Hitting the headlines: reputational risks in Myanmar

Myanmar | Multinational companies doing business in the south-east Asian country could be facing risks to their reputation, following criticisms of Kirin’s partnership with a military-linked conglomerate.

Kirin’s commercial dilemma is not unique. It boils down to this: Shall foreign companies take on partners linked to a military, which has been accused for years of corruption, land-grabbing and human rights abuses, or shall they not do business at all in Myanmar?

The EU, along with the US, lifted most sanctions against Myanmar after 2011, to encourage the transition to democracy from almost half a century of military dictatorship.   

Rising beer consumption

This allowed western brewing companies to enter or, in some cases, re-enter the country of 60 million people, which has been dubbed Asia’s “final frontier” by the International Monetary Fund, thanks to its rising GDP (8 percent annually) and young consumer market.

In 2013, Myanmar’s per capita beer consumption was 4 litres per year and far below other south-east Asian nations’, such as Vietnam (31 litres), Thailand (26 litres) and Laos (32 litres), according to Euromonitor.

Carlsberg reported in 2019 that it has since risen to 8 litres per capita.

International brewers establish joint ventures

In order to obtain a business permit, foreign brewers needed to set up a joint venture with a local partner. Therefore, in 2013, Carlsberg signed a “strategic partnership agreement” with Myanmar Golden Star Group to brew and distribute Carlsberg beers in Myanmar. Carlsberg was to own a 51 percent stake in the joint venture. The USD 75 million, 600,000 hl brewery in Bago, 80 km north of commercial capital Yangon, went on stream in May 2015.

Not tardy, Heineken formed a joint venture with the Alliance Brewing Company, controlled by the local drinks mogul Aung Moe Kyaw, also in 2013. Heineken would own a 57 percent stake. The original investment was USD 60 million for a 330,000 hl brewery outside Yangon, which opened in July 2015.

To give Heineken a taste of Myanmar’s challenging business environment: the brewery’s opening was delayed by half a year because customs officers had rejected equipment over small errors in the import paperwork. As reported the Financial Times (July 2017), the delays were probably aimed at extracting illegal bribes.

The role of local tycoons

Although both Heineken and Carlsberg’s joint ventures steered clear of direct links to the military, they could not avoid involvement with a powerful local family. The Golden Star Group, Carlsberg’s partner, is controlled by the business tycoon Thein Tun, while behind the Alliance Brewing Company, Heineken’s partner, stands Mr Tun’s son-in-law, Aung Moe Kyaw.

Forbes magazine reported in 2018 that many Myanmar tycoons built empires and became rich through their connections to the generals. But Mr Tun said he is not in that category. According to Forbes, Mr Tun objected to calling himself a crony. “I am straight,” he said. He added that he has never taken a bribe. He acknowledged paying [the generals], though, but said none have been for a “big amount”. His name has never been on a sanctions list.

Kirin buys into beer market leader

Japan’s Kirin has been less scrupulous than Heineken and Carlsberg. In August 2015, it bought a 55 percent stake in Myanmar Brewery, Yangon, from Singapore’s Fraser & Neave, for USD 560 million. And in 2017 it acquired a 51 percent stake in Mandalay Brewery, the country’s oldest. This has given Kirin an 80 percent market share.

Both breweries have powerful connections. Myanmar Brewery is 45 percent owned by Myanmar Economic Holdings Limited, or MEHL, a conglomerate closely linked to the still-influential military. Mandalay Brewery was fully owned by MEHL.

According to Kirin, beer consumption has grown 10 percent annually over the past few years. It is forecasted to reach 9 million hl in 2021.

This has made Fraser & Neave – today owned by ThaiBev – return to Myanmar. In 2019 it opened the USD 70 million, 500,000 hl Emerald Brewery, in a joint venture with local firms, in which F&N controls nearly 80 percent of the shares.

Contrite Kirin to review Myanmar operations

Concerns about Kirin and Myanmar Brewery resurfaced while Kirin was acquiring New Belgium. The Japanese company said it would conduct a “further examination” of its operations and relationships in Myanmar. It told the Financial Times that “we are aware of the difficulties in operating our business in a frontier market and we are continuing to make efforts to deepen our understanding and improve our system.” It declined to provide further details of what kind of improvements it was considering, or when its review of its Myanmar operations would be completed.

The Financial Times concluded that Kirin’s business in Myanmar is profitable and robust. “But the reputational risks dogging Kirin have the potential to recur as it looks to acquire other craft breweries in the United States.”

Read more about the connections between the sale of New Belgium and Kirin's business in Myanmar and about ethics in business form Myanmar to Fort Collins.