Nova workboard

a blog from young economists at Nova SBE

FDIs – Simply refreshing!

 

 “Living under a dictatorship, with limited choice of products, makes you hate copies and love authenticity.”[1]

 

As a feature of globalization, increasing international foreign direct investments (FDI) during the last two decades have to be mentioned. Especially the impact of FDI on labor markets has been of growing concern. The micro-economic effects on employment are largely determined by the motivations underlying the decision of the firms to invest abroad. Coca Cola is one of the most famous internationally oriented companies and for years there were only three countries in the world that didn’t officially sell the drink: Cuba, North Korea and Myanmar. After US- and EU-sanctions regarding the former military regime were lifted in 2012, Coca Cola is back in the country after more than 60 years by opening a plant close to Yangon. Unlike to the rest of the world, Coca Cola has the extent of fame like a fairytale or legend in Myanmar because most locals never had a zip and missed the worldwide advertising just as these cute polar bears. In general, people seem to remember the brand because cans were smuggled from Thailand and Singapore during the sanctions to be sold at a hefty mark-up in hotels and posh cafes. Because of the impression that Coke was an elite product, this brand recognition created a big challenge regarding market penetration. As a reaction Coca Cola went back to the roots and promotes the drink by using the slogan from a 1800s advertising campaign – Simply refreshing! During the next five years the concern is planning to invest US$ 200 million in the country, which will create 22,000 jobs across the Coca-Cola value chain.[2] Myanmar is described as unique in terms of a country being isolated for many decades and opening up, trying to make changes very fast. Just as shown in this example, many companies are going to follow with expected FDIs of $100 billion during the next two decades.[3] By adapting this example to the labor market, FDI may constitute a plausible explanation for impacts regarding job opportunities, increasing earning and wage dispersion as well as the use of skilled labour caused of technology spillovers, occurred from foreign to domestic firms. In order to ensure the increasing welfare, the Government of Myanmar released the “Foreign Investment Law” in November 2012 to guarantee the integration of local labour force into the transition process. It is required, that foreign companies in the high-tech sector hire local employees with relevant skills in increasing percentages over time. Locals must make up at least 25% of the workforce in the first two years, 50% in the next two years and 75% in the third two-year period. Furthermore, the foreign companies need to provide trainings for locals[4] and ensure knowledge spillovers by doing so. By releasing this policy, the government is trying to counteract against abuse of cheap labor forces and supports a sustainable growth in knowledge through workshops.

 

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Yearly Approved Amount of Foreign Investment [1]

 
Svenja Telle #656
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Author: studentnovasbe

Master student in Nova Sbe

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