Writing in The New Economy, our Head of APAC says that for those looking to expand their international business, there’s never been a better time to look east.
Asia has been a dominant economic force for nearly 2,000 years and, in 2013 (for the second year in a row), continued to be the region with the highest foreign direct investment (FDI) inflows, accounting for nearly 30% of the global total.
Asia’s significant growth has largely been at the expense of the EU – traditionally the region with the highest share of global FDI – which saw its share fall from 42% in 2007 to just 17% in 2013. A major part of this growth has been fuelled by the significant increase in FDI to Southeast Asia and specifically the ASEAN-5: Indonesia, Malaysia, the Philippines, Singapore and Thailand. Indeed, in 2013, for the first time, FDI flow to this group overtook that to China; the ASEAN-5 received $128.4bn compared to China’s $117.6bn.
Much of this market’s attractiveness is its sheer size: a population of 620 million, home to the third largest workforce in the world, and economic growth of around 5.5% per annum. If ASEAN were one economy, it would be the seventh largest in the world.
Getting it right
While there are plenty of opportunities in Asia, the compliance and regulatory risks across the region can vary hugely due to highly diverse cultures and political landscapes. Research conducted by TMF Group in 2013 found almost one-third (30%) of the most complex countries in which to do business are in Asia, with Indonesia, Thailand and China all featuring in the top 10 out of 81 global jurisdictions reviewed.
In particular, tax rates and regulations are fast becoming the largest compliance burdens and expense items for foreign companies in Asia. Revenue-hungry governments see raising tax rates, or increased audits and administrative requirements to trigger fines and interest penalties, as a key component of supporting their income bases.
Understanding and managing the local administration and reporting requirements in numerous territories can therefore be complex and time-consuming, and can often distract companies from their key focus: managing and growing their businesses.
Taking the time to anticipate and tackle local legal, accounting, tax, and HR and payroll issues is crucial to the success of expansion into Asia. Start your planning early and research the specifics of your target territory’s political, legal and cultural environments, including its competitive landscape and workforce.
Give serious consideration to working with third parties with a strong local presence, particularly in the early stages of territorial expansion. Third parties include IT and business process outsourcers, as well as corporate secretarial service suppliers that can help constitute new subsidiaries and keep them compliant with local legal and working requirements. It might be beneficial to select a partner that operates across more than one jurisdiction. This will assist to smooth the transition to further markets should that be your long-term goal and it will also accelerate the time to revenue.
In short, wherever in Asia you plan to expand, local knowledge is the key. Without it, companies can put themselves at serious risk of financial penalty or even prosecution. But for those willing to invest in getting it right, the opportunities are endless.
This is an extract from an article published in The New Economy; read the full article here.