By Chow Chee Yan                                                                                                                                      
                                                                                                                                                      
BE aware that you may not be able to obtain financing as                                                                                              
easily as in your home country. Many foreign property projects                                                                                        
(some Malaysian) in Yangon are stalled because of lack of                                                                                             
available finance.                                                                                                                                    
                                                                                                                                                      
Financing jigsaw                                                                                                                                      
                                                                                                                                                      
A couple of years ago, I was helping some investors to ensure                                                                                         
financing for a project in Yangon from some major banks in                                                                                            
Singapore. At the time, the Singapore government was bullish                                                                                          
on Yangon. But bankers took a different view and did not                                                                                              
consider Myanmar risks acceptable. It is not hard to                                                                                                  
understand why.                                                                                                                                       
                                                                                                                                                      
The land laws are unclear. The agreement may not allow the                                                                                            
charging of the land, for example. Bankers will always be                                                                                             
prudent and ask for home country collateral. Similarly I was                                                                                          
involved in another project in Slovenia which also faced                                                                                              
similar problems.                                                                                                                                     
                                                                                                                                                      
Do your homework before you take the plunge. Don't sign an                                                                                            
agreement when your source of financing is not sorted out                                                                                             
first.                                                                                                                                                
                                                                                                                                                      
Your inability to carry out a project because of lack of                                                                                              
finance can strain relationship between the two countries, as                                                                                         
a Malaysian ambassador to an Asian country once told me. Make                                                                                         
sure the agreement you sign does not prohibit or jeopardise                                                                                           
your chances of obtaining finance.                                                                                                                    
                                                                                                                                                      
Recently, it was reported that the agreement signed between                                                                                           
Asea Brown Boveri and Ekran for the Bakun dam project,                                                                                                
according to Ekran chairman Tan Sri Ting Pek Khing, was                                                                                               
"unbankable" - meaning it was difficult to obtain financing.                                                                                
                                                                                                                                                      
* Financial controls                                                                                                                                  
                                                                                                                                                      
Implement the tightest financial control you have and insist                                                                                          
on them.  Merely importing your accounting and financial                                                                                              
control system may be insufficient. Come up with new reporting                                                                                        
requirements that will give you peace of mind. Remember the                                                                                           
value of monies is relative.                                                                                                                          
                                                                                                                                                      
A "trusted" company driver in Kali: mantan who makes US$100                                                                                 
(RM350) a month may simply decide to run away with the                                                                                                
US$1,000 (RM3,500) you request him to cash at the bank. you                                                                                           
will probably have to buy a replacement car, too!                                                                                                     
                                                                                                                                                      
Frequent visits and audits are an effective deterrent. Educate                                                                                        
your managers with basic financial skills.  When financial                                                                                            
reports are late, when bank reconciliations are improperly                                                                                            
done, and when explanations to numbers do not make sense, get                                                                                         
your audit team on the first plane out. React quickly, delay                                                                                          
will cost you dearly.                                                                                                                                 
                                                                                                                                                      
* Management personnel sent abroad                                                                                                                    
                                                                                                                                                      
Are you sending the right people abroad? Emerging countries                                                                                           
are no place for novice managers. Send your most trusted and                                                                                          
experienced managers.  Do not make the mistake of sending                                                                                             
staff who hold a lesser level of responsibilities at home,                                                                                            
simply because no one else wanted to go.                                                                                                              
                                                                                                                                                      
Use this as a training ground for your potential high-flyers.                                                                                         
Indeed, for companies serious about becoming a multinational,                                                                                         
it becomes invaluable for managers stationed at head office to                                                                                        
taste and experience living and working a few years in these                                                                                          
countries. Chart a clear career path for these managers in                                                                                            
your organisation.                                                                                                                                    
                                                                                                                                                      
Successful companies like Shell and Schlumberger make it a                                                                                            
point to post their senior managers to LDC and DC countries at                                                                                        
some time in their career.  Select tough, experienced, "street                                                                                   
smart" management people.                                                                                                                        
                                                                                                                                                      
Doing business in these countries is so complicated that the                                                                                          
"educational" experience can be costly. It is not a place for                                                                               
beginners or weaklings.                                                                                                                               
                                                                                                                                                      
Some places are unsafe and it is wise to take special                                                                                                 
precautions. It was reported that two Malaysian businessmen                                                                                           
were abducted and held for ransom in Cambodia. Kidnapping is                                                                                          
an ever-present threat. Keep a low profile and warn children                                                                                          
to be alert.                                                                                                                                          
                                                                                                                                                      
* Hiring of locals                                                                                                                                    
                                                                                                                                                      
Invest time in hiring them. Always check their credentials. I                                                                                         
know of a case in Thailand where a crane operator caused                                                                                              
serious injury to others because he was simply not qualified                                                                                          
to operate the machine. Apparently, he forged his certificate                                                                                         
and the local manpower supply company did not bother to check.                                                                                        
Finally, make sure local employees are paid on time and                                                                                               
treated with respect.  Ensure compliance with local labour                                                                                            
laws and regulations.                                                                                                                                 
                                                                                                                                                      
* Myth of a low-cost country                                                                                                                          
                                                                                                                                                      
Many foreign investors do not realise that LDC and DC                                                                                                 
countries can be expensive places to operate in. High import                                                                                          
tariffs, value-added tax, consumption tax, for example in                                                                                             
China, are hidden costs which the investors have to pay.even                                                                                          
before a single ringgit is earned.                                                                                                                    
                                                                                                                                                      
In other places, land and rentals are incredibly expensive,                                                                                           
often paid upfront in US dollars. Electricity and telephone                                                                                           
rates for foreign-rented premises are often billed in US                                                                                              
dollars. For example, in Yangon, these utilities are many                                                                                             
times more expensive than local rates.                                                                                                                
                                                                                                                                                      
Coupled with expensive facilities and poor transportation                                                                                             
infrastructure, it makes the notion of these countries as                                                                                             
cheap labour nations misleading.                                                                                                                      
                                                                                                                                                      
Office space can be exorbitantly high by any standard. In                                                                                             
Yangon, Jakarta, Bombay, Hanoi and Beijing, you can spend                                                                                             
US$8,000 (RM28,000) a month in rental for a moderate-size                                                                                             
office; pay one or two years' rental in advance and incur some                                                                                        
US$30,000 (RM105,000) in renovation costs without any                                                                                                 
guarantee that the lease will be renewed.                                                                                                             
                                                                                                                                                      
In Yangon, you can only rent one year at a time. Operating an                                                                                         
office from converted residential houses or from hotel rooms                                                                                          
is not uncommon in these places.                                                                                                                      
                                                                                                                                                      
Another costly factor is productivity which can be very low.                                                                                          
In Yangon, you may require up to 50% more workers to do your                                                                                          
construction project than in Malaysia, for example.                                                                                                   
                                                                                                                                                      
Sending staff abroad - is more expensive than you think. Try                                                                                          
adding up how much it costs in posting a senior manager                                                                                               
overseas. Include higher salaries, fully furnished housing,                                                                                           
international schools for children, home leave passage,                                                                                               
medical and insurance, and income taxes (some countries have a                                                                                        
tax structure which increases the tax bill more than twice).                                                                                          
Compare it to the home country costs.  It is many times more.                                                                                         
                                                                                                                                                      
For many years, one of my key responsibilities was to manage                                                                                          
closely the expatriate costs of my company, which run into                                                                                            
millions annually. We invested in hiring local managers and                                                                                           
training them to eventually take over some of these expatriate                                                                                        
positions.                                                                                                                                            
                                                                                                                                                      
Do not make the mistake as many companies do in overpromoting                                                                                         
staff or Iocalising positions too early. This is a long-term                                                                                          
strategy. It often takes years to properly train a local to                                                                                           
assume the position of an expatriate.                                                                                                                 
                                                                                                                                                      
Consider relocating some of these local managers to the head                                                                                          
office; it will be a positive transforming experience for them                                                                                        
as well as introducing them to your company's corporate                                                                                               
culture which is essential for the long-term success of your                                                                                          
investments overseas.                                                                                                                                 
                                                                                                                                                      
Be sure to factor in these extra costs in your feasibility                                                                                            
studies; and add a comfortable contingency number or                                                                                                  
percentage for unforeseen events.                                                                                                                     
                                                                                                                                                      
* Importance of effective cross border tax planning                                                                                                   
                                                                                                                                                      
Do not under-estimate the importance of professional strategic                                                                                        
tax planning and do not wait until your operations become                                                                                             
profitable before you do. Tax planning is like the subject of                                                                                         
joint venture.                                                                                                                                        
                                                                                                                                                      
It is highly complex even in developed countries. Like the                                                                                            
legal system, tax laws are usually in their infancy stages in                                                                                         
LDC and DC countries. Do not be surprised to find only a few                                                                                          
pages of tax laws available - often not specific enough and at                                                                                        
times ambiguous and contradictory. Tax consultants, though                                                                                            
plenty in number, will not be able to give you a written                                                                                              
reliable opinion.                                                                                                                                     
                                                                                                                                                      
India, on the other hand, is an exception. It is a case of too                                                                                        
many tax laws. Because of the complexity of these laws, do not                                                                                        
be too surprised that tax consultants do not actually give a                                                                                          
clear opinion on many "grey areas."                                                                                                         
                                                                                                                                                      
Managing your tax strategies between these extremes is tricky                                                                                         
business. What works in one place may not work in another. You                                                                                        
have to tailormake your strategies to suit each environment.                                                                                          
                                                                                                                                                      
In one country, the best productive method may simply be to                                                                                           
meet with the Inland Revenue Department to "negotiate" a tax                                                                                
amount and then submit your tax accounts to "reconcile" to                                                                                  
this agreed amount. Be sure that the person you meet has the                                                                                          
authority to decide.                                                                                                                                  
                                                                                                                                                      
In another country, documentation may have to be "perfect,"                                                                                 
particularly when it comes to intercompany transactions; and                                                                                          
you must be willing to defend it in tax court, if necessary.                                                                                          
                                                                                                                                                      
Most tax planning strategies are proprietary to the companies.                                                                                        
A well researched and thought-out tax strategy for your                                                                                               
company, professionally implemented, can save you millions.                                                                                           
Follow these few simple guidelines:                                                                                                                   
                                                                                                                                                      
* Know the tax laws in the country you invest in.                                                                                                     
                                                                                                                                                      
* Plan and implement your tax strategies ahead. Do not leave                                                                                          
it to the last moment when your strategies Become too late to                                                                                         
be implemented.                                                                                                                                       
                                                                                                                                                      
* Use a qualified, experienced and reputed tax consultant to                                                                                          
help you decide. Big firms have found that investing,in an                                                                                            
in-house tax department usually pays.                                                                                                                 
                                                                                                                                                      
* Documentation is important particularly when it comes to                                                                                            
intercompany transactions. Do not short cut this exercise.                                                                                            
                                                                                                                                                      
* Make sure you obtain every possible tax exemption and                                                                                               
benefit properly documented and from the relevant government                                                                                          
bodies before you make the investment.                                                                                                                
                                                                                                                                                      
* Always keep up with changes in tax laws. Emerging countries                                                                                         
often announce changes to tax incentives to make foreign                                                                                              
investments more attractive.                                                                                                                          
                                                                                                                                                      
* What businesses are you investing in?                                                                                                               
                                                                                                                                                      
                                                                                                                                                      
This begs an age-old management question. It is difficult                                                                                             
enough to venture into a new product or services in your own                                                                                          
country. Coping with the pitfalls and complexity of these                                                                                             
countries is tough enough without having-to worry about a new                                                                                         
product or service.                                                                                                                                   
                                                                                                                                                      
Resist venturing into something new.  When you enter these                                                                                            
countries, you may be presented with plenty of investment                                                                                             
opportunities. Your entrepreneurial spirit may get the better                                                                                         
of you. Do not fall into this trap.                                                                                                                   
                                                                                                                                                      
If you are not into mining, do not rush to get into it. Do not                                                                                        
hastily take up a banking if offered to you until you have                                                                                            
enough time to carefully evaluate it. Concen trate on the                                                                                             
areas you are competent in.                                                                                                                           
                                                                                                                                                      
* How much investment can your company afford?                                                                                                        
                                                                                                                                                      
Investing in LDC and DC countries is not for the small player                                                                                         
or fainthearted.  It is likened to oil exploration where the                                                                                          
risk of finding a dry or uneconomical well is more than SO%.                                                                                          
                                                                                                                                                      
Each dry or uneconomical well can cost several million                                                                                                
dollars. only the likes of Shell, Esso or Petronas of this                                                                                            
world can survive this. If you are a RMlOOmil company at home,                                                                                        
can you afford to invest RM50mil in risky countries such as                                                                                           
Cambodia or Albania?                                                                                                                                  
                                                                                                                                                      
It is not "what you can gain," but rather "what you can afford                                                                         
to lose." can you risk it?                                                                                                                       
                                                                                                                                                      
The list of pitfalls I have presented is not exhaustive.                                                                                              
However, they are the most common ones I have encountered in                                                                                          
my years of managing operations in these countries.                                                                                                   
                                                                                                                                                      
Some appear to be common sense.  But it does not surprise me                                                                                          
to hear of a company getting into trouble with its investment                                                                                         
in LDC and DC countries because it did heed "common sense"                                                                                  
rules.                                                                                                                                                
                                                                                                                                                      
I am bullish on many of these emerging economies and on the                                                                                           
opportunities for foreign investors to do business there. Do                                                                                          
not let these pitfalls discourage you, rather let it make you                                                                                         
wiser.