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22 November 2013
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TDRI says Myanmar and Vietnam are good for business

TDRI supports more business investment by Thai investors in Myanmar and Vietnam, citing that cheaper labour costs and higher productivity are added advantages.

The ASEAN market is being viewed as the emerging driver in the global economy in many areas such as trade, investment, capital flows and labour. By 2015, the commencement of the ASEAN Economic Community will help to strengthen and integrate the economies in this region.

Thus, it would be both necessary and attractive for Thai entrepreneurs to not just maintaining their standards, but to rapidly improve their competitiveness in the region.  This includes expanding on trade and investment opportunities along the borders or relocating the production plants to Thailand’s neighbouring countries.

TDRI has undertaken a research study to review 3 industries, which are 1) textiles/clothes industry; 2) shoes and leather industry and 3) jewelry and decorations industry, and focused the research on two specific locations – Myanmar and Vietnam.

Ploy Thammapiranon, TDRI’s Researcher, who studied the Myanmar market reveals that Myanmar has a population of 52.8 million and out of this, 33.4 million are in the labour force. Most industrial factories are located near Ranghoon, being the best location for public goods and logistics in the country. Rent for land use is around 15 US dollars per square metre annually.

Most textiles and clothes industry use a production process called “Cutting Marking Packing” (CMP) which can import raw materials at a tax-free rate. The overall wage rate is around 80 – 90 US dollars per month. For skilled and experienced labour force, the wage rate is around 120 – 150 US dollars per month. In 2012, the textiles industry’s main export markets are Japan (accounted for 45 percents) and South Korea (accounted for 31 percents). The total export values reached 903.9 million US dollars, and have markedly increased from 448.3 million US dollars in 2009. The research team found that Thai entrepreneurs who invested in Myanmar choose to join local joint venture or partnership with the Myanmar businesses or appoint a Myanmar nominee who has a long history of business relationship.

For the shoes and leather industry, it was found that most of the production plants are constituted of the value-added process such as leather-cutting, leather-rubbing and decorations. There are twelve operators in total and four of which belong to foreign owners while the remainings are owned by Myanmar owners.

The CMP approach as mentioned above is being used in this industry, and the industry pays its unskilled labour at 1.89 US dollars per day, while more skilled labour is being paid 2.11 US dollars per day. The main export market is Japan, which constitutes 88 percent of total exports, while the total export values for 2012 accounted for 119.6 million US dollars. The core strength of the industry is the close proximity to countries like Bangladesh and Pakistan which supply the raw materials for production. Additionally, the market for shoes and leathers have the consumption demand from over 60 million people and the number continues to increase.

As for the jewelry and decorations industry in Myanmar, there are five factories in total and most are located around the Rangoon are, and are operated by households. This is due to the discursive regulatory requirements and high tax rates. The general wage rate is around 3 US dollars per day, while higher skilled labour can earn up to 5 – 8 US dollars per day. The main export market is China, which constitutes 91 percents of total export values. The total export value is 322.7 million US dollars.

All in all, the move to expand operations into Myanmar should be a welcoming sign. This is because of the low wage rate but with high labour productivity. In addition, the European Union is now considering returning trade privileges and the U.S. is considering whether to remove the economic embargo and return tax advantages to Myanmar.

Dr. Saowaruj Rattanakumfoo, TDRI’s Research Fellow who studied the case study of Vietnam has revealed that businesses in Vietnam are worrying about their currency stability and the stability of the macroeconomy. Currently, the wage rate in Vietnam continues to increase due to the higher inflation rate.

In terms of the textiles and clothes industry, 70 percents of the operators are small factories who operate in a ‘cut make and trim’ or CMT, which means that the buyers would find fabrics for the operator to perform CMT. The main export market is the United States, and the total export values are at 17,200 million US dollars.

For the shoes and leathers industry, most factories are located in the southern part of the country which has the total of 400 operators, of which 30 – 50 operators are foreign operators. Most of the foreign operators are from Taiwan and South Korea. The main export market is the European Union.

However, there has been a lack of technology development in this area as most operators are family-owned and operated and are for domestic sales only. Eighty percent of the factories are located in Hochimin City because of the transportation convenience. The main export market is Switzerland, and in the past year, total export values is at 546 million US dollars, which has declined from 2,119 million US dollars in 2011.

Dr. Saowaruj further asserted the overall picture of the investment prospects in Vietnam is one of the most interesting cases in the region. This is because the market allows for 100 percents of foreign share ownership.

Finally, Dr. Somkiat Tangkitvanich, TDRI’s president argued that the relocation of production plants to Thailand’s neighbouring countries should include some important considerations.

For Myanmar, the strength lies in the low wage rate and high labour productivity, low raw material costs and the country is a good export base for the third country. However, there are several weaknesses due to the lack of basic infrastructure, particularly electricity. In addition, Myanmar is still be seen as politically unstable due to the country’s recent democratization.

It was also found that access to data and information is limited in Myanmar. This is due to the fact that most documents have not been translated into English, coupled with the largely undeveloped rule of law. Thus, most regulations are not clear and are subjected to changes.

The research team found that the areas which are most attractive for investment are around the Rangoon and its proximity. This is because of better infrastructure, compared to other areas.

As for Vietnam, the strengths can be found in the country’s strong domestic markets that are growing at a fast pace. Vietnam has a growing number of workforce, with low wage rate. The human capital in Vietnam is of high quality and is found to be a good base for exporting to a third country.

However, Vietnam also has unclear rules of law and, like Myanmar, these regulations are subjected to frequent changes. The macro-economic conditions and basic infrastructure are also found to be unstable.

The proposed recommendations from the study can be summarized as follows:

  • There should be a one-stop service to facilitate business activities for between Thai SMEs and those in the neighbouring countries.
  • The government should support and facilitate investment in Thai SMEs aboard, by giving the prospective investors basic as well as indepth information about trade benefits and tax advantages from investing overseas, investment law, basic infrastructure information and other related information.
  • Establishing a special economic zone around the border areas such as Mae Sot in Tak, Sakaburee in Kanchanaburee, Mae Sai in Chiang Rai, Arunyaprathet in Sra-Kaew. There may be enforcing a special law such as a different wage rate for workers from other areas.

However, Dr. Somkiat stressed that while the two countries are suitable for labour-intensive industries, the implementation stage is taking place between TDRI and Thailand’s Chamber of Commerce. The findings of this research project is now being presented to the 3 private organizations committee which includes the Federation of Thai Industry, the Thai Chamber of Commerce and the Thai Bankers’ Association, so that both the public and private sectors can cooperate to reach their objectives.