As we had identified Myanmar as a developing country that has huge potential in business opportunities this paper further examine the type of businesses sector that we should venture in. Myanmar's wealth was once tied up but the new government of President Thein Sein which came into power a year ago resulted in a drastic change in the domestic economic development. According to (Wall Street Journal, 2012), more independent business players are allowed to invest and expand their business in local tourism, agricultural and other industries previously tightly controlled by the government. As more and more investors are interested in penetrating into the country, local government will open up more sectors, offer more credit and mend its currency-exchange system. Influential country like the United States of America claims that a full diplomatic relations with Myanmar will be restored (Wall Street Journal, 2012). Even the European Union and Australia has suspended sanctions in Myanmar after the announcement by Obama to ease ban of the local investment (The New York Times, 2012). The New York Times also states that Obama will be visiting Myanmar in his Asia trip after his re-election. A foreign investment boom is expected to occur in one of the Asia's most remote countries since then.
Myanmar has a number of 60 over millions population with various diversities and this would allow a huge potential in expanding different kinds of business and local developments. Cheaper labour in Myanmar is also one of the factors which attract foreign investments. Mr Mahtaney said that the labour is cheap and trainable in Myanmar and the country is a potential source of production (Kannan, 2012). As the job opportunities increase, the lifestyle of local residents will be upgraded indicating that the numbers of quality consumers with higher spending power will increase. Thus, Myanmar is seen as a new venture location with new opportunities for business developers. This is definitely the golden time to invest in the country.
I would suggest the company to invest in business sectors which focuses on necessities. Three suggested business sectors to be set up in Myanmar include apparel store, fast food restaurant and hotel. These business sectors will be brought into the country in the forms of franchising and joint venture.
Business Sectors
Apparel
Prior to the political reformation in Myanmar, apparel trade is already one of the important activities in the country. According to Global Trade Information Services, exports of apparel from Myanmar to Japan and South Korea have increased tremendously from $162 million in 2008 to $530 million in 2011 (The Wall Street Journal, 2012). Myanmar's cheap labor force and the ongoing reduction of sanctions by the United States and European Union will expand the global clothing brands. The President and CEO of The American Apparel & Footwear Association welcome the democratic reforms in Myanmar and they state that there is a predictable business and investment climate (Elmore, 2012). Spanish international fashion brand Mango has pledged not to conduct business in Myanmar before the reforms. Now, Mango has declared that the brand will enter the markets of Myanmar since April 2012 (Schmadi, 2012).
Seeing that the fashion industry is expanding tremendously in Myanmar, I would suggest the company to set up Donna Karen New York aka DKNY. Founded by an American designer named Donna in 1984, DKNY has numerous outlets throughout the world. It has an affordable designer line of both casual and formal wear. The range of clothing provided includes adult wear such as jeans, underwear, tops and also kids wear. DKNY is "the energy and spirit of New York which addresses the real-life needs of people everywhere" (Official Website of DKNY). DKNY is also listed in the top American Clothing Brand which has a reliable performance in providing quality clothing (Grayson, 2011). Since the market in Myanmar has opened not long ago, company should grab the opportunity to set up this brand first in the strategic location in Myanmar before other investors do.
In order to bring the DKNY brand into Myanmar, we should act as the agent or the middleman. We should use the form of franchising from DKNY because they are already an established brand. This is because the parent company has spent so much on advertising but and we as the franchisee is able to take absolute advantage on it. Most of the customers nowadays prefer well-recognised products as they acquire assurance and reliability. Our company does not have to spend so much of the advertising expenses for brand recognition as there will informed customers who already have positive experience towards the brand. Successful brand can be easily remembered and identified. For example, Mc Donald's have already survived for decades. Furthermore, company will also receive management support which includes staff trainings and ongoing technical support. Franchisors want franchisee to be successful in order to make sure there is high success ratio to attract more potential franchisees (Daszkowski, 2012).
Franchise is also able to avoid the process of trials and errors which could possibly inquire a loss for the company. With a guideline or a successful track record, our company is able to run a proven business concept. In other words, company is able to leverage the strength of the franchisor namely the parent company DKNY which has performed consistently and persistently worldwide. Customers in Myanmar will also be able to collect more information via existing official website of the brand and view the history track of the brand performance. Besides, there will be a network of peers which compiles of other franchisees which can provide advice via company intranet or even assistance of secure funding. Even if the customers are unable to surf the internet, their surrounding peers who have experience will recommend the brand orally. I believe that franchising is a better form of entry as compared to others because of the listed advantages.
Fast Food Restaurant
Myanmar is considered as a conservative country and a country which always falls behind. Apparently, the people of Myanmar used to constraint themselves to their own culture and they live in their own lifestyle; speak their own language and they also relish their own style of food. Therefore, in term of food, people of Myanmar do not get to have much variety of choices if they were decided to go for a restaurant. Besides, the economic in Myanmar was not good and the people of Myanmar did not have much income, thus, they did not always go out and eat at a restaurant.
Because of the recent political reforms introduced by President Thein Sein, Myanmar is now open to the foreign market and this will definitely create more jobs opportunity for the people of Myanmar. When the people get a better job, they would have higher income. Eventually, they would demand something different and better. Same goes to food. Therefore, I suggest exploiting into the food industry and the best choice is to start off with fast food. Rice and curry are the basic food in Myanmar and they have been eating the same food for so many years. If fast food goes into the Myanmar market, it will definitely meet the hype.
The franchisor, Auntie Mary is an established fast food retailer in the United States of America (USA) since 2005 with about 20 local restaurants; mainly serving burgers, French fries and fried chickens. Because Auntie Mary already has and established name in the USA and is catering for more customers outside the USA, therefore the owner Madam Mary would like to expand its business to the overseas. Because the food business industry is heavily relies on the recipe and its customer services, exporting the brand into Myanmar is not a good option as we need to export the raw food that makes up the recipe of foods of Auntie Mary. Therefore franchising an established brand like Auntie Mary with its well- known services into Myanmar would be a more feasible choice.
Franchising is a form of licensing in which the franchisor sells intangible property to the franchisee and requires the franchisee agree to abide by strict rules as to how it does business (Hill, C. & Hernandez-Requejo, W., 2011). One of the main reasons I choose franchising is because Auntie Mary already has its name in USA and if we go into a new foreign market it makes it easier because of the acknowledgement and reorganization. Besides, Auntie Mary will be contributing on marketing support as well. They will help us to come out with a series of marketing plans; for example, advertisements, promotions, and public relations. As Auntie Mary is very experienced and this fast food business has been operating since 2005.
Furthermore, it is very time consuming if someone was planning to start a restaurant business from square, especially when this person has no experience in this industry at all. However, by franchising, it helps to save a lot of time on designing the restaurant, create new menu and thinking of a beautiful name for the restaurant because everything will be done by the franchisor, Auntie Mary. The interior design will follow the Auntie Mary restaurant in USA and the menu will also be prepared by Auntie Mary.
Meanwhile, the system and the procedures of the restaurant will also be developed by Auntie Mary. They will also transfer two to three experienced staffs from USA to Myanmar, in order to help us train the new staffs; it is actually part of the purchase agreement. Then, we will ensure that we are giving the best service and the customers are being treating in a professional way, at the same time, enjoy their dining in our fast food restaurant.
Basically, the business operation tools are already in place. Even though franchising Auntie Mary requires quite a big amount of money, everything will be done by them. Some people claim that franchising a business is very troublesome because there are a lot of rules and regulations need to be followed. Somehow, I personally find that it is a way of maintaining the level of standard and the name of a business; it is definitely worth the price.
Hotel
Another business I would like to suggest is to hotel business in Myanmar. As we all know, Myanmar is waving their hand to those foreign investors; therefore, there will be definitely having a lot of investors visiting to Myanmar to do business and by that time, hotel would be one of the businesses that being affected and making money. Besides, tourism is another sector would have big impact, thus, building a hotel business in Myanmar is definitely a right choice.
The best form of entry to do hotel business in Myanmar will be joint venture because by setting up a hotel business requires huge capital. However, it is financially beneficial for both parties to do joint venture because none of the party has to put in 100%; it can lighten the burden of start-up costs. Apparently, joint venture helps us to access to new market without spending too much money. Hotel business requires using high-technology product for the rooms; however, it is quite pricey and not affordable to anyone. With the help of joint venture partner, we will not have to worry of spending too much money because the costs are all shared. Besides, using joint venture model will also benefit us by sharing the risk with partners, meanwhile having access to greater resources, for example, specialized staff, advance technology and expanded networking.
It is also very important in choosing the right partner to do joint venture business. As we are doing for hotel business in Myanmar, I would suggest finding local investor especially those who are familiar in the hotel industry or someone who is already doing a hotel business. It is important to have the knowledge of a foreign country that we planned to do business for. Since we are doing a hotel business, it is basic requirement to understand their cultures; we need to know about their lifestyles and food preferences so that we can decorate based on their culture and to put in some local food in the restaurant food menu. Therefore, with having a local business partner, we do not have to worry about their cultures and communication problems.
Marketing efforts is one of the advantages of joint venture, because our partner has experience in doing business for hotel industry, he must be able to know what types of medium should be use for advertising, what is the best promotion package for hotel rooms and etc. Therefore, it also benefits us on wasting time on planning for something that we can actually just get advices from our partners. It is getting more and more competitive in doing business in Myanmar because many foreign companies are going into the market, thus, having a partner who has experienced in the industry for many years will make our hotel more competitive.
Nonetheless, partner with someone who is running a hotel business in Myanmar will also allow us to access to their large list of customers' details. With the list of customers' details, we may give some special offers to attract them and customize their needs and preferences for the hotel package; make sure they enjoy their stays with us. At the same time, increase our credibility to them, in order to build a strong relationship with them. Then, they might consider choosing our hotel again for their next visits.
Currency
Central Bank of Myanmar Background
Prior to the year 1948, Myanmar did not have a central bank that enjoys the power of a central bank today. During that time, Myanmar has The Union Bank of Burma. It was established on 3rd April 1948 as a result of the legislation act of Union Bank of Burma 1947. Though the law enabled the Union Bank of Burma to take over the Yangon branches of the Reserve Bank of India, it did not have the power of a central bank. Therefore in 1952, the government of Myanmar abolished the Act Burma Currency Board which has the power to control all things related to currency in the country and enacted the Union Bank of Burma Act 1952 to transfer the powers of the Act Burma Currency Board to the hands of the Union Bank of Burma. Because of this act, the Union Bank of Burma had the right to issue currency through its newly created department called the Currency Department of the Union Bank of Burma. This department was created in 1st July 1952. The Union Bank of Burma was given permission to issue 40 million of the country's currency, called as the Kyats, by the government at that time (Central Bank of Myanmar, 2012).
Not long after that, Myanmar had a political revolution. As a result of the political revolution that happened in the early sixties, Myanmar reformed their economic system and they adopted the socialist economic system. Soon after that, the government enacted the People's Bank of the Union of Burma Act 1967. As a result all banks in the country were nationalized and a monopolistic central bank was established. The monopolistic central bank at that time were called as the Union of Burma Bank which was created as a result of the merger of the Myanma Economic Bank, Myanma Foreign Trade Bank and Myanma Agriculture Bank. Now because of this move by the government, the central bank has more power than before (Central Bank of Myanmar, 2012).
In the late eighties, Myanmar had another economic reform and this time the government decided to transform Myanmar's planned economic system into a market oriented system. As a result, the banking system in the country must be reformed as well. Hence, the Central Bank of Myanmar Law was enacted in 2nd July 1990. This law's main purpose is to promote efficiency and smoothen up all financial activities in the country. To achieve this objective, the Central Bank of Myanmar was created. The Central Bank was given a capital of 500 million Kyats by the Government. Now a true central bank which possesses all monetary powers a central bank ought to have was finally created. The Central Bank was instructed to protect the Kyats from internal as well as external forces. Other objectives of the Central Bank is to promote and protect an efficient payment system in the country, to promote the solvency and liquidity of the country's financial system, to govern all financial activities in the country and also to develop the economy (Central Bank of Myanmar, 2012).
Currency Background
The currency that is currently being used in Myanmar is called the Kyats and they are issued by the Central Bank. Myanmar had switched between a few currencies before settling down into the current Kyats and also changed their Kyats denominations a few times before. When British were the colonial master of Myanmar, they were being ruled as one of the states of India by the British. Because of this, Myanmar had to share the Indians rupee as their domestic currency. During that time, the Myanmar or as they were called the Burmese rupees were the same with the Indians rupees except the they were marked "Legal Tender in Burma Only". The Burmese rupee was directly linked to the British Sterling and was worth one shilling and sixpence (Central Bank of Myanmar, 2012).
After Myanmar gained independence from the British, the Myanmar government decided to change the heading of their note to the "GOVERNMENT OF THE UNION OF BURMA". At this time, the powers to issue currency notes belonged to the Burma Currency Board. As demand for the currency notes increased, the Burma Currency Board decided to demonetize all those shared Indian rupees. The Kyats were created and the Kyats coins and bank notes were distributed to the public. Because of the transfer of powers from the Burma Currency Board to the Currency Department of the Union Bank of Burma, the Kyats currency conversion were changed to a decimal system. The newly released coins were denominated in 1,2,4 and 8 pe while the ban notes were denominated into 1, 5, 10, and 100 at that time. Later on the denomination of 20 and 50 Kyats were issued in 1958 (Central Bank of Myanmar, 2012).
A few more changes to the notes and coins denomination happened from the period of 1958 to now. The most important changes were made was in the 1988, when the Central Bank of Myanmar decided to replaced bank notes which bears the face of Aung San with the Lion series. Denominations that are legal at this time are 1, 5, 10, 20, 50, 100, 200, 500 and 1000 Kyats notes and 1, 5, 10, 50, and 100 Kyat coins. This is the still the case until today.
Currency Volatility and Hedging
The exchange rate between the Myanmar Kyats (MMK) and the US Dollar (USD) from last year has quite stable as it hovered between the range of 853MMK/USD to 878MMK/USD for the whole year (Exchange-Rates, 2012). If we trace back the historical data of the exchange rate between the MMK with the USD for the past 5 years, the annual exchange rate changes is 0.13% but if we look at the changes in terms of quarterly for the past 5 years, it is at 0.39% (OANDA, 2012). This shows the currency is quite stable as the changes is not really much. However, a slight change even if it is below 1% could result in noticeable profits or losses in big businesses like ours. As we a multinational corporation, our businesses' turnover is in millions of dollars. Therefore we have to look at ways to hedge our currency risk as a small percentage of currency exchange rate changes could result in a losses in profits for us.
One of the suggested ways to reduce our currency risk by engaging in forward contracts. The forward contract is a contract that stipulates the agreement that the seller must sell to the buyer an amount of currency at the fixed exchange rate at a specified future date or time period. By doing this, we can then determine our currency exchange rate now and fixed it to reduce the currency risk. Another way to engage in currency risk hedging is to buy foreign currency options. This option is quite supplementary to the above contracts option. The purchase of a foreign currency options gives us the option to exercise our strike price when our future contract is due. If the currency exchange rate of the USD becomes lower than the agreed rate in our forward contract, then we can exercise our options if our strike price is profitable. If the strike price do not gives us any profits, we can choose not to exercise our option. Although buying an option incur cost and may increases our risk in a certain way, the protection that it offers against the currency risk offsets the cost that we have to pay now. (Watkins, 2012).
International Monetary Policy
Since President Thein Sein took power a year ago, a host of reforms were introduced in the country to peddle back Myanmar into the current global economic system. One of the most impactful changes to Myanmar's international monetary policy by the government of President Thein Sein is the decision to scrap the 35 years old fixed exchange rate system and replaced it with a managed float exchange rate system. Before this landmark decision, the Myanmar's Central Bank pegged the exchange rate of the Kyats. The market forces of supply and demand would not have any impact under the fixed exchange rate system practiced before this. But after the government of Myanmar decided to change the fixed exchange rate system to the current managed float exchange rate system in April 2012, the market forces of supply and demand will now plays some role in determining the exchange rate of the Kyats. Although the Central Bank still has their hands on determining the exchange rate of the Kyats and not totally dependent on the market forces, this move is necessary to prepare Myanmar to get back into the global financial system (Kate, 2012)
Conclusion
As Myanmar is opening up its economy into the world, there are many opportunities to be exploited for a multinational company like us. The apparel business sector in Myanmar is still in its infant stage without many well-known brands. So, it is a good choice for us if we can bring DKNY into Myanmar by franchising. By franchising, we have more advantages like enjoying an already established brand and its years of experience in the business as compared to other form of entry which do not really gives us any advantages. Besides clothing, I believe that other industry that will thrive on the new economy of Myanmar is food and hotel. Both of these industries are related as well. Because more foreigners are going into Myanmar, the hotel industry will definitely thrive. And the best way to go into this industry is by going the join venture route. By doing this, we can save our startup cost, enjoy the local specialized workforce and also to be able to learn their culture better. As for the food industry, we should penetrate the market by franchising. As discussed above, other form of entry like exporting is not suitable for food businesses. This is because exporting raw foods into a foreign country is not feasible and may result in a big risk for us. Therefore, the only way to exploit this very profitable industry is by franchising the brand into the country.
Venturing into foreign market always pose a more risk compared to doing business locally. This is because we have to incur other risk like currency exchange risk. Even though Myanmar's past currency volatility record is considered stable, it may still pose a big risk to a multinational company like who sales ranges in millions dollars. But with the suggested hedging we can drastically reduce our currency risk. Because the benefits in expanding our businesses into Myanmar outweighs the foreseeable risks, I definitely suggest we should look into this plan and its recommendation to expand our ever growing business empire and to give even more profits to our stakeholders.
