Ongoing Political Turmoil Threatens Myanmar’s Apparel Supply ChainsEverstream Team
Myanmar’s garment industry, which has a net worth of USD 6 billion (EUR 5 billion) is in jeopardy after the military carried out a coup d’état and detained elected civilian leaders on February 1, claiming election fraud. While the garment industry as well as other business sectors in Myanmar are still reeling from the effects of the global pandemic, the violent escalation against civilian demonstrators in the aftermath of the coup, along with intermittent internet blackouts, night curfews, factory closures, and disruption to banking systems have collectively crippled supply chains further.
Myanmar’s apparel sector has grown substantially in the past decade when the country returned to quasi-civilian rule in 2011 and foreign investment poured in. According to the United Nation statistics, Myanmar’s garment, textile, and footwear sectors was pivotal in alleviating poverty as it created jobs faster than any other sector.
Mounting pressure on companies
With mounting pressure on multinational firms in Myanmar to condemn the coup and targeted sanctions by western governments being imposed specifically to the top military leaders and their affiliated businesses and associates, foreign-owned companies in Myanmar are in a tight spot. On one hand, businesses operating in a military-ruled country carry an operational and reputational risk with a threat to long-term profitability. On the other hand, pulling out of Myanmar will directly hurt the factory workers’ livelihoods. Nevertheless, international garment brands with suppliers based in Myanmar have started to feel the effects of the geopolitical crisis.
Martial law was imposed in several districts in Yangon on March 14, including in Hlaingthaya, after at least 74 died and hundreds others were injured on the deadliest day since the coup. With a majority of the injured being from the industrial area, many migrant workers are fleeing Hlaingthaya as post-coup violence escalates. For those who remain, many of the garment workers are refusing to work as part of the nationwide Civil Disobedience Movement (CDM). The CDM is a work stoppage campaign involving workers from both private and public sectors to topple the State Administration Council, a provisional administrative body formed by the army chief after the coup. The rest of the factory workers continue to participate in the daily demonstrations against the coup and the violent response by the security forces.
Amidst the uncertainties, manufacturers are facing labor shortage with production and delivery times at stake as businesses review inventories and future orders. According to SMART Textile and Garments, an initiative funded by the European Union that promotes sustainable practices in the sector, over 700,000 people, comprising a majority of women, worked in 700 apparel factories in Myanmar prior to COVID-19. However, the workforce number has significantly dropped by tens of thousands after factories were forced to close due to slow global downturn and the mounting social unrests will only further delay a return to normalcy.
Arson attacks on factories
Japan’s Fast Retailing Co., Uniqlo’s parent company, is expected to face production and logistics delays after two of its supplier factories were set on fire on March 14 by unknown assailants in Hlaingthaya Township, one of Yangon’s main industrial hubs as violence erupted between the security forces and protesters. While it remains unclear if Fast Retailing’s four other contract factories in Yangon will assist with production to ramp up the loss, the company announced that it expects production and logistics delays in the coming weeks.
Although no casualties were reported in the arson attacks, some garment brands are prioritizing workers’ safety and payment, while other companies have already implemented contingency plans to move production elsewhere. According to reports, Swedish clothing brand Hennes & Mauritz (H&M), with over 40 contract factories in Myanmar, has already suspended productions by halting new orders. Japanese retail chain, Shimamura is considering moving production to China or another Southeast Asian country after facing delay in deliveries from Myanmar. Similarly, the garment brand Adastria will temporarily halt production in the country by April and carry out production activities at alternative plants in Vietnam, Indonesia, and China after it faced two to three weeks of delivery delays from suppliers in Myanmar. Wacoal, a leading underwear maker, has also suspended operations at its Myanmar plant. While details are unclear, Italian clothing company OVS S.p.A. has also reportedly halted deals with manufacturers that discriminate against pro-democracy demonstrators.
Cargo movement remains a challenge
Even if factories are able to produce with limited staff, logistics operations remain a challenge as main roads in Yangon are blocked with makeshift barriers by civil groups to use as defense mechanism against military crackdowns during daily protests. Thus, picking up cargo from factories and warehouses and subsequently delivering them to transport hubs has become a challenge. Moreover, nearly 3,000 cargo truck drivers are on general strike; while essential commodities such as medicines and perishable goods are being transported, apparel commodities are deemed non-essential. International shipping lines including CMA CGM and Hapag-Lloyd have also suspended cargo bookings to Myanmar as the Thilawa Port is congested, exacerbated by customs issues and trucking availability. Currently, only ad hoc flights and relief flights are operating from Yangon International Airport. While cargo delivery through trucking to neighboring countries such as Thailand remains viable, manufacturers would need to factor in the cost, capacity constraints, and longer delivery times.
Customers with apparel suppliers based in Myanmar are advised to activate contingency plans due to these operational challenges and consider alternative production sites in the region. Companies are also advised to ensure that business continuity and crisis management plans are suited to the current political environment. As operational and reputational risks are vital when operating in a country with sanctions, organizations should conduct third party due diligence on business associates and affiliates. Keep abreast of further developments in Myanmar by monitoring the Everstream Analytics platform.