Many workers have left the industry thanks to the low wages offered by the traditional Myanmar owned factories

Many workers have left the industry thanks to the low wages offered by the traditional Myanmar owned factories

As apparel retailers and brands continue to seek alternatives to their traditional suppliers, David Birnbaum contends that Myanmar is the last remaining place in Asia that can support a major garment industry. But if it is to reach its true potential, manufacturers and customers must work together to overcome some serious problems.

Myanmar’s potential role in the global industry
If you had asked professionals in our industry about 'Myanmar' back in 2010, they would have confidently replied: "Myanmar is a hotel in South Beach Miami."

Today we know better. Everybody and his uncle has rushed to Myanmar to place orders. Yangon is now wall-to-wall garmentos.

We have been given many plausible (and otherwise) explanations of the benefits offered by Myanmar. However, the truth is simply luck: Myanmar is in the right place at the right time.

For the past 50 years, Asia has been the primary garment supplier to the US. As of 2014, Asia’s top six suppliers still account for over two-thirds of all US garment imports.

TOP ASIAN SUPPLIERS
WORLD RANKCOUNTRY2008200920102011201220132014
1China32.00%37.20%39.20%37.80%37.80%37.30%36.40%
2Vietnam7.30%8.00%8.20%8.60%9.20%10.20%11.30%
3Bangladesh4.80%5.40%5.50%5.80%5.80%6.20%5.90%
4Indonesia5.60%6.10%6.20%6.50%6.40%6.20%5.90%
6India4.30%4.50%4.40%4.30%4.00%4.00%4.20%
8Cambodia3.30%3.00%3.10%3.30%3.30%3.20%3.00%
57.40%64.30%66.60%66.30%66.60%67.20%66.80%

However, when we look a little more deeply, it becomes clear that Asia is losing its dominant role.

With the exception of Vietnam, which remains unstoppable, Asia’s other major garment suppliers are not doing well at all. India, the second best, has yet to recover from its disastrous declines in 2010-2012. The other four - China, Bangladesh, Indonesia and Cambodia - are all in a state of decline.

There are many reasons for the decline of Asia’s garment exports.

  • Every one of these countries is home to a growing domestic market.
  • China, Vietnam and Indonesia have all developed other more sophisticated export industries that pay higher wages and offer better use of capital.
  • Bangladesh and Cambodia are both in a state of social and political turmoil, which directly affect garment export deliveries.
  • China is in a state of demographic crisis where the median age now approaches 36 and the total working population is diminishing and will continue to diminish at least the next 20 years.

Myanmar’s advantage is due less to what Myanmar offers and more to customers’ needs to move away from their traditional suppliers. With a population of 51-60m - depending on whose numbers you believe - Myanmar is the last remaining place in Asia that can support a major garment industry. For customers, it is either Myanmar or some other continent.

Imports from Myanmar have certainly jumped. Between 2013 and 2014 Myanmar garment exports to the US increased by a remarkable 702%. However, this increase was from a very low base - $1.9m to $15.7m - and increases from low bases are often deceptively large. For example, during the same period, imports from Seychelles increased by 38,479% ($309 to $119,209), from Rwanda by 6820% ($2080 to $143,930), and from Eritrea by 2780% ($2368 to $68,196).

More to the point, customers are looking outside of Asia. As we can see from the chart below, there are some serious contenders. Jordan looks good. It is home to one of the best free trade agreements with the US, but with its small population has only limited potential growth.

A lot of smart money is looking away from Asia towards sub-Saharan Africa which, with the African Growth and Opportunity Act (AGOA), enjoys a free trade agreement almost equal to Jordan’s.

U.S. Garment Imports
Country20132014PCT Change
Myanmar$1,963,257$15,738,742702%
United Kingdom$105,366,231$129,399,21422.80%
Kenya$308,562,602$378,911,45422.80%
Bahrain$110,065,927$132,869,18221.20%
Portugal$146,533,165$172,708,64620.70%
Morocco$114,057,925$134,334,65417.90%
Mauritius$191,188,241$223,060,20417.80%
Romania$149,553,177$172,423,00815.30%
Dominican Republic$673,496,978$742,961,36910.30%
Canada$532,524,992$585,735,96810.00%
SUB-SAHARA$936,649,387$1,020,661,6469.00%
Jordan$1,043,242,044$1,135,102,7018.80%

The structure of the Myanmar garment industry
During the period from 1990-2003, foreign investors - notably from Hong Kong and to a lessor degree from Taiwan and Korea - opened branch factories in Myanmar. The purpose was to avoid quota restrictions. The results were quite good. Myanmar had a large untapped pool of potential workers. Worker training was relatively easy. Within a limited period of time Myanmar worker skills compared favourably with those from Southeast Asia such as Indonesia and Thailand - and well above those from South Asia, Bangladesh, India and Pakistan.

By 2000 global exports from Myanmar totalled $800m. The Hong Kong owned factories working with government set up the Myanmar Garment Manufacturers Association (MGMA) to provide a strategy to move the industry to the top tier of global garment suppliers. To foreign investors Myanmar looked like another China.

In 2003 political events in Myanmar resulted in a total embargo of Myanmar garment exports to both the US and the EU. Cut off from its major customers, the industry went into a state of virtual collapse. Foreign investors pulled out.

From 2003 to 2013, locally owned factories struggled to survive. The industry moved from FOB to CM. With little capital and few markets, most fell under the control of Korean and Japanese middlemen who placed the orders, supplied the fabric and trim, and took the lion's share of the profit.

Worker training ceased and compliance was non-existent. Worker wages averaged as low as $30-$60 per month. Factories operated 12-hour days and 7-day weeks, allowing workers two days off per month. Where once Myanmar worker productivity had been among the best in Asia, it fell to 30%. As a result of low wages, low productivity and few customers, price per standard minute fell to under 4¢.

For 10 years Myanmar’s garment industry was suspended in a state of stasis.

The end of the embargo in 2012 changed everything. The combination of the right time and the right place brought immediate results. By 2014, garment exports most probably totalled in excess of $1bn.

Ironically, the change was not a revival of the Myanmar garment export industry, but rather the creation of a new, modern and potentially more efficient garment export industry.

As of August 2014, Myanmar’s garment industry totalled approximately 170 factories employing approximately 150,000 workers, according to factory data based on interviews at 157 factories.

No. of FtysCountry of OwnershipNo. of EmployeesAvg. No. Emp. Per FtyPCT Market share by Emp. Nos.
61Myanmar3769062027.70%
41Korea48839119135.90%
20Japan1395869810.20%
10China1232012329.00%
9Taiwan1051011687.70%
9Hong Kong63707074.70%
2Thailand6203100.50%
5Other587411754.30%
Total 157-136181867100%

The new industry can be divided into three sectors, defined by ownership:

Branch factories owned by transnational factory groups. These enjoy the greatest advantages:

  • The transnationals have access to the customers who would prefer working with an existing supplier who has opened a branch in Myanmar, rather than starting with an unknown supplier in an unknown country;
  • The transnationals recognise the need to ensure total corporate social responsibility (CSR) and will therefore maintain the highest levels of compliance, pollution control and sustainability;
  • The transnationals are equipped with the complete range of facilities necessary to carry out preproduction and merchandising from their home country;
  • The transnationals have unlimited funds for the long pull.

Factories owned by foreign professionals who see an opportunity to move into the last remaining major Asian garment exporting country, on the ground floor:

  • The foreign owned Myanmar based factories also have access to the customers. If the owner is of known quality, customers will work directly with him (and his factory), rather than indirectly with a Myanmar based branch of a Hong Kong or Korean operation, which is more costly;
  • The foreign owned Myanmar based factories also know the need for CSR and will take steps to ensure the highest levels of compliance, pollution control and sustainability;
  • Unlike the transnationals, the foreign owned Myanmar based factories will either have to import foreign management, or what is more likely, train locals. In the short term, the owner will have to carry out much of the merchandising work himself, which will limit his ability to expand;
  • The foreign owned Myanmar based factories do not have unlimited capital and therefore will have to start smaller and expand more slowly;
  • The foreign owned Myanmar based factories have one great advantage over the transnationals. The factory base is in Myanmar. The transnational will look at the Myanmar branch as part of a menu of factories, more than likely a source of cheap basic garments (with the merchandising and more expensive higher-value-added garments being produced in existing branches in China). The local factory will want to develop the services and raise quality in Myanmar. In the long run, provided he is able to persevere, he will be more successful.

The local survivors of the old Myanmar industry. With some few notable exceptions, they are in the most tenuous position:

  • The local survivors of the old Myanmar industry have no direct recourse to customers and lack the trust of the customers;
  • The local survivors of the old Myanmar industry fail to see the need for CSR. They see low wages, long working hours, 7-day work weeks, and poor working conditions as the only way to remain competitive;
  • The local survivors of the old Myanmar industry have no access to trained and/or educated professionals. More importantly, they do not see the need for them.
  • Most local survivors of the old Myanmar industry have insufficient capital, and those with money see the garment industry as a bad investment;
  • The local survivors of the old Myanmar industry cannot compete in the global industry because they are trapped in an industrial culture that no longer exists, and see no reason to change.

At the end of the day, it will be the "a" (transnational factory groups), and the "b" (foreign-owned Myanmar based factories) sectors that will become the industry leaders.

The Myanmar sewer
Wage rates in the Myanmar industry present seeming anomalies:

  • Wages range from $60 to $150+ per month despite the fact that almost all factories are located the same general area - in and around Yangon;
  • Foreigners pay the highest wages while locals pay the lowest;
  • Despite rising wages, a country with 51m people has a worker shortage in an industry currently employing 150,000 people - 0.3% of the population

To understand the problem, we must first understand the country.

Myanmar is home to some of the most qualified, multi-tasked workers in Asia. This is to a large degree due to the training they received during the pre-embargo era. However, given the low wages offered by the traditional Myanmar owned factories, most of these people have left the industry. Those that remain are moving to the foreign-owned factories that recognise their value.

The greatest pool of highly-skilled Myanmar sewers are working out-of-country in Thailand, lured there by higher wages. Myanmar needs these workers. Rising wages is the key. For somewhere around $180-$200 these workers will return. They will be the building blocks of Myanmar’s new garment exporting industry.

Myanmar has a lot going for it.

  • Customers cannot stay where they are. They must develop a new supplier base.
  • Myanmar has the basis of a new industry.
  • Myanmar has attracted foreign investors that understand customers’ needs and have the ability to meet those needs.
  • Myanmar has a large potential pool of well-qualified sewers.

The Myanmar industry that currently employs 150,000 workers can, by 2020, be home to an industry employing 1,000,000 workers, provided industry and customers work together to overcome the serious problems now facing that industry.

Next step: Understand the problems.

Final step: Find an effective solution.