Myanmar firms look overseas to mitigate operational risks in home market

Photo by Justin Min on Unsplash.

As the military coup in Myanmar weighs down heavily on businesses in the country, companies are increasingly trying to mitigate operational risks through geographical diversification with the hope of generating new revenue streams.

Since the Burmese military, known as the Tatmadaw, seized control of the country in February 2021, investment activities have become muted, and economic as well as social life has been affected.

“The coup made it very difficult to continue operating in Myanmar. We still operate in the country, but obviously business is going very slow,” said Brett Joyal, CEO at mom&pop, a platform connecting brands with mom-and-pop shops and providing data for consumer product firms.

mom&pop is raising funding for its expansion to Myanmar’s neighbouring countries, Joyal told DealStreetAsia.

Meanwhile, ERA Communications, an integrated communications agency formed through a merger of public relations agency Echo Myanmar and digital marketing firm RevoTech in 2019, is also making inroads into other markets in the region, according to its managing director Anthony Larmon.

Even Myanmar Strategic Holdings (MSH), an investment holding company with a long foothold in the country, plans to further expand its presence beyond the boundaries of its home market. Last year, London-listed MSH had acquired English language training centre Wall Street English in Vietnam.

“The diversification of the group’s operations between Myanmar and Vietnam mitigates the overall COVID-19 and single-country exposure of the group,” MSH had earlier said in its interim report for the six months ended March 31, 2021, which was released in July.

The firm had said the English language training franchise helped increase its revenues during the period by 175% year-on-year, to $7.6 million.

While travel restrictions caused by the pandemic are hampering international expansion plans, MSH is looking at Thailand as the other Southeast Asian market it wants to penetrate into, its CEO Enrico Cesenni told DealStreetAsia.

Two other companies in the HR and corporate service sectors are also understood to be planning regional exposures.

Urgency for diversification

While some of the expansion plans were kicked off before the coup, the double crisis of the political situation and the COVID-19 pandemic has pushed companies to change their priority.

MSH, for example, said one of its main priorities this year is to delay its planned expansion of language centres and capital expenditures in Myanmar.

“A lot of our projects that started in Myanmar didn’t carry in in the same way they were before. So, we were forced to diversify out of Myanmar while still protecting what we’ve done so far,” Larmon expressed.

Overseas expansion plans were not Larmon’s focus before the coup, because ERA Communications was performing well as the country’s largest communications platform.

While companies are still able to function in Myanmar, there are added risks. For those whose model serves corporate clients, the challenges are added up as their customers “are also hesitant to continue to do business in the country,” said Andrew Durke, chief operating officer at Obor Capital.

Myanmar’s economy is being deteriorated. The World Bank forecast last month that the country’s GDP will contract around 18% in the fiscal year ending September 2021. With around 1 million jobs predicted to be lost, and a great decline in people’s incomes, “the share of Myanmar’s population living in poverty is likely to more than double by the beginning of 2022, compared to 2019 levels”, the World Bank added.

Money transfer volume, seen as a proxy for economic health, dropped significantly from 1.4 trillion kyats ($850.6 million) in January this year to just 373 billion kyats in June, Myanmar fintech firm Wave Money revealed during an online webinar in July.

A slew of foreign businesses have announced their exits from this market – the most recent examples being that of Norwegian telecom group Telenor selling its local operations for $105 million, and ASX-listed Myanmar Metals disposing its entire 51% stake in lead and silver mining business Bawdwin Joint Venture to local partner Win Myint Mo Industries for $30 million.

Other investors are also understood to have reviewed their portfolio in a bid to disconnect with the junta.

With the absence of the military ruling, businesses were still able to manage growth despite the COVID-19 lockdown. “We were growing about 15% month-on-month in terms of revenues [before the coup],” Joyal told DealStreetAsia.

His venture, mom&pop, had secured a VC funding term sheet only a month before the Tatmadaw seized power. “But the coup definitely shut that down,” he lamented.

Businesses that are more early-stage, and are not as well capitalised, are more motivated to expand, Durke opined. The challenge for them, however, would be to scout for markets where their business model can be well aligned.

Cambodia in sight

As mom&pop is seeking funding for its regional expansion, Cambodia is the first market it is going to enter into. The company is doing a pilot in Thailand, according to Joyal who is currently based in Bangkok, in addition to future plans of foraying into Vietnam and the Philippines.

ERA Communications is also looking at the country, using its cash reserves to fund its expansion plans. After Cambodia, the company will look at markets such as Laos, Vietnam and Thailand, said Larmon.

“We’ve already hired managing directors on the ground in each market. We actually had a number of clients asking if we were present in other countries,” Larmon said.

mom&pop’s expansion to Cambodia was also requested by its clients, as this market needs an alternative to the traditional supply chain.

“For companies like Coca-Cola, Nestle or Heineken, [mom-and-pop] shops account for 85-90% of their sales. [For] Cambodia specifically, it’s a faster market to create the shop network and start connecting shops and brands together,” Joyal exclaimed.

“Now as we’re looking at expansion, our hypothesis is that we will be more interesting to a wider range of investors,” he said.

Opportunities for investors

“A lot of businesses that can work in Myanmar can work in Cambodia or throughout the Mekong region,” said Durke from Obor Capital. “From an investor’s perspective, it’s a really interesting opportunity.”

As these companies attempt to go beyond Myanmar border, their track record in Myanmar is the base for investors to look at when they do the assessment.

“The companies are probably in a cash flow crunch, but that doesn’t mean they are not good businesses. That’s an opportunity for investors to come in and help out,” Durke continued.

For MSH’s Cesenni, as long as there are good projects, capital is not difficult to find. As a CEO but also an investor, Cesenni finds value in building sustainable and strong operating businesses, which will eventually help entrepreneurs grow further both in and outside of a single territory.

In addition to geography, he said MSH will also grow and acquire businesses that are closely aligned to the Sustainable Development Goals.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.