Validating a go, no-go investment decision in manufacturing in Myanmar

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Background: Tractus was approached by a leading global manufacturer of piping a ducting for fiber optic cable and telecommunication applications to help the company assess a decision to invest in domestic manufacturing operations.

Project: The company had growing export sales into the Myanmar market and was considering a direct investment in a production facility to produce water and general use pipes alongside more high value fiber optic cable ducting and piping. The goal of the investment was to increase the company’s market share and sales to the Myanmar market to a minimum of US$3.6 million per year between 2016 and 2018.

Tractus began with an industry and company assessment. Data was collected from international sources showing the company has captured 77% of the total import market. Supply side and demand side market size estimates were generated from a combination of primary and secondary research and analysis that showed the client’s export sales represented a 7% market share.

Tractus conducted interviews with more than 40 informed industry sources, government officials, producers, trading companies and customers and benchmarked demand side growth forecasts against correlating growth factors such as construction industry output as a percentage of GDP and imports of proxy equipment to establish a forecast compound annual growth rate of 10% between 2012 and 2019.

In parallel with market size and growth forecast estimates, Tractus interviewed and collected market information on the company’s local competitors – including two recent market entrants – and determined the market was consuming just 35% of the total domestic installed production capacity for the client’s product.

Market Size and Demand Forecast

Source: Tractus Research and Analysis

Facing new domestic market entrants, a small but growing market and huge excess installed capacity at existing local competitors, Tractus recommended postponing any investment in new production capacity in Myanmar. Finally, Tractus laid out a matrix presenting a cost-benefit analysis of alternative market expansion strategies including developing its advantage in export sales of high value equipment not produced locally, acquisition of one of three existing domestic firms and joint venture partnership opportunities.

Solution: The company put an immediate hold of new investment implementation processes in Myanmar and asked Tractus to explore alternative regional expansion strategies with a focus on the more developed Indonesian market. The company has continued to grow export sales expanding market share without deploying significant new capital into domestic production.

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