What's it Take to Do Business in
South East Asia?
The first step in being successful in South East Asia is not
assuming that business is done like it is in the US.
by Kit Werremeyer
President, Southernstar Consultants, LLC
and Valerie Lynn
Principal, VLM Consultancy, Inc.
Kuala
Lumpur, Malaysia
You are a US businessman and you
want to take a look at doing business in South East Asia.
To
many Americans, hearing the term “South East Asia” brings back old
memories of the US military involvement in Vietnam in the 1960’s and
1970’s.
Times have changed. So has South East Asia. Today,
South East Asia, a diverse mix of countries, peoples, cultures,
religions and politics, offers many good opportunities for US
businesses interested in working or investing there. U.S. companies
working in South East Asia range from newcomers to the region to
companies that have been working in Southeast Asia for over 100
years.
The countries of South East Asia are: Myanmar
(formerly Burma), Thailand, Laos, Cambodia, Vietnam, Malaysia,
Singapore, Brunei, Indonesia, and the Philippines. These ten
countries are the members of an organization called ASEAN. ASEAN is
the acronym for the Association of South East Asian Nations. ASEAN
promotes the mutual interests and solidarity of the ten member
countries.
Thailand, Malaysia, Singapore, Brunei, and the
Philippines offer stable political, legal, banking and business
environments. Indonesia continues going through a transition to a
more democratic form of government and is trying to implement
positive changes in their legal, banking, and business environments.
Laos, Cambodia, Vietnam and Myanmar are significantly less developed
and have much less certain legal, banking, political and business
environments.
The ASEAN countries are rich in natural
resources and people resources with a regional population of
600,000,000 or 8.8% of the world’s population, and a combined GDP of
USD $1.5 trillion. If ASEAN were a single entity, it would rank as
the ninth largest economy in the world.
1. US
6. Brazil
2. China
7. United Kingdom
3. Japan
8. Italy
4. Germany
9. ASEAN
5. France
All of the ASEAN countries are
interested in foreign investment and can provide varying degrees of
tax and financial incentives to foreign companies willing to invest
in their country’s economic improvement.
A work force of
college and university educated people, skilled labor, and unskilled
labor, with diverse language abilities is readily available at very
competitive rates.
What does it take, for a US company to do
business in South East Asia? Here are some things to think about:
Patience is Golden
The
most important element of doing business in South East Asia is
patience. You will need plenty of it. Things just don’t happen as
quickly or efficiently as you might like. If you are used to closing
deals in one or two meetings back home, you may have to have two,
three, four, five, or more meetings to achieve the same result in
South East Asia. Everything takes more time to do in South East
Asia.
With nearly all business communication taking place
instantly or very quickly via email, be aware that it is an Asian
tendency not to respond to emails if they do not have a response to
your questions or enquiry. Therefore you can expect responses may
take two to five days or more to receive a response. In order to
ensure that your efforts do progress, always give whomever you are
communicating with a target date for their reply to move the process
along.
Walk the Talk
English is widely spoken and widely used in all the countries,
especially in the business communities and you will be able to
conduct most of your business in English.
However, it will
always be a plus for you to be able to speak a little of the local
language as in greetings, thank you, and good bye.
Take the
time to learn how to say a few phrases in the local language: “Good
morning”, “How are you?”, “Nice to meet you”, and “My name is ….”.
Even if you don’t say these greetings very well, your foreign
counterparts will be pleased that you at least made an attempt. It
breaks the ice when meeting people for the first time. However, be
prepared for misunderstandings to occur as English will be the
second language of the people you are dealing with and their skill
levels in the use of English will vary.
Be patient, speak
slowly (or slower), clearly, quietly, and avoid the use of
complicated sentences and slang. The written communication of your
Asian counterpart may not be perfect so therefore it is wise not to
be judgmental nor to correct their written capabilities. It would be
more productive to respond in simple written English.
Time and Money
Be prepared to
spend time and money developing and establishing your business. Just
because you arrive in one of the countries with the worlds best
widget in your pocket doesn’t guarantee you instant success. It will
require time and money to develop your local business support
services, arrange for and receive necessary local government
permits, promote your products, and meet your local business
contacts and prospective clients. The same holds true if all you are
looking to do is to develop a local supplier for export of goods or
services back to your country.
Get
some help
Actually, get some local help. Forget
about trying to be superman and doing it all on your own, or you’ll
take an early and frustrated exit from the country without results.
Having a local associate, agent, or employee is a good idea. You
will need someone to provide assistance to you as you work your way
through the local business, political, legal and cultural system.
It really helps, too, to have a local associate who speaks
the language and can help get you from point A to point B in a hot,
jam-packed city, or find a remote site way out in the countryside.
If you intend to establish a company in one the ASEAN countries
you should contact a local accounting and legal firm to advise you
on rules and regulations your new company would have to follow. A
number of US accounting and legal firms have subsidiaries in the
ASEAN countries.
Partner, Partner
Having a
local business partner can make sense, but may not be absolutely
necessary. Don’t rush into signing up the first company or
individual that claims he or she can open up all the local back
doors to businesses and politicians.
Remember, do your due
diligence and investigate a potential partner through the resident
country’s trade association or embassy in your home country. They
may or may not be able to assist you but often can give you further
direction. Once you agree to take on a partner, you’ve got him, for
better or worse, for a long time. Your new partner may be
“politically in” today, and “politically out” tomorrow. Careful is
the watchword here. Take your time, as you can always bring in a
more permanent partner or investor at a later date.
The US Foreign Corrupt Practices Act
All US businesses and their foreign subsidiaries are subject to
the US Foreign Corrupt Practices Act (FCPA). The FCPA makes it a
crime to bribe local government officials in order to obtain new
business or keep existing business.
This act applies as well
to any bribery of local government officials by the local employees
or partners of a US subsidiary.
If you intend to have a local
partner or company, then perform a thorough written due diligence
report on that individual(s) or company and keep a copy of it. Any
written agreement between your US company and your partner’s local
company or individual(s) must contain a clause incorporating by
reference the provisions of the FCPA as may from time to time be
amended.
The FCPA allows for what are called “facilitating
payments”. The US Justice Department can provide clarifying
information on facilitating payments.
Details of the FCPA can
be found at: http://www.justice.gov/criminal/fraud/fcpa/
Culture shock
The countries
of South East Asia have many cultures, customs, no-no’s, and
religious practices. Just because you finally figure out how you can
comfortably work with the folks in Singapore, doesn’t automatically
mean you can apply the same formula to the folks in Indonesia or
Thailand!
You will find there are many similarities in
working with the people and respecting the cultures in each of the
South East Asian countries. You will find there are many
differences, too, and this is where having a good local associate is
very valuable. He can keep you out of cultural trouble.
Here
are some examples of social behavior to observe: In Thailand, don’t
say anything bad about or make fun of the King or Queen, or you
could end up in trouble with the law. In Malaysia, if a man and his
wife are introduced to you as Datuk and Datin, that’s not their
first names; those are conferred titles.
In Indonesia, the
largest Muslim country in the world (240,000,000 population), it
would be in very poor taste to offer pork to your local guests. In
Burma, don’t pat the little kids on the head. They are Buddhists,
and they believe the head to be the highest and most revered part of
the body. In Singapore, Lee Hsien Loon is the Prime Minister; his
last name (surname) is Lee, not Loon. Hsien and Loon are his Chinese
given names. Chinese people place their last name first when
introducing themselves. You would address him as Mr. Lee, not Mr.
Loon. How would you like to be called Mr. Bob?
In doing
business in South East Asia, it is important to understand the
social and religious customs and practices of the people in the
different countries. It isn’t too hard to learn about these customs
and practices and follow them in your everyday dealings with the
local people.
Knowing and applying these social and religious
customs and practices will certainly help you be successful in your
business activities as it will be observed as a sign of respect.
Many western business people come to Southeast Asia without any
cultural awareness. This is viewed negatively by the local people.
Generally people from this region are familiar with the U.S. due to
the regular coverage of US news, politics, economics in their
national newspapers, TV news. Popular American TV and reality shows,
books and magazines are also widely available. Advent of the
internet and search engines with specific domain and translations
capabilities allows for easy research of US news and vice versa.
Center for Strategic and International
Studies
If you would like to do business with
Southeast Asia whether you want to break into the market to sell a
product or service via distributors, establish operations, search
for a joint venture or outsource to third party contract
manufacturing, an organization that you should be aware of is The
Center for Strategic & International Studies which is a think tank
based in Washington D.C., website www.csis.org.
Specifically
the CSIS Southeast Asian Program is the premier forum for sustained
high-level policy dialogue focusing on Southeast Asia and the US
business interest in the region. Subscribe to its newsletter as it
is an excellent source of information to understand US government
initiatives are for the region which directly relates to present and
future opportunities for US businesses.
Trans Pacific Partnership (TPP)
Have you heard of the Trans Pacific Partnership (TTP) also known
as the Trans Pacific Strategic Economic Partnership Agreement? It is
a multilateral free-trade agreement that aims to further liberalize
the economies of the Asia-Pacific region. The US government has
taken the lead role in its advocacy.
The original agreement
between the countries of Brunei, Chile, New Zealand and Singapore
was signed on June 3, 2005, and entered into force on May 28, 2006.
Six additional countries – Australia, Malaysia, Peru, Japan, United
States, and Vietnam are negotiating to join the group.
The
objective of the original agreement was to eliminate ninety percent
of all tariffs between member countries by January 1, 2006, and
reduce all trade tariffs to zero by the year 2015. It is a
comprehensive agreement covering all the main pillars of a free
trade agreement, including trade in goods, rules of origin, trade
remedies, sanitary and phytosanitary measures, technical barriers to
trade, trade in services, intellectual property, government
procurement and competition policy.
TPP advised that the
value of 2011 US trade with its SEA members is as follows:
Vietnam:
US$20 Billion
Malaysia:
US$37 Billion
Singapore:
US$46 Billion
The US has had a bilateral Free Trade Agreement
(FTA) with Singapore since 2004 which secured a U.S. presence in
Southeast Asia and provided a standard of free trade that encourages
a high level of liberalization. In 2010, Singapore was the United
States’ 10th largest export market at over $29 billion.
Bilateral economic and trade cooperation between the United States
and this dynamic region is reaching new levels.
Backdoor to China and India
US companies remain focused on doing business with China and India.
However more experienced business persons are realizing the value
that the long term relationships the countries in ASEAN have with
China and India. Nowadays many of the ASEAN countries have extensive
trade links to China and India. US companies that choose to do
business via Southeast Asia are benefitting from such established
linkages and trade agreements between the ASEAN countries and China
and India.
Have you done your
homework?
There are many resources available to the
US business person interested in learning more about doing business
in South East Asia.
Economic Officers resident at the US
Embassy in each of the countries can help provide country specific
business information.
For a listing of US embassies in South
East Asian countries see: http://www.usembassy.gov/ The US
Commercial Service, a division of the US Department of Commerce,
also provides resident Commercial Counselors to help provide country
specific business information. The main role of the US Commercial
Service is promote the sales of US goods and services to foreign
countries. For a listing of US Commercial Service offices in South
East Asian countries see:
http://export.gov/worldwide_us/index.asp.
The US
Commercial Service may charge a fee for certain of the services it
provides. These Commercial Counselors and Economic Officers are
excellent sources of information on the ins and outs of doing
business in the country.
All the ASEAN countries have an
active American Chamber of Commerce organization. This is an
organization consisting of US and local business persons who are
living and working in the specific country. Each Chamber offers
varying services; some are also able to organize meetings for
companies interested in doing business in the country. These
meetings are excellent opportunities to learn about doing business
in the country from American and foreign companies actually working
there, however there are associated charges for such services. For a
listing of US Chambers of Commerce abroad see:
http://www.uschamber.com/international/directory
Modern business environment in ASEAN
The modern day business environment in ASEAN is challenging. It
is also dynamic, high growth, and very opportunistic at this time as
it is poised for growth. ASEAN was not impacted by the recent
financial crisis as severely as other regional economies around the
world.
It is a region that should be approached
realistically and systematically. Prior to any action advice should
be sought from a reliable source preferably upon recommendation.
Attempt to fully understand what you will be facing, such as
significant time differences which can make communication
challenging, more public holidays than in the US and prepare to
visit the region a few times if you do not have any representation.
Don’t try to change the system or the business culture because as a
foreigner you must fit in with their culture to be successful, not
the other way around.
SPECIAL SECTION
-- The Socialist Republic of Vietnam (Vietnam)
The
Vietnamese economy is at the heart of the fast-growing Southeast
Asia region and is one of Asia’s great success stories. Vietnam’s
economy has grown rapidly since the country opened its economy in
the 1980s. This country with a population of 87 million, has posted
annual per capita growth of 5.3%.
Vietnam has also prospered
by choosing to open itself more broadly to the outside world,
joining the World Trade Organization (WTO) in 2007 and normalizing
trade relations with the United States. These steps have helped to
ensure that the economy is consistently ranked as one of the
region’s most attractive destinations for foreign investors. Despite
the recent volatility in global markets, China is the only Asian
economy to have grown faster than Vietnam since 2000.
Vietnam’s growth has been relatively balanced, with the industrial
and services sectors each accounting for about 40 percent of annual
output. Thanks to an abundance of low-wage labor, Vietnam’s
manufacturing sector grew at 9% annually from 2005 to 2010. Vietnam
has also expanded its exports of manufactured goods, especially
products such as textiles and footwear. The liberalization of
services created opportunities for rapid expansion across a range of
sectors including retail and transportation. The nation also boosted
its tourism infrastructure and experienced a surge of interest in
residential and commercial real estate. Vietnam’s exports of
commodities such as rice and coffee have also grown briskly.
As Vietnam continues economic development by liberalizing its
economy and strengthening its growth policies and infrastructure it
is becoming a more attractive option to US companies seeking
alternative trade and investment to China. In February 1994 the US
lifted its trade embargo against Vietnam and restored full
diplomatic relations in July 1995. In December 2001 the two
countries signed a bilateral trade agreement. The United States and
Vietnam still have differences on issues such as human rights, but
even so they have started talking about negotiating a “strategic
partnership.” Vietnam is now the United States’ 45th-largest trading
partner with two-way trade reaching nearly $19 billion in 2010.
The U.S.-Vietnam Road Map proved to be an invaluable mechanism
as the two sides addressed subsequent trade issues that surfaced due
to the fact that Vietnam is a communist country governed by
socialist laws. It provided the United States with an opportunity to
spell out exactly what it was looking for and gave the Vietnamese
clarity and confidence about what they would get in exchange for
specific steps they took. As Washington and Hanoi normalized
relations, more overseas Vietnamese returned to Vietnam bringing
investment and technical skills, which helped Vietnam develop as it
liberalized its economy and opened up to foreign investors.
The population of Vietnam is large enough to make it second most
populous country in the South-East Asia (behind Indonesia), seventh
in the Asia-Pacific region and the 12th most populous in the
world-list. One should also notice that the ratio of literate
persons is high in Vietnam and the majority of the population is
young. As the U.S.-Vietnam Bilateral Trade Agreement opens up new
markets for U.S. goods and services, the Vietnam market represents
the next great opportunity for all types of American companies.
However, doing business in Vietnam, like most foreign countries,
can still be challenging and any business person should perform
adequate due diligence on local businesses it intends to do business
with, whether it is for import or export.
Having local
representation on the ground may allow business transactions to
progress in a short time period than via telephone and email.
Remember in Asia people still like to meet and greet the people they
are going to do business with, shake their hand or share a meal, not
to say that business cannot be facilitated via the internet and
multimedia communication. It may take longer than you expected. As
mentioned previously patience is king when doing business in
Southeast Asia.
If you are interested in purchasing goods
manufactured in Vietnam or are attempting to expand your business
into this country contact the US Chamber of Commerce in Hanoi or Ho
Chi Minh City (formerly Saigon), as well as a Vietnamese chamber of
commerce or business organization in the United States. These
organizations are a good starting point and can advise or give you
direction on initial steps to take. Attending business briefings and
country presentations on doing business with Vietnam that are held
in the U.S. is another way to begin networking with people,
organizations and companies that specialize in business with
Vietnam.
Resources
There are also many internet websites with information on the
countries in South East Asia. Check out the following websites:
• The CIA World Factbook provides general information on all the
countries in the world. You can also find contact information for US
embassies in the countries. Go to this website and click on “The
World Factbook” under Library and Reference. See:
https://www.cia.gov/library/publications/the-world-factbook/
• The
US-ASEAN Business Council, Inc. provides excellent business related
information on the South East Asian countries and on US businesses
working there. This site is devoted to promoting US business
interests in the ASEAN countries. See:
http://www.us-asean.org
• The website maintained by ASEAN and is an excellent source of
business, political, social and economic information on all the
ASEAN countries. See:
http://www.aseansec.org
• The US Small Business
Administration provides a number of services for US importers and
exporters. See:
http://www.sba.gov/category/navigation-structure/exporting-importing
• SCORE can provide free business counseling service for US
business persons interested in international trade. SCORE has 365
offices in the US. To find an office near you, see:
http://www.score.org
Doing
business in South East Asia will be challenging and often
frustrating for a business person who is unprepared. However, for
the business person who has patience and does his homework well, the
opportunities and rewards are there.
© Kit Werremeyer
and Valerie Lynn January, 2012
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