Brave new world
Article Date: Mar 03 2006
Finding good advice
It’s easy to grasp the importance of good advisers and partners who are local to the target region, but is perhaps less easy for the uninitiated to find them. Investment adviser Piers Hartland-Swann from MacArthur & Co says lawyers and accountants with the right experience can put you in touch with the right people, though for a fee, naturally.
The Government’s UK Trade & Investment can help with background information and official contacts, and also advise on trade missions that companies can receive public money to join. The London Chamber of Commerce helps small and medium-sized companies, as well as lawyers and others, with seminars and trade missions. Banks, local British Chambers of Commerce and British embassies and consulates can also play an important role.
For exporters, obtaining payment from these new frontier countries can be difficult and less smooth than in more established markets, while companies operating in the countries themselves must take care to comply with all procedures to repatriate profits.
If you are considering starting a manufacturing operation then one major concern, argues Hartland-Swann, is having your intellectual property stolen. ‘You can set up a plant overseas and then find your managers over there have set up a copycat factory down the road, using your product design or systems.’
And do not bank on the law solving the problem. Legal recourse on IP theft in burgeoning economies is not common and many experts suggest a solid local partner can be more effective than the courts, helping with official procedures to protect your inventions and representing your interests in the event that your copyrights become infringed. Some companies with overseas operations protect themselves by keeping research and development in the UK.
Currying favour
‘India’s business community tends to see a negotiated contract as a starting position for renegotiating,’ says Hartland-Swann. This view is echoed by Richard Healey, boss of UK-based Platinum Mining Corporation of India, which is developing deposits in Orissa state. ‘You need to be astute,’ he warns. ‘India is harder to crack than Russia or China.’
In Healey’s experience, the usual business approach in India is to be extremely polite. ‘If you say the wrong thing or are rude, they won’t react outwardly but they will withdraw support.’
An Indian partner is crucial to your chances of success in the country, insists Healey, but, he adds, ‘A few families tend to control what happens in India and unless your local partner has powerful family connections, things won’t happen.’
Healey recalls he was able to do business with a local cable company because his local managing director had the right connections. But such affiliations can be tricky. Once you’ve allied to one powerful family, Healey asserts, ‘It’s not easy to deal outside them and sign up a new joint venture partner. Family approval is necessary: there are a lot of nuances in India.’
To interpret these nuances, experts suggest you need a key person on the ground. ‘Knowledge is power in India,’ says Healey. Fortunately, he adds, ‘Brits are popular out there and compared to China, the level of education is vastly superior — 60 per cent of the population are educated to a UK standard compared with only ten per cent in China.’
Political pressures
Political factors can also play a part in the success of your expansion plans, nowhere more so than in Russia. Recent antics of gas giant Gazprom have not inspired confidence, nor has a bitter fight over alleged expropriation by tycoon Roman Abramovitch of half a Siberian oilfield, owned by fellow tycoon Chalva Tchigirinsky’s British company Sibir Energy.
However, deals can still be done. For example, Celtic spin-off Victoria Oil & Gas clinched a potentially lucrative gas distribution deal from West Medvezhye in Siberia. That contract owed much to contacts forged by Victoria’s executive director Bill Kelleher, former production chief at Yukos, a Russian corporation attacked in President Putin’s battle with the ‘oligarchs’. Kelleher, who was in Yukos’s head office when soldiers came for its computers, kept his network and remains on good terms with Gazprom.
Specialist investment adviser Christopher De Vere Walker hints that Russia’s resurgent anti-Semitism may have influenced the Yukos affair, because of suggested Israeli funding. He argues Russians welcome Western investment, viewing it as more stable than local support.
Irish entrepreneur John Teeling is another with experience of political perils in business, with energy and mineral prospecting companies in Iraq, Iran and Bolivia. His
lieutenant David Horgan runs Petrel Resources, which has won some contracts in Iraq.
‘In Iraq,’ he says, ’we focused on local technical people and impressed the Iraqis by bringing in expatriates from elsewhere in the Middle East.
‘We basically wormed our way in,’ he recalls. ‘We took medical books to hospitals and so on. The Middle East values courtesy and they don’t like to say no, so if you keep on turning up and making your presence felt, sooner or later they’ll give you something
in return.’
It helped that Petrel did eventually secure some big company backing, but Horgan says it is tricky and can be ‘very dangerous’ to try to get in with a local ‘fixer’ as your patron, since they will probably have as many enemies as friends. Helpful in this area are corporate ‘sugar daddies’, which are not originally local but usually Western oil or equipment companies with local experience. In Iraq and Iran, Horgan says you must also be ready to take time and dazzle with technical and financial expertise.
In Bolivia, Teeling’s Pan Andean company was quick to cuddle up to Evo Morales, the left-wing leader who swept to power in December’s elections. Horgan argues, ‘A small company can support anti-imperialist rhetoric to get deals.’
On the age-old question of bribery, most companies in all these new markets publicly claim it brings more risks these days than rewards when trying to get ahead, and the UK Government strongly warns against it. It’s usually illegal in these countries and is an issue on which your local partner or adviser should be a valuable guide to the realities.
