Value Chain Analysis - Myanmar Garment Manufacturers ... · PDF fileIdentifying EU Buyers of Myanmar made Garments 4. Supply Side Analysis ... SMART Myanmar project ... Value Chain

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]


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


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


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.


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

http://www.cbi.eu/CBI%20Services


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.


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%





Totaltop5

TotalImportEUHS61

ImportValue

(1000EURO)

32102250,05

TradeStatistics(Imports)EU27/TotalEXTRA-EU27For

product61inYear2012

Indicators

TotalEXTRA-EU27

TotalImportEUHS62

Total%ImportValue

(1000EURO)Total%

100% 33075284,31 100%


product62inYear2012

Indicators

TotalEXTRA-EU27


product61inYear2012

TotalImportEUcountries

TotalEUImport(HS61+HS62)

%HS61fromTotalEUImport

%HS62fromTotalEUImport

IndicatorsImportValue(1000EURO)

65177534,36

32102250,05

33075284,31

100%

49%

51%

Total%


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.


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


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.


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


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.


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.


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.


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.


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).


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


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.


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.


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


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


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


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.


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)


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


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.


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


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.



Bottleneck Transportation>PoorInfrastructure

Potentialsolution TheGovernmentisalreadytakingonthistask.Roadsarebeingwidenedortotallyrenewed,fly-oversandbridgesarebeing

buildalltosmoothenandspeeduptheMyanmarroadinfrastructure.Howeverstillalotofroadssurroundingtheindustrial

zonestowardsYangonaretotalruinedbecauseofcontainertransport.Thiscausesalotoftrafficproblemsanddelays.

Whoshouldorcouldhelp? MinistryofConstruction

Timeframerisk(1) Low


Bottleneck Communication>Underdevelopedtelecommunications

Potentialsolution InternetisrecentlybeenimplementedinMyanmarandstillimprovingeverymonthasthequalitywasverypoorinthe

beginning.Nowit'squiteokandthereforEmailandSkypecommunicationispossible.Butthenagainfactoriesarenotyetused

tothisfastmodernwayofcommunication.Meaningcheckingemailsdailyandansweringthemalso!acellularnetworkisalsoavailableandalthoughreceptionisoftenpoorit’salreadyabigimprovementcomparedwithjustafewyearsago.

Whoshouldorcouldhelp? TheMinistryofCommunicationandinformationtechnology,byurgingcompanieswhowontendersconcerningtelecommunicationtoimproveordevelopquickly.Buyers,byexplainingtheirwishesaboutfastemailcommunicationclearlybeforetheygointobusinesstogether.

Timeframerisk(1) Low



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.



Bottleneck Compliance&Sustainability>ManySMEFactorieslackcomplianceandasustainablemanufacturingprocess.

Potentialsolution Buyersmustguidethemanufacturesandhelpthemtoreachtheseexpectedstandards.Itcannotbeexpectedfromthelocally

ownedgarmentmanufacturestopossessallthesestrongcompliancestandardsovernight.Theyneedguidanceandatimelinethatisreasonable.Trainingandconsultancyconcerningthesemattersaresignificant.ThereforaprojectlikeSMARTMyanmar

thatiscreatingawarenessconcerningsustainableproduction,isverypositiveandimportantinput.

Whoshouldorcouldhelp? CBIwithMGMAandcompliance(Social,Technical,Environmental)experts/consultants.


CriticalBottleneck(2) Y

Bottleneck Machinery&TechnicalKnow-how>ManySME(CMP)factorieshaveout-datedmachinerythatdelayproductivityandlackthetechnical'Know-how'toupgradetheirproductionprocessefficiency.

Potentialsolution IflocallyownedCMPfactoriescouldhaveaccesstocompetitivefinancing.Theycouldforinstanceinvestinupgradingtheir

machines.IndustrialEngineeringconsultantsthatcouldassesfactoriesandprovidethemwiththenecessarysolutions.

Whoshouldorcouldhelp? Banks,GIZ,CBIwithIndustrialEngineeringconsultants



Bottleneck PriceSystem&OrderQuantity>LocallyownedfactoriesfocusonCMPpricesystemandthisoftengoeshandinhandwith

smallerorderquantities.Thishasagreatinfluenceontheproductivityasthesefactorieshavetochangethelineseachtimetheychangethestyles.Thisaffectsthespeedprocessandcauseslowerproductivity.

Potentialsolution Creatinganattractiveclimateforinvestorstodevelopfactoriesthatcanproducehighqualityrawmaterialsdomestically.

OfferingtheCMPgarmentmanufacturesexperttrainingandconsultingonhowtheycouldevolveintoFOBexport.Makingitpossibleforlocalgarmentmanufacturerstohaveaccesstolow-costcapitalsotheycaninvestintheirorganisationandcan

switchtoFOBexport.TheywillearnmoreprofitandthebiggerorderquantitythatgoesalongwithFOBorderincreasestheproductivityandthelineefficiency.

Whoshouldorcouldhelp? MyanmarGovernment.CBIwithMGMAandFOBpricesystemexperts/consultants.BanksincollaborationwithGIZ


CriticalBottleneck(2) Y

(1)Riskthatbottleneckwillnotberemovedonshort-term(high-medium-low)(2)Arethebottleneckscritical(i.e.theprogrammewouldfailtoimproveexportsifthebottlenecksarenotremovedasplanned)?(Y/N)


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


-(CBIcould)

Solvableinshortterm(3) YCriticalOpportunity Y

Opportunity Trainingmoregarmentworkerstoupgradeworkforceskills.

Whichorganisationisprovidingthissolution?

JETROtogetherwithMGHRDC,(CBIcould)



Opportunity Bringingcomplianceuptostandard,solocallyownedgarmentmanufacturercanentertheEuropeanmarket.

Whichorganisationis


SMARTMyanmar,(CBIcould)

Solvableinshortterm(3) YCriticalOpportunity Y

Opportunity Improvingproductivityandefficiencybyprovidingtechnicalproductionprocess"Know-how".Whichorganisationis


-(CBIcould)



(3)Shorttermmeaningthattheopportunitycanbesuccessfullyaddressedwithinthedurationoptheprogramme


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



MitigationStrategy CBIhastoworkcloselytogetherwithexperiencedorganisationsthatalreadydonethisbeforeinothercountries(like

Bangladesh)FurthermoreaclosecollaborationwiththeMGMAwouldbeadvisableinordertoobtainallnecessarydocuments

andlicensessmoothly.

Risk(generalorspecific) Specificrisk:trainedgarmentworkerwillleavetoaneighbouringcountry(Thailand)wherethecanearnmoreincome.PossibleImpactonCBI

intervention

ThiswillhaveadirectandnegativeimpactontheoutcomeoftheCBIprogramme,astheoutcomewillnotbenefittheMyanmar

garmentsector.


Impactonprogramme(5) 4MitigationStrategy CBIcouldtraingarmentworkersandurgefactoriesatthesametimetoaddvaluetothegarmentworkerjob,sothegarment

workerwillhaveagoodreasontostayinMyanmar.Therefortheskilledworkforcewillgrow.

Risk(generalorspecific) SpecificRisk:EUbuyerdoesn’tacceptmanufacturerstimelinetoachievecompliancestandard.

PossibleImpactonCBI

intervention

ThiswillhaveadirectimpactonthefollowupoftheCBIprogramme,asitwon'tbenefitexporttotheEU.



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


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.


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.


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.


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)

http://www.adfiap.org/smartmyanmar

http://www.jetro.go.jp/

http://www.hidajapan.or.jp/

http://www.buildingmarkets.org/

http://www.umfcci.com.mm/


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

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178

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MYANMAR,CurrentandPotentialLocationsforGarmentManufactures

YANGON,CurrentandPotentialLocationsforGarmentManufactures


Myanmar (Division Regions)


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.


ANNEX 3 SMART Myanmar project




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

Documents

Value Chain Analysis - Myanmar Garment Manufacturers ... · PDF fileIdentifying EU Buyers of Myanmar made Garments 4. Supply Side Analysis ... SMART Myanmar project ... Value Chain