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Myanmar Firms Feel Pinch From Abroad

MYANMAR FIRMS FEEL PINCH FROM ABROAD
Date: 15/08/2013
Source: WSJ
Myanmar Firms Feel Pinch From Abroad

ANGON, Myanmar—The world's biggest consumer companies are flocking to Myanmar, filling the once-pariah nation and its backward economy with goods previously unavailable to its 60 million people.

But not everyone is happy. Some of the country's biggest conglomerates—plugging away at the cash-strapped market for decades and fighting hard to grow despite crippling Western sanctions—are now finding themselves drowned out by foreign competitors including Coca-Cola Co. KO -0.30% of the U.S. and Canon Inc. 7751.TO -0.95% of Japan.

But not everyone is happy. Some of the country's biggest conglomerates—plugging away at the cash-strapped market for decades and fighting hard to grow despite crippling Western sanctions—are now finding themselves drowned out by foreign competitors including Coca-Cola Co. KO -0.30% of the U.S. and Canon Inc. 7751.TO -0.95% of Japan.

Other small and midsize enterprises fear that they are being priced out of their own turf, with rents rising at lightning speed in Myanmar's commercial capital, Yangon. According to real-estate research firm Scipio, the cost of office rentals has climbed 80% in roughly the past two years, rising to $90 per square meter in May from $50 in mid-2011, with the price of grade-A commercial space comparable to that in wealthy Singapore because of short supply.

Foreign companies, crucially, are in some cases able to bypass Myanmar's backward financial sector, which was crippled by years of mismanagement under its former military government. This, analysts say, provides them with the biggest leg up compared with small and midsize enterprises, which struggle with infrastructure hurdles such as the fast-rising rents.

"Capital is easily available to a big multinational, but local companies can't raise finance," said Sean Turnell, an expert on Myanmar's economy at Macquarie University in Sydney, explaining that this capital is crucial for sectors such as manufacturing where costs are driven up by poor infrastructure. Across Loi Hein Group's five beverage plants, for example, only five hours of electricity are provided by the government power grid, and the conglomerate needs to supplement this unreliable power with its own generators.

To be sure, some domestic companies have profited heavily from foreign companies rushing in. Competitors across the world, including Japanese and U.S. companies, are desperate for local know-how, and analysts say partnerships with local players are the best way to crack Myanmar's fast-changing business and political landscape. Coca-Cola, for example, re-entered Myanmar this year through its joint venture with Pinya, and Loi Hein Group says it plans to announce a joint-venture deal with a foreign partner within months.

"Mergers are the best way for us to grow fast," said Mr. Sai Sam Htun, the Loi Hein Group chairman. "With this joint venture, we expect that we can grow five or six times in 10 years' time, increasing the number of products we offer. This is a very positive thing."

Beyond the consumer-products sector, foreign companies are also adopting the joint-venture model. Southeast Asia's biggest law firm, Rajah & Tann LLP of Singapore, opened a practice in Myanmar this past January with a local partner, NK Legal.

But some foreign companies are resisting this model—particularly in the banking sector—which might serve to undermine much-needed economic changes. Currently, no foreign bank is allowed to provide any onshore financing, though joint ventures between these institutions and local banks could be allowed within months, according to Myanmar's deputy minister of finance, Maung Maung Thein, at a banking conference last week. Foreign banks, including Standard Chartered STAN.LN -1.10% PLC of the U.K. and Australia & New Zealand Banking Group Ltd., ANZ.AU +0.70% have opened representative offices in Myanmar.

"We wouldn't prefer this model," said Takuya Ito, general manager for Japan's Mizuho Bank Ltd. across Asia and Oceania. "As long as there is a joint venture, you need to have a partner, and the number of private banks in Myanmar is limited."

Mr. Turnell said that allowing foreign banks to operate freely should be a "no-brainer" for Myanmar's government and would allow them to leapfrog from decades of stunted development. "Local companies may lose their market share, but banking is different from other sectors," he said. "It is an enabling industry."

Certain local conglomerates, too, are wary of this model. Foreign companies "know how to structure their business to their advantage," said Mr. Zaw Moe Khine, unlike local companies that often don't have access to skilled lawyers or consultants serving multinational companies.

"For local companies, we either have to be big, or be specialist," he said. "There is a risk of failure, but we have no choice. The last option is selling off our companies—but none of us want to do that."


Topic: Business
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