Jun 5, 2013

Coke and Unilever Invest $1 Billion in Myanmar

Coca-Cola Co. and Unilever will invest a total of nearly $1 billion in Myanmar over the next decade, making the biggest commitments by Western multinational corporations and becoming the first prominent global companies to restart manufacturing in the Southeast Asian country.

The announcements came more than a year after Western sanctions against investment in Myanmar were tentatively lifted. Western investor interest in the still-risky market so far has taken the form of representative offices and discussions about joint ventures. Most foreign direct investment has come from other Asian countries.

Coke formally opened a bottling plant Tuesday on the outskirts of Yangon, where manufacturing began in April. The company plans to start producing Coke at another plant within two months, pledging $200 million over the next five years to increase production and distribution across the country.

Consumer-products maker Unilever also started operating its first factory in Myanmar, producing food. The Anglo-Dutch company pledged to invest €500 million, or roughly $650 million, over the next decade as it increases its foothold in emerging markets.

The commitments represent a milestone in President Thein Sein's efforts to transform the long-isolated country's economy after decades of military dictatorship. The announcements came on the eve of a meeting in Myanmar of the World Economic Forum that will assemble a record 900 participants and that organizers hope will push interest in Myanmar beyond exploration to building plants and factories.

For Atlanta-based Coke, the first major U.S. company to pledge to manufacture in Myanmar, the country of 60 million people represents one of the final frontiers in the global "cola wars" with rival PepsiCo Inc. PEP +0.28% Coke is returning after more than 60 years, leaving only North Korea and Cuba where its products aren't sold legally.

"We see great potential," Muhtar Kent, Coke's chairman and chief executive, said in Yangon, Myanmar's commercial center. Coke, working with Myanmar's Pinya Manufacturing Co., has opened its bottling operations at a Pinya plant. Coke now is distributed only in major cities in Myanmar, but the company plans to reach more than 100,000 locations within six months.

PepsiCo Chairman and CEO Indra Nooyi is co-chairwoman of a World Economic Forum event that will discuss balancing the needs of foreign investors with expanding domestic capacity. PepsiCo, of Purchase, N.Y., signed a distribution pact with Myanmar's Diamond Star Co. last July after exiting Myanmar in 1997 but doesn't bottle cola in the country.

PepsiCo is pursuing plans to establish beverage manufacturing in Myanmar and distribution is growing under Diamond Star, a PepsiCo spokesman said. The company, which makes Lay's and Ruffles potato chips, also is completing plans to distribute snacks and is exploring agricultural investments such as potato farms.

Unilever, whose roots in Myanmar go back 80 years, withdrew when heavier Western sanctions were imposed in the early 2000s. The company sees the country as crucial to Unilever's focus on emerging markets, which amounts to 57% of its business. The company restarted distributing its brands in Myanmar two years ago. Its Knorr soups and Lux and Pond's skin-care products already have become market leaders in the country.

"We see the makings of another Vietnam here, where we started from scratch 17 years ago, but now our business there is worth almost $1 billion," said Unilever Chief Operating Officer Harish Manwani.

Since Mr. Thein Sein began opening the economy and political process two years ago, Myanmar has fast become a destination for global investors looking for ways to carve out a slice from a largely backward, isolated country.

Still, foreign direct investment in Myanmar has been sluggish, totaling $1.4 billion in the fiscal year that ended in March. That was the same as for Laos, whose population is one-tenth of Myanmar's. Many Western companies are concerned that they are late to the game, saddled by stricter compliance and corporate social-responsibly requirements than their Asian competitors.

China remains Myanmar's largest trading partner, though Beijing's investments in the Southeast Asian country have dropped sharply in the past year amid political tensions between the neighbors. Popular sentiment has been turning against China and its historically close ties with the former military junta. Chinese companies invested $407 million in Myanmar in the most recent fiscal year, down from $4.35 billion and $8.27 billion in the previous two years, respectively, according to the Myanmar government.

Mr. Thein Sein stopped a Chinese-backed $3.7 billion hydropower dam project in 2011 in response to local opposition. And protests in November led to the temporary suspension of a Chinese-backed copper-mine project. Talks on a multibillion-dollar railway linking Myanmar's west coast with Kunming in southern China have been put on hold.

U.S. companies, meanwhile, must confront Washington's list of roughly 100 "Specially Designated Nationals," people who are considered cronies of the previous government and with whom U.S. companies are barred from conducting business. Many such people hold crucial positions in Myanmar's economy and otherwise would make potential partners.

"We looked very carefully and diligently on who to partner with," said Coke's Mr. Kent. "We were rapid, but we did our homework.''

Unilever and Coca-Cola acknowledge that Myanmar will require years of investment before it operates as smoothly as other countries in Southeast Asia. Infrastructure remains poor and the labor force's skills are limited.

"Capacity building remains a huge risk," said Bauke Rowes, Unilever's chairman in Thailand and Indochina.

Both companies are creating staff training programs. Unilever plans to repatriate Myanmar nationals from factories in neighboring countries to work in the new facilities.

Meanwhile, clashes between Myanmar's Buddhist majority and Muslims that have left hundreds of people dead and displaced more than 100,000 create instability.

"It is important to understand that Myanmar is at the beginning of its journey," Mr. Kent said. "Change is not easy for anyone, there will always be zigs and zags [but] this has happened as well as can be expected."

Source: Wall Street Journal