Should Geopolitics Matter to Norwegian Investors?
By Eric Baker, for Thai-Norwegian Chamber of Commerce
Folks in the business world are often talented at assessing risks and rewards based on profit margin, market size, capacity and other figures. But as any foreign investor knows, the political situation can also have a big impact on business, sometimes even determining whether an investment succeeds or fails.
The 2015 Norway-Asia Business Summit had a session on Asia’s regional risk assessment and its view of the West where four seasoned analysts offered their take on the lay of the land.
“In China, the relationship between the Communist Party and the people is a social contract,” said Philip Lote, a journalist with NRK. “The government knows it has to deliver sustainable growth or it will lose power.”
“Clean air is the most important and sensitive topic in China today. The country needs to focus more on itself right now because it has a lot of problems.
“It is important to note that in India, the village is seen as pure and desirable. In China, the village is seen as a backwater where the people are illiterate. Chairman Mao and Deng Xiaoping helped to create this myth.
“I think it is wrong to assume just because China and India will become the two largest economies in the world they will want to have political power as well. This new scenario is not normal; it will be a completely new setting.”
Amy Kazmin, a South Asia correspondent with the Financial Times, partially agrees with Mr Lote’s assessment of India.
“Gandhi taught that authentic India lived in the village and the corrupt live in the city,” she said. “But people in the village don’t share that view. They want to go to the cities to get a better job. This is the only way they can escape the caste system. Yet there is no urban planning in India to accommodate the villagers moving to the city, unlike in China.”
“In Asia geopolitics can change rapidly overnight. If you look back to Indonesia in the 1990s, Suharto was in full control of the country. But when growth disappeared, so did he. The whole political system changed.
“Thailand has had a full decade of conflict over democracy and the use of state resources, with the middle class wanting its share of the pie, and still there is no end in sight.
“India is capable of major surprises. Identity politics is no longer enough, as the middle class expects concrete results now.
“My advice to businesses looking to move abroad is governance is weak in many Asian countries. Do not expect a governmental agency to do all its homework — do your due diligence before investing.
“One example is when Uber came to India. Part of Uber’s business model is it claims to validate the records of all its drivers through police verification documents. But after a driver raped a passenger, it was discovered the driver bought the document on the street and he was not the only one. These are the types of problems that can sink your business.
“Another is the Rana Plaza collapse in Bangladesh where over 1,000 people died. Multinational companies such as Benetton, Walmart and H&M all had contracts with the employer at this building and faced massive protests after the disaster. These companies assumed everything was fine because the buildings had permits, but they learned the hard way that building inspectors didn’t do their job. Companies need to check the permits, the building infrastructure and its structural integrity themselves, and the industry has now formed a group to do this because they can’t depend on the local government.”
Meera Shankar is the former Indian Ambassador to the US and she believes global economies are so interconnected now it is in every county’s best interests to co-exist peacefully.
“India’s largest trade partner for goods and services is the EU,” she said. “China’s time has come. The US and EU will eventually be replaced, and both China and India are growing their economic, political and military power. But these economies are so linked, China cannot have the US and EU falter.”
“I believe China wants mutual respect and for conflicts to be avoided. I think China wants Asia for Asians, for the region to take care of its own security. It is not a coincidence that the Trans-Pacific Partnership does not include China or India. China sometimes sees the US ‘pivot to Asia’ as a way to contain China, but the world is very much different than it was during the Cold War when containment was viewed as a legitimate strategy.
“It is true that whether there will be armed conflict in Asia mainly depends on China. Can it innovate? How nationalistic is it? There may be minor skirmishes, but I don’t expect any major conflicts. Japan and China have pulled back from the brink as they have economic stakes in each other.
“India looks at the West as the wellspring of several of the ideas we use: a social welfare state, democracy and free markets. We need to adapt those ideas for India. We see the West as leaders in innovation and technology, and technology is going to drive progress in the 21st century going forward.
“The impetus for change in Eastern societies must come from those countries, not from the outside. India believes it can help with democratisation by building institutions, and we want Western engagement in Asia. But dominance by any one country is not good for the region.
“Myanmar is coming out of a long dormant period and the international community and businesses need to be there to help smooth the transition. The key is they need to be patient, though, as it will take time.”
Dane Chamorro is the managing director of ASEAN for Control Risks, a global consulting firm. He highlighted his takeaways from dealing with clients in the region.
“Understanding the market you’re going into is essential. Your business can collapse if you don’t truly understand the market, which can be different for the same product in another country,” he said.
“Compliance has become a buzzword. It means what you must do, while ethics denotes what you should do. This message plays very well in every market in the world, and companies are starting to put more of an emphasis on ethics.
“Companies have to be resilient because markets are not transparent here. That means being able to adapt. I was at a political presentation less than a year before the Indonesia elections and the speaker was ranking the top ten candidates for President. Joko Widodo was not even listed. Firms need to be able to change quickly when the environment shifts.
“For example, in China a top Chinese oil company refused to put air quality as one of its top ten priorities despite several warnings. When Xi Jinping came to power, many of the company’s executives were put in jail and all of its employees had their passports revoked. Companies must pay attention to which way the political winds are blowing.
“For Thailand, I don’t believe this coup is the same as those before. Almost every minister is a uniformed officer, which has never happened before.
“I often get asked ‘How do you maintain your company’s value system when going to a different part of the world?’ Often this is a euphemism for making payments, bribery. It can be harder to stick to your principles operating in another country, but I think it is to your advantage to do so. This is the only sustainable way to run a business, but you have to be nimble. The reason I say this is if you get caught, the damage done is not worth any amount of lost deals.”