Building a successful business in Asia... Australians, don't check your brain in at the airport!
Right now, I'm in Kota Kinabalu, a delightful spot in the north of the island of Borneo. There's a real estate expo going on in the shopping centre downstairs and I have overheard lots of Australians here talking to the real estate agents at the expo about moving to Sabah and setting up a business. There are significant business opportunities for Australians in Asia. Those considering opening businesses in Asia should, however, be aware of the pitfalls than can befall any person trying to establish a successful business.
Asia’s rise to strategic and economic prominence creates thousands of business opportunities, seemingly on every street corner. But the Asian landscape is littered with the remnants of Australian businesses that decided to set up here. They ploughed money into these ventures to see little or no return on their investment.
Whilst working across Asia for the past 10+ years, I have witnessed, first hand, the enormous number of people/businesses who have returned home with their tail between their legs after dropping a heap of money. Typically, Australians make a number of similar, fundamental mistakes. I have summarised the most common that I have come across below:
Cultural norms and hierarchy.
Many of the problems Australians have with Asia are founded on the lack of understanding of the culture and hierarchy that perpetuates throughout Asian societies and work places. This hierarchy is a powerful controller of behaviour and it affects staff and their relationship with managers. There are thousands of websites/blogs/YouTube videos that outline doing business in Asian countries, but Australians continue, generally, to ignore this information.
Even recently, a friend from an Australian IT company that is currently establishing a regional office in Bangkok was telling me that the Asia Pacific Regional Manager (who has never been to Asia) was offended when he told her that managing in Asia is different to Australia. She told him that the staff who would be recruited "would have to work in her (Australian) style if they wanted to work for my company." I have been making a list of Filipino beliefs that I hear. Here are some of them (more on these in a future article)...
Don’t cut your nails during Tuesdays and Fridays;
If you eat dark coloured foods when you're pregnant, your baby will be dark skinned;
Don’t sweep dirt all the way to the door because all your blessings will be washed away;
If you eat food from the plate that a pregnant female has been eating from, you’ll get sleepy;
Taking a bath in the afternoon or at night causes anaemia
How can an Australian manager really believe that staff will follow an Australian style of working when the fundamental beliefs are so different? Take the time to get to know the culture of the country first before trying to impose any type of management style model on Asian staff and you'll greatly increase your likelihood of success.
Relocating to Asia.
Australian staff typically do little to prepare themselves for conducting business in their respective Asian country. Many do not understand the local cultural norms, especially those relating to the way that business is undertaken. It’s akin to playing a board game blindfolded and nobody has told you the rules.
When you 'clink' beer glasses in Asia, it’s often a sign of respect to clink the glass lower than the Asian person you are entertaining. It’s knowledge and execution of thousands of these subtle cultural differences that may well be the difference between success and failure on that proposal you have been working on.
Lack of management oversight
I previously completed a project in China reviewing the security policies, procedures and programs for a large European multinational. They were losing IP which had resulted in a reduction in their China revenues of more than 33%. I learned during the four week project that there were no policies, procedures and programs in place. The entire operation was run by locals and there were no European managers providing oversight. After submitting an extensive report and briefing to the local management, with an offer to assist / resolve the issues, it was not surprising that there has, to date, been no action to implement any of the corrective actions. And the reason why, because local management are profiting very nicely, thank you.
I have frequently witnessed the ‘we don’t need expats’ syndrome throughout Asia – Asian branches of companies start objecting to expats holding management positions within the country branch. They say things like, “we want to employ locals – foreigners cost us too much” or “a Westerner is not a better manager than a local”. In most cases, the Western companies fall for it and suddenly regional management has little oversight on the day to day operations of the branch. Before long, operations are not being run as effectively and revenues stall or begin to reduce. The reality is that mafia-type organisations can quickly become embedded in Asia-based organisations. These groups exploit the lack of oversight and the reluctance of subordinate staff to report the irregularities and skim funds through other means.
An example of this was a review I completed on a department of a large multinational oil company in the Philippines. The position of country security manager was the last position held by a Western manager, however, at the insistence of the country chairman, the regional management caved in and the position was filled with a local applicant. As a result, the review I conducted established that the department was probably losing more than US$5 million a year due to fraud and business practices that were not in line with the company’s code of conduct. Once that expat was removed, the gloves were off and the local staff were forced to collude and became nothing more than members of a local organised crime network.
If you establish a business in Asia and think it's ok to head home to Australia for Christmas for 4 weeks, think again...
Lack of controlling ownership
When Australians arrive in Asia, many literally check their brains in at the airport arrivals area. One of the typical brainless activities they will do is to go into business with a local person, be it their Thai girlfriend, girlfriend's brother-in-law or some person they met at the local pub. In many Asian countries, foreigners are not able to own a majority stake in a company. In Thailand for example, the most an Australian can own is 49%, so the Thai girlfriend will typically own 51%. I remember meeting an Austrian fellow on his last day in Thailand. He had built up a hugely successful motorcycle rental business in Phuket until one day his Thai girlfriend (and business partner with 51% ownership) told him to leave. He had no legal recourse and lost everything... business, life savings, great lifestyle and had to return to Austria and find work.
There are a number of legal ways to get a controlling interest in those countries where there are some limits placed. Taking the time and doing the home work on business ownership instead of blindly trusting people you barely know will reduce the risks and save your precious monies.
Establishing a successful Asia based business?
To get your Asian business into a position to succeed, I recommend you implement the following:
An initial step, before you write the business plan and start operating, is to undertake an opportunity analysis – is there really an opportunity for you to establish a business in Asia? There are a number of companies (including mine) that provide these services. Spending a small sum of money at the start to undertake an opportunity analysis will probably save you tons of money in a failed venture down the track.
Keep costs down:
Keep your costs down as low as possible. Unless you absolutely have to set up in a particular location, I’d recommend you select a low cost country to establish your business. Cities such as Singapore, Hong Kong and Tokyo are massively expensive, especially in relation to office and apartment rents. Cities such as Jakarta, Bangkok and Manila are much less expensive to operate from. After living in Singapore for 5 years, I then relocated to Bangkok and I did this for a number of reasons, but primarily because 1 month of rent in Singapore = 6 months’ rent in Bangkok. Please note that the cost to incorporate your company in these low cost locations maybe higher and the process is much longer, but the cost savings of living and running a business are significant.
Sometimes however, it’s not only about cost – it’s also about where is the best location for the business to establish. An Australian software company previously approached me. They were unsure whether to set up in Manila or Bangkok and were seeking guidance. Manila was the significantly cheaper location and provided the company with the IT skill pool they required but the company was also focused on staff security, safety and quality of life. I completed a detailed analysis and presented the facts to company’s board and they used the facts to make their decision (Bangkok won).
Do your research:
Don't assume that because you were on holiday there once before and you liked the location that it's the best for business (as so many do!). Take 3 months and visit numerous Asian cities and make contact with people on chat sites and blogs and really get the low-down on each location. Find out who the people are that offer advise that you can trust in each country and make contact with those people (there are so many shysters out there including Australians who make out that they have the knowledge... but they don't). Use your brain and keep notes on each location and identify the pros and cons of each. Try to identify numerous business opportunities and use an application like Idea Growr to record your ideas.
You still need to do the hard yards and research, research, research to make your business successful, even if you're wanting to move to Asia, enjoy the Asian lifestyle and set up a successful business. Don't make the mistake that many do and, upon arriving in Asia, leave your brain in the airport. Keep your Australian brain with you and you'll greatly increase your chances of business success.