When Roger Olds took over Coffey International 12 years ago, he set his sights on taking the consulting company international. The expansion plan took off with a flying start in the Philippines and Malaysia in the neighbouring South East Asian region, where Coffey began to win good work in its specialist areas.
Then the 1997 economic collapse struck, and Olds realised he had a problem. “When the crisis came, people said, ‘we’re not going to pay you’. It’s culturally acceptable to them, [but] for us we just say, ‘well that’s unfair’.”
Although the lost revenue had a significant impact on the Coffey group, Olds does not blame anyone. However, the experience, along with a commitment not to pay bribes, has seen the consulting group move its focus away from Asia despite a presence in South East Asia for over 30 years.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
“In terms of a global strategy we are focused now on countries that are more akin to English law than say Asian law,” says Olds, indicating an interest in the European, American and African markets.
A return to Asia is planned, but through acquisitions rather than organic growth.
The difference between Asian and Western cultures is often overlooked in business, but it can be the rock upon which a project or relationship founders. Australian engineering firms have a mixed track record of winning over our neighbours and breaking into the world’s biggest potential market, China.
“The advice I give about China is, ‘get out of your comfort zone’,” says Ampcontrol’s Dr Alan Broadfoot. “It’s their country, you’ve got to be there, you’ve got to talk their language, you’ve got to present your tenders in Chinese and you’ve got to not question the way they do business but learn how they do business.”
Language and customs aside, the operational risk in many Asian countries is much higher for Australian companies: upholding international agreements or chasing payments is difficult without a properly functioning commercial and legal environment. When withholding tax is taken out despite double taxation laws, getting the money back from the host government can be a time-consuming and fruitless task. And then there’s payment.
“You have to have the perspective sometimes that if you’re doing a project in China you might not get your last payment,” says Cardno’s CEO, Andrew Buckley.
Coffey’s story and subsequent decision to move beyond our Asian neighbours is mirrored by several Australian engineering firms which are reluctant to engage without the intermediary presence of a multinational or international agency.
Cardno takes a similar approach and has a limited permanent presence in South East Asia despite its role as one of the biggest contractors for AusAid.
While the company is working in Indonesia, Malaysia, PNG, Vietnam, China and Sri Lanka, only Jakarta and Port Moresby have established offices. In other countries, representation is made through project officers and in-country overheads are generally covered by project funding. Operations are maintained only if there is a subsequent contract when a project finishes.
However, the region is a difficult one to ignore. Many countries around the world are going through infrastructure booms, but some of the biggest are still in East and South Asia.
After hovering around the US$5 billion mark for six years, ADB’s total loans jumped to US$10 billion in 2007. In December it signed a nearly US$1 billion loan for a power station in Vietnam, and this year will sign the bank’s biggest loan ever for a US$1.2 Billion expressway – in Vietnam again.
The Vietnamese economy is rocketing along at 8 per cent and is running into bottlenecks in road, rail and ports. The government recognises this, and they have the systems in place to plan and build infrastructure reasonably quickly, says John Cooney, Director of Infrastructure for South East Asia at the ADB.
Other South East Asian countries are turning to fix neglected infrastructure after spending the past 12 years recovering from the financial crisis. Indonesia is upgrading its power sector with a crash program of building 10,000MW of thermal power stations over three or four years to meet the demands of growing at 6-8 percent a year.
The power system has “no spare capacity and the transmission and distribution systems also need major refurbishment,” says Cooney.