Lessons Learned Doing Business in Asia BY BILL GREEK While serving as senior vice president and director of marketing for Bovis Construction Group in Asia from 1994 to 1998, I was responsible for regional corporate marketing and business development. I supported eight offices throughout the region and also served as project executive for our global clients in Asia, including Intel, NCR, and Bank of America. I learned several lessons about doing business in Asia.
Think and act long term For generations, construction carpetbaggers have driven through Asia picking off projects and taking profits with no real intention of staying for the long term. The most notable of construction imperialists were the French, British, and Dutch. They paid dues and learned many hard lessons in Asia. American forays are recent and limited by comparison. Today, Asian clients easily can separate the not-so-serious business executive from the committed ones. Once identified as a carpetbagger, most clients will avoid you. A “serious” foreign firm commits for the long term through indisputable actions. What is a good first signal? Place a senior executive in Asia as a permanent resident as soon as possible. You need to be in the time zone. Next, assure your first project’s success and follow on that success with new business with other high-profile, prestigious Society for Marketing Professional Services
clients. Securing new business in Asia is a combination of being at the right place at the right time with the right image and having the right introductions. Once a client offers an opportunity, the marketing process is short, and the discussions usually lead right into negotiations.
Asia is expensive Marketing, recruitment, and operations costs are high in Asia. Budgets need to be based upon verifiable cost data by people who have operated in the region. On the street, the rule of thumb is to double your best numbers to cover contingencies—and add 20%. Any global construction company or big four accounting firm established in Asia can validate this. Why would foreign firms want to operate in such extreme conditions? Usually, the rationale circles around a corporate desire to be a truly global firm. Being truly global includes a serious investment in a presence in Asia.
Image is paramount Asians, particularly Chinese, want to deal with the best and brightest. They expect their foreign partners, consultants, vendors, and contractors to have the right image. They respect well-dressed, articulate professionals who stay at the best hotels, maintain prestigious offices at the right addresses, hold the proper club memberships, and spend money wisely.
Suning Chengdu, a mixed-use development in Chengdu, Sichaun Province, China. Owner: Nanjing Suning Real Estate Development Co., Ltd., a subsidiary of Suning Global Group Ltd. MulvannyG2: Design IMAGE: Courtesy of MulvannyG2
Asians notice and report on everything we do: the car we arrange from the airport to the hotel (Mercedes or Toyota?), the room we select (concierge floor?), the restaurants we choose, the shoes we wear, and the quality of our wine selections. Don’t try to do business in Asia on-the-cheap; you will not win the respect of the high-end client. Asian businessmen are generally snobs who want to be seen and do business with the best. They brag about their newfound friends, partners, and contractors. You will get business purely on reputation and image once you’ve proven your value and established your image. Service providers must leverage image. Seek and rely upon proper introductions. Focus executive management on cultivating their images and reputations on an ongoing basis.
Secure a contract for a project in a target country before committing to an office As in the rest of the world, securing work in a new region before setting up an office is good business. This is especially critical in Asia where the cost of growing a firm is two or three times more expensive than doing business in the United States. Establishing an operation in Asia takes a focused commitment.
Leverage client clout As part of a contract agreement with a client, many professional services firms should try to obtain technical, administrative, legal, and political support services to help establish the firm locally. The credibility and pull of the client will help clear the way for permits, licenses, and regulatory approvals needed to operate in-country. Clients occasionally will agree to support you since they realize that a fast start will benefit them. Clients paying mobilization
costs have a vested interest in helping you get established. However, many clients who have gone through this before don’t want your hassles and expect you to do all of your own legwork at your own expense. Be prepared to negotiate this issue.
Target both local corporate clients and U.S./European multinationals Keep in mind that 99% of all capital invested in real estate and capital projects in Asia is invested by locally held corporations— not by U.S./European multinationals. Marketing targets should include a blend of both U.S./European firms and top local corporations. A U.S. firm should not base its marketing plan solely on U.S. firms taking them into Asia for a single project or even for a series of projects. Long-term relationships with local clients will pay back many times. Also, try to get paid in U.S. dollars and be prepared to keep a large portion of profits invested in local currency as many countries have currency controls that prohibit exporting of profits. Reinvestment in your local operation must be part of a long-range plan. Be aware of your client’s “inside” reputation and research them as thoroughly as you can. To protect your firm if the relationship goes south, include steep cancellation fees, demobilization fees, and upfront down payments in your agreements. These fees and payments are much more common in Asia than in the United States.
Keep ethics and legal conduct at the forefront Asian business practices generally are based on the rule of man, not the rule of law. The western justice system does not apply in many countries, especially in Southeast Asia. At the risk of generalizing, corruption—both overt and subtle—is a way of life in many Marketer/April 2011
16 “Asian business practices are generally based on the rule of man, not the rule of law.” countries. Although American firms will be exposed to many opportunities to secure business under shady circumstances, once bitten, the costs for project acquisition and follow-on operations over the long term will grow exponentially with corruption in the equation. Worse, you can go to local or U.S. prison or both. American citizens and corporations must abide by the Foreign Corrupt Practices Act of 1977 that requires us to follow all U.S. laws regardless of where business is conducted. Americans go to jail all the time in the United States for operating outside U.S. law in foreign business practices. Foreign firms still can navigate the process with the help of legal entities such as jointventure partners, associates, consultants, agents, and brokers. Understanding the process is a true art—not a science.
Be fully prepared to deliver on commitments Working in Asia is demanding on many levels, not the least of which is delivering a project on time, on budget, safely, and at the level of quality expected. Perhaps the biggest challenge for foreign firms, especially construction firms, is bringing the human resources to the game. In this day and age, American professionals are reluctant to relocate oversees into third-world environments. The cost to employ Americans in Asia typically runs two- to three-times annual salary to pay for living and typical expatriate costs. Asian clients who are willing to pay more for American expertise expect immediate results once they start paying the bills. Slow mobilization or an inability to bring the brainpower to the job is not tolerated. Your recruiting strategy should be based upon identifying in-country American and European expatriates already employed by other firms. Recruiting locally will reduce the expense and risk of unsuccessful transplants. Turnover due to unsuccessful expatriate relocations usually runs in the range of 20–40%; failures often occur in fewer than 9 months. Recruiting should be an ongoing process taking 30–40% of a senior executive’s time. Smart firms also are prepared to hire and train 90–95% of their total staff from local pools of professionals for executive, project/ construction management, administration, and technical positions. This is challenging because U.S. skill levels are orders-of-magnitude higher than local skill levels. Locals typically must be trained. Cultural, educational, and language barriers mean more time and expense than we are used to in the United States.
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Most locals consider working for a foreign firm to be a risky, short-term endeavor at best—especially for a new startup firm. Foreign firms have a hard time attracting what limited talent exists in local markets. Joint ventures often help alleviate but do not fully solve the problem. Training must be a serious cornerstone to any operational plan. One solution of course is to invest heavily in qualified, fully-trained Americans. However, no firm can afford to or realistically relocate large numbers of Americans to deliver projects.
Guard your reputation News of a failure of any size on a project will travel fast in the Pacific Rim, especially through the 5,000-year-old Chinese corporate network. Like any market with a newcomer entering the area, Asians watch and anticipate failure from outsiders. American firms must do everything in their power to ensure early success and, as the firm grows, control excess growth that may jeopardize reputation. Asian clients are not as forgiving and understanding as American clients as a whole when it comes to troubled projects.
Don’t underestimate the capabilities of local contractors Many firms have made the mistake of underestimating the capabilities, experience, connections, and zeal of local contractors—especially when it comes to burying a newcomer. Enter new markets with respect for the local firms, especially the competitors, and make friends at several levels to avoid a targeted program to sink your ship before it leaves the dock.
Be realistic and patient In some countries, such as Japan and Korea, foreign firms are expected to pay their dues before they are taken seriously. In both countries, Bovis was expected to sit on a rock for more than a decade before local joint-venture partners would seriously consider teaming with the firm as a true construction partner. Southeast Asian countries including China are more likely to seek American management and delivery know-how and be willing to pay for it right away.
About the Author Bill Greek is senior vice president and national sales and marketing officer for Linbeck Group, LLC (www.linbeck.com), based in Houston, TX. Eleven of Bill’s 30 years of industry experience were spent living and working overseas. He can be reached at 713.579.9208 or email@example.com. This is his first contribution to Marketer.