality of outputs throughout the process to

packaging.

(5) Mechanic: Garment factories require machine specialists as the permanent workers to fix

machines and equipment timely. Breaking down of a sewing machine or special machine

sometimes jams the whole production line and skilled mechanic could solve the problem

frequently.

The other supporters include helpers, drivers, security, cleaners and office staff. Helpers assist

operators and contribute to finishing stage by trimming loose threads, laundering, ironing,

packing, etc. Office staff includes clerks, accountants, store keepers, etc.

Skilled labour issue is more problematic for small firms. Most of them are unable to recruit

readymade skilled workers because of their less prosperity and competitiveness. They firstly

recruit unskilled labours, give trainings and employ them. Nothing is problem up to this stage.

The problem is that after being trained and sometimes equipped with skills, these labours shift to

another local factory or migrate to factories abroad.

34 | P a g e


Amongst shortage of garment labours especially skilled workers, currently happening labour

strikes in CMP factories make garment factory owners be headache. They pointed out that the

labour-intensive industries shifted from more developed countries such as Japan, Korea and Hong

Kong to less developed countries such as China, Cambodia, Bangladesh and Vietnam because of

their active trade unions and wage increases. Strong labour organizations and frequent labour

strikes in Myanmar before reaching to certain stage of industrialization may be challenges for

development of garment industry which is labour intensive.

5.5 Tax and Other Charges

It seems not current issue but potential obstacle to the businesses including garment industry.

According to the Notification No 111/2012 of the Ministry of Finance and Revenue on 15 March

2012, income tax for those firms registered under Myanmar Companies Act or Special Companies

Act or permission of MIC is flat rate of 25 percent on income before deducting relief. It affected

from 1 April 2012. The corporate tax rates in other Asian countries are also comparable with that

in Myanmar but the difference is tax base: Myanmar levies on gross income whereas other

countries charge on taxable income which is net income after deducting entitled relief.

Previously, income tax rate on companies in Myanmar was 30 percent but poor tax

administration or corruption of tax officers relieve tax burden of the businesses.

Burden of other charges are mostly unofficial expenses rather than formal payments. Such

unnecessary transaction costs occur in almost every step from company registration or renewal

to shipment of the products. Factory owners have to contribute to the social welfare fund for

their workers but they see it is not effective to the workers. Also they are worried about income

tax on their labours because taxable income is Kyat 500,000 per annum or about Kyat 42,000 per

month which is the level almost all workers can receive at present. If these low-waged

employees are taxed, they will further demand for higher wage from employers to compensate

their income tax.

6. Growth Potentials of Garment Industry in Myanmar

Garment industry was seeded in Myanmar after initiation to transform the economy into market

system in early 1990s. Myanmar garment industry has never achieved its maturity stage in

contrast to other developing Asian countries such as Bangladesh, Cambodia and Vietnam where

garment share in total export was significant at about 80, 75 and 20 percent in 2011 respectively.

Current period is indeed the time for Myanmar garment industry to start again for taking off the

ground because various push factors such as government’s policy drive and potential workforce

35 | P a g e


from underemployed rural economy and pull factors such as economic liberalization and low

labour cost are coming out in the economy.

6.1 Policy Drive

Myanmar government’s intention to industrialization is reflected in the inaugural speech of the

president on 30 March 2011, the first day of new government. The president mentioned that

Myanmar is an agro based country but agricultural development alone is not enough for the

country to become a developed one so that the country must turn to national industrialization to

transform the country into a developed and rich one.

Among the government initiatives, one of the importance policy drives is formulation of “Small

and Medium Industries Policy” which recognizes the development of SMIs as a strategy to

promote the country’s economy and improve living standard of the people. Moreover, the policy

intends to practice export-oriented market system in SMIs as a priority in economic

development, and to step up the contribution of industry sector in GDP to 30 percent in 2015, 40

percent in 2020 and 50 percent in 2030.

The SMIs are distinguished into three categories covering Competitive Industries, Potential

Industries and Basic Industries. Garment industry is one of the Competitive Industries, and

concerned ministries will support to seek market and export opportunities, to create

opportunities for 'business matching or market linkages, to send overseas market search

missions, and to reduce tariffs and procedures that will cause barriers on the export.

6.2 Forces to Be Surplus Labour for Industrial Sector

Myanmar is still an agrarian country where about 40 percent of the GDP relies on agriculture

(crops, livestock and fisheries and forestry) and about 70 percent of total population directly or

indirectly engages in agriculture as well as more than 55 percent of total labour force is working

in agriculture (Labour Force Survey 1990). Although unemployment rates revealed by the

government statistics are very low at around 3 percent, large range of disguised-unemployment

or underemployment is expected in the country especially in agriculture sector.

Underemployment occurs when there is no adequate job activity to employed full capacity of

workers or there is no equal compensation for workers’ efforts, and it leads to inefficiency in

respective sectors as well as in the economy as a whole.

In fact, underemployment in farm sector results from (1) working the whole family in a small

piece of land, (2) casual farm labours with full time job only in cropping seasons, and (3) jobless

farmers after harvesting seasons. Such situation forces the people in rural area for migration to

crowded urban areas and foreign countries for better income. More importantly, Agricultural

36 | P a g e


Land Law of Myanmar enacted on 30 March 2012 could insist on surplus labour in agricultural

sector. New law permits farmers to transfer their land and that could encourage for efficiency

and productivity because those farmers without capacity to make adequate income will sell out

their land. It will lead to more landless and those landless people may shift to the other sectors

including manufacturing and processing.

Additionally, Myanmar migrant labours working abroad are facing with a number of risks

including violation of their rights, labour exploitation and abuse, and these workers are very

eager to come back if there are job opportunities for them in Myanmar. These situations call for

obligation of the government to drive establishments of labour-intensive industries such as

garments for massive employment creation.

6.3 Last Resort for Labour-Intensive Industries

A famous model of ladder of industrial development, Flying Geese Pattern, can be applied for

Myanmar garment industry. More developed Asian countries such as Malaysia and Thailand

achieve the growth of industry sector and consequently labour wages start to rise due to the

increase of workers’ collective bargaining power. Likewise, labour cost in two populated as well

as Myanmar’s neighbouring countries, China and India, are also suffering from wage rate rise. At

the same time, government’s pressure for environmental and social responsibility issues on the

industries also becomes progressively. Because of shrinking the profit margins, labour-intensive

industries have to seek low-wage countries to shift their factories. Average wage rate comparison

of Myanmar and some other Asian countries in garment industry is shown in Table 7below.

Table 7. Average Wage Rates of Garment Industry in Selected Asian Countries (2010)

# CountryAverage Wage

(USD per Month)1 Thailand 263.02 China (coastal regions) 182.43 China (inland regions) 115.24 Indonesia 182.05 Vietnam 107.26 India 102.07 Myanmar 82.08 Lao PDR 80.09 Cambodia 61.010 Bangladesh* 43.0Source: Business-in-Asia.com, Interview Survey and Questionnaire Survey* Garment workers in Bangladesh are demanding to increase the minimum wage to 5,000 taka (about $71) a month

37 | P a g e


It is in no doubt that garment as a labour-intensive industry will greatly shift to such low-wage

countries as CLMV, India and Bangladesh. Among them, Myanmar is probably more favourable

country due to the following reasons:

- Wage rate in Vietnam is relatively low but rapidly increasing. On the other site,

Vietnam government also seems unwilling to accept more labour-intensive

industries. Instead, the government prefers capital and technology intensive

industries such as IT industry.

- Cambodia possesses gateway to the sea and is also low-wage country but garment

firms in the country have already congested with over 3,000 factories and about

400,000 workers.

- Lao is a landlocked country so that transportation cost will be counterbalanced by its

low labour cost. Also limited labour force and narrow land area of the country are

less attractive to the investors.

- Bangladesh is the country with the lowest wage rate over the world. However,

political unrest and frequent labour strikes make reluctant for foreign entrepreneurs.

Very recently, an adviser to the Thai Garment Manufacturers Association said in March 2012 that

at least six leading garment manufacturers are planning to set up plants in Myanmar in the

second half of the year. The president of TGMA also warned that the current shortage of labour

in Thailand and the plan to increase the minimum wage will force the country’s fifteen largest

garments to relocate to neighbouring countries.

Meanwhile, a positive response to political and economic reforms of Myanmar as well as looking

toward investment in Myanmar is reflected by a recorded increase of garment export at about

USD 770 million in 2011. Myanmar garment industry had experienced the highest export earnings

at USD 829 million in 2001. The 57 percent increase of export earnings from USD 490 million in

2010 to USD 770 million in 2011 is mainly contributed by Japan (90% increase from USD 183

million to 348 million) and Korea (87% increase from USD 124 million to 232 million).

6.4 Prospect for Better Access to the Bigger Markets

Myanmar garment industry failed to meet its matured stage due to the economic sanctions of

the U.S. and major western countries. After trade and financial sanction in 2003, the country’s

garment industry severely shrank up to receipts of large orders from Japan and South Korea.

Prices and service fees of Japan orders are relatively high and this higher prices partially

contribute to larger earnings for Myanmar garments but size of orders for each lot are rather

38 | P a g e


small compared to those of U.S. or EU countries. Orders from U.S and EU that less emphasize on

quality of the products are quite relevant for smaller scale garment firms which are lacking in

high skilled labours as well as special sewing machines for process.

This is the time to expect market access to these large countries as they gradually relax

restrictions on Myanmar economy. Firstly, the EU agreed in last April to suspend most sanctions

on Myanmar in response to recent progress of economic and political reform. This one-year

suspension lifts trade and investment restrictions. More importantly, Generalized System of

Preferences (GSP), which allows low-income countries for better access to EU market by imposing

low tariff on exports of these countries, will be restored for Myanmar.

Similarly, the United States also eased selected financial and travel restriction in April followed by

suspension of its ban on U.S. investment in Myanmar in May 2012. It can be expected to lift trade

sanction which bars exports of Myanmar to the U.S. market. In fact, it is more important for

improvement in Myanmar garment industry to have market access than to accept more foreign

investment. Nonetheless, the U.S. has already promised for relaxation of sanction web upon the

move of Myanmar government’s democratic openness.

According to the U.S. Department of Commerce and Garment Manufacturers Association of

respective countries, garment (apparel) imports of U.S. and EU from Myanmar’s contemporary

countries (See Figure 17) are quite exciting to expect market access for Myanmar garment

industry once these markets are opened up for Myanmar exports.

Figure 17. Garment (Apparel) Imports of U.S. and EU from Myanmar’s Contemporary Countries (2011)

Bangladesh Cambodia Vietnam Myanmar0

1000200030004000500060007000

USD Million

U.S Market EU Market

Source: Data from Office of Textiles and Apparel of U.S. Department of Commerce; Bangladesh Garment Manufacturers Association; Cambodia Garment Manufacturers Association; Myanmar Garment Manufacturers Association; and Vietnam Textile and Apparel Association

39 | P a g e


7. Policy Recommendations

International garment industry has shifted to third world countries since early 1990s, the time of

transition from centrally planned economy to market economic system in Myanmar. Private

garment industry in the country also emerged in 1994 and reached its peak in terms of garment

factory establishment at 291 firms in 1999 and in terms of export value at USD 829 million in

2001. Compared to Cambodia, total number of garment factories at 197 was lower than

Myanmar but its export value in 2001 was far above Myanmar at USD 1156 million. It might be

arguable that about 90 percent of total garment firm in Cambodia was foreign-owned while it

was just 10 percent in Myanmar. However, Bangladesh where only 15 percent of garment

factories were owned by foreign investors revealed its export value about USD 3 billion in the

same year.

Past experiences have proved tough struggle of Myanmar garment industry resulting from not

only economic sanction of the U.S and some other western countries but also poor support of the

government and business environment. Ban on Myanmar’s exports to the U.S and removal of

GSP status on Myanmar by EU countries forced down emerging Myanmar garment industry

during last decade. Orders of other countries such as Japan, Korea and Germany help Myanmar

garment firms revitalize but are not adequate to demonstrate garment industry as an entry point

to export-oriented SME development. At that time, government regulations on garment industry

that frequently changed were also constrained proper operations.

An example can be observed in import procedure for necessary inputs of CMP garment industry.

As textile industry which provides main raw materials to the garment industry is very weak in

Myanmar, the nature of CMP garment manufacturing is conducted as re-exporting business –

import raw materials, process in the country and export finished goods. In this regard, easy and

timely access to imported raw materials is very important. However, approvals of the following

departments after permission from Foreign Capital Evaluation Committee (FCEC),that step for

raw material imports was dropped in August 2011, were required to accomplish imports for

garment industry in Myanmar:

(1) Import Section of the Directorate of Trade, the Ministry of Commerce

(2) Export Section of the Directorate of Trade, the Ministry of Commerce

(3) Myanma Textile Industry, the Ministry of Industry (1)

(4) Industrial Supervision and Inspection Department, the Ministry of Industry (1)

(5) Myanmar Garment Manufacturers Association, UMFCCI

(6) Myanmar Industry Association, UMFCCI

40 | P a g e

Low Productivity

Low Order

Low Income

Low Wage

Low Skilled Labour

Low Tax Payment

Low Provision to Infrastructure

High Cost

Factory Owner Government

Labour

Sanctions

Labour Strike


List of tentative imported items were to be annexed to the applications for approval of the

institutions above. When proposed list in import license was mismatched with actual arrivals, the

Customs Department delayed to allow taking out raw material containers and fined for such

divergence. In Vietnam, it is possible to apply import license when containers arrive Vietnam

ports. The process for license application and permission to take out the containers also generally

takes only one day.

The situation seems difference in these days. The U.S and EU have committed to postpone

sanctions on Myanmar and to provide necessary assistance. Myanmar political economy opens to

all stakeholders and approaches to more democratization. The government pledged to promote

industrialization and the role of private sector in the economy. Issues and obstacles harming to

the economy and to the people as well as necessary measures and policy strategies to encounter

challenges are observed and formulated through various means including consultation process.

At the same time, both internal and external non-government organizations have more rooms to

accomplish their themes, especially in promoting livelihoods and capacity of general people.

Accordingly, this is appropriate time to encourage the supports to the proper development of

garment industry in Myanmar.

According to the survey result, the following vicious circles are observed harming to all

stakeholders: garment factory owner, labour and the government.

Figure 18. Vicious Circles in Myanmar Garment Industry

Source: Author

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Falling into the vicious circle probably began after economic sanction which forced buyers to

offer low order to garment farms in Myanmar. Small orders were sought by a number of factories

that pulled down the price and consequent low income for factory owners. As most of the other

costs were out of control, labour wages were depressed by low income of owners. Unattractive

labour wage kicked out skilled labour from Myanmar garment industry, and lack of inadequate

skilled labour made difficulties to produce quality products and timely production. Then, it broke

confidence of the clients and to expect bigger size of order was gone out.

For those labours remained in the country, their low skill could turn out low labour productivity

that was hardly to receive high wage rate. At the same time, low income of factory owner

discouraged to contribute tax and other charges to the government budget.

In these three circles, factory labours are at the bottom most and they are but not intentionally

exploited by offering low wage rate. Such situation compounding with other factors such as legal

permission to demonstrate motivates them to labour strikes for wage rise. Labour strikes, which

could lead to the political instability, are harmful movement to not only investors and economy

as a whole but also labours themselves and their family members.

From the workers’ point of view, strike seems the most possible option to improve their welfare

in the short period of time. On the other hand, wage rise without improvement of labour

productivity will increase cost of production. If total income cannot cover total expenditure

including opportunity cost, firms have no choice but to shut down beyond short-term in which

firms will keep on if total income is more than variable cost. Closure of businesses will push up

high rate of unemployment and will exacerbate existing poverty trap.

Considering all these aspects, supportive measures to be taken by the government, external

entities and NGOs for sustainability and development of garment industry together with

adequate provision to labour welfare are recommended in the following Tables.

Table 8. The Needs of Myanmar Government Supports

# Issues Short and Medium Term Measures (1-5 Years)

Long Term Measures

1 Power Shortage

- Permit to buy duty free fuel oil for self-operated generators

- Permit to import generators with temporary tax exemption

- Arrange small-scale mobile generators

- Implement a sizeable power plant near the largest load centres and economic hubs, i.e. Yangon, to ensure power supply all year round, to reduce losses along grid line and to prevent voltage drops, frequent power interruptions and destruction to towers

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- Allocate sufficient natural gas for existing gas turbines to supply the base load all year round and to obtain better fuel-mix ratio in power generation

- Establish Public-Private Partnership in transparent way to generate, transmit and distribute electricity (currently, the government announces such exercise)

- Attract foreign direct investment and encourage private sector participation in the power sector

- Restructure production share of electricity in mega hydro power projects implemented with neighbouring countries

- Plan for power sufficiency of respective State/Region industrial zones through medium-scale power generation (e.g. the case in Ayeyarwaddy Region, Myanmar Time, May 28, 2012, p-19.)

2 Unfavourable Exchange Rate

- Observe and set a level and range of beneficial exchange rates

- Monitor the move of exchange rate in the market to intervene for stability

- Review and revise level of exchange rates

3 Order Scarcity - Streamline the policy, regulation and procedure throughout the process of garment industry

- Coordinate oversea buyers through Myanmar embassies abroad

- Facilitate to Myanmar private firms to locate their branch-office in potential countries in order to pursue and market for orders

4 Skilled Labour Shortage

- Regulate minimum wage, at least for CMP industry, to stabilize labour market

- Enact minimum wage law and establish indexation system

- Support training centres such as MGHRDC

- Induce garment firms to establish in-house training centres

- Establish a mechanism to adjust minimum wage corresponding to inflation and living costs

5 Tax Burden and Transaction Costs

- Reconsider tax base to impose corporate tax rate

- Streamline and reduce the procedures which are less support to better business environment

- Adjust tax rates and tax bases in line with internal and international business environments

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- Enforce anti-corruption mechanism

6 Other Supports - Formulate master plan for development of export-oriented SMEs in line with National Development Plan

- Properly support public infrastructure

Source: Author

Table 9. The Needs of Outside Entities’ Supports


Long Term Measures

1 Power Shortage

- Provide temporary mobile power plants

- Encourage private investors and MNCs to invest in power sector in Myanmar

- Support technologies and physical capitals to enabling for alternative energies, apart from hydropower


- Pledge to Myanmar government to support foreign exchange reserve if necessary during exchange rate stabilization process

3 Order Scarcity - Remove or advise to remove economic sanctions especially trade and finance blockade on Myanmar

- Restore GSP status for Myanmar, especially by EU

4 Skilled Labour Shortage

- Provide effectivetrainings through various human resource development programmes such as technical support of JETRO

5 Tax Burden and Transition Costs

- Support the application of modernized tax administration system

- Support the experiences of business-friendly procedures in public sector

6 Other Supports - Source: Author

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Table 10. The Needs of Non-State Actors’ Supports


Long Term Measures

1 Power Shortage

- Develop small scale power projects such as solar power in rural, some urban and remote areas that will help reduce the use of power from main national grid and supply more to industrial sector(e.g. Solar Electric Light Fund)

- Support the works of NGOs in electrification activities by business companies

- Provide for renovation, conservation and upgrading of the projects


- Reduce dollarization in Non-State Actors’ activities

3 Order Scarcity4 Skilled Labour

Shortage- Organize vocational trainings including garment-related ones at low or no cost of the people

5 Tax Burden 6 Other SupportsSource: Author

Apart from possible measures to be taken by respective institutions, synergetic approach which

can be materialized by coordination and cooperation of all related bodies are the most effective

way to facilitate for growth of garment industry. Collaboration of immediate stakeholders in

garment industry, i.e. factory owners and labours, is the key to stabilize and improve the industry

as a whole. For example, restoration of EU’s GSP status to Myanmar’s exports needs collective

appeals of all stakeholders including the government, parliamentary members, political parties

and ordinary people. As EU’s GSP status is something like linkage with ILO, a series of labour

strikes and lack of negotiations by employers could delay to ease the sanctions. At the same time,

external entities such as ILO also require undistinguished treatment to all countries. For instance,

Bangladesh has had long experiences of labour strikes including in CMP industries but the country

could enjoy full scale of GSP status. But it is not the case for Myanmar although both countries

include in thelist of Least Developed Countries (LDCs).

Possible strategies and measures mentioned above are bird-eye view and follow-up research and

analysis may need for some of them so as to accomplish particular strategy or measure. For

instance, a proposed short-term measure, permit to buy duty free fuel oil for self-operated

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generators, to encounter power shortage require further sets of information such as how to

screen the use for generator, who are eligible, which procedures will be defined, where are

resources to subsidy such duty free imports, etc.

Myanmar has vast potentials to become industrialized countries through development of SMEs

including export-oriented ones such as garment industry. Improvement in economic liberalization

and more democratic politics as well as positives responses of international communities

together with existing strengths such as prospective labour force, relatively low labour cost and

strategic location support the development potential of Myanmar garment industry. In order to

transform from potentials to realities, comprehensive and unfailing supportive programmes

should be carried out by the government, external entities and non-state actors so as to move

garment industry toward an entry of export-oriented SME development in Myanmar.

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References

Research Papers and Publications

Bargawi, Omar (2005). “Cambodia’s Garment Industry –Origins and Future Prospects”, ESAU

Working Paper 13, Economic and Statistics Analysis Unit, Overseas Development Institute,

London, United Kingdom.

Chan Sophal and et.al (1999). “Impact of the Asian Financial Crisis on the SEATEs: The Cambodian

Perspective”, Working Paper 12, Cambodia Development Resource Institute, Phnom Penh,

Cambodia.

Doshi, Gaurav (----). “Overview of Bangladesh Garment Industry”,

www.fibre2fashion.com/industry-article,accessed on 20 May 2012.

Furuoka, Fumitaka (2005). “Japan and the Flying Geese Pattern of East Asian Integration”,

Research Paper, School of Business and Economics, University of Malaysia.

Hill, Hal (1998). “Vietnam Textile and Garment Industry: Notable Achievements, Future

Challenges”, Appendix II of the Industrial Competitiveness Review,Report prepared

for:Development Strategy Institute, Ministry of Planning and Investment, Vietnam,

andMedium-Term Industrial Strategy Project, United Nations Industrial Development

Organization, Vietnam.

Kee, HiauLooi (2005). “Foreign Ownership and Firm Productivity in Bangladesh GarmentSector”,

Development Research Group – Trade, the World Bank, Washington DC, USA.

KUDO, Toshihiro (2010). “Investment Climate in Myanmar: The Case of Garment Industry”, in

Investment Climate of Major Cities in CLMV Countries, edited by Masami Ishida, BRC Research

Report No.4, Bangkok Research Center, IDE-JETRO, Bangkok, Thailand.

MMRD Publications Services (2010). Myanmar Textile and Garment Directory 2010, Yangon,

Myanmar.


Myanmar.


Myanmar.

Myint Soe (2007). “Review on Myanmar Garment Industry 91997-2006)”, Powerpoint

Presentation in Regional Policy Dialogue on Restrictive Policies and Measures in Textile and

Clothing Trade, 9-10 April 2007, Shanghai, China.

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http://www.fibre2fashion.com/industry-article


Myint Soe (2011). “CMP and Job Opportunities”, Powerpoint Presentation in National Workshop

on Reforms for National Economic Development, 19-21 August 2011, Naypyitaw, Myanmar.

Nathan Associates Inc. (2006). Cambodia Garment Industry Workforce Assessment: Identifying

Skill Needs and Sources of Supply, Publication for the USAID/Cambodia prepared by the

Cambodia Garment Industry Productivity Center, Phnom Penh, Cambodia.

Data Sources

Bangladesh Garment Manufacturers Association

www.bangladeshgarmentsmanufacturer.label.com.bd/

Cambodia Garment Manufacturers Associationwww.gmac-cambodia.org/

Cambodia Ministry of Commerce www.moc.gov.kh/

Ministry of National Planning and Economic Development (MNPED)

Myanmar Garment Manufacturers Associations (MGMA), 6thFl, No. 29, Min Ye KyawSwa Road,

Lanmataw Township, Yangon, Myanmar.

Office of Textiles and Apparel of U.S. Department of Commercewww. otexa.ita.doc.gov/

Selected Monthly Economic Indicators (February 2012), Central Statistical Organization, Building

28, Naypyitaw, Myanmar.

Statistical Yearbook (various issues), Central Statistical Organization, Building 28, Naypyitaw,

Myanmar.

Survey (Interview survey with three local firms and one foreign firm)

Survey (Questionnaire survey with 31 garment firms – 11 firms responded)

UN Comtradewww. comtrade.un.org/

Vietnam Textile and Apparel Associationwww.vietnamtextile.org.vn/

Weekly Eleven Journal, Yangon, Myanmar www.news-eleven.com

World Factbookwww.cia.gov/library/publications/the-world-factbook/

World Trade Atlas, the World Bank www.gtis.com/english/GTIS_WTA.html

www.Business-in-Asia.com

www.exchangerate.com

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http://www.exchangerate.com/

http://www.Business-in-Asia.com/

http://www.gtis.com/english/GTIS_WTA.html

http://www.cia.gov/library/publications/the-world-factbook/

http://www.news-eleven.com/

http://www.vietnamtextile.org.vn/

http://www.comtrade.un.org/

http://www.otexa.ita.doc.gov/

http://www.moc.gov.kh/

http://www.gmac-cambodia.org/

http://www.bangladeshgarmentsmanufacturer.label.com.bd/


Annex (1) Survey Questionnaire

(Translation from Myanmar Language)

Questionnaire for Garment Industry Development

No. ( )

------------------------------------------------------------------------------------------------------------------------This questionnaire intends to analyze the situation in research and your name and

responses will be kept as confidential------------------------------------------------------------------------------------------------------------------------

Name of Factory ၊ ....................... .......................

Location ၊ ....................... ....................... ....................... ............

Type of Ownership ၊ Foreign Owned/Joint Venture/Myanmar owned

1. Why you chose this location for your factory establishment? (a) Good transportation (b) Easy to recruit labour(c) Low land price (d) Others (Pls identify) ....................... ....................... ...................

2. How many labours you employ? Male.............. Female ...................

3. Which kinds of order you are making most? (e.g. Jacket, Pent)

....................... .............................................. .......................

4. Why you make it most? ................... ........................................................................

5. Which countries are the biggest clients? ..............................................

6. What are destinations od your product? (a) Local markets (b) Foreign markets (c) Local buyers

7. How do you manage to get order continuously?..............................................................................................................................

........................................................................................................................................

8. For your operation,(a) How do you recruit workers? ............................................................................................(b) How do you manage for investment capital ...................................................(c) How do you acquire technology ................................................... ....................................................................................................................................(d) How do you acquire land for factory? ..............................................

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9. What is your solution for technology problem?.............................................. ..........................................................................................................................................................

10. Currently, electricity is available only ___ hours a day for your operation. If you operate with your owned generator for power, how much diesel fuel do you use? ____________ Gallons ံ�11. What is your break-even point for a month in average. USD ________

12. Which minimum level of exchange rate is profitable for you? ______ Kyat per USD

13. For a Jacket prices at USD 100,(a) how much service fee do you receive? USD _____(b) how much other countries’ garment industry receive? USD ______

14. Which countries are major importers of Myanmar garment:(a) Before sanctions ............................................................................................(b) Nowadays .....................................................................................................(c) If sanctions were removed

(guess) .....................................................................

15. How do you prepare to encounter competition when foreign garment firms enter Myanmar (a) ............................................................... (b) .............................................. ................. (c) ............................................................... (d) ...............................................................16. What will be effects on owner-labour relationship by Labour Association Law enacted very recently?............................................................................................................................................................................................................................................................................................................................................................................................

17. Which ones are constraints in your business? (Give 10 points for the most severity and 0 point for no more severity)

No

Type of Constraint Points

1 Power Shortage2 Order Scarcity3 Labour Shortage 4 Exchange Rate Appreciation 5 Insufficient Capital (inaccessible to bank loan)

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6 Inaccessible to Technology 7 Tax and other charges 8 Market Limitation9 Expensive land price (or rental fees if land is rented)10 Others (Pls clarify)....................... .......................

18. If you have the right to call for Myanmar garment industry development, which points do you want to raise?

(a) ...................................................................................................................

(b) ...................................................................................................................

(c) ...................................................................................................................

19. Do you think there is discrimination between local and foreign investments? Why ?

....................... ....................... ........ ................................................................................

...............................................................................................................................

20. What will be the main reason of foreign investors’ choice to Myanmar for garment manufacturing?

.........................................................................................................................................

.............................................................................................

21. Do you think foreign investment will benefit your business? Why?

.........................................................................................................................................

.

22. In the future, which one –local or foreign investors – will be influent in Myanmar garment industry?

......................................................................................................................................

23. What are your recommendations for development of Myanmar garment industry like those of other neighbouring countries?

.........................................................................................................................................

.........................................................................................................................................

.........................................................................................................................................

.........................................................................................................................................

.........................................................................................................................................

.................................................

Thanks for your cooperation

Date .......................

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Annex (2) List of Garment Firms in Questionnaire Survey

# Name Address Product Production No.of Machine

Investment Type Market

Responded ()No Response

()1 Myanmar Yes Co., Ltd.

(INNO Group)Industrial Zone(3), HLTA

Jackets 800000 pcs/mth

800 FDI (Korea) Korea,Germany,Europe

2 Myanmar Glogon Co., Ltd.

Industrial Zone (1),DGSK

Pants, Ladies Coat, MCoats, Vests, Trouser

50000-60000psc/mth

1350 Joint Venture

Europe, Korea,Germany

3 Ngwe Kant Kaw Industrial Zone 5 (Ext), ALTA

Shirts, Polo-Shirts, Jackets, Pants

70000 pcs/mth

400 Local South Africa

4 Win Glory Int'l Manufacturing Co., Ltd

Industrial Zone (3),HLTA

T-Shirt,PantsTrousers,Children Wears

150000 pcs/mth

200 Local South Africa, Ackmens, Mexico, Poland, Turkey, Russia

5 Moon Crab Co., Ltd.(Office & Factory)


Trousers, Jackets,Knits, T-Shirts, PoloShirts

35000 pcs/mth

179 Local Ploand,China,Korea,Mexico

6 Weng Hong Hung Garment Mfg(Yangon) Co., Ltd.


Shirts, School DressPants, Skirts

150000 pcs/mth

600 FDI Malaysia

7 U.M.H Co., Ltd Bon Shae Gone

Pants, White Uniform, Apron,

60000-65000 pcs/

515 Local Japan

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Village, SPTA Blouson, Jackets,Casual Wear, Blouse

mth, 90000-100000pcs/mth

8 Blessing Garment Factory

Industrial Zone (1),SPTA

Uniform, Down JacketPants

50000 to 60000 pcs/mth

600 Local Japan,Korea,Europe

9 Great World Wide Co., Ltd.

Hmaw Bi Shirt, Baby Wear,Jackets, Pants

80,000-90,000pcs/mth

559 Local Argentina,Japan,Korea

10 The E-Lend (Jewoo Mfg Co., Ltd)

Industrial Zone, Set Hmu Let Hmu Ward,TKA

Jackets, Pants 70000-80000pcs/mth

1200 FDI (Korea) Korea

11 Maple Trading Co., Ltd.

Nyar Na Ward,MGDON

Pants, Jackets,Coats, Shirts,Vests

70,000 pcs/mth

450 Local Europe,Japan,Korea

12 Myanmar Tah Hsin IndustrialCo., Ltd.

Mingalardon Industrial Park,MGDN

Coats, Jackets, Pants 30000 pcs/mth

400 FDI (Taiwan)

Europe,Japan

13 Sai Myint Tun Aung Industries Co., Ltd (SMTA)

ShweLinban Industrial Zone, HLTA

Jackets 50000 pcs/mth

500 Local Korea, JapanChina

14 Daekwang International Co., Ltd.

Shwe Pauk KanIndustrial Zone, NOKA

Jackets, Pants 25000 pcs/mth

493 FDI(Korea)

15 Myanmar Mindum Industrial Shirts, Blouses, Various 30,000 480 Local Spain,

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Garment Ward No E,NOKA

psc/mth Japan,Korea,Germany,Denmark,Europe

16 Grand Sport Int'l Ltd. IndustrialZone (1), SPTA

Jackets, Trousers,Pants, Polo Shirts

30000 & 40000pcs/mth

180 Local Singapore,Thailand,China

17 T.I Garment Mingalardon Industrial Park,MGDN

Shirts 150000 pcs/mth

550 FDI (Japan) Japan

18 Bravo International ManufacturingCo., Ltd.

Shwe Pauk KanIndustrial Zone, NOKA

Jackets, Pants - - Local Japan

19 Lat War Co., Ltd. (I) IndustrialZone (3), HLTA

Polar Fleece Jackets,Knits, Polo Shirts,Shirts, Baby Items

Polar Fleece Jackets-15000 doz/mth, PoloShirts 3200 doz/mthKnits 65000 doz/mthShirts 3500 doz/mth

3000 Local Korea,Japan,Taiwan,China,HongKong,Singapore,Mexico,Germany

20 White Crane IndustrialZone 1,HLTA

Pants, Jackets,Vests

5000 pcs/mth 80 Local Korea,China

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21 Pearl Garment Co., Ltd Industrial Zone(4),HLTA

- - - Local Japan, Korea

22 A1 Garment Co., Ltd. IndustrialZone, MGDN

Jack, Pants, Coats 50000 pcs/mth

800 Local KoreaJapanGermany

23 Yangon Pan-Pacific Int'l Co., Ltd.

Ward (29), Thuwanna, TGGN

Jackets, Pants 30000 pcs/mth

520 FDI (Korea) Korea,Japan

24 Myue and Sue Industrial Zone (4), HLTA

Men’s Shirt and Ladies’ Blouse

250000 pcs/mth

650 Local Europe

25 Joon-A Shwe Pauk Kan Industrial Zone,NOKA

FDI

26 Myanstar Garment Co., Ltd.

Industrial Estate, Ward (9),Bago

Men's & Ladies'(Suits & Coats),Jacket Pants, Uniform

150000 pcs/mth

2000 FDI Korea,Japan

27 Opal Int'l Co., Ltd. Industrial Zone (2),HLTA

Jackets, Coats, PantsVests

60000 pcs/mth

1200 Local KoreaGermany

28 World Apparel ManufacturingCo., Ltd.

Industrial Zone (3), SPTA

Down Jacket, Spring Jacket, SeikJacket, Pants (Forall men's & women)

65000-80000Pcs/mth

1300 Local Korea,JapanSpain, Europe

29 Nilar Win Co.Ltd Shwe Pauk KanIndustrial Zone, NOKA

Jackets, Pants 25,000pcs/mth

200 Local Korea, Europe

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30 Inzali Thida Garment Co., Ltd.

Shwe Pauk Kan Industiral Zone,NOKA

Jackets, Shirts, Pants,Knit

25000 pcs/mth

300 Local Japan,Europe

31 Golden-5 Manufacturing FactoryCo., Ltd.

Shwe Pauk Kan Industrial Zone,NOKA

Jackets, Trousers, Pants

30000 pcs/mth

320 Local SouthKorea,JapanChina

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Annex (3) Relevant Sections Responded to Research Questions

# Research Questions Respective Section

Questions related to Profile of Sector -Section 3. Review on Current Situation1. What is the size of the garment sector in

terms of number of firms, value in terms of export earnings, etc

2. What is the pattern of companies in existence in the garments sector?

What are their sizes in terms of numbers employed, volume of turnover, etc?

3. Where are they located? Provide a map if possible.

If there is a concentration in location (we believe most are in or around Yangon) what is the reason for this concentration?

4. What is the most recent information about the volume and type (products) of production emerging from the sector? For example is there an emphasis on certain kinds of garments, and if so why?

5. Please describe all the different players involved with the Garment Market Chain from labourer to factory owner to retailer to exporter, to agent, to end buyer. Please describe their relationships to each other.

6. What is the balance of ownership in the sector- domestic, joint ventures, foreign? Especially, are the Military-owned conglomerates big actors in this sector, or are the majority of operators individual businesses?

7. How does this compare to neighbouring countries where the garment sector is large e.g. China, Vietnam, Bangladesh, etcQuestions related to Inputs (human,

technological, capital, energy, etc)-Section 3. Review on Current Situation

1. What are the major inputs to the sector, and where are these materials, utilities, finances, technology and labour sourced from? What are the perceived challenges to accessing each of these major inputs?

2. What technology is used by these companies (production processes) and what are the strengths and weaknesses in these processes?

57 | P a g e


3. For a small selection of products, provide a break-down of production costs, compared with prices obtained and therefore evidence of profit margins. Are these margins declared in company accounts and is there evidence that these declarations are accurate?

4. Approximately what % of the total price of shirt bought by an end user actually go to a domestic firm in Myanmar?

What explains why Myanmar gets this % while other countries might get more or less?

5. How does this compare to neighbouring countries where the garment sector is large e.g. China, Vietnam, Bangladesh, etcQuestions related to Export Market -Section 3. Review on Current Situation

-Section 4. Legal and Institutional Framework -Section 6. Growth Potentials

1. Where are the major export markets for which products are currently produced? Provide figures as possible.

2. What are the new potential markets to which Myanmar is exporting, as evidenced by new buyers coming in to scope out this sector, or new foreign investors looking to invest here?

3. What do firms believe are the major obstacles to accessing more of the buyers’ market e.g. scale of production, rate of turnover, quality of end products, etc

4. How does this compare to neighbouring countries where the garment sector is large e.g. China, Vietnam, Bangladesh, etc

Questions related to Labour- Relations-Section 3. Review on Current Situation -Section 4. Legal and Institutional Framework

1. Describe the state and development of labour relations.

How do the new Labor Laws present opportunities and threats both to the business and to employees? (It is necessary that this part of the analysis should report on facts, as well as perceptions).


Questions related to Regulations -Section 4. Legal and Institutional Framework

1. What regulations are relevant to the sector? Especially, what regulations concerning

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licensing for business, exporting, taxation regimes, and other processes are restrictive, and which ones seem to provide an opportunity?

2. To what degree have regulations been implemented according to the law, and to what extent are they applied informally so that this provides an advantage to certain investors and producers. For example, is there any evidence or indication that political connections or connections with the government or Military have provided certain individuals with specific advantages?

3. Would these regulations apply in the same way between domestic and foreign or joint venture firms?

4. To what extent are product standards in existence, and what mechanisms are used to ensure that these are met (or perhaps they are ignored or avoided in some cases)? How do product standards affect market access? Are there limitations upon the extent to which product standard information is available?


Questions related to FDI-Section 3. Review on Current Situation-Section 4. Legal and Institutional Framework

1. Will the new law be likely to attract more investment or are existing challenges so great that the sector is still unlikely to attract the investment?

2. Will the new FDI laws give foreign firms an advantage over domestic firms? What in the laws say this?

3. On the other hand will the local knowledge and connections possessed by domestic actors in the sector be too attractive to foreign investors in a new market, or

will domestic producers benefit by becoming either sub-contractors to larger firms or providers of components to an expanding business;

4. Will domestic producers suffer from relatively limited access to credit and international markets, or will these challenges be assisted by entry of foreign investment in the sector;

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5. What is perceived to be an ideal mix of foreign and domestic players for this sector? What do stakeholders think will happen?

6. How does Myanmar’s industrial development path compare to those in neighbouring countries, for example China with its mixed portfolio, Cambodia with its largely foreign companies, and Bangladesh with its mostly domestic firms?Questions related to business support

services-Section 4. Legal and Institutional Framework

1. What advice and assistance is available to businesses from Government, and from business associations such as UMFCCI? For example, is there or are there plans for a help line or assistance office available to explain regulations to potential investors, and are there sources provided on market information which would help investors to identify and develop new markets?

2. What assistance is currently available through donors e.g. GIZ, JICA, others, and what assistance is currently being planned in this field?Questions related to the overall operating environment

-Section 5. Key Constraints to the Development of Garment Industry

1. What are other perceived challenges related to the larger macro-economic context?

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