CMP versus FOBCMP

The vast majority of Myanmar’s garment factories operate under the Cut-Make-Pack (sometimes called Cut-Make-Trim) system. This is a form of contract work. Typically, a foreign buyer with the necessary financial and technical abilities will pay contracting fees to a garment factory in Myanmar to carry out the labour-intensive task of cutting the textile fabric, sewing garments together according to design specifications and then packing the garment for export to international markets.

FOB

The alternative is the FOB system. This means “free-on-board” or sometimes “freight-on-board”. Under this approach – in the international garment industry – retailers simply place orders from highly-capable and well-financed factories in overseas markets. The factories are basically responsible for producing the garments in their entirety and arranging for shipment. The retailer makes a purchase and doesn’t need to take as heavy-handed an involvement in the production process.

 

CMP factories predominate in Myanmar for a few reasons.

Chiefly:

Tax – The current system provides a tax exemption for CMP production. Garment producers in Myanmar must simply receive an endorsement certification from MGMA for 5,000MMK (about $5, valid for 3 months with extensions possible) and subsequently they will receive an import license from the Ministry of Commerce which they can use to secure a tax exemption on imports through customs. Therefore, the current tax system favors CMP production over FOB, which does not receive such a tax exemption.

Finance – Factories in Myanmar lack access to financial products which are commonly used in other countries. Given recent & rapid improvements and reforms in Myanmar’s banking sector, MGMA anticipates that banks, both local and possibly foreign owned, may soon make available such common financial instruments as letters of credit and back-to-back letters of credit.

Sourcing – Many locally owned factories lack the relatively sophisticated sourcing networks and knowledge necessary to adequately procure the raw materials for production.

Design & Style – There is a lack of knowledge in locally owned factories regarding fabric styles, patterns and fashion design.

Therefore, for the reasons outlined, Myanmar’s garment factories primarily engage in CMP production. After 10 years exporting primarily to Japanese and Korean markets, many factories have developed rather exceptional product quality standards, but oftentimes production line efficiency is below that of competitors in neighboring ASEAN nations. The combination of a cost-effective labour force and a strict adherence to product quality are two important factors which make Myanmar an attractive place to source garment & apparel products.