The industrial giant is trying to do business in just-opened Myanmar,
where they badly need the stuff it makes and sells. So why is this
storied multinational struggling?
In the midday haze outside the Thingaha Hotel in Naypyidaw, the new
capital of Myanmar, the national flag droops alongside the Stars and
Stripes and General Electric’s corporate logo. Inside the Grand Ballroom
the staff scurries with last preparations for a meticulously planned
gala dinner. Heading up this coming-out party is Stuart Dean, a
blue-eyed, rawboned American and GE’s chief for Southeast Asia.
Just
in from Malaysia, where he is based, Dean turns to his PR director to
check on the guest list. “We’ve got eight deputy ministers and five
ministers coming tonight. It’s 140 people,” says the director. “Is the
Lady coming?” Dean asks. “Yes.” “Confirmed?” “Yes, and she’s sitting
next to you.” “Wow,” he says.
‘The Lady’ is Aung San Suu Kyi, the
opposition leader who won the Nobel Peace Prize for decades of
non-violent resistance to thuggish dictatorship and recently declared
her interest in running for president. She isn’t a fan of free market
enterprise, so her attendance tonight is a big deal.
Myanmar—known
for centuries in the West as Burma—is one of the planet’s final
frontiers for capitalism, and it’s in desperate need of lighting and
power, railways and ports. It’s easy to see why GE, one of the planet’s
icons of capitalism and a leading provider of infrastructure, wants in.
Both entities desperately need growth. Myanmar, because most of its 60
million or so people (the last census was in 1983) earn less than $500 a
year. GE, because its stock has been flat for the dozen years of CEO
Jeff Immelt’s reign. At $150 billion (sales), GE is looking for places
like Myanmar, situated in a strategic saddle between India, China and
Southeast Asia.
But the symbiosis largely ends there. GE’s
efforts in Myanmar offer a window into difficulties even the most adept
companies face in countries new to the idea of free markets. It’s an
awkwardly slow dance, filled with corrupt officials, crony capitalists
and a stifling bureaucracy.
GE’s dinner diplomacy helps
illustrate that. The Aung San Suu Kyi event follows a one-day workshop
for the Ministry of Electric Power, which ended, as seems the norm here,
inconclusively. The ministry would like more time to study GE’s
proposals to replace worn-out industrial gas turbines it built years
ago. Perhaps, the bureaucrats counter, the company can offer technical
training and support? Dean raises his eyebrows but keeps his smile.
The evening’s meal had similar fits and starts. Canned piano music
greets Burmese officials wearing black collarless jackets with large
cuffs over colourful trouser-length wraps. Dean hovers in GE’s welcoming
line and then escorts the poker-faced Lady, in a moss-green silk dress
with a fuchsia scarf, to the anteroom, as local entrepreneurs gape,
starstruck.
Once the entrées are served, Dean climbs onstage. His
mangled effort to speak Burmese earns polite laughter. “The most
exciting story in Asia in the last 10 years is the emergence of this
country on the world stage,” he says. “We want to be a long-term partner
of Myanmar.” He then invites Suu Kyi and the five ministers to join him
for photos, before the Lady darts into an SUV.
Has her head or
heart been moved? “Maybe she’s realised that companies are going in
anyway and there’s some way to take advantage of that,” Dean later
muses. Over postprandial drinks with his team, Dean explains that Suu
Kyi asked him if GE could help renovate Yangon General Hospital, a
century-old building. Dean replied that GE is supplying equipment to
many public hospitals, but Suu Kyi, as befits a politician, pressed him
on her pet project. “You got played,” jokes a colleague.
Burma,
taken independent in 1948 and taken over by a junta in 1962, had long
been a pariah. Abortive rebellions were brutally suppressed, dissidents
were imprisoned and foreigners discouraged from visiting. US-led
sanctions heightened its isolation.
Now the door has swung open under a pro-market civilian government
that is avidly courting the West as a counterbalance to China and a path
to economic development. A GDP that’s smaller than Delaware’s could
quadruple in size to $200 billion by 2030, according to McKinsey Global
Institute.
Early movers began investing in 2011, anticipating an
about-face and determined not to miss out. Today it’s increasingly the
turn of corporations like Unilever, Coca-Cola, Microsoft and
Caterpillar, with deeper pockets and longer horizons. “The adventurers
have packed up and gone back home. They didn’t find the pot of gold,”
sniffs Luc de Waegh, a Belgian who advises multinationals.
Dean
says he can double GE’s Myanmar sales to $100 million this year on the
back of increased private sector and public investment in aviation,
health care and power—and hike that to $500 million within five years or
more. Get it right, goes the thinking, and Myanmar becomes the next
Asian tiger powered by American capital and know-how.
But, as
McKinsey and others concede, Myanmar’s rewards are tempered with a risk
of failure, from dysfunctional banks and violent land disputes to
political paralysis. “The legal and financial structures aren’t yet in
place for large-scale investments,” warns Romain Caillaud, managing
director of Vriens & Partners, a consultancy in the former capital,
Yangon (once known as Rangoon). Get it wrong and you’re chasing deadbeat
customers into a legal quagmire or, worse, fighting to hang on to your
assets as sharks circle.
On the grubby streets of Yangon,
billboards advertise Pepsi and Ford, and bank ATMs offer Visa and Master
Card withdrawals. But US brands compete with the likes of France’s
Total and Malaysia’s Petronas, which stayed when Western firms pulled
out in the 1990s. Japan is also angling for infrastructure deals, with
the generous backing of the Tokyo government, Myanmar’s largest
creditor.
The nation has never known peace. Armed ethnic groups roam its
borderlands under shaky truces. Hundreds of thousands of refugees fester
in camps along the Thai border. Jungle militia crank out meth pills,
investing the profits in Chinese weaponry. “That one is code red for
me,” one experienced multinational executive tells me.
Does GE have the stomach for this? “What’s the risk of not being there?” counters Dean, 60, turning around the question.
“You’re risking being left behind at the train station if you don’t get
on the train.” A 33-year GE veteran, Dean also knows what it’s like to
be thrown under the train. He was country head in Indonesia in 1998 when
a financial crash upended GE-backed power projects and led to calls for
nationalisation. In 1994, he took his first trip to Yangon under
military rule and encountered fear on the streets, where nobody would
meet his eye. GE was selling power and energy equipment to the junta,
infuriating US pressure groups that led consumer boycotts. Two years
later GE abruptly pulled out.
When Dean returned in November
2011, the fear, he says, had lifted. He met government officials who
told him the country had changed and “we’re going to need a tonne of
help”. In June 2012, President Obama eased financial and investment
sanctions. Within days GE announced its first deal, to supply $2 million
worth of X-ray machines to private hospitals.
Myanmar badly
needs electricity. Only 13 percent of the population is on the grid.
Power comes from monsoon-fed hydro-electric dams and natural-gas-fired
plants. Several plants are powered by 18 GE-built gas turbines from the
1980s and 1990s, which couldn’t be serviced under sanctions and are in a
dire state.
Last December GE sold two $16 million turbines to a
100-megawatt private power project in Yangon. But it’s still waiting for
government action on plant upgrades. A culture of top-down decision
making prevails, making it hard to navigate an underpowered bureaucracy
that is riddled with corruption. In GE’s case, the Minister of Electric
Power has dragged his feet on a proposed agreement, even though the idea
has support from the president, says a source involved in the talks.
“Nothing
moves,” says Robert Fitts, a retired US ambassador in Bangkok and a
senior advisor to McLarty Associates. “These projects just sit gathering
dust on the shelves.”
Asians have a huge head start in Myanmar. When Washington tightened
sanctions in 1997, most of the neighbouring countries largely ignored
them. China was especially aggressive. It is building twin pipelines to
its border to bring in Burmese natural gas and imported crude. Add in a
series of Chinese hydropower dams on the Irrawaddy and other rivers and
it’s easy to see why many Burmese feel sucked dry by their giant
neighbour.
In a rare push-back, President Thein Sein last year
suspended China’s biggest dam project, a $3.6 billion behemoth in the
far north that would have exported most of its power. Investment from
China has since slowed to a trickle. Other Asian powers are trying to
fill the void. In May, for example, Japan wrote off nearly $2 billion in
debt and offered soft loans for an industrial zone and deepwater port
that Japanese companies are building outside Yangon.
This window
is the reason Dean remains bullish on Burma, despite the hurdles. I sat
in on a signing ceremony for two new local GE distributors. Afterward,
Dean invited them to toast their partnership. Kyaw Moe Naing, a lighting
company entrepreneur, runs through his company’s brief history,
including installing lights in Naypyidaw’s ornate parliament building.
He says he used lights “made by GE in Hungary”. Dean’s eyes widen.
“What’s our due diligence on that?”
His eagerness sometimes
causes him to stumble culturally. When Kyaw Moe Naing launches into a
long story about an influential Buddhist monk with an international
following, Dean interjects: “Is he friends with Richard Gere?” The
entrepreneur exchanges bemused looks with the other Burmese. Nobody
recognises the name. “He’s our most famous Buddhist,” explains Dean,
apologetically.
Finding partners in Myanmar is complicated
because the US still imposes sanctions on business allies of the
military regime, whose tentacles extend into many industries. GE planned
to open its representative office last year but had to wait for the US
to waive restrictions on Myanmar’s crony-dominated banks. Land, hotels
and other assets are in soiled hands, and a tangle of front companies
makes it hard to know who runs what.
Take aviation, usually a
sweet spot for GE. Myanmar’s airlines are scrambling to add capacity but
can’t afford new planes. GE Capital has leased two Embraer jets to
state-owned Myanmar Airways, and Dean reckons that leasing to private
carriers has a huge upside. “You don’t need government approval. Things
can move faster,” he says. Buoyed by tourism and domestic travel,
Myanmar’s fleet could double within two years, Dean predicts.
If
you can break in. Under the military, licences were doled out to
favoured tycoons like Tay Za, who owns two airlines and was only
recently taken off the US blacklist. Aung Ko Win, the big shot whose
aircraft takes us to Yangon, is a prominent pal of the military. Another
private carrier, Yangon Airways, is linked to armed drug traffickers.
Dean
seems unaware of this dirt—and uninterested in digging into it. I spent
three days with him, across countless meetings and two corporate
dinners, and saw scant evidence of any progress. Yet while he looks
exhausted as he says good night to the last of the business crowd and
aid workers at the final dinner of his trip, he remains, like a true
adventurer, perpetually upbeat. “We’ve got lots of goodwill,” he says.
“Now we need some orders.”
source: Forbes India
http://forbesindia.com/article/cross-border/why-ges-myanmar-venture-has-not-been-easy/35715/3
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