Jagath Guru, head of risk management, internal controls and processes at the Myanmar Brewery, reflects on what the country’s new civilian-elected government means for business – and the risk management profession
“Uncertainty” is a word that comes up often when speaking to Jagath Guru, head of risk management, internal controls and processes at the Myanmar Brewery.
It should come as no surprise, given Guru is living and working through one of the most historic junctures of the South East Asian country’s history.
Last November, the world turned its attention to Myanmar for the country’s first free elections in more than 25 years. The National League for Democracy party won in a landslide victory, officially ending 50 years of military rule in the country.
Guru, who moved to Myanmar three years ago from Malaysia, says being in the country for the elections was an overwhelmingly positive experience. But uncertainty about the future, and what the new government means for business, looms large.
Significant political change has been occurring in Myanmar since 2011, when its nominally civilian government was introduced and a series of economic reforms were launched in a bid to stimulate the private sector and encourage foreign direct investment (FDI).
So far, it appears to be working: the country’s net inflow of FDI increased from $900m in 2010 to $2.3bn in 2013, according to the World Bank. And in March 2015, the government announced that FDI hit more than $8bn, 25 times the amount received the year before the military ceded power in 2010.
More FDI, means more competition.
Generally speaking, this is good for the economy and for consumers, but some of the long-time local players may have cause for concern.
Myanmar Brewery, for example, has enjoyed a largely uninterrupted monopoly over the country’s beer market since it was founded in 1995.
But these days there is more competition, thanks to the arrival last year of global giants Heineken and Carlsberg, which would no doubt have been lured by an untapped population of more than 55 million people.
The companies will have their work cut out, however, primarily because the Myanmarese aren’t big beer drinkers. Annual beer consumption in the country averaged just four litres per person in 2013 - a far cry from nearby Thailand’s 31L and Vietnam’s 41L, according to Euromonitor International.
But it’s because of this perceived opportunity for growth in beer consumption that Guru is diplomatic about the new competitive landscape.
“There is huge room for growth in our industry and room for the competitors too. If we are trying to grow from four litres per capita consumption to 20 litres, it’s still a very big market. We don’t have to compete with each other at this stage,” says Guru, who is also the Myanmar board member for the Pan-Asia Risk and Insurance Management Association.
More concerning for Guru is the country’s new Competition Law which is due to come into force in February next year.
The new law sets out a general framework around market power and price abuse, but is far from comprehensive.
“The act does not state and there’s no clear guidance as to what will be considered as having ‘dominant control’ [in an industry] for example, so how do we ensure that we actually comply?”
It’s a valid concern for Myanmar Brewery, which currently commands almost 80% of the country’s beer market by volume.
The inconsistency of regulation and, more worryingly, its inconsistent interpretation, is one of the top risks on Guru’s risk register.
“When you have a changing government and changing regulations and those regulations are interpreted differently by different parties, it makes compliance much more difficult and uncertain,” he says.
But Guru believes the country’s regulation is moving in the right direction, albeit slowly.
“The new government certainly imbues confidence to investors that the country is now in better hands with civilians and sanctions are slowly being removed. Investors are trying to come in but the regulation risk is still high for them,” he explains.
Guru says an equally pressing concern for Myanmar Brewery is the human capital risk that the new competitors pose. And not just those within the alcohol industry.
“As more companies are coming in to Myanmar, they’re looking for skilled workers and trained workers, and so we’re having to deal with our staff being pinched and sometimes into different industries. Our workers are also increasingly looking at new opportunities in places like Singapore and Malaysia, so there are two prongs for us to consider from the human capital risk perspective,” he says.
To attract and retain staff, and ward off the growing competition, Guru says the company has a renewed focus on innovation.
“When we have new competitors we have to watch out for aggressive campaigns that could take our consumers. The rate of innovation for us has to be on par with competitors otherwise we may lose out,” he says.
While Heineken and Carlsberg were building their breweries, for example, Myanmar Beer rolled out a sleeker bottle, ramped up its promotional efforts and began targeting a younger generation by sponsoring hip-hop and electronic dance music concerts.
Guru says the company’s innovation has been largely enabled by its new majority shareholder, Japan’s Kirin Group, which purchased a 55% stake for $560m from Singaporean firm Fraser and Neave in November.
Myanma Economic Holdings Limited (MEHL), a military-backed conglomerate, holds the remaining 45% stake.
“Kirin is a very large company with a large research and development department, and excellent beer expertise that they can lend to us,” Guru says.
This will be vital in addressing another of Myanmar Brewery’s key risks, which is their historic reliance on one brand: Myanmar Beer.
“Kirin Group has been very helpful in terms of developing new brands. We need to have brands to cater for the different types of drinkers. When you are over-reliant on one brand and that fails or becomes less popular, you’re going to have problems in terms of making your volume targets,” Guru says.
Opening up the country’s borders to new entrants has brought some big benefits to Myanmar Brewery and other established players, however.
Previous ‘high risks’ associated with unreliable electricity services and intermittent telecommunication are now less of a concern.
“One of our biggest risks used to be intermittent power outages, which happened very frequently and disrupted our production. We had to manage that with our own generators. But the electricity service has improved a lot in the past 12 months,” Guru says.
“Our internet also used to be very, very slow, but over the past year we’ve seen a massive improvement to that too after two new competitors have come in and improved services,” he says.
Supply chain risk and currency risk, however, remain top concerns for the company. Guru expects this to remain until sanctions on the country are fully lifted.
With such a fast-changing risk register, it’s vital that Guru maintains a close relationship with senior management. He has a direct report into the company’s managing director and a team of three below him that together are responsible for the company’s internal audit, process and controls improvements and legal and credit control.
“Risk management in Myanmar is a very new tool, but it’s a really important and growing area of interest,” Guru says.
The Malaysian native moved to Myanmar in 2012, when he was head hunted from Carlsberg Brewery Malaysia, a company he had been with for more than 15 years.
Guru was born and raised in Taiping, Malaysia, and graduated from university in 1994 with a degree in accounting. He began work at the brewery in 1997 as an internal auditor and took up the role of risk management in 2002 when it was introduced to the company.
“Coming from internal audit and looking at the business very much from a granular point of view, I’m enjoying now having a helicopter perspective and looking at the business’s strategy and helping the company to achieve its objectives,” he says.
And in the fast-changing and uncertain environment that all companies in Myanmar are currently operating, you can be sure that strategic risk professionals like Guru will be in high demand.