Wednesday, November 10, 2010

Doing business in Asia

Today I found this in my inbox. A brief description of someone wanted to do business in Asia. It doesn't even matter what country this is about:

I have applied for an investment license at the One Stop Unit in March
2009. I have still got no answer. The process is lengthy, complicated
and completely in-transparent. In reality, investors buy themselves to their licenses. I didn't pay, so I didn't get the license.

After all I have given up to make business here. If you are not
ruthless, you will only burn your fingers.

As someone who believe that business is driving development, this story shows the real problem of developing countries: It's not so much poverty or lack of education (though this is a huge problem, but not the cause). It is a lack of desire from governments. Desire in developing the country. Most governments in SE Asia are just fine with the situation, since their members already made enough money for themselves.

Let's see a developing country as a start-up business. The way they do it now is the way start up operated in the time of the first internet bubble. VC (in our example NGO and IMF and Worldbank) gave money, they burned it and asked for more money. Because there was a steady stream of new money coming in, there was no real reason to focus in the business model. That's the way developing countries operate: The infrastructure of the country is not financed by income from operations like taxes, but from donations and support from international institutions. The lack of taxes used to run the country is caused by a) lack of tax collecting processes and b) corruption.
So why aren't countries collecting taxes? Actually they do, but the system is far from transparent. First of all, foreign companies are due to tax, always. Local family businesses have to pay tax as well, but seldom do. The reason is: They won't get caught, and tax officers always think its too much work for them to collect the few dollars from small businesses. Then of course is a total lack of infrastructure and understandable tax laws. The reason is simply again the missing desire. If you want to get tax, you will establish a system.

The main reason why there is no system is corruption. This is all over Asia, and it's the biggest obstacle for the developing countries. Corruption kills competition and kills development of markets. Only the wealthy elite can afford to pay the bribes, so they run moist of the businesses and get a de facto monopoly. Without competition there is no incentive to grow and improve, so most businesses aren't developing much. Just look at state owned Hotels in Asia, or the quality of local run companies in general. Most use quite old equipment, producing same products since 10 years.

Why its important to have foreign companies?
Because they drive markets faster on a higher level. The know the process of competition and they know also they have to work harder then local companies (not only because of corruption, but also because cultural differences, lack of networks in the country a.s.o.) Successful foreign owned companies are a challenge for local companies, so the they have a quite good reason to improve and get the business.

But as long as the desire of the people in charge is their own bank account and not the countries wealth, there is no change at all.