MYANMAR BUSINESS SURVEY: DATA ANALYSIS AND POLICY IMPLICATIONS
CHAPTER 1. Business environment
dissolve) businesses easily and remove barriers in order to promote profitability and competitiveness. An appropriate business environment is essential for the entire economic ecosystem as it can increase growth, productivity, employment and wellbeing (DCED, 2008).
This chapter explores the current business environment in Myanmar based on existing literature, and provides a useful background to the survey results. The importance of the business environment is explained through theories from institutional economics, transaction cost economics and resource dependency theory (El-Ansary and Stern, 1972; North, 1990; and Williamson, 1985). The status of the current business environment in Myanmar is then discussed by focusing on several important aspects, including the regulatory framework, market conditions, innovation, human resources, access to finance, productivity and corruption.1
The importance of the business environment is effectively backed by theories on institutional economics, transaction cost economics and resource dependency. North (1990) described institutions as humanly constructed “rules of the game� that provide incentives (or disincentives) for firms to invest and grow. These institutions can be either formal or informal. Formal institutions involve mechanisms of state such as constitutions, laws and property rights while informal institutions are the norms, values, taboos and codes of conduct, which together contribute to the maintenance of order in society (North, 1990).
The regulatory environment is shown to be overly cumbersome and in urgent need of simplification. Market conditions provide great opportunities as well as challenges for firms in Myanmar under ongoing regional integration. The importance of innovation and technology adoption cannot be understated, especially with the onset of global competition. The availability of highly skilled human resources is somewhat lacking due to low expenditure on education and quality shortfalls. While it is largely underdeveloped, the finance sector is tightly controlled and overly regulated, leading to a shortage of available credit. Labour productivity is low by international standards and in urgent need of improvement, while corruption levels remain high by international standards. Reforms have been attempted but have not been effective yet.
As economies develop, formal institutions are required to enable complex interactions. In small communities, trust between members of tight-knit groups allows business transactions to occur as violators stand to face sanctions from the community such as the loss of reputation or membership. In larger economies, anonymity decreases the cost of cheating; therefore, mechanisms such as contracts, courts, laws and enforcement by police are necessary to deter opportunistic behaviour (Williamson, 1985). Even in smaller societies the need for trust limits the possibilities of transaction to individuals in one’s social circle or to those whose reputation can be verified. Trust requirements therefore limit the extent of economic interactions and need to be supplemented with formal institutions to enable wider growth and prosperity (Jaffe, Carciente and Zanoni, 2007).
Importance Just as species are dependent on the natural environment for their survival and flourishing so too are firms dependent on the business environment. While it is possible to change the business environment to a degree, certain forces such as technology and globalization require firms to adapt to the new realities or face extinction. As firms must navigate through policy, legal, institutional, regulatory, and physical and market conditions in the course of their business activities, Governments should ensure that there are no unnecessary hurdles in their path (DCED, 2008). Governments should therefore create a healthy business environment that allows people to start (and
Another reason for the necessity of formal institutions comes from resource dependence theory which holds that organizations are unable to internally generate all resources or functions required to survive (El-Ansary and Stern, 1972). Thus, organizations enter into relations and transactions with other organizations such as public authorities, suppliers, service providers and academia that can provide the necessary facilities, resources, functions, technology or services. Transactions such 2