A Coke and a Smile for Myanmar
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It’s not often that a company gains access to a new market of 55 million overnight, but that is exactly what will happen when Coca-Cola (NYSE: KO) re-enters Myanmar after 60 years in exile. In the wake of recent dramatic changes in the country, including the release of Aung San Suu Kyi from house arrest and quick, sweeping democratic reforms, the United States government has lifted long-standing economic sanctions, freeing up American companies to do business there. Cuba and North Korea are now the only two remaining countries that must continue to do without Coke. The initial plan is to import products into Myanmar from neighboring countries, most likely Thailand.
A Thirst for Freedom
Recently freed from decades of house arrest, Democracy leader Aung San Suu Kyi is now an elected member of parliament and has called for foreign companies and governments to invest responsibly in the country. Coca-Cola is already planning a series of initiatives and investments to establish its position in local communities, including a $3 million donation to help support job creation for women.
The timing for Myanmar could not be better. The ASEAN region is on the move, with even the poorest and most isolated of its members now reemerging on to the world stage. Governments of the region are aggressively pursuing a variety of initiatives to foster greater cooperation and trade amongst ASEAN members, including boosting infrastructure and development aimed at improving commerce and regional stability in a bid to make Southeast Asia even more appealing to overseas investment. As the economic crisis tightens its grip on the West, many companies have made Asia a focus of their strategy to offset losses and expand into new and emerging markets.
Citing its strategic location at the crossroads of India and China and its wealth of resources, US investor and billionaire Jim Rogers is very bullish on Myanmar, saying "if I could put all my money into Myanmar, I would.”
A Wealth of Opportunity
Burma was one of Southeast Asia’s wealthiest countries until the military dictatorship took over in 1962, scaring off all but the heartiest investors. Trade sanctions specifically prohibited many western companies from doing business with Myanmar, labeling it a pariah state and leaving it a mostly untapped market. In addition to its oil, gas, timber and gem riches, Myanmar could become a major source of rice and seafood. Its rich culture, world-class beaches, stunning scenery and otherworldly Bagan temple complex make it almost certain to become a major new destination for travelers. With some of the lowest wages in the region, the manufacturing sector will certainly benefit. A former colony of the United Kingdom, Myanmar’s legal system is based on British common law, and English is widely spoken.
While North American sales still represent 44% of Coca-Cola’s total revenue, the growth story is in Asia. According to CEO Muhtar Kent, some 800 million to 1 billion new consumers around the world will enter the middle class this decade, much of that right here in Asia.
In 2011 Coca-Cola invested $200 million through its Vietnam subsidiary, accelerating expansion plans on the back of 26% growth in the country in 2010.
They are accelerating plans in China too, investing an additional $4 billion between now and 2015 after their business basically doubled between 2005 and 2011. And with 42 bottling facilities and more than 60% market share they plan to double it again by 2020.
Watering up Profits
Soda is only part of the picture. In developing countries bottled water is not just a trend, but a necessity. The lack of potable water in many emerging economies makes bottled water the only real option for those who can afford to choose. With their infrastructure, facilities and distribution, companies like Coca-Cola, Pepsi (NYSE: PEP) and Nestle dominate the packaged, branded drinking water market in this region. In Vietnam Nestle alone owns close to 80% of the water market from sales of their La Vie brand. This is yet another revenue channel that Coca-Cola will certainly leverage heavily in Myanmar. While there are other local players, the power of the Coca-Cola brand will no doubt carry over here as it has in some many other markets.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company and PepsiCo. Motley Fool newsletter services recommend PepsiCo and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.