Frontier Strategy Group’s research has found that Multinational companies across Asia use a wide variety of channels to influence government policy as differing political systems and cultural norms demand unique strategies to manage domestic government engagement.
1. Effective Channels For Influencing Government Policy
Companies across China, India, and S.E. Asia find local industry organizations, chambers of commerce, and external government affairs agencies to be the three most effective channels for influencing government policy
2. Top Choice For Influencing Government Policy
Local industry organizations are also the first choice for more than 40% of the respondents for influencing government policy across all regions
Interestingly, India is the only region in which engaging external government affairs agencies is a top choice for influencing public policy. Handling India’s political complexities and unreceptive government officials requires strong local connections that government affairs agencies are able to manage effectively
In China, engaging business partners to influence public policy is considered highly effective due to the strong relationship between the government and the private sector. This is not surprising because “guan xi” (relationship ties) play a very important role in gaining access to policy makers thus influencing their decisions
Countries across Asia are beginning to see their growth deteriorate as ongoing problems in the eurozone, persistent malaise in the US, and a government-engineered slowdown in China undermine the region’s prospects. Several ASEAN countries have already begun cutting interest rates to spur growth; however, it is unlikely that their efforts will be sufficient to halt the regional slowdown
Bangladesh: Bangladesh is not likely to be able to sustain strong economic growth due to its weak fundamentals as well as the global slowdown
Cambodia: Cambodia’s GDP growth in the new year will likely be hit by the devastating floods and global economic slowdown
China: Scarce labor and rising wages are problems no longer limited to producers operating in coastal China
India: Companies should begin making contingency plans for a stagflation scenario in 2012
Indonesia: A new land acquisition bill will help accelerate Indonesia’s infrastructure development and ease bottlenecks in the economy
Japan: Companies should make contingency plans for significant power shortages in Japan this summer
Malaysia: Rising global volatility and a broad slowdown in Asia are undermining the confidence of Malaysia’s businesses and consumers
Pakistan: Companies should make contingency plans to deal with a weaker rupee as Pakistan’s currency may depreciate over the coming months
Philippines: Although Manila has begun taking steps to protect the Philippines’ growth, the country remains relatively exposed to a global slowdown
South Korea: A new FTA with the US will have a dramatic effect on the competitive landscape of several major industries across Korea
Taiwan: Growth is strong based on regional demand; however, caution is needed as trade might falter with global economic uncertainty
Thailand: A newly-announced flood defense plan along with recent monetary easing should help spur Thailand’s slowing growth
Vietnam: Companies should make plans to deal with striking workers as the labor unrest that is rocking Vietnam is unlikely to subside in H1 2012
Country and regional heads are increasingly turning their attention to their government engagement function. Government decisions, from regulatory issues to government sales, can deeply impact the bottom line.
Companies wrestle with a variety of questions when it comes to running successful government engagement functions. These questions can be broken down into three principal challenges:
1. Ensure the company invests the right amount in government engagement.
2. Generate positive engagement when government actors are initially unreceptive.
3. Capitalize on the abilities of third parties without putting the company at risk.
In response to these challenges, most companies resort to a reactive, problem-solving approach. In order to succeed, the government engagement function should reframe traditional ROI evaluations to embrace the broader goals of government engagement, thus creating a proactive decision framework. This new ROI approach applies to each of the three major challenges companies face:
1. Justify Your Investment – First understand how to tailor your investments to the realities presented by each country’s business and political environment.
2. Earn Your Influence – Make sure you time the ―I‖ well in ROI.
3. Discipline Your Delegates – Do not take short cuts with third parties. A low ―I‖ does not guarantee high ROI if the ―R‖ turns out to be negative.
Reuters recently released aninteractive infographicdepicting the evolution of the middle-class around the world. Emerging markets such as China, India and Indonesia are estimated to increase Asia’s share of the global middle-class to 64% and account for over 40% of global middle-class consumption by the year 2030.
Ma Ying-jeou has been reelected as Taiwan’s president for a second term. Despite his victory, he faced close competition from Democratic Progressive Party candidate Tsai Ing-wen. The clip above, from The Wall Street Journal, discusses the impact of Ma Ying-jeou’s reelection on cross-strait relations between Mainland China and Taiwan.
Matt Lasov, director of global research at Frontier Strategy Group, said the emerging markets’ performance in 2012 depends on their relationship to the euro zone.
“The euro zone is in a recession that is likely to get worse,” Lasov said. “We see a two in three chance that there is a breakup of the euro zone in 2012 — most likely Greece leaving.”
And “success for emerging markets will be determined by linkages to the euro zone,” he said.
“The clear outperformers in the short term are India, Indonesia, and Sub-Saharan Africa,” according to a research note from Frontier Strategy Group, referring to those markets as having “low linkage” to the euro zone. “These markets are characterized by rapidly growing domestic demand and diversifying economies that are creating middle class growth” and they have limited trade relationships with Europe.
The Middle East and Latin America are linked to Europe because of trading in commodities, the note said, referring to these markets as having “medium linkage” to the euro zone. “Reduced European demand for oil will impact state revenues, but most markets have more than enough reserves to weather a crisis.”
Russia, meanwhile, is “positioned to be the biggest underperformer,” the note said. “Oil exports to Europe are driving Russia GDP growth more than ever before,” and as oil prices fall below the $110 per barrel built into the Russian budget, “Russia will enter deficit.”
Indonesia is the fourth largest country in the world in terms of population. Fast growing consumption, powered by growing affluence of the middle class, is the main driver of Indonesia’s economic growth
Favorable Demographic Profile
With a total population of 238 million, Indonesia is the fourth most populous country in the world after China, India, and the US
Indonesia has a favorable demographic profile with 60% of population aged below 40
Consumption Driven Economy
Private consumption is the biggest driver of Indonesia’s economic growth, representing 56% of total GDP output
Private consumption per capita is expected to double from its current level of US$1,500 to US$3,000 in 2015
Indonesia’s Growing Middle Class
50 million households in Indonesia have a disposable income of US$3,000 or more, and this number is expected to reach 150 million by 2015
8 million scooters, a favored form of transportation among urban residents, were sold in 2010, compared to 1.7 million in Thailand
For MNCs, this could mean:
Consumer goods companies should look at Indonesia seriously as the consumer spending boom is just getting started
Despite various operating difficulties in doing business in Indonesia, MNCs should establish on-the-ground presence, either through wholly owned subsidiaries or partnerships, to catch this growth opportunity at its onset
Most Asian countries have maintained strong economic growth in recent months despite the turmoil in global markets; however, significant downside risks threaten the region’s continued performance. In Thailand, floods threaten to undermine the country’s growth and disrupt regional supply chains. In China, a spate of defaults in the informal banking market is casting a shadow over the country’s prospects
Bangladesh: Bangladesh’s deal with India will likely lead to long-term growth of bilateral trade and improvement of domestic infrastructure
Cambodia: As Cambodia becomes increasingly integrated into the regional and global economies, it will start drawing significant attention from investors
China: Multinationals should watch for news of further SME defaults as they could put a drag on Chinese growth
India: India’s Right to Information Act is beginning to create serious problems for corrupt politicians and businessmen
Indonesia: Indonesia’s policymakers have shifted their attention from inflation to growth, confident that they have price pressures under control
Japan: The economy’s slow path to recovery will further decelerate due to the global economic slowdown, rising Yen, and continuing energy issues
Malaysia: Malaysia has drawn significant FDI so far this year, suggesting that the country remains an attractive destination for manufacturing
Pakistan: Recent interest rate cuts, which were aimed at promoting growth, are likely to spur already high inflation
Philippines: A recently announced fiscal stimulus package may create opportunities for multinationals operating in the Philippines
South Korea: New anti-graft reform measures should help to improve South Korea’s corruption landscape over the medium term
Taiwan: Taiwan’s business environment will continue to improve as the island’s leaders work proactively to attract investment
Thailand: The recent floods will impact global supply chains for agricultural goods, automobiles, and consumer electronics until at least Q1 2012
Vietnam: Pledged foreign direct investment is dropping as growing domestic risks give companies reason to pause
Most Asian countries continue to exhibit strong growth despite the recent turmoil in global markets. However, if there is a full-blown recession in the developed world, some markets will weather the storm better than others. In particular, domestically-oriented countries like India and Indonesia will be much less affected by a downturn in the West than will export-oriented countries like Thailand and Malaysia
Bangladesh: Bangladesh’s deal with India will likely lead to long-term growth of bilateral trade and improvement of domestic infrastructure
Cambodia: As Cambodia becomes increasingly integrated into the regional and global economies, it will start drawing significant attention from investors
China: Signs of weakening consumer demand have appeared in the luxury goods industry, which has seen stellar growth numbers in H1 2011
India: Continuing interest rate hikes along with inflationary pressures will dampen GDP and industrial growth for the remainder of 2011
Indonesia: MNCs should ensure that they are effectively taking advantage of Indonesia’s numerous government incentive programs
Japan: The economy’s slow path to recovery will further decelerate due to the global economic slowdown, rising Yen, and continuing energy issues
Malaysia: Malaysia is pursuing an unprecedented expansion of its oil infrastructure that may create significant opportunities for multinationals
Pakistan: Companies should expect price pressures in Pakistan to remain elevated for the foreseeable future
Philippines: A new agreement with China will bolster bilateral trade and boost foreign direct investment in the Philippines
South Korea: New anti-graft reform measures should help to improve South Korea’s corruption landscape over the medium term
Taiwan: Taiwan’s business environment will continue to improve as the island’s leaders work proactively to attract investment
Thailand: Companies should remain cautious of the political landscape until the country’s new government has established a solid base of support
Vietnam: The government’s new minimum wage hike will undergird Vietnam’s inflationary spiral, prolonging the pain for multinationals in the country
Local industry organizations are also the first choice for more than 40% of the respondents for influencing government policy across all regions
