Commentary / World

How to succeed in business on the frontiers after China

by Curtis S. Chin and Jose B. Collazo

Special To The Japan Times

The news coming out of China these days is not what the world has come to expect, as a “new normal” of slower economic growth — down to about 7 percent — takes hold.

Concerns also grow about persistently polluted air and water, and a feeling among some foreign companies that they are being unfairly targeted.

One result is that even international businesses once enamored of China’s more than 1 billion consumers are rethinking the market.

Recently Microsoft’s mobile phone division — acquired from Nokia — announced the closing of production facilities in Beijing, as well as in Dongguan, in southern China, eliminating roughly 9,000 jobs. Some of that employment and investment will move to Vietnam.

Japan’s Citizen Holdings closed a watch factory in China’s Guangdong Province in February, and Panasonic has announced that it will cease LCD television production in China.

As the world’s No. 2 economy continues to slow, businesses may well find new opportunities for growth and returns beyond China, on Asia’s frontiers, whether Mongolia to the north, Sri Lanka further southwest or in the heart of Southeast Asia.

An Association of Southeast Asian Nations (ASEAN) Economic Community is to be established by the end of this year, offering investors a 10-nation market and the promise of greater opportunities and returns.

Whether in energy-rich Timor-Leste, or re-emerging Myanmar, however, eager investors from Japan to the United States must be wary of economic and geopolitical risks. The findings of the World Bank “2015 Doing Business” survey make clear, for example, that not all is well in many parts of the Asia and Pacific region, including in Southeast Asia, despite much of the region’s overall solid growth rates.

Singapore continues to rank No. 1 in the world for ease of doing business. But many so-called frontier economies continue to be characterized by pervasive corruption and weak governance and rule of law.

Such developing markets also often lack the regulatory and financial institutions found in other more economically developed destinations in the region such as Malaysia and Thailand.

Yet, signs that opportunity exists even on Asia’s frontiers are easy to find. In Cambodia, for example, billboards from multinational businesses and brands dominate streetscapes.

Ford and Coca-Cola are just two of the consumer brands that American first lady Michelle Obama is likely to notice during her five-day visit to Japan and Cambodia, starting March 18, as part of a trip focused on international girls education.

Overall, according to the U.S.-ASEAN Business Council, the amount of American investment in Southeast Asia surpasses that in Brazil, Russia, India and China — the much touted BRIC nations — combined.

So, how does one conduct business in countries with limited rule of law and transparency?

As we have shared with the media, including the Straits Times of Singapore, and discussed in forums across the region, here are six best practices gleaned from business professionals who have succeeded in Southeast Asian frontier markets:

• First, be realistic about your timeline for success. International brands have succeeded in part by taking a longer-term view to networking and to developing relationships with local partners.

Granted, relationships are important in every country, but this can be particularly true in parts of Asia. As with marriage, trust needs to be built over time before a commitment is agreed to, and just as in a marriage, the hard work begins when the signing ceremony ends.

Second, leverage local talent. This can include local nationals who work with locally based business organizations such as chambers of commerce.

They and other organizations, as well as law, accounting and consulting firms with local expertise, can help with introductions and provide valuable insight into the nuances of the local business environment.

Third, recognize you are not alone. There is strength in numbers. Businesses that have done well in nations where corruption is endemic have often partnered in efforts to change the environment in their favor by together refusing to take part in illegal business practices.

Fourth, educate your local partners of the consequences to violating anti-graft laws. Local business partners may well be unaware that foreign laws, such as the U.S. Foreign Corrupt Practices Act or the United Kingdom’s Bribery Act, apply to multinationals outside their own country.

Local partners may well assume that because you are doing business in their country you are not required to abide by the laws back home.

Fifth, understand and address the challenges of corruption’s close cousin: cronyism. Many businesses entering Asia’s frontier economies seek to do so in partnership with the family and friends of the political elite. Companies that follow this approach must be aware of both the benefits and the potential for an extreme downside.

The power imbalance in the relationship along with deficiencies in the regulatory environment can make it difficult to fairly resolve any disagreement should the partnership go bad.

•Finally, and most importantly, don’t hesitate to walk away from a deal. Or, as in the case of Nokia in China today, to shift and to adjust as one market opportunity closes and another opens.

Curtis S. Chin, the U.S. ambassador to the Asian Development Bank from 2007 to 2010, is a managing director with advisory firm RiverPeak Group, LLC. Jose B. Collazo, a Southeast Asia analyst, is an associate of RiverPeak Group. Follow Chin on Twitter : @CurtisSChin and Collazo: @josebcollazo.

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