Gap seeks to bridge Myanmar's investment divide

FIONA MacGREGOR, Contributing writer

YANGON -- U.S. clothing firm GAP announced on June 7 that it has become the first major U.S. garment retailer to start production in Myanmar since sanctions were formally eased by the U.S. government in July 2013. Local industry leaders welcomed the move as a significant step in the revival of foreign investment in the once thriving sector.

Myint Soe, chairman of the Myanmar Garment Manufacturers Association (MGMA), said Gap's arrival would "help to bring Myanmar to the attention of other Western businesses."

For now, two South Korean-owned factories in Yangon are producing jackets and vests for Gap's "Old Navy" and "Banana Republic" brands bearing "Made in Myanmar" labels.

Although the company has not established its own factory, around 4,000 workers are involved in production of the items, which are due to hit American shelves this summer, a Gap spokesman said. The company says an estimated 700 jobs have been created directly because of the order.

Industry leaders now say they hope Gap's arrival will encourage other major international apparel retailers. Myint Soe said he hoped Gap's experience in other countries would help raise labor standards and improve workers' rights, as well as boost production levels and encourage further investment in local industry.

Other foreign apparel companies, including Japanese retailer Uniqlo, have shown interest in Myanmar in the past year. But the most noteworthy is British retail giant Marks and Spencer, which is now among the big-name companies in talks about starting up operations, Myint Soe told the Nikkei Asian Review. That is an indication that the Gap deal could be the first of a new wave.

"At the moment the most significant companies are Gap and also H&M (Swedish company Hennes and Mauritz)," Myint Soe said. "We hope Marks and Spencer will be sourcing here in the near future. They have been having discussions with members of the association about entering business."

Thriving old days

Throughout the 1990s, garment manufacturing soared in Myanmar and by the turn of the decade accounted for around 40% of the country's exports. Despite increasing concern among human rights groups in the U.S. and Europe over working conditions in the industry and human rights abuses, Myanmar's garment exports were worth around $830 million in 2001. But as relations between Myanmar and the West became more strained amid consumer protests in some countries over "Made in Myanmar" products, retailers came under popular pressure to move production elsewhere and the sector started to take heavy hits.

When the U.S., which had previously accounted for the largest share of garment exports, enforced a ban on Myanmar trade in 2003, the industry went into free fall, with apparel exports falling below $300 million annually by 2005. The sector declined further as individual European nations and companies chose to cease dealings with what by then was described as a pariah country.

However, as U.S. and European companies turned their backs on Myanmar, Asian buyers moved in -- with the biggest demand coming from Japan and South Korea. By 2011 exports from the nation's 200 garment factories, 195 of them privately held, reached $770 million.

The lifting of Western sanctions in 2012 triggered a new and rising flow of interested companies to Yangon to check out the potential for renewed garment production. In step with the new interest, the country's apparel industry has seen a significant increase in exports to about $1.2 billion in 2013, a 33% increase from the year before, according to MGMA. Soe said he hopes to see that figure reach $1.5 billion in the current year.

Many would-be producers, however, have cited problems regarding infrastructure and continued concerns over complexities involved in negotiating due diligence as a barrier to investment.

Executives of San Francisco-based Gap do not deny the daunting challenges in starting up operations in Myanmar. However, the company, which has been the subject of controversy over worker conditions in other countries, says it has received considerable support from the U.S. government as well as non-government and local organizations in a bid to ensure it complies with international standards.

Debbie Mesloh, senior director of government and public affairs at Gap, told the media that the company had been keen to be the first major U.S. brand to enter Myanmar.

"We feel like we can take the best practices learned over the past 45 years to help open the country," she said, while acknowledging the difficulties of setting up in Myanmar.

The easing of Western sanctions against Myanmar comes at a time when wages in neighboring China have increased significantly. Garment workers in Cambodia, now a major supplier for Gap and other big international brands, have been agitating for higher wages and better working conditions.

And while Gap is understood to have begun moves toward sourcing garments from Myanmar a year ago, recent political instability in Thailand has generally shaken Western confidence in Myanmar's previously economically successful neighbor.

According to Myint Soe, Gap's entry highlights confidence in U.S. business relationships with Myanmar and what the country had to offer compared with its neighbors.

Cost attraction

In reality, much of the draw of manufacturing in Myanmar comes down to labor costs, according to Western business executives in Yangon. As the website for the forthcoming Myanmar International Textile and Garment Industry Exhibition, due to take place in November, notes: "Outsourcing labor to Myanmar offers significant cost savings to Western manufacturers, as Burmese workers are among the lowest paid in Asia, earning an average $2 per day versus $20 per day in neighboring Thailand."

The number of people working in the industry has increased from around 80,000 to 250,000 over the past three years. Gap is keen to promote its commitment to developing community programs, announcing a partnership with the U.S. Agency for International Development (USAID) and CARE International on a "woman's advancement" program in Myanmar.

Yet while the company is keen to assert its commitment to transparency and the fact that its factories will be subject to regular inspections by a local nongovernmental organization to monitor labor practices, it has so far declined to reveal the name or exact location of the production sites, citing commercial sensitivity.

In contrast, Swedish fashion giant H&M, which has been placing test orders with four Myanmar factories since 2013, lists the names and addresses of all its suppliers on its website.

Neither Gap nor H&M have revealed the precise value of their Myanmar investments, leaving it unclear what the arrival of two prominent Western manufacturers might actually mean to the country's economy in terms of cash investment.

Cited from：Nikkei