Siah Hwee Ang: Weighing risks key to going solo

A major Asian city can be a big enough market for a New Zealand organisation. Photo / Getty

Part two of our series looks at the pluses and minuses of tackling Asia on your own.

Any overseas direct investment comes with risks. These can range from the broader macroeconomic and global risks to more immediate environmental and business ones.

To establish the best approach to a market, organisations often have to balance risks alongside benefits. Any approach to a foreign market comprises varying degrees of both. As with all strategies, there are aspects that are generic to all markets, while others can be more specific to Asian markets.

Working alone can enable an organisation to move more quickly along its intended pathway in the host market. By entering a local market individually, a foreign multinational states its intention and commitment to that market. This establishes confidence among local clients and at the same time forewarns competitors of your intentions.

Establishing brand awareness is an important aspect of an individual strategy, especially for longer term operation within the local market.

Going it alone means your organisation gets to keep all the fruits of your labours but it isn't without risk. There are both external and internal risks that need to be considered.

External risks can be politically or currency-based. Global risks, such as falling oil prices and how these affect some countries, should also be tracked.

Going it alone requires commitment in resources, and also buy-in by top management.

The host market and specific industry conditions should also be monitored for some time. Rushing in is never advisable. Unfortunately, external risk analysis often comes at the expense of internal risk assessments that ultimately help to inform the entry strategy.

Going it alone requires commitment in resources, and also buy-in by top management. When assessing resources, it is simply not good enough to consider only the level of resourcing required at the time of entry. In many markets, it will take a few years to break even. It's essential to assess resources based on the sustainability of competing in markets over a period of time.

Understanding your ability to customise your products or services is essential. Going it alone means you do not have a local partner to rely on for intelligence, which means it's necessary to be able to adapt.

Staffing overseas operations is key to the success of foreign forays. To what extent do you want to rely on hiring locals versus sending expatriates? Usually, a mix works best, but the recipe for success in staffing is both a science and an art.

The list of risks goes on but, in a nutshell, it's not necessarily true that external risks are higher than internal risks. Internal resourcing and governance contribute to the failure of international operations as much as host market conditions.

The benefits and risks of going it alone, as briefly highlighted above, apply to all markets, not just Asia. However, it has to be acknowledged that most Asian markets are relatively less developed in infrastructure, rule of law and transparency. This leads to uncertainties about what works in these markets. Trying to go it alone requires a lot of monitoring of potential markets before entry.

Furthermore, as Asian markets are diverse, learning needs to be more specific. The good news is that major cities in most Asian countries are large enough markets for New Zealand organisations. Less is more, so focusing on a handful of cities with good potential will suffice. This strategy also allows due diligence work to be more in depth.

Professor Siah Hwee Ang is BNZ Chair in Business in Asia, at Victoria University of Wellington.