The GMS presents compelling metrics for businesses in terms of recent growth. Gross domestic product in the region has grown at over 8 per cent a year on average during the past two decades while real per capita incomes have more than tripled over the same period.
"A business which crosses any of these borders needs to understand the nuances of each market."
Anna Green, CEO, ANZ Laos
Population demographics also provide business with good reasons to be interested. The GMS is comprised of 334 million people, over a third of whom are under the age of 20.
This growing group are forming an emerging middle class keen to access the goods and services which are already available to their wealthier neighbours across the ASEAN bloc.
As Dr Jim Walker, founder and chief Economist of Asianomics recently pointed out in Business Insider, the fact is the economics stack up really well throughout Southeast Asia.
“People seem to have missed the point that since 2011, Asian exports have gone nowhere,” he wrote. “In 2015, they collapsed. And yet these countries are keeping on growing at 4 per cent, 5 per cent, 6 per cent a year.”
“I’m thinking that after 25 years in Asia, I’ve never seen this region look better in terms of its platform for growth going forward,”
A recent Asian Development Bank (ADB) study concluded private consumption would be the main driver of growth in the GMS region in 2016.
“Rising employment, higher government salaries, modest inflation and remittance inflows all point to robust consumer spending,” the study said.
The same study showed Southeast Asian economies expected to grow the fastest include
Cambodia (7 per cent in 2016 and 7.1 per cent in 2017), Laos (6.8 per cent and 7.0 per cent), Myanmar (8.4 per cent and 8.3 per cent) and Vietnam (6.7 per cent and 6.5 per cent), all countries situated in the GMS.
Notwithstanding these metrics and the recent ASEAN bloc implementation of tariff reductions as part of AEC initiatives to facilitate international trade, the region remains relatively unexplored by developed market multinational interests.
The question then is: how does a developed-market business enter the region successfully? Below are some practical ways to prepare your business for success in the Mekong.
GMS markets are disparate and at markedly different levels of development. A business which crosses any of these borders needs to understand the nuances of each market and accept the business norms present in international markets are not yet embedded in the GMS.
By way of example, the Vietnamese legal system is relatively well developed and there is precedent in the market to recover a business asset via established modes of security enforcement.
In Laos and Myanmar however the situation is different. These countries are emerging from years of inward-looking political and economic agendas and therefore their legal frameworks remain untested in most instances.
Similarly business registration and government administration processes remain different and most cases relatively complex in each of the GMS markets.
Spending time on the ground understanding and coming to terms with these differences in each geography in which a business is planning to operate will ultimately save business time and money on its entry.
No matter how well you understand the operating environment, the key to doing well in these markets is developing a strong framework of key stakeholders across both the public and private sectors.
Many business decisions in the GMS continue to require significant government input. By way of example, a customer entering the Laos market recently explained to me their challenges in obtaining a business licence, confirming it took them two years to get one. A different company in a similar industry took 2two months to obtain the same type of licence.
The quicker registration was related to the relevant company’s clear understanding of the local operating environment and the significant efforts it expended prior to entering the market to ensure all relevant government and industry stakeholders had been engaged in anticipation of its entry.
Establishing clear and transparent relationships with key government and industry stakeholders in GMS markets will assist any business to launch from the right starting point.
Patience is the key to success in these markets. It is easy to see top line growth figures in the region as promising a quick return.
Precisely because of the above issues (disparate and often complex business environments and the need to invest time in building out relationships) it is important to note that return on investment in these markets will not be realised quickly.
CEOs and business leaders in the GMS confirm it can take between three to five years to see a reasonable return on their capital in the region, however once a successful business framework is established the growth they see in their business returns can be far higher than in their developed market business
A young and inexperienced labour market continues to be a key challenge for businesses entering the region. Regardless of industry, experienced staff familiar with international standards relating to finance, legal and compliance remain scarce.
Businesses who are willing to transfer experienced staff from their home markets for key roles to build out the knowledge and expertise of local staff and who invest the time in doing so see quicker returns than those who hope to save on set up by only hiring locally.
In Cambodia, both the Cambodia Beverage Company (CBC) (exclusive distributor of Coca Cola) and petroleum giant, Total, have invested heavily in the training of their local staff and have taken the time to assess the type of candidate that is likely to be successful in their operations.
“At Total, we focus on soft skills, mainly looking for good communication, teamwork ability, flexibility, leadership, and fast learning skills,” Total’s HR and administrative manager Rady Keo told Management Insider. “The rest can be taught through strong coaching and in-house training programs.”
Companies who want to be successful in their GMS operations would do well to establish good staff training programmes that prepare staff for any industry specific skillsets that might be required as part of their ongoing business operations.
Given the very real economic upside for international business’ entry into the GMS region, the question forward thinking leaders should be asking themselves is not if they should enter the GMS, but when.
Anna Green is CEO, Laos at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
21 Oct 2016
21 Oct 2016
14 Oct 2016