Khine Khine Nwe discusses production process management with a group of supervisors at MGMAs training institute. (Photo credit: The Myanmar Garment Manufacturers Association)

Khine Khine Nwe discusses production process management with a group of supervisors at MGMA's training institute. (Photo credit: The Myanmar Garment Manufacturers Association)

Myanmar’s garment export industry as a whole is developing rapidly. But the battle for growth and added value is heavily weighted against the mostly small local manufacturers who face tough competition from an increasing number of foreign investors with deep pockets and strong networks, writes Jozef De Coster.

How big is Myanmar’s population? Nobody knows. The Myanmar Census 2014 said 51.5m, but the World Bank corrected this figure into 53.3m and the CIA to 55.8m.

A similar challenge faces the Myanmar Garment Manufacturers Association (MGMA) when it comes to knowing the exact number of companies and factories producing garments in the country. There are no reliable statistics.

Jacob Clere, project manager for Sustainable Consumption and Production at the MGMA, says the vast majority of Myanmar’s exporting garment factories are members of the association. In early March 2015,when MGMA published its last complete members list, there were just 300 factories employing 202,017 workers.

"Last year, we got 65 new members. And international interest for Myanmar as a location for garment production is still growing," Clere says.

Three categories of factories
Dr Monika Stärk from the Delegation of German Industry and Commerce in Myanmar (AHK), makes a distinction between three categories of export-oriented garment factories: locally-owned factories, foreign-owned factories set up before the opening of Myanmar in 2011, and foreign-owned factories set up during the past two years.

  • Locally-owned factories. Many of them are not yet competitive when it comes to serving the European market. They lack the access to finance for FOB exports. Most of them are not yet fully compliant with Western style corporate social responsibility (CSR) requirements. They are the target of ILO, EU (SMART Myanmar - SMEs for Environmental Accountability, Responsibility and Transparency) and many other sustainability and competitiveness projects.
  • Foreign-owned factories set up before the opening of Myanmar in 2011, mostly by Asian investors to supply Asian markets. They may score well in terms of productivity and quality, but their CSR-level often falls short of European standards. A smaller number of these companies has been working with European buyers and is in line with CSR standards.
  • Foreign-owned factories set up during the past two years, working with Western buyers and catering to Western markets. They mostly belong to Asian groups that also have manufacturing units in other countries and comply with strict Western CSR requirements.

The locally-owned factories have to compete for workers and orders with the foreign-owned companies that generally are larger, richer, better equipped, better organised and internationally connected.

Only one of the top-ten largest members of MGMA is locally-owned (UMH in Yangon, with 2,230 workers). The Koreans dominate the top of the pyramid with Shinsung Tongsang (4,954 workers), Myanmar Daewoo (3,364) and Myanmar Glogon (2,822). However, MGMA’s Clere says that in recent months more new garment investors are coming in from China than from Korea or other Asian countries.

Enormous growth potential
Khine Khine Nwe, managing director of clothing manufacturer Best Industrial, who occupies high positions in MGMA and in the Myanmar Chamber of Commerce, strongly believes in the enormous growth potential of the Myanmar garment industry.

She doesn’t dismiss forecasts of hundreds of thousands of new jobs as wishful thinking, and explains why: "We proved in the past we can do it. In 1993-94 there were only 15-25 export-oriented garment companies in Burma together employing less than 10,000 people. Just before the start of the international sanctions in 2003, our industry already counted 300,000 to 400,000 workers. Then very rapidly employment dwindled down to around 60,000."

Khine Khine Nwe points out that quantitative industrial growth is not necessarily the same as development. According to some forecasts, Myanmar’s garment export industry could grow from US$1.56bn in 2014 to a US$10-12bn business while employment (now around 250,000) could reach 1m to 1.5 million.

In Khine Khine Nwe’s view the principal development goal of the garment industry is to create jobs for the high number of vulnerable underemployed youth, especially girls with a limited education. Another goal is to help a strong middle class emerge in Myanmar, which is still a LDC (Least Developed Country).

"Business people like us are well positioned to reach out to the lower level and to make them stronger. United with them we can stand our ground against the upper class," Khine Khine New says.

She is strongly in favour of a higher real income for workers. Yet she’s also worried about the impact of the national minimum wage on garment factories if the MMK3,600 (US$3.2 per day) proposed on 29 June comes into force.

"Which companies can or can’t stomach such a minimum wage depends on the business model," she argues. FOB garment exporters won’t have a problem. However, most of us are CMP (cutting, making, packaging) manufacturers for which the proposed minimum wage is not reasonable."

SMEs at a disadvantage
Some costs are the same for all investors in Myanmar, like the unstable electricity supply, the erratic internet connections, the limited road and ports infrastructure, the lack of business information, the cumbersome registration procedures.

However the local investors, mainly SMEs, are at a disadvantage compared with foreign-owned companies when they want to invest in new machinery, attract highly skilled people, engage in FOB activities or increase their CSR level.

At the 4th Myanmar Textile & Garment industry exhibition in Yangon last month, as a general rule local manufacturers bought cheap Chinese sewing machinery. Veit Hong Kong boasted it sold a high quality Veit FX Diamond fusing machine (winner of the Texprocess 2015 Innovation Award); the buyer was not surprisingly a Korean-owned company manufacturing shirts in Myanmar for a German shirt maker.

According to the International Labour Organization (ILO), increased foreign competition can have mixed results for SMEs. ILO pleads for some form of protection, since SMEs are the backbone of Myanmar’s economy and necessary engines for employment creation. SMEs, in turn, need support in order to improve their productivity and working conditions.

U Aung Win, vice-chairman of MGMA, recently said that the audits conducted by major Western brands are too tough for nearly all Myanmar-owned factories to comply with. These factories also have very limited access to finance.

According to AHK’s Dr Monika Stark, Myanmar banks are not yet able to do risk assessment and they require small businesses to offer 100% collateral and to pay about 10% interest.