YANGON, Myanmar—For Tim Love, a vice chairman of advertising giant Omnicom Group, OMC -1.41% it was an opportunity too good to pass up: an entire country, off the map for most Western investors for decades, embracing foreign investment in a place with untapped energy resources and 60 million people.
Here was Myanmar, also known as Burma, with the wagons "going full speed," says Mr. Love, and clients clamoring to get a foothold.
But doing business here is something of a challenge. As a former military state, Myanmar has minimal infrastructure for conducting international business. Most foreign cellphone plans don't work there, and newcomers must carry a lot of cash because it is hard to get money. Mr. Love himself met with a local advertising firm whose website credits its founder with "the actual creation of Myanmar's advertising industry." How did he find the company? He typed "advertising in Myanmar" into the Internet.
From global multinationals to one-man entrepreneurs, businesses are abuzz over what may be one of the world's last great—but hardly stable—business frontiers. Starting last year, a new, nominally civilian government took power in Myanmar and embarked on a broad set of political and financial reforms that has convinced U.S. and European powers to drop most economic sanctions.
The Myanmar Gold Rush
Christopher Davy for The Wall Street Journal
Workers arrived at the Rose Garden Hotel building site in Yangon, the country's largest city, on Oct. 20. The project was restarted last year, after a new, nominally civilian government took power.
The result has been one of the biggest emerging market gold rushes since Vietnam and Russia opened up to more investment in the 1990s. For some companies, only Cuba and North Korea remain.
That attention may only intensify, now that President Barack Obama plans to take early next week the first-ever trip to Myanmar by a U.S. president, as part of a wider Asian tour.
The trip would have been unthinkable 18 months ago, when Myanmar was still considered a pariah state by most U.S. leaders. It is expected to further spotlight the country's dramatic opening to Western business interests, while also giving Washington a chance to press for further social and economic reforms.
Business leaders say the magnitude of the Myanmar opportunity is hard to describe. The population is larger than South Korea and South Africa, and almost triple that of Australia. Those people need factories to churn out products, power to keep those factories running and exploration technology to find natural resources for that power.
Indeed, many investors and companies are eyeing openings in everything from oil and gas exploration to new infrastructure in a country that barely has any in some regions. And while poverty is high in the country, a small but growing urban elite is quickly developing Western tastes for everything from cars to soft drinks. Only last August did a major U.S. studio release its first film here in decades—"Titanic 3-D."
"If I was 25 years old and single, I'd just go there," says David Grayson, managing director at New York-based stockbrokerage Auerbach Grayson & Co., who has made two trips to the country so far this year. "It's just ready for takeoff."
Already, more than a dozen Fortune 500 companies have jumped into the fray: MasterCard Inc. MA -1.64% and Visa Inc. V -1.79% are working to roll out credit cards; General Electric Co. GE -3.35% is hoping to land big electric power contracts; and Coca-Cola Co. KO -0.43% is negotiating to open at least one factory in an investment that could total as much as $200 million over three years, according to people with knowledge of the company's plans.
In a recent visit to the country, Coca-Cola chief executive Muhtar Kent presented Myanmar President Thein Sein with photos of Coke's operations here from the 1920s and 1930s, just before Coke last pulled out, and made a case for letting the drinks juggernaut enter in full force again.
Japanese, Thai and other Asian companies are trying to move even faster, with Mitsubishi Corp., 8058.TO -0.07% Mitsui 8031.TO -0.75% & Co. and Sumitomo Corp. 8053.TO -1.78% each expanding their presences in Yangon, the country's largest city. Thai construction and petrochemicals companies are trying to kick-start a $50 billion industrial zone and port called Dawei.
"You can smell the change on the streets, in the hotels, in the airports—it's everywhere," said Ramesh Tainwala, president of the Asia Pacific division of Samsonite International SA, 1910.HK +0.26% which now has five shops in the country and plans to add 15 more over the next three-to-five years.
But the jury is out on whether Myanmar will prove to be a bonanza or a quagmire. When other countries such as Vietnam and Russia opened to the global economy, many of the first movers lost money. Lucrative assets wound up in the hands of politically connected locals or state-owned vehicles. Periods of euphoria were followed by market crashes. Many investors fear the same is about to happen in Myanmar.
What is more, the country presents its own peculiar set of risks that are off the charts even by emerging-market standards. Though not a major issue for investors yet, the new government is struggling to control outbreaks of intercommunal violence; the most recent, in which Buddhist and Muslim residents clashed in parts of western Myanmar, led to more than 80 deaths and thousands of homes torched. (The country was also hit with an earthquake in the northern region over the weekend, killing at least a half dozen people.)
Overall, analysts say, the economy is largely a wreck, with spotty electrical power, few ways to move money in and out and a court system stacked with friends of the former regime. Corruption is worse than Zimbabwe or Sudan, according to Transparency International, a Berlin-based graft-fighting group.
Complicating matters is the fact that U.S. foreign investors still have to be careful about talking business with Specially Designated Nationals, individuals the U.S. has sanctions against for alleged ties to the former military regime. Many of them are still powerful in the local economy—and pop up at trade conferences.
For now, even ATMs here are rare, as are places that accept credit cards. During one visit, Ernie Bower, of Fairfax, Va.-based BowerGroupAsia, says he remembers being surrounded by wide-eyed staff members at a Yangon hotel who said he was the first guest able to use a card there in a long time. At least he had a hotel: With only about 1,850 rooms with business-travel amenities in Yangon, hotels that used to be 20% full much of the year are now often fully booked.
None of this has gone unnoticed by the new government, of course, whose supporters acknowledge the country's drawbacks, but also say Myanmar has some funding for change. The government, for example, has pocketed huge sums of money selling natural resources such as natural gas, which netted $3 billion in export revenues in the year ended March. 31.
"Of course, we lacked everything in the past, but now we are trying to change," says Nay Zin Latt, who is serving as an adviser to Myanmar President Thein Sein. "Reform is everywhere."
That is exactly how many newcomers see it. Dave Peck, an American-born chief executive of Singapore-based Arrow Technologies, says his company never got an order from Myanmar until a few months ago, when three separate traders there called wanting to source a highly specialized, $75,000 machine that analyzes surface roughness.
It seemed fishy at first, he says, but after some investigating he learned they were supplying the machine to a university in Mandalay that had funding to upgrade its physics labs—a precursor, Mr. Peck says, to training more engineers to run factories.
Now, he is hoping to set up distribution relationships with two of the traders to sell more. One of them has also asked for his aid to help order technical papers for the university, which it can't do online due to the lack of credit cards. It all reminds him of the opening of Vietnam, he says.
"I'm looking at Myanmar being the new frontier for us," he said, recalling a recent rural trip he took there that reminded him of Myanmar's once world-leading role in rice-exporting. Noticing not a single tractor, he says, "I thought to myself…what an opportunity for the John Deeres of the world."
Denis O'Brien, an Irish entrepreneur whose Digicel Group mobile-phone company offers services in 31 countries, is also wide-eyed about Myanmar. He is looking to snag one of several communications licenses the country is expected to offer. He says he has been "mesmerized" by the country since his youth, when his godfather recounted tales of working on the famed Burma Railway as a World War II prisoner of war—and that it could be Digicel's biggest market if the reforms keep on trucking. "People can hang around waiting for all the t's to be crossed, but now is the time to invest," he says.
The new dawn in Myanmar has caught even its most avid followers by surprise. Formerly a British colony, it played a major role in World War II before a military junta took over in 1962, plunging the country into decades of isolation that culminated in Western sanctions over the past 20 years.
The junta was notorious for weird and disastrous economic policies: In the 1980s under former dictator Ne Win, for instance, new money was printed with odd denominations such as 45 kyat and 90 kyat notes, reflecting the general's numerological preferences.
Chinese and other Asian companies continued to invest in the country's natural gas fields, hydroelectric dams and other projects. But the military kept a tight grip on most ventures while leaving Myanmar one of the world's poorest nations, with per capita gross domestic product equivalent to about $1,300—on par with Haiti.
Fewer than 20 out of every 1,000 residents have vehicles, compared with more than 800 in the U.S. Only about 26% of the population had access to reliable electricity last year, according to the Asian Development Bank.
Experts who follow Myanmar say they still aren't sure why the former regime, which was accused of widespread human-rights violations, decided to dismantle itself. The new government, led largely by former military officers, which took power last year after strongman Than Shwe retired and dropped out of sight, has said it wants to bring reconciliation to the country and catch up economically with Myanmar's neighbors.
Many Westerners don't doubt the sincerity, but no one really knows what will happen when the country holds its next national vote in 2015. Impatient youth groups have organized street protests recently, and analysts say they could become more restive if reforms don't keep coming quickly.
What is more, the country's reformers have faced push-back from local business leaders and tycoons who are worried about foreigners getting their hands on too many of the country's key businesses. Many of the tycoons snagged banking licenses and other important concessions without public scrutiny in the waning months of the former regime, and have pressured the government to ensure foreigners can't fully enter some sectors.
One wealthy Myanmar businessman, Zaw Zaw, says it is important to learn the potential of its people before handing over 100% ownership of some sectors to foreigners. "Otherwise foreigners take over, and then you lose the country," says Mr. Zaw Zaw, who is among the "Specially Designated Nationals" still targeted by U.S. sanctions.
He denies involvement in any inappropriate activities. His interests include construction, hotels, toll roads and one of the country's largest banks, which he is working to expand before foreign players can get in, with 20 new branches planned for the coming year.
But even gung-ho investors say the country has plenty of business sectors that would be hard to dominate, at least initially. Companies like Coca-Cola and PepsiCo Inc. PEP -0.63% have to compete with well-established—and cheaper—local brands that were able to lock up the market in the years when Western competitors weren't present.
In the cola business, those brands include products such as Blue Mountain Cola and Fantasy Orange, some of which sell for as little as 29 U.S. cents a bottle versus 53 cents in some stores for a can of Coke or Pepsi. To build the brand, Coke and Pepsi have plastered Yangon with advertisements, including giant billboards greeting visitors as they walk out of the international airport.
"There has been some frustration," says Peter Fuller, a managing director for Southeast Asia at Covidien, COV -0.24% an Ireland-based, U.S.-listed medical equipment supplier. His firm is angling to supply Myanmar's dilapidated hospitals, but he says his staff was told during one visit that outsiders weren't allowed to visit government hospitals. Under the old regime, such sites were often considered sensitive locations.
A thriving black market presents its own source of competition. Several American companies that visited on a trade mission in July found large stocks of their products on Myanmar shelves—even though they never authorized anyone to sell them, according to people familiar with the visit. Western candy bars, snacks and tech gadgets flowed into the country during the years of military rule, smuggled in by distributors who picked them up in Thailand or elsewhere.
Aung Naing Oo, an official at the government's ministry of planning and economic development, says Myanmar is cracking down on the black market and has launched special task forces to tackle smuggling.
Other reforms are moving along as well, including plans or pledges to bring in private companies to increase the number of cellphone users and to create multiple new "hotel zones" for all the new visitors coming in. The government has also announced tenders for airport expansions and has promised to offer oil and gas blocks, attracting declarations of interest from Chevron Corp. CVX -2.65% and others.
Still, skeptics say that if Myanmar's boom is to continue, the country will need to be able to offer both foreign and local business leaders one fairly basic item: an office. Already, the commercial capital of Yangon is showing signs of a bubble. Rents in the few available office towers—Yangon only has about 680,000 square feet of space, or the equivalent of a midsize office tower in New York—have more than doubled since last year to as much as $84 per square foot. That is higher than the single-most expensive building in neighboring Thailand, whose economy is seven times as large as Myanmar's. It is costlier even than some towers in central Tokyo, where office space averages between $67 and $72 per square foot.
"People refuse to pay, and then they walk away and come back two weeks later, and it's $10 a square meter higher," says Tony Picon, a local representative for Colliers International, a real-estate firm. Land prices are also going beyond rational levels. "No one knows what things are worth anymore," he says.
Still, hope springs eternal in the country. Despite some clients struggling to find out how to pay for ads there, Mr. Love at Omnicom says he holds high hopes for the future. "This is one of the coolest things I've ever done," he says. Mr. Grayson at Auerbach Grayson in New York is optimistic too. The boom "will happen quickly," he says. "And then we will move on to North Korea."