The story of Burma’s economic resurgence has attracted investors from all over the world, and most of the attention has been devoted to big businesses and multinationals. But the country also has a strong entrepreneurial spirit that has yet to be properly tapped.
Both domestic and international investors feel that in order to bring out the best in the country’s economy, the government needs to create a friendlier environment for small and medium-sized enterprises (SMEs) and local businesses.
Promoting sustainable local businesses becomes even more important as the pending formation of the ASEAN Economic Community (AEC) eventually will bring down many barriers to businesses and freer flow of goods, services and certain professionals.
“When the barriers in each country fall, companies of all sizes will face enormous competitive pressures, not only from the traditional players in their existing market, but also from those that come from other countries,” said Wai Phyo, managing director of Yathar Cho Industry Ltd, one of the largest manufacturing and distribution companies in Burma.
“SMEs will see greater challenges once they compete on the regional level as they are already facing fierce competition in their local markets,” he said. “They will win or lose; it’s a matter of how prepared they are and how broad a mindset they have.”
SMEs are considered the backbone of the international economy, employing 95 percent of all workers and make up 90 percent of all companies, but Burma’s government lacks have strong policies to support SME activity, according to Wai Phyo.
“Burma is definitely not ready for SMEs,” he said. “There are three aspects necessary for SMEs to survive: funding, markets and technology — all of which are not yet present in Burma. Every single area is weak and we still need a lot of help.”
Although more banks are now operating in Burma, facilities to serve local small businesses are not yet available. Loans are limited to those backed by collateral, and credit guarantee options are not provided.
“SMEs are small. They don’t have a lot and if banks are insisting on collateral for loans with interest rates of 8.5 percent, it’s extremely difficult for SMEs to survive,” said Wai Phyo.
For Thai banks that are gradually entering Burma, small-business customers represent a promising group that should be helped, in the view of state-owned Krung Thai Bank Plc, which recently opened a representative office in Rangoon.
Wutichai Sermsongsakunchai chief representative for Krung Thai Bank in Burma, agreed that banks in Burma are still concentrate on collateralised loans that provide only 30-40 percent of the guarantee.
“Banks should consider the character of the borrower and other factors such as willingness to pay and the ability to pay rather than relying only on collateral loans,” he said.
He noted that the Burmese government has announced policies to encourage local entrepreneurs and foreign investment. As well, organisations such as the Asian Development Bank and the Japan International Cooperation Agency (JICA) have opened offices in the country to provide indirect loans for local entrepreneurs and governments through local organisations such as the Small & Medium Industrial Development Bank.
However, the amount of financial assistance available is not sufficient for Burma businesses to prosper, according to Mr Wutichai, who added that businesses need help in other ways as well.
“Thai banks have provided various trade finance programmes, technical know-how, financial support and business training for local people,” he said.
“For SMEs, development is still in its initial phrase so investors have to carefully choose the industry. Simple labour-intensive manufacturing such as textiles and garments is one area that is usually looked into as it does not require a lot of infrastructure and technology.”
Looking at Burma from the regional perspective, Wai Phyo observed that the attempt to liberalise the ASEAN market and establish a level playing field has been quite successful, but there is still a huge gap to close when it comes to local facilitation.
“I think the playing field is extremely level at the moment. What we need now is to nurture our local players to make sure that they can survive not only in their local markets, but in the regional market to fulfill the AEC dream.”
The larger companies will definitely be ahead of the game, but this doesn’t rule out opportunities for small businesses, which can be part of a larger supply chain.
“If SME owners are actively looking for a change and are ready to adjust fast enough, they will be integrated into the larger market and their businesses will grow,” he said.
Retail and Distribution
Because manufacturing in Burma is still negligible as it is emerges from decades of isolation, there is huge demand for goods and services from countries such as Thailand. From food and beverage products to pharmaceuticals, Burma’s growing consumer market is waiting to be served.
“Modern trade [retail] in Burma is still small and there is still a lot to develop in the retail environment,” said Vivek Dhawan, CEO of Mega Lifesciences, one of the largest distribution and marketing companies in the country. Over two decades in Burma, starting as a pharmaceutical distributor, it has built up a network with thousands of small local and family-run shops.
Only 3-5 percent of the products in Mega are from local brands while the rest are imported from India, China, Thailand and elsewhere.
KTB’s Mr Wutichai agreed that lack of manufacturing facilities for consumer goods in Burma spelled a big opportunity for local investors.
“Products from Thailand are expensive and considered as premium by local people, so another opportunity for SME business is in the consumer goods industry,” he said.
Mr Dhawan adds most companies that do manufacture and distribute their own products do so on a very small scale as the economy is still small.
“There are opportunities in Burma everywhere, but one has to enter the market with a long-term view,” he said. “It’s a new country and if people are ready to spend some time in Burma, there are plenty of opportunities.”
Already he is seeing many local startups and more local products are available, which is a good sign for the future.
“In five to 10 years’ time the Burmese economy will grow. It’s just a matter of time and now there is room for everything,” said Mr Dhawan. “The challenge is that you may need to start small and learn along the way. As consumer demand increases, the business will grow.”
The challenge for Burma’s retailers and distributors is not the AEC but is the fact that consumption in the country is still small, he added. “GDP grows with the level of consumption and right now there are only few consumer cities.”
Wai Phyo is ready for that growth through another one of his companies, Mercury Distribution. Established in 2005 with only three trucks, it now covers 55 percent of the country.
“You may think that the coverage is very small, but in Burma there are certain areas where you don’t need to go because not every province is densely populated, such as in the mountainous regions,” he explained.
“In Burma, foreign companies cannot trade so they need to find local companies that can import their products. We are actively looking and planning to expand to import more products from foreigners.”
As the country heads towards growth that transforms the economy and the lives of its citizens, the consumption of convenience foods such as instant noodles and others is on the rise. Wai Phyo and other distributors are benefitting.
His Yathar Cho Industry, one of the largest citizen-own manufacturers and distributors, handles Yum Yum brand instant noodles in Burma under licence from Ajinomoto, are he is planning to tap into a wider consumer market.
“There is a huge growth potential for Burma’s instant noodle market,” he said. “Comparing the populations of Burma and Thailand, we are not that different but consumption of instant noodles in Thailand is so much higher.”
A Thai person consumes between 42 and 45 packs of instant noodles a year, compared with just seven in Burma, he said.
Additionally, he plans to expand into the regional market once the AEC becomes a reality.
“We may develop unique signature products from Burma and sell to countries across the region,” he said. “I wouldn’t be so bold to set up a factory in Thailand or Vietnam immediately. It will be a probing mission of trying to export products here and there and see how the market reacts.”
This article was originally published in the Bangkok Post on 18 August 2014.