Investors in Myanmar should heed lessons from Vietnam, which opened up to the world in a similar fashion two decades ago. The failure rate for early investors in that market may have been as high as 90%

Updated June 4, 2013, 3:56 a.m. ET

Myanmar Investors Need Vietnamese Lessons

By DUNCAN MAVIN

The flavor of the month in emerging markets is a fish-based broth with rice noodles, ginger and lemongrass called mohinga. Myanmar’s national dish, it’s sure to be on the menu at this week’s World Economic Forum event in the former pariah state. While Myanmar is a mouthwatering a proposition, gorging on it too soon carries a lot of risk. The country ticks many boxes in terms of potential. Its population of 60 million has almost zero cellphone penetration. It’s in a logistical sweet spot between China and India and is rich in natural resources. New laws, including measures to allow 100% foreign ownership of companies in some sectors, show the politicians are open to foreign investment. To say that these are the early days in a frontier economy is an understatement: There is virtually no ATM network and very few commercial bank branches, for instance.Foreigners have duly rushed in to fill a business and economic vacuum. Growth in foreign direct investment is soaring. Executives from giant global corporations in finance, consumer goods, accounting and construction now regularly fill Myanmar’s meager hotel space. The cost of real estate in the center of the main business hub, Yangon, is on a par with that of Bangkok, which is far more developed.

But investors in Myanmar should heed lessons from Vietnam, which opened up to the world in a similar fashion two decades ago. The failure rate for early investors in that market may have been as high as 90%, says Don Lam, chief executive of Vinacapital, one of Vietnam’s largest asset managers.

Too much foreign capital chased too few potential partners or businesses with any track record. Also, there was too much focus on the impact of rising incomes on consumer-goods sales. The outcome, Mr. Lam says, was a lot of investment in risky, green-field projects, or Western-style consumer-goods businesses that didn’t have a strong enough customer base for another decade.

Foreign investment in Vietnam surged between 1988 and 1995, but began slowing markedly thereafter, partly because high costs and poor infrastructure stymied returns, according to the International Monetary Fund. And while the Asian Financial Crisis squeezed foreign interest across the region in the late 1990s, foreign investment was slower to recover in Vietnam than in neighboring countries, the IMF says.

Myanmar’s potential could attract about $170 billion in capital inflows between now and 2030, McKinsey estimates. A healthy appetite among foreign investors would surely help transform the economy. But those who put money into Myanmar too soon may well find their first taste ultimately turns sour.

Coca-Cola Says Myanmar’s Opening Is Like Fall of Berlin Wall

Coca-Cola Co (KO). Chief Executive Officer Muhtar Kent marked the return of the world’s largest soda maker to Myanmar after 60 years by opening a bottling plant and pledging more investment in the newly opened economy.

The company will invest $200 million in the next five years and a second plant will open in a month’s time, Kent said in an interview with Haslinda Amin on Bloomberg Television.

“It’s a great moment in history, just like it used to be when we opened up our business in east and central Europe in the former Soviet Union right after the fall of the Berlin wall,” Kent said. “We can retain and grow our leadership that we already have in this market today.”

Coca-Cola’s new plant begins in earnest a race with PepsiCo Inc. (PEP) to control beverage markets in the Southeast Asia nation, which reopened its borders last year to foreign investment. Myanmar President Thein Sein has allowed more political freedom and loosened economic controls since coming to power two years ago, attracting companies such as Ford Motor Co., MasterCard Inc. (MA) and Unilever NV. (UNA)

The country is boosting economic, military and political ties with Western nations after years of isolation that left its 64 million people among Asia’s poorest. Its transition to democracy last year after about five decades of military rule prompted the U.S. to ease sanctions last May.

Boosting Ties

Coca-Cola will need to focus on distribution to win over the nation’s consumers, Kent said. PepsiCo has been building drinks distribution in the country, will soon distribute snacks there and is pursuing plans for a factory.

“As important as price, it is availability, it is serving the product in the right conditions, making it available, making it at an arms reach of desire,” Kent said. “We have plans to ensure that we have the best, most modern 21st century consumer distribution system in the country.”

While Coca-Cola left Myanmar about 60 years ago, PepsiCo has more recent experience in the nation. The world’s largest snack maker pulled out of Myanmar in 1997 after activists urged the company to sever ties with the military dictatorship because of human-rights violations.

Unilever has said it will focus on opportunities in new markets in Southeast Asia, such as Myanmar, which could be “another Vietnam” in 20 years, according to Peter Ter-Kulve, the London- and Rotterdam-based company’s chief executive officer for Southeast Asia. The company is already selling its products through 100,000 outlets in the country, he said in an interview last month.

To contact the reporters on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net; Haslinda Amin in Singapore at hamin1@bloomberg.net