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Value Chain Analysis Garment Sector Myanmar
Value Chain Analysis 2
Research conducted for the Centre for Promotion of Imports from Developing Countries (CBI), Ministry of
Foreign Affairs, The Netherlands.
Input from the field: Garment Manufacturers, MGMA
Institutions providing information and support: MGMA, GIZ, SMART Myanmar, Eurostat
September 2013
Contact
CBI (Centre for the Promotion of Imports from developing countries)
P.O. Box 93144
2509 AC The Hague
The Netherlands
Submitted by
Famke E. F. Gouverneur-de Ruiter
Gouverneur Services International Co. Ltd. [FAM]
Contact
Gouverneur Services International Co. Ltd. [FAM]
Yangon, Myanmar
Email: [email protected]
Value Chain Analysis 3
TABLE OF CONTENTS
1. Management Summary
2. Introduction
2.1. Background
2.2. Research Approach
Phase 1: Desk Research
Phase 2: Field Research
Phase 3: Finalising VCA
3. Demand Side Analysis
3.1. Demand in the EU Market
3.2. Top 5 EU Import Countries
3.3. Identifying EU Buyers of Myanmar made Garments
4. Supply Side Analysis
4.1. Myanmar Market Supply Assessment
4.2. Garment Industry Trends
4.3. Garment Industry Key Observations
Size of Factories
Compliance
Traditional Skills and Techniques
The CMP price focus
5. Matching Demand with Supply
5.1. How to match EU Buyer with the Myanmar Garment sector
Price system
Political uncertainty
Compliance
5.2. Compatible EU Buyers
CMP Buyers
FOB Buyers
Market Segments
Value Chain Analysis 4
6. Mapping the Value Chain
6.1. The Value Chain
The Basic Myanmar garments Value Chain structure
The Value Chain with Actors, Supporters, Influencers
Actors and their functions
Supporters and their functions
Influencers and their functions
6.2. The flow of Products along the Value Chain
6.3. The flow of Services along the Value Chain
7. Value Chain Bottlenecks & Opportunity Analysis
7.1. Main Bottlenecks
7.2. Bottleneck and Opportunity Analysis
7.3. Risk Analysis
8. Baseline data
9. Possibilities for CBI intervention
10. Information used for research
ANNEX 1 – Industrial Zones Myanmar (Focus on Yangon)
ANNEX 2 – The Myanmar Garment Industry: a very short study. By David Birnbaum
ANNEX 3 – SMART Myanmar project | GIZ ‘Financial Sector Development in Myanmar’
ANNEX 4 – Shortlist locally owned garment manufacturers Myanmar
Value Chain Analysis 5
1. Management Summary
The Myanmar Garment sector is growing rapidly. With the sanctions being lifted and the Myanmar
Government stimulating this growth as well by easing restrictions and helping to remove bottlenecks, this
sector will be leading in developing the country. Myanmar is standing on a crossroad and has everything going
for it to flourish, but in order to do so it will be crucial that the existing bottlenecks will be removed efficiently
and with expertise.
At this moment in time only around 20% of the garment manufacturers are locally owned and they all focus on
the CMP price system. According to U Hnin Oo, a spokesperson from the Chamber of Commerce and Industry
(UMFCCI) “Underdeveloped countries usually deal with the CMP process, where profit margins remain low.
However the Industry is beneficial to the country as it creates employment, trains the labour force to be
skilled workers and earns foreign exchange.”
During the World Economic Forum in Nay Phi Daw, it became very clear: Myanmar is open for business. The
parliament passed a new foreign investment law last year that is expected to boom business the coming years
by attracting great interest from foreign investors worldwide. For the locally owned CMP factories this has
advantages, as more sub-contracts will come because of more FOB factories will open up for business.
However profits will remain low with sub-contracts and if they want to compete and improve their margins
their CMP factories need to evolve considerable.
The focus of this value chain analysis has been to identify how locally owned garment manufactures could
reach their full potential. Identifying the bottlenecks and which ones are crucial to remove in order to improve
productivity and margins and be able to enter the EU market successfully as well.
Value Chain Analysis 6
2. Introduction
2.1 Background
“CBI contributes to the sustainable economic development in developing countries through the expansion of
exports from these countries”. This is the CBI mission. They have a solid network of international stakeholders
and their contribution consists of sustainable strengthening of the competitive capacity of SME exporters and
producers in developing countries, focusing primarily on European markets, and achieving this by offering an
integrated approach, which is applicable to companies, business support organizations (BSO’s) and
governmental authorities. Their core competence is threefold: advice, counseling and knowledge
management. CBI does not provide financial resources to companies, but it supports SMEs in developing
countries by building the knowledge and skills needed for exporting.
This VCA is conducted for CBI in order to evaluate the Myanmar Garment Sector and which opportunities
there are for CBI to focus on. In this case opportunities how to help the locally owned Garment Manufacturers
reach their full production potential and evolving according to compliance standards so the can enter the EU
market.
2.2 Research Approach
Phase 1: Desk research
This research phase started off with mapping all the information that needed to be obtained for this VCA.
Much online information was gathered during this phase already and therefor a start up report could be
generated that functioned as guideline for the field research. Timeframe: July 2013
Phase 2: Field research
The field research phase was dedicated to gathering all information that could not be retrieved online.
Interviewing many Garment Manufacturers, the Vice-Chairman of the Myanmar Garment Manufacturing
Association (MGMA), in order to identify and verify the main bottlenecks and how they could be removed.
Meeting the Country Director of the Consortium of Dutch NGO’s to gain information concerning any NGO
activity focussed currently or in the past on the Myanmar Garment Sector. Timeframe: Aug 2013
Phase 3: Finalising VCA
During this phase all acquired information was analysed and processed into a clear and structured report.
Timeframe: Aug/Sep 2013
Value Chain Analysis 7
3. Demand Side Analysis
3.1 Demand in the EU Market
Figures just released by Euratex, the European Apparel and Textile Confederation, show Imports into the EU-27 fell 5.6% to EUR89.6bn, of which textiles accounted for EUR24.4bn (-7.9%.) and clothing EUR65.2bn (-4.7%) as the ongoing Eurozone crisis led to a drop in consumption. The main clothing suppliers were China, Bangladesh, Turkey India and Tunisia.
According to IMF (Institut Francais De La Mode) there is clearly a correlation that can be made between changes in consumption and changes in imports. Retailers are increasingly relying upon just-in-time purchasing, and as far as they can, keeping the risks related to long-term purchasing down to a minimum. In effect, nearly one fourth of all the major global labels and brands orders consist of just-in-time purchases, stock replenishments and updates made once the season is already under way. Within Asia, while purchases in China (including Hong Kong) decreased 9 % in value, deliveries from Bangladesh increased by 9 %. Bangladesh is thus the second biggest supplier of apparel to the European Union and has now surpassed Turkey. In addition, 2012 saw an increase in purchases in Vietnam (+3 %) as well as in Sri Lanka (+5 %). Overall, Asia holds 74 % of market share in all European apparel sourcing, a figure that has held firm in comparison to 2011. Although European Union imports have fallen 5 % in value, the fact that the decline is steeper in terms of tonnage (-11 %) is an indication of the unrelenting pressure retailers are under when it comes to order costs. Indeed, in many manufacturing regions, wages continue to rise and the prices of raw materials have remained relatively high.
Value Chain Analysis 8
3.2 Top 5 EU Import Countries
In 2012 the following five countries imported more than USD 49 bln worth of garments: Germany, United
Kingdom, France, Spain and Italy. The Netherlands just dropped of this short list to a number 6 position for
both import of HS61 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES, KNITTED and HS62 ARTICLES OF
APPAREL AND CLOTHING ACCESSORIES, NOT KNITTED (WOVEN) products.
All charts based on information retrieved from the Market Access Database (MADB) of the The European Commission Trade website.
Top5ImportEUcountriesofHS61
TOP5 IndicatorsImportValue
(1000EURO)
1 Germany 7692918,01
2 UnitedKingdom 6152914,533 France 3996475,514 Italy 3461565,70
5 Spain 2782641,17
6 Netherlands 2491843,78
24086514,92
TradeStatistics(Imports)EU27andMemberStates/Total
EXTRA-EU27Forproduct61inYear2012
Totaltop5
Top5ImportEUcountriesofHS62
%ofTotal
ImportHS61TOP5 Indicators
ImportValue
(1000EURO)
%ofTotal
ImportHS62
24,0% 1 Germany 7905598,40 23,9%
19,1% 2 UnitedKingdom 5745670,42 17,4%12,5% 3 France 4322355,80 13,1%10,8% 4 Spain 3808184,99 11,5%
8,7% 5 Italy 3490564,09 10,6%
7,8% 6 Netherlands 2255923,23 6,80%
75,1% 25272373,70 76,5%
TradeStatistics(Imports)EU27andMemberStates/Total
EXTRA-EU27Forproduct61inYear2012
TradeStatistics(Imports)EU27andMemberStates/Total
EXTRA-EU27Forproduct62inYear2012
Totaltop5
TotalImportEUHS61
ImportValue
(1000EURO)
32102250,05
TradeStatistics(Imports)EU27/TotalEXTRA-EU27For
product61inYear2012
Indicators
TotalEXTRA-EU27
TotalImportEUHS62
Total%ImportValue
(1000EURO)Total%
100% 33075284,31 100%
TradeStatistics(Imports)EU27/TotalEXTRA-EU27For
product62inYear2012
Indicators
TotalEXTRA-EU27
TradeStatistics(Imports)EU27/TotalEXTRA-EU27For
product61inYear2012
TotalImportEUcountries
TotalEUImport(HS61+HS62)
%HS61fromTotalEUImport
%HS62fromTotalEUImport
IndicatorsImportValue(1000EURO)
65177534,36
32102250,05
33075284,31
100%
49%
51%
Total%
Value Chain Analysis 9
The demand from EU/EFTA countries for ‘Made in Myanmar’ garments is slowly starting to show. Of course
this has everything to do with the former sanctions imposed on Myanmar. Now that these sanctions are lifted
and the European Commission included Myanmar in the Generalised System of Preferences (GSP), Garment
Manufacturers in Myanmar notice interest from EU/EFTA countries is rising. Sourcing agents and buyers are
making contact and visiting their factories. However according to a notable EU garment importer who works
with many EU companies (Inditex, Mango, Alcot, V&D etc.), if there is abstention from a European buyer to
work with a local Myanmar owned garment factory, the main reasons in general are:
Political uncertainty: Although Myanmar’s recent political reforms are very positive, it’s still complicated.
Particularly because the unpredictable electoral outcome for 2015 makes forecasting Government policies
more difficult.
CMP Export: Local factories can only offer C.M.P. price system, so buyer has to arrange all raw materials
(fabrics/zippers/ sewing thread/hangtags etc.) themselves. This asks a lot more effort and financial
investment from the buyer’s side.
Lack of Compliance: Local owned garment manufacturers do not yet comply to the European standards of
Compliance (Social, Technical and Environmental).
According to this EU importer the main reason they started working with Myanmar is because of Duty-Free
import on Myanmar made garments and the value for money being quite reasonable. However the biggest
weakness of the Myanmar garment manufacturer for him is the lack of ‘follow up’ in communication
concerning orders.
His suggestions for the local owned garment manufactures in order to improve their competitiveness:
*Improve CSR
*Increase productivity
*invest in organisation (merchandizers) to improve follow up in communication.
Reasonable timeline to establish these improvements according to this EU importer would be 3 years.
Value Chain Analysis 10
3.3 Identifying EU Buyers of Myanmar made Garments
All charts based on information retrieved from the Market Access Database (MADB) of the The European Commission Trade website.
According above charts the EU import of Myanmar garments is starting to make a presence in the general
statistics. But trying to establish which market segments are responsible for these numbers is quite difficult. As
garment manufacturers are very discrete concerning their orders. Therefor providing detailed information
concerning the main EU brands that are already being produced in Myanmar is very difficult. Mainly because
most EU brand productions now are still sub-contracts from other factories (often from other countries).
However in general it can be stated (through field research) that the focus of EU brands that are being
produced in Myanmar is on low- and mid-end market brands
4. Supply Side Analysis
IndicatorsImportValuetotheEU/MS(1000EURO)
IndicatorsImportValuetotheEU/MS(1000EURO)
Years 2012 Years 2012
EU27 7547,42 EU27 103188,42
1 Germany 4632,89 1 Germany 33693,37
2 UnitedKingdom 1040,79 2 UnitedKingdom 25301,45
3 Spain 642,23 3 Spain 24148,51
4 Italy 437,89 4 Austria 6844,24
5 Poland 207,66 5 Italy 5914,43
6 Netherlands 168,45 6 Netherlands 2484,33
France 146,55 Belgium 1545,68
Belgium 111,61 Poland 1237,21
Greece 52,08 Romania 1237,21
Romania 41,26 Denmark 750,40
Denmark 31,54 Romania 382,95
Sweden 15,49 France 326,42
Austria 9,59 Cyprus 225,09Cyprus 6,88 Sweden 121,94Malta 1,76 Greece 67,99
Finland 0,75 Bulgaria 56,83
Malta 46,14
Finland 40,90
Slovenia 0,54
TradeStatistics(Imports)Eur27andMemberStatesFROMMyanmarForproduct62inYear
2012
TOP5
TradeStatistics(Imports)Eur27andMemberStatesFROMMyanmarForproduct61inYear
2012
TOP5
Value Chain Analysis 11
4.1 Myanmar Market Supply Assessment
The Myanmar population is estimated to be over 60 million people, with a labor force of 33.41 million people
and an unemployment rate of 5.4%. The GDP (Gross Domestic Product) is being generated in 3 sectors, being:
Agriculture (38.8%), Industry including manufacturing (19.3%) and Services (41.8%).1
According to official data from the Myanmar Customs Department, for 2012-13 (Apr-Nov 2012) the garment
export was valued at US$ 345.89 million. They expected that by the end of 2012 this number would rise to US$
600 million. As revealed by the MGMA members through December 2012, Myanmar registered US$ 848
million FOB textile export and CMP textile export stood at US$ 98 million. However locally owned garment
manufactures only provide CMP export and foreign (co-) owned factories provide all FOB export.
When in 2003 the sanctions and the trade embargo were imposed on Myanmar, it greatly affected the
garment industry, as overnight the USA market was lost. The Myanmar garment Industry started to explore
new markets, particularly in Asia. Japan has now become the main market for Myanmar’s garment
manufacturers, replacing the USA. This shift also meant switching their knitwear-focus into woven garments
manufacturing. According to the MGMA; before the sanctions were imposed on Myanmar, Knitwear (HS61.)
contained 90% of the garment export. Now that sanctions are lifted this shifted to >80% of Woven garments
(HS62) being exported.
Chart supplied by the Myanmar Garment Manufacturing Association (MGMA).
4.2 Garment Industry Trends
1 Est.2012, Central Intelligence Agency.
Value Chain Analysis 12
Set up costs for CMP focused factories require a relatively smaller amount of initial investment. Investing
specifically in sewing machines, as it’s a labour intensive industry. Which is suitable for Myanmar’s present
situation because of the limited access to financial resources most factories are self-financed. 2
The FOB focused factories in Myanmar arrange all raw materials themselves overseas, mostly from China or
Taiwan, as these materials are not (yet) available domestically. Therefore set up costs for an FOB factory
initially do not differ. It’s the level of service that makes the difference. However in general most FOB factories
are equipped with better machinery and technology than the CMP focused factories, which insist larger
investments.
The vast majority of Myanmar garment manufacturers are concentrated in Industrial Zones with a strong
focus in and around Yangon. (See Annex 1) These Yangon situated Industrial Zones have access to the Ports in
Yangon within 1 or 2 hours road transport. Which make the factories quite accessible.
Industrial Zones focused in Yangon. (By MGMA)
2 Location Advantages and Disadvantages in Myanmar: The Case of Garment Industry. By Toshihiro KUDO*, May 2009
Value Chain Analysis 13
Maps provided by MGMA
YANGON Division region
The Yangon Ports:
1. Bo Aung Kyaw 2. Asia World 3. MIP
The first one is a military port and used rarely. Ports Asia World and MIP are privately owned companies. They
are significantly investing in modernizing their ports in order to meet international standard in the near future.
The Thilawa Port:
4. MITT
MITT is a deeper-sea port 25 km south of Yangon. Owned by Hutchison Port Holdings (HPH) and the facility is also adjacent to the soon-to-be-developed Special Economic Zone3 at Thanlyin-Kyauktan area.
3 Special Economic Zone (SEZ) is a geographical region that is designed to export goods and provide employment. SEZs are exempt from federal laws regarding taxes,
quotas, FDI-bans, labour laws and other restrictive laws in order to make the goods manufactured in the SEZ at a globally competitive price.
Value Chain Analysis 14
To facilitate growth of trade and foreign direct investment in the Myanmar Garment Industry, the Myanmar
Government eased restrictions on the Financial/Trade sector.
Incentives to stimulate the Garment Industry:
The new Foreign Investment Law (FIL) provides Foreign-invested enterprises an exemption from income
tax for five years starting in the year in which the goods and services were first provided, with a possibility
of an extension.
The Myanmar Investment Commission may also grant the following exemptions:
Income tax relief for business profits that are reinvested within one year.
Up to 50% income tax relief for profits earned from exported product
The right to pay income tax on foreign employees at the same rates that apply to Myanmar citizens.
The right to carry forward losses incurred within two years following the expiry of the aforementioned five
year tax holiday, with the carry-forward period lasting up to three years.
Customs duty relief for (i) imported machinery, equipment and materials that are required for the business
of the enterprise during it's establishment (ii) raw materials imported during the first three years of
commercial production after its establishment and (iii) imported machinery, equipment and materials that
are necessary for use in its expanded work if the amount of investment is increased and the original
enterprise is extended.
In September 2012, the European Commission included Myanmar in the Generalised System of
Preferences (GSP), which grants duty-free and quota-free access to the European market for all products
except for arms and ammunitions.
Myanmar also enjoys tariff exemptions on export to Japan. For example they don't have to pay the 7.4 to
10% tariff on woven shirts and blouses which China and Vietnam are required to do.
Myanmar is also a member of the ASEAN Trade in Goods Agreement (ATIGA). Which gives tax relief to
ASEAN countries that import goods certified under the ATIGA, and also receives tax relief reciprocally on
imports to countries who signed up to the agreement.
Myanmar receives tax relief from Korea as part of the ASEAN- Korea Free Trade Area.
The USA has also reinstated the most Favoured Nation Status on Myanmar.
Value Chain Analysis 15
4.3 Garment Industry Key Observations
Through fieldwork observations and interviews with several Garment Manufacturers from SME’s (Small
Medium Enterprise) and the Vice-Chairman of the Myanmar Garment Manufacturing Association (MGMA) the
following key observations were concluded concerning the Garment Industry in Myanmar.
Size of Factories The garment factories in Myanmar can be divided in 4 categories based on the information from the MGMA Garment Directory 2013-14. In this directory all Myanmar Garment Manufactures are listed together with the number of operating (sewing) machines they own and the registered investment type of the factory. However it can be confusing, as many ‘local’ registered factories are actual foreign owned (or for a majority stake). MGMA Vice-Chairman states that only 20% of all garment manufactures in Myanmar are really locally owned. Categorising factories according to their number of machines is a reliable way to indicate the size of the factory as it states the production output it could have. However during fieldwork it became clear that a lot of factories register with a smaller amount of operating machines than they actual possess because of tax advantages. Considering the above, the factories can best be categorized as following:
1. X-Small factories > 20 machines but < 200 machines
2. Small factories > 200 machines but < 500 machines
3. Medium factories > 500 machines but < 1000 machines
4. Large factories > 1000 machines but < 3500 machines
The X-Small factories are very basic and only produce on a small scale for the domestic market. The Small
factories can also produce for the local market but mostly function as CMP sub-contractors for the FOB
factories and therefor don’t conduct the actual export if the say the produce for overseas buyers. The Medium
CMP factories do have experience with export but they are also used as sub-contractors if they have capacity
leftover. The FOB factories are present in Medium and in Large sizes and according to the Vice-Chairman of
the MGMA all (co-) owned by foreign companies.
Value Chain Analysis 16
Compliance
All locally owned garment manufactures do not comply with the European standard of Compliance (Social,
Technical, Environmental). They lack for instance ‘Business Social Compliance Initiative’ of the Foreign Trade
Association’ (BSCI Code of Conduct). Most of these factories are situated in old buildings equipped with old
machinery. The last decade these manufacturers were only focussed with trying to survive through the
embargo time. Complying with European terms of standard was the last thing on their minds, as the EU
market was lost anyway. So for many years this developing field of expertise was totally ignored. Now that the
sanctions have been lifted and the locally owned garment manufacturers are eager to do business with the
European market again, there suddenly develops an interest in how they can improve and evolve in order to
meet the EU compliance standard.
Traditional skills and techniques
Myanmar’s textile heritage is long and rich, and although neighbouring Southeast Asian countries has
influenced it, it still carries it’s own distinctive traditions within its weaving designs.
Unfortunately the Garment Sector doesn’t do anything with this heritage and is only focussed on export
market demand. Therefor the traditional textile techniques are only being used in the traditional way for local
market.
The CMP price focus
In Myanmar the locally owned Garment Manufacturer is focused on the CMP (Cut-Make-Pack) export instead
of the FOB (Free On Board) export. FOB export involves the complete process from development/production
to exporting. An FOB export factory purchases fabric, trims and materials and in the strict definition of FOB, is
fully responsible for importing and exporting costs up to loading onto the export carrier. It may also be
involved in the sample making and negotiations with the buyers. This is a significant distinction because the
financing of fabric purchases and payment of import and export costs require financial resources and sourcing
of fabric, and the development of samples require competencies and management skills beyond cutting and
sewing.
The CMP system is a form of production where the overseas buyers provide all the raw materials and the
factory then only Cut, Make and Packs. However the factory will arrange import handling of Raw material. This
import procedure goes very quickly as Ministry of Commerce made it possible that an import licence can be
processed within 24hours after a factory application has been submitted. No import fees will be charged
because the CMP business is not considered a genuine trade as it only earns a processing charge. After the
manufacturing process, the factory will work closely together with forwarder to arrange clearance for export.
Value Chain Analysis 17
Average CMP prices for MOQ (Minimum Order Quantity) of common items made in locally owned SME
garment factories in Myanmar. Washings, Printing, Embroidery are all upcharges as do more difficult patterns
because they result in more sewing time. Prices differ a lot between factories, and therefor negotiating is very
important when doing business in Myanmar. Below CMP prices are an average and quoted in Sep 2013 in USD:
Jacket > $ 3.5
Vest > $ 3.2
Men shirt > $ 2.5
Trench Coat > $ 6.2
Polo Shirt > $ 1.5
Trousers > $2.8
Pants > $ 2.5
Pants Cargo > $2.9
T-shirt > $ 1.0
Dress > $ 3.0
Skirt > $ 2.5
5. Matching Demand with Supply
5.1 How to match EU Buyer with the Myanmar Garment Sector
Price system
To facilitate growth of trade and foreign direct investment in the Myanmar Garment Sector, the Government
eased restrictions on the Financial/Trade sector. Due to these improved business conditions, more political
stability and the fact that Myanmar offers one of the cheapest labour pools in the region with an average
industry labour wage of US$ 60,- for 60hrs (incl. overtime).4 The Garment Sector is set to rapidly expand in the
coming years. Important is that the garment sector should focus on producing raw materials domestically of
export quality (comply with international quality standards). So locally owned garment manufacturers can also
provide FOB export and compete with the foreign owned factories. The CMP price system is not as profitable
as the FOB system. Producers capable of FOB manufacturing may receive a better price for their product
because of the enhanced level of service.
4 This amount can increase with 20% when factory is located in an Industrial zone or decrease with 30% when located far outside of Yangon (see Annex 1).
Value Chain Analysis 18
Then again FOB suppliers also take on a high level of financial risk and can incur significant losses when an
order is not completed as planned. Therefor, the higher returns of the FOB manufacturer are balanced by
higher risk, service costs, losses and greater cash flow requirements. However CMP factories can also use the
growing amount of FOB factories to their advantage, because it will also bring more sub-contracts for the CMP
factories.. Therefore making sure CMP factories can keep production lines occupied and running.
This season a lot of factories are completely fully booked with Japanese and Korean orders. Filling up CMP
factories with Japanese line contracts; meaning production lines that are only producing for that specific
Japanese brand all year long, and with Korean sub-contracts. Therefore some factories do not even have a
“low-season” this year. Normally during this “low-season” (March-April and Sep-Oct) CMP prices would
decrease. For these filled up factories this is no longer applicable. This is of course a positive thing, however
one has to keep in mind that sub-contracts from FOB factories are not very profitable for the manufacturer.
“For example, in the few instances where I was able to see cost sheets, I calculated that CM prices were below
5¢ per minute. To put this into context, a factory in Myanmar is paid less than the same factory in
Bangladesh.” 5
Political uncertainty
The fact remains that the military Junta has ruled Myanmar for many years, which let to the imposed
sanctions and trade embargo. Now that President Thein Sein has initiated a series of political and economic
reforms leading to a substantial opening of the long-isolated country, most political parties have begun
building their institutions in preparation for the next round of general elections in 2015.
If EU buyers are absent because of the uncertain political situation, one can only advise to wait after the
elections of 2015. As it then becomes clear in which direction the political future of Myanmar will develop.
However in general it’s strongly believed Myanmar will develop in a positive and strong way.
Starting up business now will only gain the EU buyer goodwill, because they will be part of ‘building up’ the
country and helping the locally owned garment manufactures doing business with the European market again.
Compliance
It would be highly appreciated by the manufacturers if EU Buyers could also guide the locally owned garment
manufactures as well through the process of reaching the required compliance on all levels (Social, Technical,
Environmental). Starting up business together while agreeing on a timeline in which factory improvements
need to be finished is very motivating for the garment manufacturer. It cannot be expected from these
factories to possess all these strong compliance standards overnight.
5 Annex 2 The Myanmar Garment Industry: A Very Short Study. By David Birnbaum. 28 Feb 2013
Value Chain Analysis 19
They need of expertise guidance and a timeline that is reasonable to succeed. It will only be admirable if a EU
buyer is willing to invest time and expertise in helping these factories evolve. The EU Project SMART Myanmar
(Annex 3) is already helping to create awareness concerning sustainable production. Their objectives are to
improve the production and consumption of sustainably manufactured garments from Myanmar. Their
anticipated results:
Relevant Business Support Organizations are trained to have the capacity to promote and advise on sustainable consumption and production (SCP) effectively.
Expedient business, marketing and export strategies for products “made in Myanmar” will enhance sales and create new market opportunities.
The production in garment and other sectors “made in Myanmar” will be cleaner, safer and more efficient.
The capacity building in business support organizations and the training of SCP consultants will create
spin out opportunities in to other sectors, improving the wider business community.
5.2 Compatible EU Buyers
The Myanmar garment sector has a > 80% of Woven garments export. The EU market has quite a big demand
for this product group, 51% of all EU clothing import value to be more specific. Therefor they are very suitable
match with each other. However which EU buyer would be most compatible for the Myanmar garment sector
in this moment in time?
CMP Buyers
EU buyers that function as suppliers for other EU buyers. Meaning the EU suppliers that have the means and
the expertise to offer FOB prices to the EU buyers and work with Myanmar garment factories on CMP price
base. In order to do so the EU supplier must be comfortable arranging all raw materials and it’s transport
themselves.
FOB Buyers
All FOB garment manufacturers are owned by foreign companies. Mostly from South Korea, Taiwan, Japan and
China, pricing is lower then their home country but not considerable. However it’s the GSP that would be
making the big difference now when buying FOB in Myanmar. Although keeping in mind all raw materials have
to be imported by the FOB factories as well, will cause longer lead times for instance then China FOB factories
will quote.
Value Chain Analysis 20
Market Segment
There is not a specific market segment best for Myanmar production. High, Med or Low, all segments are
being produced in Myanmar. As discussed previously the Japanese and Korean market are momentarily the
biggest market for the Myanmar garment industry. Their orders are very strict, meaning 100% control. Every
garment has to be checked before shipment and strong QC’s companies inspect during the complete
manufacturing process. But then again they are also willing to pay a higher CMP price compared to EU buyers,
and they apparently have less strict compliance standards the factory is required to meet. Thus it depends on
the manufacturer if they wan't to work with EU buyers. The garment manufacturer states that the EU market
is the biggest market and they don’t want “to put all their eggs in one basket” by focussing only on Japan and
Korea. For the EU market it’s very interesting, because Myanmar factories are trained according to Japanese
and Korean quality standards and these standards are really high (for all segments). Garment workers are
trained to produce a consistent high quality of workmanship. Meaning the workmanship could easily comply
with the quality levels of high-end EU buyers. So basically in the Myanmar garment factories you see Asian
High/ Med/Low-end brands being produced next to each other and the garment workers are used to an
extremely high quality standard of workmanship.
6. Mapping the value chain
6.1 The Value Chain
The basic Myanmar garments Value Chain structure
As discussed previously, there are no export quality raw materials available in Myanmar yet. Export quality
meaning: fabric, trims, yarns that comply with international quality standards. Except for a Japanese yarn
supplier. But their yarns are quite expensive compared with other countries, and their colour palette is not
consistent. Colours often differ from official colour-codes. Therefor buyers still supply their own yarn for bulk
production. All garment manufacturers (CMP & FOB) in Myanmar outsource silkscreen printing, embroidery
and garment washings of their orders as well.
Value Chain Analysis 21
This means that the basic Myanmar’s export value chain is similar for FOB as it is for CMP export for both
Woven and Knitwear garments, and can be visualized as following:
Current Total Lead Time => 61 days minimal for EU orders
The Value Chain with Actors, Supporters and Influencers
For export garments all Yarn, Fabric,
Trims are imported
RAW Material Import
•Printing (slikscreen)
•Washing
•Embroidery
Special Finishing
•Cut
•Make
•Pack
Processing Export to Customer
Schipment
Delivery Raw Materials:
18 to 24 days
Customs Clearance: 3 to 7 days
Manufacturing: 14 to 45 days
Transport Goods to EU: 26 to 36 days
Actors
Raw material Importer
Printing, Washing, Embroidery
factories
Garment Manufacturers
Forwarders
Supporters
UMFCCI
MGMA
Packaging Suppliers
Financial Institutions
Customs
Influencers
Policy Makers
Institutions & Associations
Value Chain Analysis 22
Actors: are those who are directly involved in the garment manufacturing value chain in Myanmar.
Raw material Importer > For CMP manufacturers the buyer is responsible for sourcing the raw
materials, shipping them and the manufacturer will handle all accompanying import matters. The FOB
manufacturers do it all themselves.
Printing, Washing, and Embroidery factory > All factories work closely together with specialized
printing (only silkscreen, no roll or digital printing yet available), washing and embroidery factories.
Garment Manufacturer > Responsible for the actual manufacturing (labelling and packing) of the
garment.
Forwarder > Responsible for the export shipment. All necessary documents are provided in close
collaboration with forwarder, manufacturer and buyer.
Supporters: are those who support the garment manufacturing value chain in Myanmar.
UMFCCI (The Chamber of Commerce and Industry) > a non-governmental organization representing
and safeguarding the interest of the private business sector and acting as bridge between the State
and the private sector.
MGMA (Myanmar Garment Manufacturers Association) > Consultancy, Corporate Intelligence and
Training Centre for the Garment Manufacturing Industry.
Packaging Suppliers > Provide the carton boxes, polybags, tissue paper, silicon dry bags.
Financial Institutions > Banks provide the possibility of T/T payment, the telegraphic transfer payment
before shipment. Myanmar garment manufacturers don’t work with LC’s.
Customs > Customs have a big role in making sure import and export runs smoothly and delays are
minimised. The clearance process already improved a lot compared with a few years ago. In general it
will only takes 3 days to receive custom clearance.
Raw material Importer
Printing, Washing, Embroidery factories
Garment Manufacturers Forwarder
UMFCCI
MGMA
Packaging Suppliers
Financial Institutions
Customs
Value Chain Analysis 23
Influencers: are those who influence the garment manufacturing value chain in Myanmar.
POLICYMAKERS
The Myanmar Government
o Ministry of National Planning (MIC, Myanmar Investment Committee): To start up the
manufacturing business, the company needs to apply for the MIC in order to get 5yrs tax
holidays.
o Ministry of Commerce: Company Registration and applying for Import/Export license.
o Ministry of Industry: Getting approval for the Export/Import license, Factory licensing. o Ministry of Finance: Profit Taxation.
o Ministry of Labour: Approving overtime
o Ministry of Transport: Import/Export checking
Foreign Export Benefits > GPS (EU) | ATIGA | Tax relief/exemptions from Korea and Japan | USA
Favoured Nation Status. These are all tax benefits to help economic development in Myanmar.
ILO (The International Labour Organisation) > The UN specialized agency, which seeks the promotion of
social justice and internationally recognized human and labour rights. The ILO has been present in the
country since 2002. They were involved with the recent government labour law reforms. Which
include: right to freedom of association/collective bargaining/a minimum wage/a ban of forced labour
and labour dispute settlement. Unfortunately the lack of strong institutions prevents the insurance of
these reforms being implemented effectively.6
6 Institute for Human Rights and Business. ‘Responsible Investment in Myanmar’s Garment Sector’ (22-March-’13)
Policy Makers
Institutions & Associations
Value Chain Analysis 24
INSTITUTIONS & ASSOCIATIONS
JETRO (Japan External Trade Organization) > is a Government-related organization that works to
promote mutual trade and investment between Japan and the rest of the world. JETRO provides a lot
to the Myanmar Garment Industry. From Management Business training to collaboration projects like
MGHRDC; The Myanmar Garment Human Resource Development Centre, training all sorts of garment
workers free of charge.
HIDA (Human resources and Industry Development Association) > is an organization for human
resources development in developing countries to promote technical cooperation through training,
expert’s dispatch and other programs. According to the MGMA they are already present since 1958 but
on a very small scale, meaning that since that time until now they only trained around 400 people in
different field of expertise in the garment sector.
SMART Myanmar > Actively promotes and supports the sustainable production of garments “made in
Myanmar” striving to increase the international competitiveness of Small and Medium Enterprises
(SMEs) in this sector. (For more information concerning this project please find enclosed Annex 2.)
Building Markets > Their slogan: We build markets, create jobs and sustain peace in developing countries by championing local entrepreneurs and connecting them to new business opportunities. They also really help in organising and creating structure in for instance the flow of government information. For example on their website you can immediately find out everything there is to know about all the Myanmar running tenders and all necessary information you need in order to bid. It creates transparency, clarity and confidence for companies in order to place a bid.
GIZ > (Gesellschaft für Internationale Zusammenarbeit) ‘Sustainable, Innovative, Effective’, they offer customized solutions to complex challenges. They are an experienced service provider and assist the German Government in achieving its objectives in the field of international cooperation. Their goal: offering demand-driven, tailor-made and effective services for sustainable development. Please find enclosed Annex 3 with more information concerning their recently set up project in Myanmar for Financial Sector Development in order to help SME’s get access to competitive financing.
Value Chain Analysis 25
6.2 The flow of Products along the Value Chain
Chart based on research by FAM
There are three types of Garment Manufacturers in Myanmar. 1. Large FOB garment manufacturers > they focus on direct (to the retailer) and indirect (via importer)
knitwear and woven garment export.
2. SME CMP garment manufacturers > they focus on manufacturing and often function as subcontractor
for the FOB manufacturer. If the export it’s only via an importer, not direct to retailer.
3. SME FOB manufacturers > Same focus as Large FOB manufacturer.
Consumer
Importer
SME Garment
Manucturers (CMP)
Retailer
SME Garment
Manufacturers (FOB)
ALL RAW MATERIAL
IMPORTED
Large Garment
Manufacturer (FOB)
Value Chain Analysis 26
6.3 The flow of Services along the Value Chain
Some manufactures (very rare) have their own embroidery machines, but in general it can be said that all
Myanmar garment factories (CMP or FOB) at this moment in time have close cooperation’s with different
specialized finishing factories to arrange silk screen printing, embroideries and garment washings for their
orders. As do they all need the services from Customs/ Banks/ Packaging suppliers and Forwarders. CMP
manufacturers also function as sub-contractor for FOB manufacturers. Thus the flow of services along the
Value chain can be visualized as following:
Chart based on research by FAM
Value Chain Analysis 27
7. Value Chain Bottlenecks & Opportunity Analysis
7.1 Main Bottlenecks
Why is export currently not reaching it’s full potential?
This question is only applicable for the SME garment manufacturers that focus on the CMP export.
Foreign companies own the FOB manufacturing factories and their capacity is completely filled up mainly for
the Asian market, their export is reaching full potential.
Therefor the question is now; how could the locally owned garment manufacturer reach their full potential
and evolve so they can compete with the growing amount of foreign owned FOB manufacturers?
To answer this question several locally owned garment manufacturers were individually interviewed and the
Vice-Chairman Dr. Aung Win of the ‘Myanmar Garment Manufacturers Association’ (MGMA).
Costs of doing business in Myanmar are high. Myanmar has underdeveloped telecommunications and
transportation infrastructure compared to other countries. There is currently no domestic supply of fabrics,
trims and other raw materials so longer lead times are needed to ship these products into the country.
Electricity costs are soaring due to lack of stable Government supply and the need to generate electricity from
diesel to compensate. The workforce may be very low cost, but this automatically results in workers being un-
loyal to the factory. Labour is easily lost to other industries or to the competition. The uncertainty for a factory
how many workers will stay each month is a recurring problem. Therefor factories set up a training centre
where they train new workers every day to fill in the gaps that occur each month. The majority of the locally
owned factories have out-dated machinery that slows down the production process considerably, this in
combination with their focus on the CMP price system prevents them of being competitive. The small order
quantity and the lack of technical know-how are also a major obstacle that prevents these factories of
reaching their full productivity potential. Finally, the lack of compliance in locally owned factories like for
instance the ‘Business Social Compliance Initiative’ of the Foreign Trade Association (BSCI Code of Conduct) is
a serious issue. Compliance nowadays is very important for the EU/EFTA market, as is a sustainable production
process.
Value Chain Analysis 28
The main bottlenecks that prevent the locally owned garment manufacturer to reach their full (export)
potential:
These eight identified issues can be categorized into two main segments being:
1. Business Environment wise
2. Production wise
• Insufficient supply of power Electricity
• Limited access to financial resources Credit & Finance
• Poor Infrastructure Transportation
• Undeveloped telecommunications Communication
• Workers go "factory hopping" Labour
• Many SME Factories lack compliance and a sustainable manufacturing process
Compliance & Sustainability
• Many SME factories have outdated machinery and lack the technical know-how to improve efficiency.
Machinery & Techincal Know how
• Locally owned factories focus on CMP price system this often goes hand in hand with smaller order quantities.
Price System & Order Quantity
Value Chain Analysis 29
7.2 Bottleneck and Opportunity Analysis
BUSINESSENVIRONMENTBOTTLENECKSALONGTHEVALUECHAIN
Bottleneck Electricity>InsufficientsupplyofgovernmentgeneratedpowerthatleadtoveryhighprocesscostfortheGarmentfactoriesas
theyneedtousedieselgeneratorstocompensate.
Potentialsolution TheGovernmentsuppliedMandalay,Pyay,MagweandBagowitha1-megawattgeneratorinMarch2013tohelpwiththepeaks
indemandduringthehotseasonfromMarchtoMay.GasturbinesarealsobeingimportedfromSpain,Germany,Austria,
SingaporeandMalaysiatohelpmeetthedemand.RecentlytheGovernmentannouncedtheywanttocutoffIndustrialZonesfromGovernmentElectrasupplyinthefuture.TheywanteveryIndustrialZonetoprovidetheirownElectrapowerplant
arrangedbyallfactoriesinvolved.Thisisjustaplanandwillcertainlynotbeimplementedinthenearfuturebecauseofthe
largeinvestmentsforthemanufacturerthatgowithit.Butthisisadiscussionbetweenthegovernmentandthegarment
manufacturers.TheGovernmentrecentlyopenedTendersconcerningimprovementoftheMyanmarElectricalgridwhereall
companiesworldwidecouldbidon.Sothefirststepintherightdirectionhasbeentakentoremovethisbottleneck.
Whoshouldorcouldhelp? MinistryofElectricPower,EnergycompaniesandIndustry
Timeframerisk(1) Medium
CriticalBottleneck(2) N
Bottleneck Credit&Finance>Limitedaccesstofinancialresources.Interestratesareveryhigh(13%)andthetimeframeinwhichaloan
hastobepaidbackveryshort(1-5years).
Potentialsolution StakeholdersinthefinancialinstitutionsshouldfindawayhowtheycanofferSME'scompetitivefinancing.Asthisisakeyfactor
fortheSMECMPfactories.Inordertoevolvetheyneedtoinvestintheirorganisations(buildingandmachinerywise)andifthey
wouldliketoswitchintoFOBexporttheyneedcompetitivefinancingaswell.
Whoshouldorcouldhelp? BankstogetherwithMGMAandincollaborationwithorganisationslikeGIZ.
Timeframerisk(1) Medium
CriticalBottleneck(2) N
Bottleneck Transportation>PoorInfrastructure
Potentialsolution TheGovernmentisalreadytakingonthistask.Roadsarebeingwidenedortotallyrenewed,fly-oversandbridgesarebeing
buildalltosmoothenandspeeduptheMyanmarroadinfrastructure.Howeverstillalotofroadssurroundingtheindustrial
zonestowardsYangonaretotalruinedbecauseofcontainertransport.Thiscausesalotoftrafficproblemsanddelays.
Whoshouldorcouldhelp? MinistryofConstruction
Timeframerisk(1) Low
CriticalBottleneck(2) N
Bottleneck Communication>Underdevelopedtelecommunications
Potentialsolution InternetisrecentlybeenimplementedinMyanmarandstillimprovingeverymonthasthequalitywasverypoorinthe
beginning.Nowit'squiteokandthereforEmailandSkypecommunicationispossible.Butthenagainfactoriesarenotyetused
tothisfastmodernwayofcommunication.Meaningcheckingemailsdailyandansweringthemalso!acellularnetworkisalsoavailableandalthoughreceptionisoftenpoorit’salreadyabigimprovementcomparedwithjustafewyearsago.
Whoshouldorcouldhelp? TheMinistryofCommunicationandinformationtechnology,byurgingcompanieswhowontendersconcerningtelecommunicationtoimproveordevelopquickly.Buyers,byexplainingtheirwishesaboutfastemailcommunicationclearlybeforetheygointobusinesstogether.
Timeframerisk(1) Low
CriticalBottleneck(2) N
Value Chain Analysis 30
PRODUCTIONBOTTLENECKSALONGTHEVALUECHAIN
Bottleneck Labour>Workersgo"factoryhopping"meaninglabouriseasilylosttootherindustriesortothecompetition.
Potentialsolution Investinginskilldevelopmenttomakesurethereareenoughskilledworkersinthegarmentsector.Alsoastrategicmovewouldbetoofferthelowwageworkersomethingthataddsvaluetotherejobandthatwillencouragethemtostayandbeloyaltothefactorytheyworkfor.Thenfactoriescanrelyontheirworkersandworkerscanrelyontheirfactoryastheyreceivemorethena
paycheck.Whichwillprovideastableandconsistentworkforceandproduction.Byaddingvalue,onecouldthinkof:
•‘ChildDayCare’connectedtothefactoryforlowwageworkerschildren(age3months-5years).•Providing'safe'luncheverydayfreeofcost
•Medicalbenefits
Whoshouldorcouldhelp? The‘MyanmarGarmentHumanResourceDevelopmentCentre’(MGHRDC)incollaborationwithJETROisalreadytraining
garmentworkersfreeofcharge.Thisinitiativecreatesmoreskilledlowwageworkersforthegarmentsector.Theyalreadytrained700operatorssincetheystartedin2009.ConcerningtheChild-DayCare,thereisnoNGOorganizationinYangon
presentthatcouldbeaskedforadvisetosetupsuchinitiatives.Thereforitcouldbehelpfultogaininformationfromcertain
factoriesinBangladeshwherethesekindofaddedvalueslikeday-carearealreadyimplemented.Theothervaluesarealready
beingimplementedmoreoftenbylocalownedfactories.
Timeframerisk(1) Medium
CriticalBottleneck(2) N
Bottleneck Compliance&Sustainability>ManySMEFactorieslackcomplianceandasustainablemanufacturingprocess.
Potentialsolution Buyersmustguidethemanufacturesandhelpthemtoreachtheseexpectedstandards.Itcannotbeexpectedfromthelocally
ownedgarmentmanufacturestopossessallthesestrongcompliancestandardsovernight.Theyneedguidanceandatimelinethatisreasonable.Trainingandconsultancyconcerningthesemattersaresignificant.ThereforaprojectlikeSMARTMyanmar
thatiscreatingawarenessconcerningsustainableproduction,isverypositiveandimportantinput.
Whoshouldorcouldhelp? CBIwithMGMAandcompliance(Social,Technical,Environmental)experts/consultants.
Timeframerisk(1) Medium
CriticalBottleneck(2) Y
Bottleneck Machinery&TechnicalKnow-how>ManySME(CMP)factorieshaveout-datedmachinerythatdelayproductivityandlackthetechnical'Know-how'toupgradetheirproductionprocessefficiency.
Potentialsolution IflocallyownedCMPfactoriescouldhaveaccesstocompetitivefinancing.Theycouldforinstanceinvestinupgradingtheir
machines.IndustrialEngineeringconsultantsthatcouldassesfactoriesandprovidethemwiththenecessarysolutions.
Whoshouldorcouldhelp? Banks,GIZ,CBIwithIndustrialEngineeringconsultants
Timeframerisk(1) Medium
CriticalBottleneck(2) N
Bottleneck PriceSystem&OrderQuantity>LocallyownedfactoriesfocusonCMPpricesystemandthisoftengoeshandinhandwith
smallerorderquantities.Thishasagreatinfluenceontheproductivityasthesefactorieshavetochangethelineseachtimetheychangethestyles.Thisaffectsthespeedprocessandcauseslowerproductivity.
Potentialsolution Creatinganattractiveclimateforinvestorstodevelopfactoriesthatcanproducehighqualityrawmaterialsdomestically.
OfferingtheCMPgarmentmanufacturesexperttrainingandconsultingonhowtheycouldevolveintoFOBexport.Makingitpossibleforlocalgarmentmanufacturerstohaveaccesstolow-costcapitalsotheycaninvestintheirorganisationandcan
switchtoFOBexport.TheywillearnmoreprofitandthebiggerorderquantitythatgoesalongwithFOBorderincreasestheproductivityandthelineefficiency.
Whoshouldorcouldhelp? MyanmarGovernment.CBIwithMGMAandFOBpricesystemexperts/consultants.BanksincollaborationwithGIZ
Timeframerisk(1) Medium
CriticalBottleneck(2) Y
(1)Riskthatbottleneckwillnotberemovedonshort-term(high-medium-low)(2)Arethebottleneckscritical(i.e.theprogrammewouldfailtoimproveexportsifthebottlenecksarenotremovedasplanned)?(Y/N)
Value Chain Analysis 31
CBI selection criteria for potential projects are aimed on Small Medium Enterprises (SME’s) with a maximum of
+/- 500 workers and at least 51% locally owned. However only the CMP manufacturers are locally owned and
many of them have more than 500 workers. The factories that do comply with the selection criteria
concerning the amount of workers are very primitive. Meaning they only produce for the local market in very
basic circumstances. They will never be able to compete with the FOB manufacturers. As for the bigger CMP
factories they would be able to evolve and compete with the foreign manufacturers if they would receive the
expert guidance. CBI should consider adjusting their selection criteria a little bit for the Myanmar garment
sector by adjusting the maximum amount of workers a factory can have to: < 1000 workers.
OpportunitiesintheVCthatwouldbenefitexport
Opportunity ChangingthelocallyownedgarmentmanufacturersfocusfromCMPtoFOBexport.
Whichorganisationis
providingthissolution?
-(CBIcould)
Solvableinshortterm(3) Y
CriticalOpportunity Y
Opportunity Creatingstableandconsistentproductionbecauseofsteadyworkforcebyaddingvaluetoagarmentworkersjob.
Whichorganisationis
providingthissolution?
-(CBIcould)
Solvableinshortterm(3) YCriticalOpportunity Y
Opportunity Trainingmoregarmentworkerstoupgradeworkforceskills.
Whichorganisationisprovidingthissolution?
JETROtogetherwithMGHRDC,(CBIcould)
Solvableinshortterm(3) Y
CriticalOpportunity Y
Opportunity Bringingcomplianceuptostandard,solocallyownedgarmentmanufacturercanentertheEuropeanmarket.
Whichorganisationis
providingthissolution?
SMARTMyanmar,(CBIcould)
Solvableinshortterm(3) YCriticalOpportunity Y
Opportunity Improvingproductivityandefficiencybyprovidingtechnicalproductionprocess"Know-how".Whichorganisationis
providingthissolution?
-(CBIcould)
Solvableinshortterm(3) Y
CriticalOpportunity Y
(3)Shorttermmeaningthattheopportunitycanbesuccessfullyaddressedwithinthedurationoptheprogramme
Value Chain Analysis 32
7.3 Risk Analysis
RiskAssessmentandMitigation
Risk(generalorspecific) Specificrisk:manufacturerswon'tgetaccesstocompetitivefinancinginthenearfuture.
PossibleImpactonCBI
intervention
ThiswillhavedirectimpactontheCBIprogrammeasmanufacturercan'tinvestinnecessaryupgradingorimprovementstobe
abletochangepricefocusortoachievecompliancestandard.
Chanceriskwilloccur(4) 3
Impactonprogramme(5) 4
MitigationStrategy CBIhastofocusonsettinguptheprogrammeformanufacturersinawaytheythattheycanstartupandthenimprove/upgradealongthewaybecauseofhigherprofitstheywillstartmaking.Sobasicallybyselffinancing.
Risk(generalorspecific) Specificrisk:governmentwon'tallowachild-day-careconnectedtoafactoryPossibleImpactonCBI
intervention
CBIcan'tproceedwiththisspecificprogramme
Chanceriskwilloccur(4) 2
Impactonprogramme(5) 5
MitigationStrategy CBIhastoworkcloselytogetherwithexperiencedorganisationsthatalreadydonethisbeforeinothercountries(like
Bangladesh)FurthermoreaclosecollaborationwiththeMGMAwouldbeadvisableinordertoobtainallnecessarydocuments
andlicensessmoothly.
Risk(generalorspecific) Specificrisk:trainedgarmentworkerwillleavetoaneighbouringcountry(Thailand)wherethecanearnmoreincome.PossibleImpactonCBI
intervention
ThiswillhaveadirectandnegativeimpactontheoutcomeoftheCBIprogramme,astheoutcomewillnotbenefittheMyanmar
garmentsector.
Chanceriskwilloccur(4) 3
Impactonprogramme(5) 4MitigationStrategy CBIcouldtraingarmentworkersandurgefactoriesatthesametimetoaddvaluetothegarmentworkerjob,sothegarment
workerwillhaveagoodreasontostayinMyanmar.Therefortheskilledworkforcewillgrow.
Risk(generalorspecific) SpecificRisk:EUbuyerdoesn’tacceptmanufacturerstimelinetoachievecompliancestandard.
PossibleImpactonCBI
intervention
ThiswillhaveadirectimpactonthefollowupoftheCBIprogramme,asitwon'tbenefitexporttotheEU.
Chanceriskwilloccur(4) 3
Impactonprogramme(5) 3
MitigationStrategy CBIhastofocusonthemostimportantcompliancethatcanbeachievedwithlittleinvestment.Thereformanufacturercanshowtheirwillingnesstocomply.TheEUbuyermustbeexplainedtheirhelpisneededinorderfortheMyanmarmanufacturerto
reachcompliancestandards.Thisisapositivestrategy;asEUbuyerscanexplaintotheircustomerstheyare'helping'the
Myanmargarmentsectorevolve,makingsurethesectorwillreachthehighlevelstandardsassoonaspossiblewiththeirhelp.
Risk(generalorspecific) GeneralRisk:Themilitaryregimewilltakeoverthegovernmentagain.
PossibleImpactonCBIintervention
ThiswillhaveadirectimpactontheCBIprogrammeasamilitaryregimecouldmeanthatthecountrywillundergothesamesanctionsasithadbefore.
Chanceriskwilloccur(4) 2Impactonprogramme(5) 5MitigationStrategy areoccurrenceofamilitaryregimeisbeyondcontrolofCBIandthereisnomitigationstrategy.
(4)1=Rare|2=Unlikely|3=Possible|4=Likely|5=Almostcertain(5)1=Negligible|2=Minor|3=Moderate|4=Major|5=Severe
Value Chain Analysis 33
8. Baseline data
Estimated number and investment type of garment manufacturers active in the Value Chain according to the
MGMA Garment Directory 2013-14:
SOE (Stated Owned Enterprise) > 9 manufacturing companies
Joint Venture with MTI (Myanmar Textile Industry) / UMEHL (Union of Myanmar Economic Holdings
Limited) > 2 manufacturing companies
Joint Venture with private company > 2 manufacturing companies
100% Foreign Company > 21 manufacturing companies
Local Private Company > 171 companies7
When following the CBI selection criteria: with a maximum of +/- 500 workers and at least 51% locally owned.
From all registered manufacturers, it gave a potential of 52 garment manufacturers that would comply.
However during more extensive research a lot of these manufacturers were deleted from the shortlist. As
many turned out (after a visiting them), they were in fact not really locally owned. Also the registered number
of machines (that could indicate the number of workers) often didn’t match reality. Meaning that the
manufacturer has far more operating machines. Due to tax benefits they register with a smaller amount of
operating machines. So in order to give the most accurate number of locally owned garment manufactures
that would comply with the CBI selection criteria, all factories on the shortlist should be visited, because
through telephone conversation you rarely retrieve this personal information. Please find enclosed Annex 4
for manufactures shortlist with contact details.
7 Note: figure is grossly overestimated, as a lot of companies are registered as ‘local’ but not with a majority stake. Estimation according to Vice-Chairman of MGMA:
20% of all garment manufacturers are really locally owned.
Value Chain Analysis 34
9. Possibilities for CBI intervention
What can CBI do to alleviate the identified bottlenecks in the VCA?
The Myanmar garment sector is being coached and trained by JETRO (Japan) since 2009. They invested in
educational projects in collaboration with the MGMA that proved to be very successful. The SMART Myanmar
(EU) project aims to build capacity and increase skills and knowledge in local partner organizations, facilitating
development of marketing and export strategies for the garment sector. Helping them to add sustainability
into their manufacturing process.
Therefor CBI could focus on the opportunity to invest in knowledge in order to improve export potential. The
locally owned SME garment manufacturers lack the knowledge concerning:
How to run an FOB export business to make more profit
Compliance according to EU standards to be able to enter the EU market on a large scale
Improving factory productivity and efficiency to reach full factory potential
CBI experts could provide necessary training for managers and merchandisers to gain competencies and skills
in order to run a FOB price system in the future. Explaining they can arrange raw materials themselves
domestically in the future but they can already arrange raw materials themselves abroad through visiting fairs.
Same way how they can get in contact with new (EU) buyers and how they can market themselves in a
positive and attractive way. It all comes down to good Sourcing, Planning, Marketing and Management skills
CBI could also provide compliance experts (social and technical) that can train locally owned manufacturers
how they can meet compliance requirements in the near future. Smart Myanmar is already educating factories
how they can implement a sustainable production process. But important is to keep in mind the fact that
manufacturer will not be able to access competitive financing in the near future. Therefor the manufacture
must be able to proceed in a step by step programme with a reasonable timeline. Guiding manufacturers
through these expert training programs concerning all compliance standards, is very important. As the local
manufacturer needs time to learn and adjust with coaching for a longer period of time in order to be
successful.
However the most logical step would be first try to help factories getting their production process arranged in
the most efficient way as possible with the available means at hand in order to improve their productivity. For
instance educating them about the different possibilities of setting up production lines in the most
appropriate way for their production (long / short/ U-shape) and how different departments (cutting, sewing,
finishing) can be arranged the most efficiently. An experienced Industrial Engineering (technical know-how)
could provide customised solutions (that are in reach) in order to let factory reach it’s full potential.
Value Chain Analysis 35
Knowledge is power. However it would be very interesting if CBI would investigate the opportunity adding
value to the low wage garment worker job, in order to improve productivity.
As said before the garment industry is expected to grow very rapidly the coming years; therefor they will
provide a lot of employment in Myanmar. Developing a programme to gain a low wage garment workers
loyalty and therefor achieving a constant and stable production flow in a factory, can certainly help to improve
productivity and therefor (export) potential.
The low wage garment workers are the most important assets of the factory. Without them there is no
production. Factory owners state that between 20% and 40% of the workers (mostly women and girls) leave
because of wages, the rest because of health issues or arguments with their supervisor and finally if they
become mothers.
More and more factories are trying to add values to a garment workers job. Some factories now provide a free
‘safe’ lunch in a clean canteen each day. Or they provide a 3 KG bag of rice to each garment worker each
month. Some factories work with a production target system, meaning if the garment worker already reach
their target before their shift ends, they can go home early. All in the hope they earn the garment workers
loyalty.
CBI could assist in finding a successful approach how to compensate these garment workers low wages by
improving their quality of life by adding a major value to their job and therefor creating factory loyalty in
return.
‘Child Day Care’ connected to the factory (age 3mth -5yrs)
If this benefit could be realized and implemented as a standard for the low wage garment worker in Myanmar,
it would generate a genuine improvement of their quality of life without raising their wages. Which would
improve the lives of many workers in the Garment Sector now and in the future. As women can keep on
working while having children and therefor be able to provide for their family as well.
Value Chain Analysis 36
10. Information used for research
Myanmar Textile Garment Directory 2012
Myanmar Textile Garment Directory 2013-14
Institute for Human Rights and Business, article “Responsible Investment in Myanmar’s Garment Sector”
(22-March-’13)
‘Location advantages and disadvantages in MM: The case of Garment Industry’ Paper by Toshihiro KUDO*
MSR (Myanmar Survey Research)
Newspaper ‘The Myanmar Times’ Article ‘Garment Sector on the rise’ (29 April 2013)
Newspaper ‘The Irrawaddy’ Article ‘After Bangladesh Tragedy, Questions for Burma’s Garment Sector’ (11-
June-’13)
Newspaper ‘Myanmar Business Today’ Article ‘Garment Industry Needs to grow out of CMP’ (1-Aug-’13)
http://www.adfiap.org/smartmyanmar
http://www.jetro.go.jp
http://www.hidajapan.or.jp
http://www.buildingmarkets.org
http://www.umfcci.com.mm
www.giz.de
Interview with Dr. Aung Win, Vice-Chairman MGMA
Interview with a notable and a major EU garment importers
Interview with various Garment Manufactures on location
Interview with the director of trading company Jebsen and Jessen Myanmar (Port information)
The Myanmar Garment Industry: A Very Short Study. by David Birnbaum (28-Feb-’13)
Value Chain Analysis 37
ANNEX 1
Name Zone Established
YangonDivisionRegion YangonIndustrialZones
MandalayDivesionRegion IndustrialZone-1 1990
IndustrialZone-2 1997
MyingyanIndustrialZone NAMeikhtilaIndustrialZone 1997
AyeyarwaddyDivisionRegion PatheinIndustrialZone 1993MyaungmyaIndustrialZone NA
HinthadaIndustrialZone NA
BagoDivisionRegion BagoIndustrialZone NA
PyayIndustrialZone NA
MagweDivisionRegion YenangyaungIndustrialZone 1998
PakokkuIndustrialZone NA
MonState MawlamyineIndustrialZone NA
SagaingDivisionRegion MonywaIndustrialZone 1992SouthernShanState AyeTharyarIndustrialZone 1999
ThanintharyiDivisionRegion MyeikIndustrialZone NA
DaweiSpecialEconomicZone NA
Name Zone Established
YangonDivisionRegion A.DagonSeikkanIndustrialZone 1997/98
B.ThaketaIndustrialZone 1999
C.HlaingTharYarIndustrialZone(1-4,6-7) 1995/96
C.HlaingTharYarIndustrialZone(5) 1996
D.ShweLinPanIndustrialZone 2002
E.ShwePyiTharIndustrialZone(1) 1990
F.MingalardonIndustrialZone 1998
G.ShwePaukKanIndustrialZone 1990/91H.Dagon(East)IndustrialZone 2001
I.Dagon(South)IndustrialZoneSector(1) 1992
I.Dagon(South)IndustrialZoneSector(2) 1992
J.SouthOkkalapaIndustrialZone 1958/59
K.ShwePyiTharIndustrialZone(2-4) 1998/2000L.NorthOkkalapaIndustrialZone 1958/59
OutsideYangon A.ThilawaSpecialEconomicZone 2001
B.KyauktanIndustrialZone 1997
ProposedPlans C.HleguIndustrialZone
D.HmawbiIndustrialZoneE.TaikkyiIndustrialZone
Reference:MGMAGarmentDirectory2013-14 NA:InformationNotAvaiable
MYANMAR,CurrentandPotentialLocationsforGarmentManufactures
YANGON,CurrentandPotentialLocationsforGarmentManufactures
Workingfactories Garmentfactories
1075 NA
661 NA
333 NA
306 NA81 NA
NA 50(planned)58 NA
482 NA
35 NA
124 NA
137 NA
448 NA
326 NA
490 NA342 NA
153 NA
NA NA
Workingfactories Garmentfactories
78 7
116 9
474 45
275 45
275 2
123 16
6 4
315 13NA NA
156 10
643 10
130 1
75 6130 8
25 2
NA NA
178
NA:InformationNotAvaiable
MYANMAR,CurrentandPotentialLocationsforGarmentManufactures
YANGON,CurrentandPotentialLocationsforGarmentManufactures
Value Chain Analysis 38
Myanmar (Division Regions)
Value Chain Analysis 39
ANNEX 2
David Birnbaum, has spent his entire career working in the international garment industry. From 1964 to 1998, he lived and worked in Asia. In the early phase he specialized in building garment factories. Altogether he set up 10 factories in Asia and more recently 1 factory in Mexico.
The Myanmar Garment Industry: A Very Short Study. By David Birnbaum (28-Feb-’13)
Three weeks ago I completed a short study of he Myanmar garment industry during which time I visited a number of factories and held a series of discussions with the leaders of the Myanmar Garment Manufacturers Association (MGMA ) as well the ILO other interested organizations and some leading academics.
There is no doubt that the local industry faces serious challenges; Not one of the factories I visited would meet minimum standards of compliance. Among the more serious problems is the employment of underage children albeit as apprentices; excessive overtime, sometimes reaching 12-hour days; and seven day work weeks. There are also structural problems such as improper layouts, poor lighting, and lack of machine guards, to name but a few. At the same time, the local industry, having been cut-off from both the U.S. and EU markets, has little conception of the state of the global garment industry. For example, in the few instances where I was able to see cost sheets, I calculated that CM prices were below 5¢ per minute. To put this into context, a factory in Myanmar is paid less than the same factory in Bangladesh. Finally local factories have little or no access to capital, with the result they are virtually CM operations, controlled by third-county middlemen who provide the necessary materials while taking the lion share of the profit. The sooner the industry rid itself of these parasites the faster it can begin the development process.
On the other side of the coin, the industry has some important positive advantages; Despite statements to the contrary, wages are not unreasonably low. Qualified sewers are paid $85-$110 per month (including overtime and other bonuses, which compares favorable with Bangladesh’s $60 average, although well below wages in other Southeast and East Asian countries. Workers are relatively well trained with an existing pool of unemployed multi-tasked sewers. Furthermore, while the industry lacks qualified merchandisers, Myanmar has a large number of remarkable young university graduates with probably the best foreign language skills in Asia. The product quality and range was better than I had expected. Lead times compare well with competitors in South East Asia and are far better than those in South Asia.
All things considered, Myanmar has the makings of a first class garment exporting industry. However, even with the best of efforts, the country will require two years to develop even a limited competitive capacity. The first step must be political. We are all waiting for U.S. to drop import sanctions and for the EU to award duty free access (allowing third-country materials. Much will then depend on the new U.S. and EU customers and even more on the transnational factories. In this regard, during the past few years the industry has become far more sophisticated and responsible. No one wants a second Bangladesh (the original model is bad enough). The ability to create a competitive but humane industry is in the hands of the stakeholders.
Everybody is going to Myanmar. It is the last untapped Asian resource with a large population. We can only hope we do a better job this time around.
Value Chain Analysis 40
ANNEX 3 SMART Myanmar project
Value Chain Analysis 41
Value Chain Analysis 42
Value Chain Analysis 43
ANNEX 4
Contact details of 40 Local Owned Garment Manufacturers. Selected from the Garment Directory 2013-14. Due to many factories being deleted from this list, as not really being locally owned. The list was supplemented with factories that have more workers then the CBI selection criteria allow. In order to provide more options of factories for CBI to work with.
FACTORYNAMERegisteredNo.OfMachine
RegisteredInvestmenttype
ContactPerson Telno.(+95)
AsianJustCo.Ltd. 658 Local 01-618419,095013178
Myue&Sue 650 Local 01-705514,01-685225
UnitedWorldGarmentCo.Ltd. 650 Local 01-610840,01-700822ChoChoPhyu 600 Local 01-610745
MyinTharMfgCo.Ltd. 600 Local 01-660096,01-660208
SuYuEiGarment 600 Local KyiSein 09-5191196
SuccessCreatorCo.Ltd.(Cherry) 600 Local Ms.YinYinHtay 09-5159239
ShiningAccessGarmentMfgCo.Ltd. 589 Local 01-610885
BlessingIntertradeGarmentFactory 550 Local Mr.Shwe(MD) 09-5168992ShweMingalarGarmentCo.Ltd. 550 Local 01-639329
AsiaDragonGarmentFactory 500 Local 01-592129,01-592277
InzaliThidaGarmentCo.Ltd. 500 Local Ms.MoeMoe 09-2165608
SuLattHtetThar 500 Local 01-613807
MyanmarMindumGarment 480 Local 09-9699824,09-699825
BrightLightGarmentMfgCo.Ltd. 450 Local 01-591223,01-590063
OnrushMfgCo.Ltd. 450 Local Sandar 01-663583
ShweZinAyeGarment 438 Local 01-379585,01-381171
RealStarMfgCo.Ltd. 420 Local Ms.NarlarWin 09-450044322DagonWinGarmentFactory 400 Local Ms.Thida 01-592035
NgweKantKaw 400 Local 01-688439,01-688220
TrueFaith 360 Local 01-659214SuperGarmentCo.Ltd. 350 Local 01-612643,01-610595GoldYachtCo.Ltd.(ShweYwetHay) 337 Local 01-684126,01-684229
DagonSeikkanGarment 300 Local 01-592035
FirstImageGarmentMfgCo.Ltd. 300 Local 01-690052,01-690327
KyalSinWineGarmentMfgCo.Ltd. 300 Local Mr.AungMyint 01-590928
LatWarCo.Ltd.(1) 500 Local Mr.MichaelChen 09-5074444
SmileWorldGarment 300 Local 09-5159252,09-5110492
TailorGarmentMfg.Co.Ltd. 300 Local 01-685020
AsiaRoseMfgCo.Ltd. 296 Local 01-685321,6885717PrincessPowerMfgCo.Ltd. 284 Local Ms.LwinLwinThan 09-5077523
BawGaMandaing 250 Local Mr.UChun(MD) 09-5013286
NewEverBestTradingCo.Ltd. 250 Local Ms.ShweWahAye 09-73126900
NilarWinCo.Ltd. 250 Local 01-663583TawWinMyanmar 250 Local 09-5119760ShweyiZabeGarmentMfgCo.Ltd. 235 Local Ms.AyeAyeHan(MD) 09-5008066AkariGarment 220 Local 01-6634409,01-663896GoodFamilyGarmentCo.Ltd. 200 Local 01-610402,09-73049579NayMinAungGarmentCo.Ltd. 200 Local Ms.KhinKhinKyi(MD) 09-5008529,09-73186488SkyApparelGroup 200 Local 01-640769,01-647137