Term Paper on "Entry Into Foreign Market"

Term Paper 6 pages (1756 words) Sources: 6

[EXCERPT] . . . .

Myanmar FDI

Entry into Foreign Market

The objective of this study is to examine whether Cameron International Corporation with revenues of $6,134.8 million (FY 2010), net profit of $562.9 million (FY 2010) and an operating profit of $858.5 (FY 2010), provides flow equipment and pressure control equipment for both land and sea oil rigs should make an entry into the Myanmar, formerly the Burma market. The pros and cons of entry into this market will be examined.

It is reported that there have been changes of a significant nature in Myanmar with the country beginning to emerge "from decades of isolation." (Prospectus, 2013) Investment restrictions on foreign governments have been lifted since 2011 and there have been changers in the investments laws as well. Foreign companies are allowed to lease private land and to repatriate investments proceeds upon the basis of market foreign currency exchange rates. These changes have resulted in many companies taking advantage of the potential market opportunity in Myanmar. Myanmar is reported to be representative of an opportunity that is of an interesting nature from the view of investors due to its "abundance of natural resources, a large and low cost labor force -- providing opportunities in low cost manufacturing -- a significant area of arable land which is vastly underdeveloped" as well as its' strategic location between two of Asia's largest markets and specifically those of China and India. (Prospectus, 2013) in addition, Myanmar is an existing member of the World Trade Organization and as such as the offering of critical trading links in and is also an existing member of Association of South East Asian Nations (ASEAN) which makes provision of additional opportunities.

Myanmar has a population exceeding sixty million with two-thirds of the population reported to be "Under the age of 35." (Prospectus, 2013) as the economy of Myanmar develops there is a great potential with the wealth of consumers increasing. However, Myanmar is reported to be "relatively underdeveloped." (Prospectus, 2013) Myanmar has eight major national ethnic races.

One of the most important sectors in the Myanmar economy is the energy sector with the oil and gas sector accounting for one-third of total Foreign Direct Investment (FDI) and the gas exports to Thailand and to China reported to "account for one of the largest export revenue streams" and providing critical access to foreign currency. (Prospectus, 2013) the hydrocarbon resources of Myanmar are reported as "Modest in comparison to those of others in the region such as Malaysia, Indonesia, and Vietnam" it is reported that the geographic location of Myanmar in addition to the domestic and regional market energy demands "will continue to provide investment opportunities." (Prospectus, 2013) Two main gas fields in the upstream gas sector are reported to have been developed off shore and there are two reported to be currently under development with many remaining to be explored. There are also "several designated exploration blocks for which no concession agreement has yet been reached." (Prospectus, 2013 Prospectus, 2013)

Legal Considerations

The government of Myanmar is reported to be preparing a new foreign investment law that is reported to be such that offers investors tax breaks. It is reported that there will be special economic zones established in southern Myanmar in Dawei, in Thilawa near Yangon and Kyaukphyu on the west coast in order to attract investors.

It is reported that a foreign entity, under the Foreign Investment Law, "may establish its presence in Myanmar as a limited liability company (private or public), a registered branch and a representative office of a company incorporated outside Myanmar, a sole proprietorship, a partnership or a joint venture with a citizen, private company, cooperative society or State-Owned Economic enterprise (SEE)." (PricewaterhouseCoopers, LLC, 2012)

Registration in Myanmar

It is reported that registration of foreign investment in Myanmar includes the following steps: (1) acquiring a permit from the Myanmar Investment Commissions (MIC); (2) filing an application for a permit to conduct trade from the Directorate of Investment and Company Administration (DICA); and (3) filing an application for registration with the Companies Registration Office (CRO). (PricewaterhouseCoopers, LLC, 2012) Two directors and two shareholders are required although no requirement exists for the shareholders to be natural to Myanmar and neither does a requirement exist that the directors be natural to Myanmar.

Share Capital Requirements

There is no minimum share capital requirements that are imposed as the share capital requirements vary based on the type of activities that the company will undertake. Minimum foreign share capital for manufacturing companies registered under the MFIL is stated at U.S.$500,000 and for service companies U.S.$300,000. For those registered under the CA manufacturing company foreign share capital requirements are U.S.$150,000 and services companies is stated at U.S.$50,000. (PricewaterhouseCoopers, LLC, 2012, paraphrased)

Economics Activities Allowed in Myanmar

There are twelve economic activities reported to be closed to private investment by the SEE Law. Those include the following stated economic activities:

(1) extraction and sale of teak in Myanmar and abroad;

(2) cultivation and conservation of forest plantations, with the exception of village-owned firewood plantations cultivated by the villagers for their personal use;

(3) exploration, extraction, and sale of petroleum and natural gas and production of products of the same;

(4) exploration, extraction and export of pearls, jade and precious stones;

(5) breeding and production of fish and prawns in fisheries that have been reserved for research by the government;

(6) postal and telecommunications services;

(7) air and railway transport services;

(8) banking and insurance services;

(9) broadcasting and television services;

(10) exploration, extraction and export of metals;

(11) electricity generating services, other than those permitted by law to private and cooperative electricity generating services; and (12) manufacture of products relating to security and defense, which the government has, from time to time, prescribed by notification. (PricewaterhouseCoopers, LLC, 2012)

Sectors of Economic Activity Allowed

Reported as sectors that are allowed to conduct economic activities are the nine sectors stated as follows:

(1) agriculture and irrigation

(2) livestock and fishery

(3) forestry

(4) mining

(5) power

(6) oil and gas

(7) industry involving food stuffs, textile, personal goods, household goods, leather products and similar products, transport equipment, building materials, pulp and paper, chemicals, chemical products and pharmaceuticals, iron and steel and machinery and plant;

(8) construction; and (9) transportation and communications. (PricewaterhouseCoopers, LLC, 2012)

It is reported that investment proposals for sectors other than the listed sectors will be considered on a "case-by-case basis by the MIC." (PricewaterhouseCoopers, LLC, 2012)

Foreign exchange is reported to be regulated by the Foreign Exchange Regulation Act 1947 (FERA) and the Central Bank of Myanmar Law is reported to empower the Central Bank of Myanmar (CBM) to administer FERA. It is reported that Foreign exchange control management falls to the CBMs Foreign Exchange Management Department and the Foreign Change Management Board (FEMB). There are two primary laws relating to arbitration in Myanmar:

(1) the Arbitration Act 1944 -- local arbitration within Myanmar; and (2) the Arbitration (Protocol and Convention) Act -- foreign arbitral awards (PricewaterhouseCoopers, LLC, 2012)

Financial Structure

The financial sector of Myanmar is comprised of state-owned banks, private banks, finance companies and representative offices of foreign banks. (PricewaterhouseCoopers, LLC, 2012) there are 19 domestic private banks licensed through a new law to operate and 32 foreign banks are permitted to open representative offices in Myanmar. The interest rates charged by banks in Myanmar include the 10% rate per annum, which is the Central Bank Rate, the minimum deposit rate of 8% per annum and the maximum bank lending rate of 13%. (PricewaterhouseCoopers, LLC, 2012) it is reported that the consideration of business investment in Myanmar should include careful examination of the risks and the opportunities and the international standards for responsible business conduct. Primary risk for business include: (1) weak left bureaucracy that is not efficient due to decades of domination by military and little interaction with world outside of Myanmar. The result is that Myanmar does not have the needed capacity to absorb a great many new investments. The legal system in Myanmar is reported to be in "absolute shambles. it's been used for years as a tool of the state, and to protect vested interests, decades of military rule has created a culture of "post authoritarianism, "meaning "a lot of people will not do the right thing, not because they don't want to do the right thing, or because they don't know what the right thing is, but rather, they don't know how it will be received from their superiors."On a practical basis, this attitude of many middle-level bureaucrats illustrates how the military, while not technically in charge of the government, continues to dominate the country." (Nolan, 2013) There is "legacy of corruption" in Myanmar, which is reported to have the potential to worsen due to the "flood of new foreign capital into the country." (Nolan, 2013) There is reported to be no rule of law in Myanmar that would serve to prevent foreign investments from perpetrating harm on local communities. (Nolan, 2013)

Additionally stated is that the… READ MORE

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