➤ Uniqlo owner Fast Retailing Co. Ltd.'s exit from manufacturing in Myanmar is reportedly due to elevated political risks. Myanmar's share of apparel imports to the EU, Japan and the US has stalled at 2.1% following the 2021 coup d'etat.
➤ Alternative supplier locations include similar or larger apparel export sectors; somewhat lower strategic risk ratings; and low manufacturing compensation costs. Candidates, therefore, include Bangladesh, Cambodia, Indonesia and Pakistan.
➤ The largest apparel importers to the US from Myanmar include Adidas AG and Hennes & Mauritz, though Myanmar is only a small part of both companies' sourcing. Adidas already has large-scale imports from Cambodia and India, while H&M already sources from Bangladesh.
Reconsidering Myanmar: Risk factors reduce attractions
Fast Retailing, owner of clothing retailer Uniqlo, is reportedly cutting its sourcing from Myanmar, joining several other apparel buyers concerned about elevated political risks as well as infrastructure disruptions.
The disruption to apparel supply chains broadly may prove minimal. Myanmar only accounted for 2.1% of total US, EU and Japanese imports of apparel in 2022, S&P Global Market Intelligence data shows.
– That puts it in the second tier of global apparel-supplying countries and the ninth-largest supplier overall. A steady expansion in market share of exports from 0.3% in 2013 stalled in 2020 at 2.1%. The coup d'état in 2021 may have initially scared off buyers, though a dip to 1.5% in 2021 was followed by a recovery to 2.1% in 2022.
– Other emergent alternative suppliers to mainland China that have seen a similar slowdown in market share expansion include Turkey, Cambodia and Sri Lanka. All three have faced increased political volatility or economic risks.
– Exporting nations of a similar scale to Myanmar include Pakistan and Indonesia, while the top-tier countries include Bangladesh (14.7%) and Vietnam (11.6%).
Myanmar's strategic risk score is rated as "high" according to S&P Global Market Intelligence, making it the 188th riskiest country in coverage of 211 regions globally.
– The coup in 2021 had a particularly significant impact on political risk (via policy instability) and economic risk (capital transfer and currency depreciation).
– Operational risks related to infrastructure disruption and labor strikes were already elevated and have worsened over the past three years.
Addressing alternatives: Balancing risk and cost
Choosing an alternative supplier location to Myanmar involves finding (a) expertise, so principally countries with significant exports, as flagged above (b) lower risk profile and (c) low labor compensation rates, assuming it was costs that attracted manufacturers in the first place.
– Manufacturing in Bangladesh, Cambodia or Pakistan all offer the lowest manufacturing compensation at a lower — but not low — risk. Notably, Indonesia offers a combination of lower risk than many other countries and a similar mix of risk factors to Vietnam.
The top five remaining apparel importers from Myanmar to the US include H&M Hennes & Mauritz, Adidas AG and Agron Inc. (an accessory supplier for Adidas products), according to Panjiva data.
– For all three, Myanmar is a minor part of their overall sourcing strategy, accounting for 0.4% of Adidas-linked imports, 5.0% of Agron's and 2.2% of H&M-related imports.
– In the case of Adidas, that may make exiting Myanmar a relatively simple process, with Cambodia and Indonesia both already significant sourcing centers.
– Agron Inc. has small sourcing levels from Indonesia and Vietnam, with over 60% of its sourcing currently based in mainland China.
– Bangladesh represents 37% of US imports linked to H&M, while Indonesia is only 5.9%. The volume of US imports from Myanmar linked to H&M has already fallen by 42.4% year over year in the 12 months to March 30, 2023. That may suggest a restructuring of sourcing is already underway.
This report was originally published on the Connect platform. For more information please email chris.rogers@spglobal.com.
Panjiva is the supply chain research unit of S&P Global Market Intelligence, a division of S&P Global Inc.
