As Us Economy Slows, Investment in Asean Nations Necessary

20/07/2012

The Finchannel

The FINANCIAL -- With a host of uncertainties still hanging over the U.S. economy, more than 100 American businesses, the largest delegation to ever visit Cambodia, gathered here over the weekend, and all of them were in agreement about one thing: the slowdown in the U.S. and Europe has made it imperative to invest in the Asean region.

“When you look at what going on in Europe and the United States, our company will have to be in Asia and have to be in this region, where we have seen some significant growth rates,” Myron Brilliant, the senior vice president of the U.S. chamber of commerce, said on the slide lines of the U.S. Asean business forum on Friday.

Judging by the list of the businesses attending General Electric (GE), Boeing and Chevron were all present; the U.S. is taking investing in the region seriously. So are Asean’s leaders, with Prime Minister Hun Sen, Burmese President Thein Sein, and Thai Prime Minister YingLuck Shinawatra all joining the U.S. Secretary of States Hillary Clinton at Sofitel for a swanky dinner on Friday evening.

The stakes are high.

The Asean region is currently growing at about 5 percent. In 2011, Asean was the fourth largest export market for the U.S. at $76.5 billion, an increase of 10.4 percent from the year before, according to the U.S. – Asean Business Council. And the average Asean consumer already purchases nearly 1.75 times as many U.S. goods per capita as the average Chinese consumer.

But investors here say a lot more needs to be done if the American companies are to compete with firms already based in region.

For a start, the U.S. needs a greater government presence in South East Asia. Countries like China put great importance on the role of the government in forging business ties and getting deal signed.

“If you look at the competition in the market from China, Korea, and Japan and other countries, you need increasingly the closeness of their government with their private sector, so we have to be here, and we need the help of the government,” said Mr. Brilliant.

Unlike firms from countries with looser legislation regarding financial standard, American businesses often need very high levels of security and reliable local partners when doing businesses in countries like Cambodia. Under the Dodd-Frank Act, anti-corruption regulations and reporting standards have become stricter than ever.

While some say the regulations are burdensome, for example the practice of giving facilitating fee to local officials is now banned under the U.S. law, investors here say tough regulations act as the positive when trying to convince people of high standards and integrity.

“In many countries, people see the foreign corruption practices act as a hindrance, because companies operate differently,” said Alexander Feldman, president of the U.S. – Asean Businesses Council.

“We see it as a very positive thing that we have high standards and we want other countries to prosper and not get wrapped up in economic situations that are not beneficial in the long run.”

More difficult for doing business is knowing that once you arrive, you can find the stuff needed to run the operations, said Rami Sharaf, CEO of RMA Group, which represent a long list of U.S. brand in Cambodia such as Ford Motor Co., fast food chain Dairy Queen and John Deere.

Management positions for such firms are often filled with foreign candidates, who cost more and are sometimes at disadvantage when it comes to the knowledge of the local market.

Positions further down the administrative ladder can be cheap, but are mostly unskilled in countries like Cambodia.

“The number one and major issue is the speed in which the business is growing in Cambodia since things were on hold for 15 years.

“It is in catch-up mode and investors should keep in mind when investing in human resources that they cannot expect a tailored staff with a specific competency. That takes time to develop,” said Mr. Sharaf

Speaking at the dinner on Friday, Ms. Clinton also addresses the importance of breeding a fair system for all businesses.

“I am also convinced that by promoting economic activity in the region, it is not only about encouraging businesses to invest and trade, it is also about building relationships,” she said.

“And the best way to do that is to be sure that we promote a rules-based system, because the difference between a region on the path to sustainable growth and once whose gains will be more short term are the norms and standards for intellectual property protection, for predictability in setting rules, and enforcing law to try to ensure the level playing field for everyone.”

Despite some of the challenge, U.S. firms are making significant strides into Cambodia.

According to the General Electric Company, during the forum on Friday, GE and Soma group, a rice exporter owned by a son of deputy prime minister Sok An, inked a deal worth about $3millions to establish Cambodia’s first integrated biomass gasification facility at Soma’s Hak Se rice mill in KomPong Cham province.

Expected to begin commercial services in March 2013, the facility will convert rice husk waste into biogas that will be converted using GE engines of generate 1.5 Mw of renewable energy, the surplus of which will be integrated into the local grid at a 20 to 30 percent discount from the current rates, said Sik Puthyvuth, CEO of Soma Group, on the sidelines of signing ceremony.