The Superstars of FDI

In 1981 economist Sherwin Rosen published a seminal paper called “The Economics of Superstars” in which he argues that, in certain environments, being slightly better than your competition can result in enormous advantages.

Consider Miss Universe Myanmar, Ma Moe Set Wine. If we assume she won the domestic Miss Universe competition by only a few points, those points at a slight margin above the runner-up have given her a huge advantage in the form of sponsorships, speaking opportunities and general fame. In essence, a minor scoring uptick has had an exponential effect.

This “superstar effect,” where a winner-take-all environment produces vastly different results for participants, is apparent in Myanmar’s FDI sector too. A few local companies had small advantages over their competition (ie not being on the sanctions list) that have produced considerable benefits.

The most obvious example of this phenomenon is local conglomerate Serge Pun & Associates (SPA) and its affiliates. Having a slight edge over its local competition in terms of transparency and reputation, it has become an investment magnet, inking deals at a furious pace. Since 2011 it has linked up with Volkswagen, Mitsubishi, Origo Partners, Dragages, Jebsen & Jessen, Parkson, Hongkong & Shanghai Hotels and more; meanwhile its competitors continue to struggle with issues related to the Specially Designated Nationals list.

Thus, a feedback loop has been created where a few qualified companies receive the majority of foreign capital inflows. This capital helps them to succeed, which in turn attracts additional investors, continuing the process. A small initial advantage turns into substantial long-term results.

But access to foreign capital does not guarantee success. Just how large of an advantage foreign funding will produce remains unclear. Given Myanmar’s outstanding loans-to-GDP ratio companies will likely have difficulty financing expansion through local banks.

If competition increases significantly over the next few years, undercapitalised domestic companies could be in trouble. A tight credit market and the inability to access foreign funding would mean losing ground quickly. And that’s when the true advantage of being an FDI “superstar” will come to light.

Jeremy Rathjen is Vice President at Thura Swiss, a local research, consulting and capital markets firm.

source: The Myanmar Times

http://www.mmtimes.com/index.php/business/8728-the-superstars-of-fdi.html