Southeast Asia is changing rapidly as the governments of the region seek economic development to provide a better quality of life for their people. It is difficult to argue against this drive, as we are all looking for ways to increase our well-being. However, this development has come at a cost. This open letter, directed towards the City of Yangon, Myanmar (Burma) and to all the people of Myanmar, is intended to provide an outsider’s view of the current situation and offer a fresh perspective of the options available. It is this author’s hope that these will be valuable to the government and people of Myanmar to develop sustainably and regain their rightful place among the great nations of our world.
Multinational firms are growing increasingly interested in entering Myanmar’s market following a long hiatus. This renewed interest is presenting the City of Yangon, and Myanmar as a whole, with a new set of challenges and opportunities which must be carefully considered. The purpose of this open letter is to highlight the ways in which the City of Yangon, its economy, and its people will be affected by this situation. The key question this memo seeks to address is whether the City of Yangon should support the construction of multinational chains, and if so, to what extent that support should be given. Ultimately, we recommend the carefully managed access of multinational firms in order to reap the benefits of such newcomers while protecting local, independent businesses.
Since US President Barack Obama’s visit in 2012 and the loosening of trade sanctions by developed nations, Myanmar has been increasingly eyed by multinational firms as a desirable market in which to do business. Myanmar’s population of 55 million (including Yangon’s sizeable population of four million) has suddenly become open to the world and the forces of globalization. This has created many opportunities, but it has also opened up Myanmar’s local industries to global economic forces and strong competition. Well-respected economist Herman Daly considers globalization as “…the effective erasure of national boundaries for economic purposes,” and this often results in a loss of control by each nation in managing their economy. Even economically powerful nations, such as the United States, have seen their independent business sectors reduced to a mere fraction of what it once was due to the strong competitive power of multinational firms. While we believe in the concepts of the “free market” and economic development, we are confident that they do not have to come at the expense of independent nations and independent business.
Myanmar has been thrust into the world spotlight over the past few years. It’s unique and virtually unspoiled heritage has drawn interest in various sectors. Myanmar has seen a large increase in tourism which has been a boon to the economy. Following closely on the coattails of this tourism has been a rush of interest by multinational corporations across a variety of sectors, such as retail and food. For instance:
- The Japanese company Seven & I Holdings Co. Ltd is currently opening 7-Eleven convenience stores throughout the country to add to its already huge worldwide network of over 40,000 stores.
- The Korean firm Lotteria is also currently entering the market in Myanmar, and is expected to open up a number of stores in the very near future.
- At the same time, multinational giants such as GE, Coke, Pepsi, Visa, MasterCard, Yum Brands, and many more are also attempting to penetrate Myanmar’s market.
Of course, Myanmar also has its own regional brands, such as Myanmar Beer, Mamee instant noodles, and Oki laundry detergent which at the moment are maintaining a relatively strong position within the national market. At the same time, small “mom-and-pop” stores still dominate the retail scene. However, while this is a good sign as to the strength of Myanmar’s businesses, the threat of multinational firms is real. One notable threat is the potential of Wal-Mart Stores, Inc. entering Myanmar’s market. Traditionally Wal-Mart has been a boon for developing nations, as they are sought out to supply their stores in developed nations with manufactured goods. However, over the past few years Wal-Mart has changed its focus to becoming a local player in the retail sector of developing nations.
At first glance this activity may seem to be largely positive. After all, these companies are typically expected to bring in large amounts of capital and further connect nations to the wealth of the global market. The benefits that such multinational firms provide do indeed exist; however, there are also potential losses. Even within the countries in which these firms began, there have been a number of issues. These include:
- Economic loss – Locally-owned stores typically generate much greater benefits for local economies that multinational chains do, as local stores often return more than 50% of their revenue to the local economy, compared to just 14% for chains.
- Lower employment – Multinational firms generally reduce the number of jobs in an area as they rely on staff across the world rather than local employees. Independent businesses typically provide 2.6 times more jobs than chains.
- Lower wages & benefits – Large multinational firms depress wages in an area often by nearly 1%, while providing fewer benefits such as health care, putting greater pressure on the social safety net and acting as a drain on government revenue.
- Negative effect on existing businesses – As a whole, chain stores do little to generate new sales and instead merely absorb previous levels of sales, simply displacing local businesses. Businesses within close proximity of chains have an average failure rate of 40%, which often causes a substantial churn in local labor markets and eventually leads to high unemployment rates.
- Higher costs to city governments – The costs of providing city services, such as road maintenance, police, fire stations, etc., often exceed the tax revenue that is generated by large chain stores. A study in Vermont, USA, found that for every US dollar in tax revenue accrued from large chain stores, 2.5 US dollars were lost to public costs (Mitchell, 2011). This is in contrast to the net tax benefit that is currently being accrued through independent businesses.
- Higher costs to national governments – As noted briefly above, many employees of chain stores do not earn a competitive, living wage, and often seek help from national governments for assistance, such as through health care. Employees of large chain stores in the US require on average about $3,000 per year in public assistance.
- Higher consumer prices – Chain stores often state that they provide goods at cheaper prices, but this is largely a tactic to out-compete smaller businesses followed by a rise in prices when there is no longer any competition available. (Mitchell, 2011)
Additionally, there are two other issues that should be considered: innovation and uniqueness. These qualities are clearly seen in vibrant centers of economic growth, such as Silicon Valley in San Francisco (USA), which are often strongholds for locally-owned, independent business. This is equally as important for tourism, which Myanmar’s economy is benefiting greatly. However, a vibrant and long-lasting tourism industry is reliant on uniqueness of place. Multinational chains do little to promote these qualities.
The City of Yangon is entering a period of profound change. As the largest and most influential city in Myanmar, the policies that are put into place over the next few years will undoubtedly have far-reaching consequences for both the people of Yangon and the rest of Myanmar. There are three unique options which we see available to Yangon City Development Committee and the Myanmar government as a whole:
1. Allow multinational firms full access to Yangon – This option is essentially a full opening of the Yangon market to outside forces. It is the path that is championed by those who argue for laissez-faire capitalism. Multinational firms are likely to gain the most if this option is chosen, at the expense of local firms and citizens. Ultimately, this option will likely lead to a loss of autonomy for both the City of Yangon and Myanmar as a whole if the national government follows suit.
2. Block all access by multinational firms – This option would prevent all of the issues noted in the “Key Considerations” above and would provide local firms and citizens the most protection; however, it brings with it a number of other problems. As a member of the World Trade Organization, such a decision would likely lead Myanmar into a lengthy and costly legal process which it is unlikely to win. Such a decision would also be considered a direct challenge to President Thein Sein, who has made it a personal priority to reestablish links with the outside world.
3. Managed access of multinational firms – This option offers a middle ground between the two previous options, as it allows for increased links with the outside world while also allowing the City of Yangon to utilize its legal rights to manage its affairs. Through the use of tools such as zoning (to include restrictions on store size and location), the city can easily manage the access and effect of multinational firms in Yangon. This allows for positive benefits for all key stakeholders, including local firms, multinational firms, local citizens, and the Yangon City Development Committee itself. This final option has been enacted in neighboring Thailand with very positive results in accessing foreign capital while also preventing a significant loss in independent business.
As noted above, there are a number of issues surrounding the introduction of multinational firms which could negatively affect the City of Yangon. We expect that local businesses and champions of locally-driven industry would prefer that the Yangon City Development Committee blocks all access by multinational firms (Option #2). This would provide the greatest benefit to them, while preventing economic loss to the city and its citizens. However, we believe that this is not a realistic option given President Sein’s policies aimed at opening Myanmar up to the world. Allowing multinational firms to have full access (Option #1) will undoubtedly lead to the loss of local, independent business. We, therefore, see a carefully managed access of multinational firms (Option #3) to be in the best interest of all concerned stakeholders. The precedent Myanmar’s Thai neighbors have set, we feel, should be taken seriously. However, for this to be effective, such policies must be acted upon deliberately and soon. Myanmar may be new to the game of globalization, but as a nation with a long, unique history and an independent people, it is by no means without options. Myanmar does not have to simply follow the same path as the US and other developed nations. We strongly recommend that the Yangon City Development Committee take this into account as it crafts its policies in the face of the turbulence and opportunity ahead.
I have a deep love for Asia and its people, and I welcome opportunities to play a part in its ongoing story. You can contact me at NathanAlbritton@hotmail.com