Myanmar is a very rich in gas and oil resources country, situated in Southeast Asia. Despite the significant potential of Myanmar energy sector, the economy of this country is one of the weakest in the region. Such a situation is caused by the investment and trade sanctions that were imposed on Myanmar by most of the developed countries, including the USA. As a result, the country has been suffering from stagnation and isolation for few decades. However, the recent political shifts in the country triggered a considerable progress in both internal and international affairs. The USA has already significantly eased sanctions against Myanmar, allowing American companies invest and enter into Myanmar economy. Consequently, many transnational corporations, including General Motors, have a possibility to expand into Myanmar to increase their revenues and market share. General Motors is able to make direct and portfolio investment as well as open a dealership in the country. Nevertheless, it is crucial for the company to take into account possible risks by evaluating Myanmar political, legal, economic, financial, and market situation.
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The decision whether to enter Myanmar car industry has to be based on the fact that this country has been isolated from the world community in terms of social and economic cooperation for long years. Many sanctions were applied against the country to demonstrate the displeasure with the country’s internal and external policy. At the moment the situation in the country is better, but the instability is still present and institutional risks are relatively high. Despite the new policy of the country’s authorities, new sanctions or restrictions can be imposed, and the possibilities of conducting business properly will be significantly reduced.
A new regime, established by Thein Sein, will obviously attract huge flows of direct and portfolio investments from abroad. However, foreign investors will face many problems because both the political power and most of the resources of the country are concentrated in the hands of military leaders and their business associates. The military regime that had been recently ruling the country, left a legacy of opacity, corruption, and inefficiency as Myanmar was recently ranked as the world’s second country (behind Somalia) with the highest level of corruption. As a result, the political instability in the country can create obstacles for General Motors as the current political shifts make country very unstable, and there can be many conflicts and contradictions with political parties, especially parliament opposition.
Moreover, political conflicts have a huge impact on the legislative system of the country as they can cause a simple omitting the national and international law, especially during possible rebellions or local battles. It is very important for the company to take careful researches into the country’s legislation and clarify from the Myanmar government over taxation, investment, and other legal issues in order to avoid possible problems that can occur. Considerable problems and opacity of the Myanmar legislative system is one of the biggest factors that deter the entry.
The legislative system of the country is not developed in terms of dealing with international companies, as it was concentrated on the internal business environment. The country has opened its borders just recently, and this fact can create some troubles for relations with other countries. That is why it is necessary to make sure that the company’s activities in Myanmar will not run afoul of both U.S. and Myanmar law.
Also, the internal situation in the country creates many risks for the company. According to the United Nations and several other organizations, the country suffers from systematic human rights violations, including genocide, child labor, and slavery. Also, the global community is particularly concerned about the lack of freedom of speech in the country, especially the freedom of the press, as well as the entire mass media.
Economic and Financial Situation
The economy of the country is one of the weakest in the region, but it is expected to recover in the future. The new political course of Myanmar will simplify the cooperation with the rest of the world in terms of the international trade, capital and labor movement, financial and investment flows. Consequently, the country expects to increase its gross domestic product, level of income, and employment rate. These changes will positively influence on the situation in the car industry by increasing the aggregate demand on the cars.
Nevertheless, the economy of Myanmar has many weaknesses. First of all, it is evident from the main macroeconomic indicators. According to the International Monetary Fund, the gross domestic product per capita is equal to less than $900 in 2012. This is quite a low figure that demonstrates the situation in the entire economy of the country. Though the inflation rate was equal to 4.243% in 2011 and the unemployment rate was 4.02%, the economy of the country is not as stable as it seems to be. Myanmar is still an agricultural country and most of the citizens live in rural areas. The poverty rate in the country is very high, and there is a significant gap between the poorest and the richest. As a result, the percentage of the middle class in the country is very small, decreasing the number of potential customers of General Motors.
Second, the infrastructure of Myanmar is weak and undeveloped. During the years of economic sanctions and neglect from the international community many aspects of state infrastructure were almost untouched and significant investments have to be made in such areas as transport, energy and telecommunications in order to create normal business environment. It is necessary to examine local manufacturers and the possibilities to collaborate with them in the framework of outdated and inefficient infrastructure, which can require additional costs for proper functioning. Moreover, the country does not have facilities to manufacture cars and details, so it is not suitable for creating plants, except of building the new ones.
Third, it is important to take into account socio-cultural issues in the Myanmar. Specific cultural environment in the country differs from the western ones as the society in Myanmar is divided into groups because of ethnic and religious cleavages. There are tensions between civil and military sectors of society, the poorer and the richer. These factors have a negative affect on the workforce in the country, which is unskilled and not qualified. The efficiency and the amount of high-qualified employees to work in the energy industry are very low, and the migration of labor force can be the only solution. The lack of qualified workforce will result in additional costs for General Motors to train and teach employees.
Fourth, it may not be easy for General Motors to conduct financial settlements as the financial system of the country is underdeveloped, The amount of international banks, which usually maintain financial settlements of international companies, is very small, and there can be problems with operations with money and capital. Moreover, the regional financial institutions usually do not follow international requirements and may create many problems with financial flows. The procedures of conducting financial settlements that serve the importing and exporting operations is very complicated, and there can be problems with the state’s currency converting.
General Motors has considerable opportunities and perspectives in the car industry and the car market of Myanmar. As the country has recently opened its borders for international companies, the import of cars is expected to soar significantly. New cars have traditionally been the privilege of the military generals, and the rest of the population of the country did not have a possibility to buy imported cars during the military regime as their prices were very high due to high tariffs and taxes. As a result, Myanmar has one of the oldest fleets of cars on the streets. However, as the tariff barriers have been coming down recently, ordinary people and the middle class is willing to buy new cars from abroad.
At the moment, the Myanmar car market is presented by Asian companies, including China's Chery Automobile Co. as well as South Korean and Japanese auto manufacturers. These companies were not restricted by trading sanctions, and they could enter the Myanmar car market relatively easily. Nevertheless, these companies were not able to invest heavily in the auto market due to the country’s internal restrictions. That is why the potentially biggest competitors of General Motors are not in a significantly better position than General Motors.
The country has a specific structure of the cars’ demand. As almost a half of the population lives in poverty, the demand on cheap cars prevails. That is why the second-hand cars from Japan, South Korea and other neighboring countries are more sold than the new cars. Consequently, General Motors must introduce cars with low price to force out the competitors.
A high competition in the car market that may begin in the country in few years will open new opportunities for General Motors. By entry into Myanmar, the company will get a perspective of the new clients’ base, potential partners and revenues. However, the aggressive strategy of expansion, unfortunately, can drive the company to big problems. That is why the decision about the entry into Myanmar must be careful, accurate and well-measured.
Taking to account all positive and negative factors of the Myanmar business environment, the conclusion can be made that this is a big market that may have relatively high demand in the future. However, the current situation in the country provides poor possibilities for General Motors. Institutional risks are very high, and the infrastructure of the country is undeveloped. The population of Myanmar is not familiar with the company’s brand, so getting a high market share will be a real challenge for the company. Consequently, the company should wait with the entry into Myanmar car industry. However, it should begin corporate social responsibility projects in Myanmar in order to gather more information of the market and introduce the company to the population.
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