It is rather seldom for medium-sized German, Austrian or Swiss companies to succeed in Asia. Our article “Think again please: Why lose Money in Asia when You Could also Lose it at Home?” shows a hypothetical example of how such firms tend to fail, you can find it here.
The following article will show an example of a company which is successful in the Asian market. Although hypothetical, this example has been based upon the average experiences of three firms that are successful. Even though it has been somewhat modified due to confidential reasons, the information is accurate where possible and the example given is realistic in its representation of how things may eventuate.
How everything is started
First, let us return to the year 2010. The successful owner of a medium-sized company from Rosenheim, which is in Bavaria, Germany, visits Singapore during a vacation. Initially, he planned to create a bank account in Singapore to facilitate the transfer of legitimate and taxed deposits into the country from his Swiss bank account, but he decided to cancel this plan when he realised the process is more complex that what he has expected.
However, the owner identifies a business opportunity for the wood processing machines made by his company upon recognising that the market of Southeast Asia will develop considerably in the coming years. Bringing his business to Asia seemed logical as his firm has grown an initial investment of DM 25,000 back in 1982 into one with a turnover of 50 million Euros (€) per annum and 200 employees in Germany. For this, he could rely on the savings in his Swiss bank account.
First steps to setting up a company in Asia
The businessman comes across an article in the Internet which discusses the activities of a trustee for trading firm in Singapore, namely this page: http://aditus-singapur.com/warum-ein-wirtschaftstreuhander-personlich-haften-mus/.
Remembering the advice he read on the Internet, he contacts local trustees and identifies a German trustee who is qualified as a lawyer in Singapore. This step later proves to be key.
From the beginning, this trustee explains to the businessman the most vital rules of their collaboration: the trustee needs to handle local economic activities except those areas that are pertaining to technical and sales. Employees, that are sourced locally, would then deal with those areas. Lesson to be learnt from this is that only with local sales staff, successful sales in Southeast Asia can be achieved.
The local trustee can organise full local management from the start, and this relieves the owner\\\\'s burden of employing a secretary or renting and fitting an office in Singapore. At first, the trustee registers a Representative Office located in Singapore but for purposes of accounting, sales are being handled in the European office. The representative office will be set up in Singapore even though most of the future customers will be from either Indonesia or Malaysia due to the existence of bilateral trade agreements between Singapore and its neighbours which ensure that any of such transactions will be straightforward.
The owner then makes the decision to engage a headhunter for assistance in hiring a regional sales manager. This is followed by the trustee introducing him to three local consultants, whom can converse in German, on human resources (HR) and the appropriate hire is identified.
Coincidentally, the owner has the business card of a potential candidate for that position as they had met few years back in Germany. This candidate, who is an Indonesian, had studied wood processing technique in Germany, is currently the deputy sales manager of a wood processing and plastic machines trader in Singapore. This candidate is being proposed by the owner as the best choice in spite of the consultant identifying other suitable candidates. He is then employed with an increase in wages and supplement for his personal car being negotiated.
The HR consultant receives a commission of 25% of the salary per year of the new Asian sales manager, under which 33% is paid upon the acceptance of contract. The expecting earnings of the sales manager, inclusive of his personal car supplement, are S$240,000 yearly. This means that S$20,000 is due to the HR consultant for accepting the contract through him.
So it begins
In regards to organisational matters, the trustee in Singapore is assisting the businessman. For instance, the adjustment of the company’s German employment contract to local practices. And to prepare for his post in Singapore, the new regional sales manager resigns from his position and travels to Rosenheim for a period of three weeks to undergo training pertaining to production issue.
Meanwhile, the trustee adapts his activities to the specific requirements of the new company and also allocates a company cell phone to the regional sales manager, with its number assigned to the German company. Thus, the company phone number will still be maintained if the sales manager were to depart from Singapore at any point of time. The format for periodic reports back to the Europe is also being established.
Soon after, the new sales manager returns to the region and commences on his sales activities. Within a few weeks, his CRM (Customer Relationship Management) system will be filled with potential sales opportunities to the extent that he do not have sufficient time to deal with all of them. He spends three to five working days to travel around the area, and the remaining two days to liaise and report to the parent company in Europe. Then, the first successful sale comes and shortly after, the sales manager becomes profitable. Simple technical issues at customer’s premises are handled by him, supported by the technology in Germany. For more complicated issues, he draws on the expertise of his pre-existing local network in Singapore.
After the first successful year, things continue to run smoothly
The trustee rents a small workshop, which is used as a warehouse as well, hires a technician and another salesman at the close of the first fiscal year. During the second year, a private limited (Pte Ltd) firm is also set up in Singapore with initial capital of $5,000 (Singapore currency). The trustee is acting as an agent of the German company in the when these activities are carried out and his involvement ensures that both the salesman and technicians can focus on their particular roles in sales and after-sales service, rather than upon economic and legal issues.
In the mean time, the trustee is handling the local technical organisation and accountancy, working in accordance with Singapore's practices. He takes charge of all local administrative work and acts as a first point of contact for the general director in Europe and a source of all current figures and data from the venture in Asia.
Happy End
The description of the successful example comes to an end as all the important aspects have been pointed out. It is only when the business develops in such a way as to require a local administration that the German owner will take such steps in Singapore. This plan is being supported by the trustee, and his involvement does not end with the setting up of the company along with its successful market entry. By acting on their behalf on an ongoing basis, he guides the local branch of the firm through its development and, by inputting his experience, makes sure the owner’s venture succeeds economically.
Cases when not everything goes as well as it could
Of course, there are cases whereby things do not run as smoothly as they did in the example cited above.
If the appointed Asian regional sales manager, take for instance, isn't so successful in his sales activities and also does not have the ability to solve on site simple technical issues, or he employs a secretary with whom he has suspicious personal connections with.
The trustee, in such scenarios, is able to identify the issues and intervene to resolve them before they lead to any serious problems. Unlike the sales manager, the trustee has power of attorney in relation to the local bank account in order to conduct his duty.
And if the newly employed Asian sales manager’s working capacity were to decrease to an extent which would be reflected in the monthly report, the trustee can terminate the collaboration with him in an non bureaucratic and straightforward way. The HR consultant would then identify a replacement which is cost-free.
Cases in which everything goes wrong
It may be that the local sales manager, in spite of his efforts, could not gain any sales success visibly. Upon discussing this situation, the German and Asian sales managers, as well as the owner of the business, realise that for reasons that are not known, there were poor sales of the German products in Southeast Asia. The modifications required for a successful outcome in Asia are so drastic that the venture ends up fizzling out instead.
The trustee, in this eventuality, can arrange for the conclusion of activities that are existing in the region as fast as possible. The owner faces no more expenses three months after ending the operations in Asia. Overall, comparing with the costs of setting up a new company in Asia, any expenses incurred were minimal; all-in, the one-year Asian venture cost around €360,000, and a large portion of this amount of money comprises of the regional sales manager's salary and the flight tickets for business travel in the area.
Conclusion
Setting up a branch in Asia in the manner as described above, when paired with a strong local team and the expertise of a trustee HR consultant, does minimise much of the risk for business owners and increases the possibility of success. The owner, by taking these steps, is able to control the expenses and retain the ability to terminate the operations promptly if such a step were to be necessary.
Martin Schweiger
Schweiger & Partners (München-Singapore)
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