International Investment Criteria In Emerging Markets


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International Investment Criteria In Emerging Markets

  1. 1. U. S. C h a m b e r o f C o m m e r c e
  2. 2. International Investment Criteria in Emerging Markets: MAP in Thailand and Lebanon Aram B. Zamgochian | U.S. Chamber of Commerce U. S. C h a m b e r o f C o m m e r c e
  3. 3. Contents <ul><li>U.S. Chamber’s 12 Criteria </li></ul><ul><li>Background and Objectives: Thailand </li></ul><ul><li>Project Components: Thailand </li></ul><ul><li>Case Studies: Europe and Southeast Asia </li></ul><ul><li>Thailand Successes </li></ul><ul><li>Lebanon Dimension & Challenges: 12 Criteria </li></ul><ul><li>Training for Success </li></ul>
  4. 4. Criteria for International Investors <ul><li>Size of Internal Market </li></ul><ul><li>Freedom of Access to the Market </li></ul><ul><li>Labor Force and Raw Materials </li></ul><ul><li>Protection from Currency Devaluation </li></ul><ul><li>Regulatory Burdens </li></ul><ul><li>Favorable Taxation/Tax Incentives </li></ul><ul><li>Political Risk Factor </li></ul><ul><li>Predictable Macroeconomic Management </li></ul><ul><li>Remittance of Dividends </li></ul><ul><li>Property Rights Protection </li></ul><ul><li>Export Potential </li></ul><ul><li>Reliable Infrastructure Support </li></ul>
  5. 5. <ul><li>Supported by a grant from USAID, the U.S. Chamber developed and has managed a U.S.-Thailand Business Partnering program </li></ul><ul><li>Internet community of qualified firms </li></ul><ul><ul><li>Online matching of business interests </li></ul></ul><ul><ul><li>Off-line follow-up by trained staff in both countries </li></ul></ul><ul><li>Target sectors: Automotive Components, Software Development, Agribusiness and Food Processing, Gems and Jewelry, and Home Furniture </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>Background and Objectives : Thailand
  6. 6. Project Components Product Feedback Thai participant’s products (either via sample or detailed specs) were conveyed to selected industry experts, for evaluation and comment 4 MAP Process Company Selection Company Assessment Sector Market Research Product Sample Feedback Int’l Expansion Action Plan U.S. Market Incubation Trade Exposition Program 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 3 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 2 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 1
  7. 7. Project Components: Thailand U.S. Demand Export Readiness Low Low High High Sector Analysis Plastic Gems Processed Food Software Rubber Textile and Apparel Frozen Food <ul><li>The company had to: </li></ul><ul><ul><li>Be in business at least three years </li></ul></ul><ul><ul><li>Have at least an annual sales of 3 million </li></ul></ul><ul><ul><li>Have at least one year experience in international business </li></ul></ul><ul><ul><li>Management committed to international expansion </li></ul></ul><ul><ul><li>Have solid finances </li></ul></ul><ul><li>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 </li></ul><ul><li>The company had to be able to demonstrate its commitment and financial resources to fully participate in the MAP grogram </li></ul>
  8. 8. Case Studies Network Electronics: Establishing a North American Division <ul><li>OBJECTIVE: </li></ul><ul><li>European communications manufacturer, Network Electronics, targets Western Hemisphere for expansion </li></ul><ul><li>Little familiarity with local market here </li></ul><ul><li>Cost a key consideration </li></ul><ul><li>Speed and time-to-market secondary concerns </li></ul><ul><li>RESULTS: </li></ul><ul><li>Sales forecast for first year (2001) of U.S. </li></ul><ul><li>Operations in excess of $750,000 </li></ul><ul><li>2002 sales projection is 50–75% higher than 2001 </li></ul><ul><li>Attend/support company at SuperComm trade show </li></ul><ul><li>Operating expenses reduced 75-85% </li></ul><ul><li>Serves as in-house financial, legal and administrative team </li></ul><ul><li>SOLUTIONS: </li></ul><ul><li>Establishes Network Electronics U.S., Inc. </li></ul><ul><li>Recruits sales personnel in New York and California </li></ul><ul><li>Acts as Network Electronics’ U.S. administrative offices </li></ul><ul><li>Services provided include accounting, financial, legal and human resources </li></ul>
  9. 9. Case Studies TEK Guthrie: Building a North American Sales Network OBJECTIVE: TEK Guthrie, a Singapore manufacturer of machine tools, seeks to expand sales in North American market through direct sales in the U.S. <ul><li>RESULTS: </li></ul><ul><li>Sales in TEK’s largest market, California is projected to increase by between 25-30% in 2002 </li></ul><ul><li>Total U.S. sales projections exceed $1.8 million </li></ul><ul><li>U.S. subsidiary administrative costs are less than 20% of comparable management employee’s salary and overhead </li></ul><ul><li>SOLUTIONS: </li></ul><ul><li>Establish TEK Guthrie, Inc. in California </li></ul><ul><li>Help Assemble TEK’s U.S. distribution network - including hiring full time sales representative </li></ul><ul><li>Investigate other distribution channels including VARs, independent distributors, wholesales, agents and other partners. </li></ul>
  10. 10. <ul><li>Increased long-term business relationships between Thai SME’s and U.S. firms </li></ul><ul><li>Strengthened capability of Thai business organizations to motivate and assist Thai SMEs to increase their international business </li></ul><ul><li>Improved quality of information about Thai firms </li></ul><ul><li>Greater U.S. business interest and engagement with Thai SMEs </li></ul>Thailand Successes
  11. 11. Lebanon Dimension: 12 Criteria
  12. 12. <ul><li>GNI Per Capita (Atlas Method): $6,180 (2005 est.) </li></ul><ul><li>Purchasing Power: $21.45 billion (2006 est.) </li></ul><ul><li>Population Below Poverty Line: 28% (1999 est.) </li></ul>Size of Internal Market
  13. 13. <ul><li>Lebanon welcomes foreign investment, with some restrictions </li></ul><ul><ul><li>real estate, insurance, media companies, and banks </li></ul></ul><ul><li>Residents and non-residents may hold foreign exchange accounts </li></ul><ul><li>Since 1997, several U.S. companies have opened branch or regional offices </li></ul><ul><ul><li>Microsoft, American Airlines, Coca-cola, FedEx, UPS, General Electric and Pepsi Cola. </li></ul></ul>Freedom of Access
  14. 14. <ul><li>Lebanon has a labor force of 1.5 million people and an additional one million foreign workers </li></ul><ul><li>Unemployment is estimated at 20–25% </li></ul><ul><li>The civil war caused a decline in the educational and vocational training levels </li></ul><ul><li>The literacy rate of the population is 87.4 percent </li></ul><ul><li>The non-salary cost of employing a worker can be high, and eliminating redundant employees is relatively costly </li></ul>Labor Force/Raw Materials
  15. 15. <ul><li>Lebanon’s history of political strife left the economy unstable with high inflation </li></ul><ul><li>Stabilization has brought inflation down from 15 percent in 1990 to 0.3% in 2005 </li></ul><ul><li>By the end of December 2005, the fiscal deficit reached approximately 8% of GDP </li></ul><ul><li>Investment promotion has come in the form of fiscal incentives and facilitation services through the new Investment Development Law </li></ul>Currency Devaluation
  16. 16. <ul><li>Lebanon has established ideal conditions for conducting business </li></ul><ul><li>Lebanon’s financial sector is one of the region’s most liberal and sophisticated </li></ul><ul><li>Hard currency can be taken out of the country and there are no reporting requirements </li></ul><ul><li>Lebanon’s index of investor protection also falls above the regional average </li></ul>Remittance of Dividends
  17. 17. <ul><li>Lebanon has a strongly developed and non-discriminatory legal framework </li></ul><ul><li>Lebanon’s 1999 Copyright Law largely complies with the WTO </li></ul><ul><ul><li>Enforcement is weak </li></ul></ul><ul><ul><li>The judicial system is not effective in deterring IPR crimes </li></ul></ul><ul><li>The United States will monitor the IPR situation in Lebanon closely, particularly under the GSP petition for inadequate copyright protection </li></ul>Property Rights Protection
  18. 18. <ul><li>Lebanon’s geographic position opens the country to a wide variety of markets </li></ul><ul><li>Lebanon served as a regional banking center </li></ul><ul><ul><li>The 1975–1990 Civil War nearly destroyed the Lebanese economy </li></ul></ul><ul><li>Lebanon’s major export partners are Syria, the UAE, Switzerland, and Turkey </li></ul><ul><li>The United States’ position as the fifth-largest source of Lebanese imports creates a strong economic bind between the two nations </li></ul>Export Potential
  19. 19. <ul><li>The process of starting a business represents a major hindrance to investors </li></ul><ul><li>Entrepreneurs can expect an average of approximately six procedures </li></ul><ul><ul><li>Well below the regional average of 10.3 </li></ul></ul><ul><ul><li>The time it takes on average is 46, above the 40.9 day regional average </li></ul></ul><ul><li>The advantage of launching a business in Lebanon </li></ul><ul><ul><li>The minimum capital required as a percentage of GNI per capita </li></ul></ul>Regulatory Burdens
  20. 20. <ul><li>Lebanon grants temporary fiscal exemptions to new industries </li></ul><ul><li>Lebanon has low tax rates </li></ul><ul><li>Companies taxed on income solely derived from operations in Lebanon </li></ul><ul><li>Companies are subject to a yearly lump sum tax </li></ul><ul><li>In February 2002, Lebanon created a ten percent value-added tax </li></ul>Tax Incentives
  21. 21. <ul><li>After independence, Lebanon became a model for social and economic development </li></ul><ul><li>15-year civil war ravaged the country </li></ul><ul><li>After Ta’if Accords, Lebanon recorded a strong recovery </li></ul><ul><li>The 2006 summer conflict with Israel greatly damaged the newly rebuilt Lebanese economy </li></ul>Political Risk
  22. 22. <ul><li>Since 1992, all economic programs have focused on achieving stability and supporting economic revival </li></ul><ul><li>Economic growth was strong from 1991 to 1995 </li></ul><ul><ul><li>Due to the high debt burden the increase in GDP has slowed since the mid 1990’s </li></ul></ul><ul><li>Large and persistent fiscal deficits have increased public debt stock </li></ul><ul><li>The international community gave Lebanon some relief from its high debt </li></ul>Macroeconomic Management
  23. 23. <ul><li>Lebanon embarked on a massive reconstruction program in 1992 </li></ul><ul><li>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 </li></ul><ul><li>Much of the civil war damage and been repaired throughout the country </li></ul><ul><li>Efforts to stabilize the economy suffered a severe setback with the hostilities from July-August 2006 </li></ul>Reliable Infrastructure Support
  24. 24. <ul><li>The U.S. Chamber of Commerce trained over 350 Lebanese small business owners, executives and employees at the American University of Beirut. </li></ul><ul><li>Three course series: </li></ul><ul><ul><li>Strategic Planning for Small Business </li></ul></ul><ul><ul><li>Developing an Effective Marketing Strategy </li></ul></ul><ul><ul><li>Improving Small Business Performance </li></ul></ul><ul><li>Results: </li></ul><ul><ul><li>Helped firms develop the best possible “plan”, given all the constraints that Lebanese industry face </li></ul></ul><ul><ul><li>Improved management capabilities by increasing awareness of modern business principles </li></ul></ul><ul><ul><li>Better equipped Lebanese firms to prepare introductory management plans and organizational structures </li></ul></ul><ul><ul><li>Helped firms make better management decisions that will increase profitability and improve quality of production and services </li></ul></ul>Training for Success
  25. 25. Training for Success
  26. 26. Training for Success