As China slows, try the Philippines?

The news out of China continues to center on a “new normal” of slower economic growth – down to about 7 percent – and that could augur well for the Philippines and elsewhere in Southeast Asia as investors look to diversify away from the Middle Kingdom.   

Indeed, as a “Golden Age” of investment in China driven by Beijing’s one-time focus on unbridled economic growth closes, international investors should pay particular heed to the 10 nations comprising the Association of Southeast Asian Nations, and the soon-to-be ASEAN Economic Community. 

Already, some major businesses are finding it slow going, and growing, in China today.

Microsoft’s mobile phone division – acquired from Nokia – has announced the closing of production facilities in Beijing, as well as in Dongguan, in southern China, eliminating roughly 9000 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 that it will cease LCD television production in China.

Questions also persist over whether China is unfairly targeting foreign companies as it seeks to protect its own state-owned enterprises. Yet, even if companies increasingly view China without rose-colored glasses, the Philippines, Indonesia and Vietnam cannot stand still.

They as well as other ASEAN nations must also act to improve their own investment climate if they are to take advantage of a slowing China.

While Singapore continues to rank No. 1 in the world for ease of doing business, the Philippines continues to rank poorly due to corruption and weak governance and rule of law.  Upcoming elections will also bring new challenges and uncertainty to the business environment.

6 lessons to be learned

So, whether focused on Phnom Penh or Manila, how does one succeed in business in countries where the rule of law and transparency are still very much areas for improvement? As we have shared in media and discussed in forums across the region, there are lessons to be learned 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 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 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 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 or Panasonic in China today, to shift and to adjust as one market opportunity closes and another opens. 

It might be more fun in the Philippines today – as the tourism tagline goes – but if national, provincial and local leaders stay focused on improving the fundamentals for doing business, including addressing endemic corruption, there will also be more opportunities for economic growth, investment and job creation in the Philippines too. – Rappler.com

Curtis S. Chin served as US 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 @josebcollazo.