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International Investment Criteria in Emerging Markets:
MAP in Thailand and Lebanon
Aram B. Zamgochian |
U.
U. S.
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U.S. Chamber of Commerce
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Contents
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U.S. Chamber’s 12 Criteria
Background and Objectives: Thailand
Project Components: Thailand
Case Studies: Europe and Southeast Asia
Thailand Successes
Lebanon Dimension & Challenges: 12 Criteria
Training for Success
U. S.
C h a m b e r
o f
C o m m e r c e
Criteria for International Investors
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Size of Internal Market
Freedom of Access to the Market
Labor Force and Raw Materials
Protection from Currency Devaluation
Regulatory Burdens
Favorable Taxation/Tax Incentives
Political Risk Factor
Predictable Macroeconomic Management
Remittance of Dividends
Property Rights Protection
Export Potential
Reliable Infrastructure Support
U. S.
C h a m b e r
o f
C o m m e r c e
Background and Objectives: Thailand
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Supported by a grant from USAID, the U.S. Chamber developed
and has managed a U.S.-Thailand Business Partnering program
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Internet community of qualified firms
– Online matching of business interests
– Off-line follow-up by trained staff in both countries
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Target sectors: Automotive Components, Software Development,
Agribusiness and Food Processing, Gems and Jewelry, and
Home Furniture
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Institutional partners: Thai Chamber of Commerce, Federation
of Thai Industries, Department of Export Promotion, Software
Park, U.S. trade associations and local chambers of commerce.
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Results: 1850 US and Thai companies recruited into an on-line
community, 1000 Thai executives trained, $25 million in new
business for Thai firms generated.
U. S.
C h a m b e r
o f
C o m m e r c e
Project Components
1
MAP Process
Company Selection
Company Assessment
Company Selection
Based on the profiles and our experience with the Thai SMEs participating in
the SIAM Partnering Program, we recruited candidates for MAP. Our target
was to identify approximately 100 firms in each of the three years
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Company Assessment
The candidates completed a comprehensive corporate assessment
covering such areas as current export performance, productivity,
sales and marketing strategies, pricing, etc. This was supplemented
with interviews by sector specialists
Sector Market Research
Product Sample
Feedback
Int’l Expansion
Action Plan
Trade Exposition
Program
U.S. Market
Incubation
3
Sector Market Research
A portrait of key trends, challenges and opportunities for
Thai exporters in the target sector was performed by the
U.S. Program office
4
Product Feedback
Thai participant’s products (either via sample or
detailed specs) were conveyed to selected
industry experts, for evaluation and comment
U. S.
C h a m b e r
o f
C o m m e r c e
Project Components: Thailand
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The company had to:
– Be in business at least three years
– Have at least an annual sales of 3
million
– Have at least one year experience
in international business
– Management committed to
international expansion
– Have solid finances
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Sector Analysis
High
Frozen
Food
Software
Plastic
The company’s business had to
be in the targeted sectors, and its
principal products or services had
to be sufficiently competitive in the
U.S. market
The company had to be able to
demonstrate its commitment and
financial resources to fully
participate in the MAP grogram
Processed
Food
Gems
Rubber
Textile and
Apparel
Low
Low
Export Readiness
U. S.
C h a m b e r
o f
High
C o m m e r c e
Case Studies
Network Electronics: Establishing a North American Division
OBJECTIVE:
SOLUTIONS:
European communications manufacturer,
Network Electronics, targets Western
Hemisphere for expansion
Establishes Network Electronics U.S., Inc.
 Recruits sales personnel in New York and
California
 Acts as Network Electronics’ U.S.
administrative offices
 Services provided include accounting,
financial, legal and human resources
 Little familiarity with local market here
 Cost a key consideration
 Speed and time-to-market secondary concerns
RESULTS:
 Sales forecast for first year (2001) of U.S.
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Operations in excess of $750,000
2002 sales projection is 50–75% higher than 2001
Attend/support company at SuperComm trade show
Operating expenses reduced 75-85%
Serves as in-house financial, legal and administrative team
U. S.
C h a m b e r
o f
C o m m e r c e
Case Studies
TEK Guthrie: Building a North American Sales Network
OBJECTIVE:
SOLUTIONS:
TEK Guthrie, a Singapore manufacturer
of machine tools, seeks to expand
sales in North American market
through direct sales in the U.S.
 Establish TEK Guthrie, Inc. in California
 Help Assemble TEK’s U.S. distribution
network - including hiring full time sales
representative
 Investigate other distribution channels
including VARs, independent distributors,
wholesales, agents and other partners.
RESULTS:
 Sales in TEK’s largest market, California is projected to
increase by between 25-30% in 2002
 Total U.S. sales projections exceed $1.8 million
 U.S. subsidiary administrative costs are less than 20% of
comparable management employee’s salary and overhead
U. S.
C h a m b e r
o f
C o m m e r c e
Thailand Successes
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Increased long-term business relationships
between Thai SME’s and U.S. firms
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Strengthened capability of Thai business
organizations to motivate and assist Thai SMEs to
increase their international business
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Improved quality of information about Thai firms
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Greater U.S. business interest and engagement
with Thai SMEs
U. S.
C h a m b e r
o f
C o m m e r c e
Lebanon Dimension: 12
Criteria
U. S.
C h a m b e r
o f
C o m m e r c e
Size of Internal Market
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GNI Per Capita (Atlas Method): $6,180 (2005 est.)
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Purchasing Power: $21.45 billion (2006 est.)
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Population Below Poverty Line: 28% (1999 est.)
U. S.
C h a m b e r
o f
C o m m e r c e
Freedom of Access
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Lebanon welcomes foreign investment, with some restrictions
– real estate, insurance, media companies, and banks
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Residents and non-residents may hold foreign exchange accounts
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Since 1997, several U.S. companies have opened branch or
regional offices
– Microsoft, American Airlines, Coca-cola, FedEx, UPS, General Electric
and Pepsi Cola.
U. S.
C h a m b e r
o f
C o m m e r c e
Labor Force/Raw Materials
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Lebanon has a labor force of 1.5 million people and an
additional one million foreign workers
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Unemployment is estimated at 20–25%
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The civil war caused a decline in the educational and
vocational training levels
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The literacy rate of the population is 87.4 percent
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The non-salary cost of employing a worker can be high,
and eliminating redundant employees is relatively costly
U. S.
C h a m b e r
o f
C o m m e r c e
Currency Devaluation
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Lebanon’s history of political strife left the
economy unstable with high inflation
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Stabilization has brought inflation down from 15
percent in 1990 to 0.3% in 2005
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By the end of December 2005, the fiscal deficit
reached approximately 8% of GDP
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Investment promotion has come in the form of
fiscal incentives and facilitation services through
the new Investment Development Law
U. S.
C h a m b e r
o f
C o m m e r c e
Remittance of Dividends
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Lebanon has established ideal conditions for
conducting business
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Lebanon’s financial sector is one of the region’s
most liberal and sophisticated
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Hard currency can be taken out of the country
and there are no reporting requirements
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Lebanon’s index of investor protection also falls
above the regional average
U. S.
C h a m b e r
o f
C o m m e r c e
Property Rights Protection
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Lebanon has a strongly developed and nondiscriminatory legal framework
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Lebanon’s 1999 Copyright Law largely complies with
the WTO
– Enforcement is weak
– The judicial system is not effective in deterring IPR crimes
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The United States will monitor the IPR situation in
Lebanon closely, particularly under the GSP petition
for inadequate copyright protection
U. S.
C h a m b e r
o f
C o m m e r c e
Export Potential
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Lebanon’s geographic position opens the country to a
wide variety of markets
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Lebanon served as a regional banking center
– The 1975–1990 Civil War nearly destroyed the
Lebanese economy
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Lebanon’s major export partners are Syria, the UAE,
Switzerland, and Turkey
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The United States’ position as the fifth-largest source
of Lebanese imports creates a strong economic bind
between the two nations
U. S.
C h a m b e r
o f
C o m m e r c e
Regulatory Burdens
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The process of starting a business represents a
major hindrance to investors
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Entrepreneurs can expect an average of
approximately six procedures
– Well below the regional average of 10.3
– The time it takes on average is 46, above
the 40.9 day regional average
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The advantage of launching a business in Lebanon
– The minimum capital required as a percentage
of GNI per capita
U. S.
C h a m b e r
o f
C o m m e r c e
Tax Incentives
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Lebanon grants temporary fiscal exemptions to
new industries
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Lebanon has low tax rates
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Companies taxed on income solely derived from
operations in Lebanon
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Companies are subject to a yearly lump sum tax
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In February 2002, Lebanon created a ten
percent value-added tax
U. S.
C h a m b e r
o f
C o m m e r c e
Political Risk
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After independence, Lebanon became a
model for social and economic development
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15-year civil war ravaged the country
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After Ta’if Accords, Lebanon recorded a
strong recovery
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The 2006 summer conflict with Israel greatly
damaged the newly rebuilt Lebanese
economy
U. S.
C h a m b e r
o f
C o m m e r c e
Macroeconomic Management
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Since 1992, all economic programs have focused on
achieving stability and supporting economic revival
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Economic growth was strong from 1991 to 1995
– Due to the high debt burden the increase in GDP has
slowed since the mid 1990’s
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Large and persistent fiscal deficits have increased
public debt stock
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The international community gave Lebanon some
relief from its high debt
U. S.
C h a m b e r
o f
C o m m e r c e
Reliable Infrastructure Support
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Lebanon embarked on a massive reconstruction
program in 1992
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The formation of a government headed by a successful
businessman was seen as a sign that Lebanon would
make a priority of rebuilding the country
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Much of the civil war damage and been repaired
throughout the country
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Efforts to stabilize the economy suffered a severe
setback with the hostilities from July-August 2006
U. S.
C h a m b e r
o f
C o m m e r c e
Training for Success
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The U.S. Chamber of Commerce trained over 350 Lebanese
small business owners, executives and employees at the
American University of Beirut.
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Three course series:
– Strategic Planning for Small Business
– Developing an Effective Marketing Strategy
– Improving Small Business Performance
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Results:
– Helped firms develop the best possible “plan”, given all the
constraints that Lebanese industry face
– Improved management capabilities by increasing awareness of
modern business principles
– Better equipped Lebanese firms to prepare introductory
management plans and organizational structures
– Helped firms make better management decisions that will increase
profitability and improve quality of production and services
U. S.
C h a m b e r
o f
C o m m e r c e
Training for Success
Reduce firm-level constraints in finding,
qualifying, attracting and interacting
effectively with U.S. firms
 Present qualified
pool of foreign
firms to U.S.
partners
 Enhance
capability of
firms to leverage
electronic
commerce
 Increase access
to credit
Increase long-term business relationships
and real partnerships between foreign firms
and U.S. counterparts
 Register U.S.
firms to
participate
 Disseminate
relevant, sectorspecific
commercial
information
 Facilitate
business
proposals/offers
Overall Program Support Tools
 TA & Training
 Strategic
Partnerships
and
Relationships
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 Information
Services:
– Web-Base Portal
– Customized Toolkits
– Project
Opportunities
Partnership Facilitation Services
U.S. Chamber Small Business Summit
Implementing Partners Meetings
Stakeholder Consultation & Coaching
Overall Program Objective
Create Real Business Partnerships in Emerging Markets
U. S.
C h a m b e r
o f
C o m m e r c e
Training for Success
U. S.
C h a m b e r
o f
C o m m e r c e