December 2003
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December 2003 | |
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Doing Business in AsiaWill your foray into a foreign marketplace play out like a harmonius duet--or like a bull in a china shop?
How has international business changed over the past couple of decades? My international career started in 1985 in Hong Kong, so the changes I’ve seen are the development and opening up of China. We started off with this supposed "open door" policy for joint ventures in 1979, which didn’t really lead to much in the beginning. When I started doing business in China in the mid-80’s, a middle class had begun to emerge and we started to see a real consumer market develop. The middle class continues to grow there, to the point now where you hear about things like speculation on condominiums. There’s a pattern there similar to the expansion of international business worldwide. Originally, going into China was like venturing into the unknown, with this great disconnect between the way western companies thought business would be done and how it really turned out to be done. The door was just starting to crack open, but now business has gotten much more sophisticated. A lot of previously-closed markets have gone from tiny opportunities open only to multi-nationals to being big ones open to small businesses. You can almost trace the spread of globalization to the spread of hotel chains. In a lot of foreign countries, everything used to take place at the Hilton hotel in the largest city, with that building being like a separate enclave for foreign business. Foreign companies would even be based in hotel rooms – an office in the front and the executive sleeping in the back.. Now they’re all over the place. Some of those changes are certainly due to government policy changes, but how much of a role has technology played? One of the most important changes over the past few years has been the amount of information available over the Internet. It is much easier now to do the research and be prepared before even making the first trip there or dedicating any resources. Before the Web, you really had to go there and spend some time gathering information locally to even see if a venture was viable. Plus now you can communicate by e-mail, which eliminates many of the time zone communication problems. Now you can be a software company, for instance, running a worldwide enterprise without having any overseas offices. In the old days, the cost of communication was a major expense and a real barrier to entry. Now you can have customers in 50 countries while remaining a small company with a limited staff. Somebody with one niche product can get the word out internationally pretty cheaply, whereas before that wasn’t the case. How important is it to have local leaders in charge of local operations? There’s certainly less friction and misunderstanding when that’s the case. The ideal, of course, is to have someone who can straddle both worlds. The companies I saw getting it right the most in China were run by people who were ethnically Chinese, but lived in the west. They were able to go both ways culturally. It can be a disaster sometimes when someone from the home office is dropped in to lead a foreign division. So many times I saw ill will between the expatriates and the local managers, especially since they often were not trying to fit into the local culture—after all, they’d be heading back home in a couple of years. On top of that, foreign companies want to keep their people in the same standard of living they had at home, so the person’s compensation package ends up being 10 times what the locals get. All that makes it difficult from the outset. How have things changed since September 11 and what new struggles are companies facing? From a business standpoint, that event and the aftermath have cast a pall over international travel. Before, as a business traveler, you wouldn’t think twice about getting on an airplane and flying overseas. Often it was considered a perk. Now people are uneasy about the whole process. In today’s environment, it has become acceptable for an executive to turn down a trip, for someone to say, "No, my family doesn’t want me to go there." It has sort of turned us all into international homebodies. At the end of the day, will you avoid international opportunities? Probably not, but you’ll have less interest in areas that are maybe considered on the fringe. I can’t imagine many executives are sitting in meetings right now going, "I think we need to start doing more business in the Middle East." It would never have crossed my mind that terrorism was anything to worry about in Asia. I had my honeymoon in Bali and I can’t imagine a more blissful and peaceful place. Then when a terrorist bombing happens in a place like that, you start thinking, "Well what about Malaysia? Is that next? And we start wondering if people we’re doing business with really have ill will towards us under the surface. Have you run into a lot of cultural ill will? It’s often right under the surface. When I’m in parts of Asia, often I don’t represent some guy from Vancouver. I know to some people I represent 400 years of foreign occupation, or I’m a symbol of past oppression. Or I represent the power and wealth of western society—something unattainable to them. It’s a strange feeling because little that you say or do can counteract that in the near term. It adds another layer of complication to doing business. What effect will Global GAAP have on doing business in Asia? It can potentially have a huge effect. The big joke in Hong Kong is that you have three sets of books: one for yourself, one for your accountant, and one for your wife. I’ve known of millionaire business owners trying to go back and revise years of bookkeeping so they can show a profit in order to sell the business. Anywhere in China, when a company is going public they need to have an audit, but there are often no auditing standards at all being followed, much less anything approaching global norms. So how can you value a business and set an IPO price if nobody can even figure out what the revenues and profits are? Mergers and acquisitions people I know keep banging their head on the wall trying to bring an Asian company public because investors are scared off by the lack of dependable information. Even between the US and Canada there are some key differences, so it’s often a legal and financial headache just to resolve things between these fairly similar countries. So when it comes to systems as opaque as those in Asia, a lot of companies and investors will just say, "Why bother?" It’s not as simple as just changing ledger methods is it? Not at all. A lot of these accounting standards get back to what western culture is about and how we act and do business. It’s all very direct and above board, with a lot of people having access to key information. It’s difficult to integrate that into another culture. The notion of the rule of law is foreign to some cultures, or the idea that you would keep your business finances separate from your family finances. With a lot of Asian companies, the business is the family and vice-versa, so of course funds are flowing back and forth between the two all the time. It’s all mixed together. So an audit will come up against a whole different mindset. Will your children learn Mandarin? Not necessarily. I think the idea of many people learning Mandarin is overrated. I’m Canadian and my kids are learning a second language through a state-sponsored French immersion program. It might be useful for them to learn Mandarin down the line, but English is the language of business anyway. You’ll see a Japanese guy, a Korean guy, and a Chinese guy having a business lunch and they’re all speaking English. If you’re a native English speaker, you don’t really have much opportunity to become fluent in something else. It’s nice to try to learn the local language and even a little bit is appreciated, but learning enough to do business in another language, even Spanish, would take years; for Mandarin it would probably take a decade. I grew up speaking German as a second language – but that doesn’t mean I would feel comfortable doing business in German. If you’ve grown up in a bilingual atmosphere that’s a great asset, but for your average native speaker that’s extremely difficult—English is the standard for global business. What advice would you offer those who aspire to do business in Asia?
What advice would you give to a student who wants to have a career in international business? Do some research to decide where you want to be, then fly to your destination and start working. When I first went to Hong Kong I had no prospects and, at that time, a law degree but no bar qualification. I went knocking on doors for 30 days and eventually got a job with the largest law firm in the city. It never would have happened if I had not taken the initiative and made a commitment to staying for the long haul. Students of mine say things like, "Gee, I’d love to go to London for two months and then Paris for two months and then maybe Milan." Yeah, wouldn’t we all love to get paid to do that! But it’s not going to happen. And trying to get a job long distance is almost impossible. But if you’re there, with a local address and plans to stay, all kinds of opportunities will open up over time. In a case like that, your opportunity costs are pretty low and your chance of success is quite high. It’s also a way to make yourself unique, to give yourself an edge. Not many people have taken that kind of initiative and it really sets you apart from the pack and gives you a niche. ### For contact information on Rick Goossen, click here. © 2003 Journal of Business Strategy - www.journalofbusinessstrategy.com Interview conducted in November, 2003 by Tim Leffel, Editor. |
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Rick Goossen holds a Master of Law degree from Columbia and is an international business expert who serves as CEO of