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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

ASIA IS GOING PLACES

In the New Asian Economy, Entrepreneurs Just Cannot Stay Put


"INDIA," SAYS DESIGN ENTREPRENEUR Gregory Pong, "is one of those few places left on the planet where we can create opportunities." From where the Singaporean is standing, amid the dust and debris of a Delhi renovation site, the profit prospects may seem remote. But India's fast-growing hotel industry has provided many happy returns for his 16-year-old company. In the past year, Total Integrated Design Limited has redecorated restaurants and discos for the Leela Kempinski chain of five-star hotels in Bombay. It designed a beachfront hotel casino in Goa and bagged a deal to do up a disco in Delhi's posh Meridien Hotel.

Pong hopes to get more business from the Singapore Technology Park in Bangalore, reserved for investors from the island-state itself. Like Total Integrated Design, they are journeying across the sea in search of more robust margins. "By the time the park gets going," says Pong, 32, "we'll be in a position to assist Singapore companies [set up shop] as well as get business from them."

Welcome to the Asia that cannot stay put. Rising yen, falling barriers, steady growth - whatever the reason, entrepreneurs across the region are crossing borders like never before to boost bottom lines with foreign pickings. From billionaires like Wee Cho Yaw, chief of Singapore's hugely profitable United Overseas Bank, to Taiwanese Jannie Peng, who runs a four-person trading outfit in Hong Kong, adventure capitalists are tying the region's economies together in a macrame of deals and ventures with the neighbors.

Despite his phenomenal wealth, Wee thinks the money may be greener in someone else's backyard. A fifth of UOB's earnings come from abroad; it has operations in Malaysia, China, Hong Kong, Indonesia, Taiwan and Vietnam. The bank's "organic expansion" abroad had been too slow for Wee: "We have grown with Singapore. Now we must go out and expand." He aims to tie the bank to other Asian institutions through joint ventures, direct investments or outright acquisitions. His group is also aiming to make a name in another regional business: hotels. "We are looking for completed ones in Thailand in the three-to-four star category," Wee recently said. "It's much faster than building from scratch."

While Asians have been investing next door for decades, small businesses from the NICs are now joining the Japanese and Korean behemoths that used to dominate the region's investment scene. Pong's Total Integrated Design has a turnover of about $5 million. Fellow Singaporean Wong Tai runs a $42-million-a-year computer training service, Informatics Holdings, which has invested in 16 Asian countries and makes money in most of them. Wong is now laying the groundwork for training centers in Myanmar and Vietnam. "We'll go anywhere people are interested," he says.

Besides saturated home markets, rising costs and scarce human and material resources are driving entrepreneurs overseas. Victor Lo Chung Wing is the globe-trotting executive chairman of Gold Peak, the Hong Kong-based battery and electronics group, which has 10 plants in China and several others in Singapore, Malaysia, Indonesia, Taiwan and Sri Lanka. "We went global nearly a decade ago because we didn't want to be a one-country company," Lo told Asiaweek. "In manufacturing you have to be close to the markets and the raw materials. No country has all the raw materials and these days you can't depend just on your home market. You've got to be a global player."

Along with that cost-push factor is an incentive-pull one: governments all over Asia and the world are rolling out the red carpet for foreign business - and rolling in the red tape. They are offering tax breaks, as well as relaxing limits on ownership and repatriation of profits. Nearly all Asian nations have opened industrial zones and many have linked into growth areas and preferential trade arrangements. Japan, Singapore, Taiwan and South Korea have gone so far as to help build factory estates abroad for their manufacturers and fund their move to lower-wage countries like India and the Philippines. Add to the mix an emerging Asian consciousness. Says Professor Victoria Licuanan of Manila's prestigious Asian Institute of Management: "Everybody's more aware of nearby countries. There is a new emphasis on Asia" rather than the West.

The biggest boon for entrepreneurs could be ASEAN's trade deal with itself. The ASEAN Free Trade Area aims to create a nearly tariff-free zone by 2003. "When AFTA is a reality," says Chin Yoong Kheong, a partner at Malaysia's KPMG Peat Marwick accounting firm, "businessmen will look not just at, say, Malaysia and Singapore. They will look at ASEAN, and that's a huge 400 million-people market with rising purchasing power." Big enough, some hope, to draw investors away from capital-guzzling China and India. ASEAN authorities figure the exposure to foreign competition is a fair price for the creation of "super markets" and good for competitiveness anyway. "In a borderless world," says Chin, "if you don't look beyond your own shores, your competitors will."

Mat Hassan Esa is also gearing up for the rigors of open markets and free enterprise. "Entrepreneurs must have the guts to take challenges and turn risks into opportunities," says the chief executive of Malaysia's National Entrepreneur Corp. (PUNB by its Malay initials). He believes such creators of enterprise can be made and not just born - and has $40 million in capital to prove that conviction. Since 1993, PUNB has helped nurture over 240 business people in 82 projects with total equity of $52 million. Mat Hassan's aim is to help launch 30 companies a year involving some 90 entrepreneurs. More and more of these will be eyeing opportunities overseas.

Japan too is seeking to stir the entrepreneurial drive in a land of salarymen content to spend their lives working for rather than setting up firms. Since last November, Venture Enterprise Center, an arm of the powerful Ministry of International Trade and Industry, has held seminars for prospective entrepreneurs. It first attracted 1,300 would-be participants for the 50 seats available - an excess of interest that has been maintained in subsequent sessions.

Government planners hope to ignite Japan's "third enterprise boom" for the 1990s (after those in the 1970s and 1980s). But this time, nimble firms rather than corporate heavyweights are expected to play a bigger role. Besides the enterprise seminars, officials are implementing "incubator" programs backed by interest-free loans, cheap office and factory rents, and ample equity. Authorities have also allowed five stock exchanges to list smaller firms. The various incentives may be working: one venture capital firm, JIC, has received hundreds of applications for capital, triple the number in 1990.

But it will take more than government support and individual drive to make it in Asia's borderless business environment. What are the key strategies for success, especially for entrepreneurs seeking to spread their wings and build nests of enterprise abroad? Gold Peak's Lo urges firms to start small and expand slowly, mastering one country at a time. "Start as a one-country operation and become competitive at home first before trying to conquer the world," says the CEO, whose company has acquired leading British loudspeaker firm KEF. "We set up plants overseas because we needed the economies of scale, but you have to have each unit as a competent center."

Few Japanese analysts expected Rengo, the country's largest manufacturer of corrugated board, to establish factories around Asia. But in the last six years, CEO Hasegawa Kaoru, a still-vigorous 72, has opened 13 plants in Southeast Asia and China, and established a regional base in Singapore, called Rengo Industrial Asia. Not just in the capitals - his factories have gone up in secondary cities like Dalian and Surabaya. Hasegawa isn't through yet; he has more ventures planned in China, the Philippines and Vietnam.

With its unwavering focus on its main business, Rengo has followed a key tenet of expanding abroad. "Entrepreneurs must ensure that their core businesses are stable and well-looked after while they engage in overseas ventures," says Tan Wee Liang, director of the Entrepreneurship Development Center of Singapore's Nanyang Technological University. "Going overseas must be put in the context of the entrepreneur's overall picture of how his business is growing." Or don't bite off more than you can chew.

In roving beyond borders, entrepreneurs look for more than export zones, tax holidays and rosy promises. Singapore clothier Lawrence Ng picked Beijing for its incentives. But in Asia nowadays, the biggest consideration is people - the ones with the right abilities, learning and attitude. Pirating them is increasingly the name of the game, especially among foreign ventures in need of staff with language skills and the right touch in relating to local workers. Paul Suttie manages Perkom, a computer services firm in Kuala Lumpur. "People are poaching from Perkom," he complains. "The challenge is how to keep the team together." Kim Joo Jin, chairman of Korean semiconductor maker Amkor Anam Pilipinas, in Laguna Technopark southeast of Manila, singles out the upgrading of technical expertise as "a critical area of consideration."

Gold Peak's Lo values local staff able to communicate and work well with trusted managers from the head office. "In our overseas factories, we've emphasized building a team of local managers," he says. "If we can't communicate with them - we're fluent in Chinese and English - we can't grow as fast as we want." He likes Malaysia partly because English and Cantonese are widely spoken - "but we're not in Thailand because it's difficult to find managers who can speak English." Lo also finds Vietnam very attractive because there are many English-speaking supervisors.

With more and more Asian entrepreneurs keen to make it big, finding reliable local partners can be both easier and harder. Many small players who may have welcomed foreign capital, expertise and technology in the past could look on them as rivals to be kept out. Those big enough to clear bureaucratic hurdles fast and pave the way into the domestic market are almost sure to demand equal billing. Informatics' Wong speaks from experience: "We rely heavily on either government or private sector as equal-opportunity partners." It's the same story with Hasegawa and the Southeast Asian behemoths the boxmaker has tied up with, including Sime Darby in Malaysia, Siam Cement in Thailand and the Salim Group in Indonesia. Having industry leaders on one's side, says the Rengo boss, helps "make marketing and licensing easier and avoid frictions."

A recalcitrant partner can ruin a start-up, as nearly happened with Ng's garment venture in China. For years, one of his partners, the state textile trading monopoly, refused to allow Ng to export his suits and dresses on his own. In 1990, the agency finally relaxed its grip, and only then did profits leap. Of course, the traditional key to business in Asia - contacts - is another reason to have local partners. "One invests a lot to build up connections," says Hiraki Ryoichi, managing director of Japanese-owned contractor Thai Fukuda Corp.

Local partners also help address another growing challenge as more and more entrepreneurs from NICs move into emerging markets. Their greatest difficulty, says Chin of KPMG, "is the differences in business concepts." Free enterprise, for instance, tends to be much watered down in places with a socialist past. "In Vietnam, investors may be surprised to learn that they have to get the approval of authorities to move offices, even if it is just across the street," he says. Lo observes that "for Hong Kong companies, red tape can be a big cultural shock." Singapore consultant and professor Raymond Kao stresses that "you have to live with bureaucratic practices." And the private sector can cause problems too: "Watch out for unfair competition - smuggling could undermine your sales."

Such challenges make it imperative to maintain a long-term view. "You have to be prepared to see your investment through," says Wong. Overseas training centers brought in more than 70% of his company's operating profit last year. For the next "wave of growth," he is looking to India and China - where the words information technology mean little to most of the population. But Informatics will "go in early to work on the ground. We don't expect quick returns." Patience is a must not just for those doing business in newly emerging economies. Taiwan-born Peng's Joint Power Co. markets toy furniture in Hong Kong through department stores like Sincere and Yaohan. For someone like her who set up shop abroad, "the most difficult thing is establishing contacts - it took me five years."

Of course, the biggest long-term consideration - one that could make or break a business over time - is the investment environment itself. Ghazali Atan, chief economist of Malaysia's MBf Unit Trust Management, points to the weightiest ifs: "Drastic shifts in policy may affect the regional investment climate. Will India continue to liberalize its market? Will China still be pro-business? As long as political stability and economic reform prevail, Asia really looks good."

At the same time, Ghazali warns against losing one's head over hyped-up potential. "The biggest pitfall is investors betting on the wrong horse," he explains. "Where there is overcrowding in certain sectors, you will be in for trouble. One shouldn't just jump on the bandwagon." In the face of Asia's tremendous growth and tantalizing prospects, this is perhaps the most important lesson for the region's traveling entrepreneurs.


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