Opportunities on Asia’s frontiers
BANGKOK - As the world’s No. 2 economy continues to slow, even international businesses once enamored of China’s more than a 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 February in China’s Guangdong province, and Panasonic has announced it will cease LCD television production in China.
Indeed, 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.
Today, businesses may well find new opportunities for growth and returns beyond China on Asia’s frontiers, whether in Mongolia to the north, Sri Lanka further southwest or in the heart of Southeast Asia. An Asean Economic Community is to be established by end of 2015, offering investors a 10-nation market and the promise of greater opportunities and returns.
Whether in energy-rich Timor-Leste, or reemerging Myanmar (Burma), however, investors 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 Southeast Asia, despite much of the region’s overall solid growth rates.
While Singapore continues to rank No. 1 in the world for ease of doing business, 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, even in a literal sense. In Cambodia, for example, billboards from multinational businesses and brands dominate streetscapes. Ford and Coca-Cola are just two of the consumer brands that U.S. First Lady Michelle Obama is likely to notice during her March 18 to 22 visit to Japan and Cambodia as part of a trip focused on education for girls around the world. Overall, according to the U.S.-Asean Business Council, the amount of U.S investment in Southeast Asia surpasses U.S. investment in Brazil, Russia, India and China - the much touted BRIC nations - combined.
So how does one conduct business in countries lacking in rule of law and transparency? As we have shared in the media and discussed in forums across the region, there are lessons to be learned. Here are six best practices gleaned from business professionals who have found success in some of Southeast Asia’s 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 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 insights 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 of violating anti-graft laws. Local business partners may well be unaware that foreign laws such as the United States’ 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 extreme downsides. 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 served as U.S. ambassador to the Asian Development Bank (2007-2010) and is a managing director with advisory firm RiverPeak Group, LLC. Jose B. Collazo, a Southeast Asia analyst, is an associate of RiverPeak Group. Follow Curtis on Twitter at @CurtisSChin and Jose at
by Jose B. Collazo,Curtis S. Chin