The use of non-equity modes (NEMs) of production has been rising in Laos and Myanmar as reflected in exports from these nations as new forms of trade, according to findings by the ASEAN-Japan Centre. An estimated $132 million in garments from Laos and an estimated $1 billion in garments—more than 70 per cent of garment exports from Myanmar—are through NEM.

Companies in both the countries are in the infancy stage of participation in NEMs, using subcontracting, management contracts and franchising. NEMs are in essence a transfer of intellectual property to a host-country firm under the protection of a contract.

The garment industry is among the highest generators of exports and employment in NEM businesses engaged in subcontracting. The information technology-business process outsourcing (IT-BPO) industry is new and offers tremendous growth potential. Because competition in the industry is severe, the governments need to develop infrastructure in communication networks to stimulate its growth, according to the findings by the Tokyo-based centre.

These least developed countries (LDCs) should take advantage of the opportunities that multinational corporations (MNCs) offer when they outsource the production of goods or services, or part of their production chains to the country.

NEM firms face a significant challenge. MNCs can easily terminate their contracts, particularly if the quality of services or goods supplied does not meet their competitive standards or when more competitive suppliers emerge in other countries.

The governments should assist in the development of NEM capabilities so that local firms can take advantage of appropriate MNC-driven economic synergies as competition forces MNCs to make continuous improvements in the quality and pricing of suppliers, the centre said in a press release.

In addition to upgrading the labour force and improving investment conditions, the governments should strengthen the basic infrastructure and the science, technology and innovation infrastructure. This development is necessary for NEM firms to be able to connect and coordinate competitively with global value chains, and to upgrade in them.

Both governments should consider implementing and strengthening the regulatory framework for NEM firms to enable NEM firms to export, expand their employment and upgrade technologically, the centre added.

Fibre2Fashion News Desk (DS)

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