International Expansion Blog

Burma: The Next Business Frontier

By Ben Schreckinger, Freelance Journalist

Ben Schreckinger, Freelance JournalistFive years ago, if you had asked an American executive operating in Southeast Asia whether they saw opportunities in Burma, they would have laughed. The country’s totalitarian military dictatorship was among the most isolated in the world, perhaps second only to North Korea. Western economic sanctions and the regime’s brutal repression made doing business there unthinkable for European and American firms. But today, that hypothetical American executive might be taking Burma, also known as Myanmar, very seriously.

Over the past several years, the country’s generals have started a transition towards constitutional democracy that, though still fragile, appears genuine. In response, Western governments have begun lifting sanctions. Suddenly, Burma has become a hot prospective market for international expansion. (It’s become so hot, in fact, that in July Bloomberg reported that Yangon, the country’s first city and erstwhile capital, has become more expensive than New York City.)

Burma is rich in natural resources, including oil, gas, hydropower, and precious minerals. It is also rich in arable land: Under the British, Burma was the rice basket of Asia. It has a sizeable population of over 60 million and the potential to follow the development pattern of neighbors like Thailand, becoming a late-blooming “Tiger Cub.”

Coca-Cola already has a bottling plant in Burma and is looking to set up a second. General Electric has set up an office there and is angling to become a part of the country’s electrical grid upgrades. There are plans for garment factories that would send their products to American markets.

But there are significant structural obstacles to doing business here. Burma is among the world’s poorest countries. Decades of military misrule have wrecked its education system. During the same period, many of the country’s natural resources were sold off to China, limiting the availability of new opportunities. And Burma’s infrastructure is abysmal.

The good news is that the outlook for an improving business environment is good. Both the country’s rulers and the public are eager to find out if working with Western business will benefit Burma. The government is in the process of bidding out major infrastructure improvements — telecommunications upgrades, electrical grids, and airports — to international firms. Those projects will both make business run more smoothly in the long-term and inject short-term stimulus into the Burmese economy.

Infrastructure
Improving mobile infrastructure is among the government’s top priorities. Currently, only about 9 percent of Burmese use the country’s subpar cellular network. In July, the government granted a contract to Norway’s Telenor and Qatar’s Ooredoo. By 2017, they’ll be required to extend data coverage to half of Burma and voice coverage to 75 percent of the country.

Burma’s Internet infrastructure remains abysmal. Even in the commercial hubs of Mandalay and Yangon it’s slow and unreliable. And Internet penetration is estimated to be below 1 percent. This summer, a problem with the single underwater connection between Burma and the Internet further slowed service in the country for a full month.

Myanmar (Burma)

Meanwhile, despite the country’s abundance of natural resources, rural Burma is not yet electrified, and those parts of the country that are hooked up to the grid experience frequent blackouts. Businesses instead rely on expensive generators. Much of the country’s oil, gas, and hydroelectric resources have been sold to China, provoking resentment towards the Chinese and the military rulers among the underserved Burmese people.

But plan on major improvements in Burma’s power infrastructure in coming years. The American firm ACO Investments, for example, is investing $1.5-2 billion to install 1,000 megawatts of solar capacity around Mandalay. According to a Mandalay newspaper editor, that power will likely go to new foreign businesses, rather than to Burmese residents, improving business infrastructure but potentially weakening support for American business among the public. 

America’s Advantage
At least for now, American businesses can expect a warm reception from both the government and people of Burma. The country’s ruling generals believe that partnering with Western businesses, especially from the U.S., is crucial to their goal of balancing the influence of Chinese interests, which they fear may come to dominate the country.

Around the country this June, ordinary Burmese citizens said they were optimistic that American business would have a more positive impact on the country than Chinese ventures, which have been faulted for being socially and environmentally destructive and exploitative of Burma. Many of them expressed the opinion that American business would be more socially responsible, pinning their warm feelings toward the U.S. to that view.

Sanctions and Competition
Sanctions, though, remain an issue. While the European Union has lifted its trade sanctions against Burma and Burmese individuals, the United States has not fully made the leap.

The U.S. blanket sanctions on Burma have only been waived, not repealed, and are liable to be reinstated. The U.S. government’s partial removal of sanctions is designed as an insurance policy, giving it more carrots and sticks to prod the government further along the road to constitutional democracy.

Meanwhile, the U.S. also maintains sanctions against a blacklist of Burmese businesses and individuals suspected of being complicit in human rights abuses and other unacceptable business practices.

“The U.S is disadvantaged compared to a lot of other countries,” says the Yangon businessman. He estimated that the blacklist blocks Americans from doing business with about 90 percent of Burma’s largest companies — those most likely to make suitable local partners for Western businesses.

Because of the continuing U.S. sanctions, European and Japanese firms have gotten a head start here. Japan’s NTT Data Corporation has set up a Burmese subsidiary and plans to employee 500 Burmese in IT support by 2017. The Japanese telecom KDDI has also set up shop in Yangon.

In addition to ensuring that you’re complying with sanctions, it is also a very good idea to consult human rights organizations active in Burma if you have any reason to believe your business plan could have unintended negative consequences for human rights in the country.

For now, most companies will want to watch and wait on Burma. But watch carefully, and you could be the first to seize a big market opportunity.

Ben Schreckinger travelled to Burma in June to report for Newsweek and the international news organization GlobalPost. He can be reached at B.Schreckinger@gmail.com.

 

Curious about trends in Asia? Find out: Should You Stop Manufacturing in China and Start Selling There? 

 


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