Growing Asia-Europe Investment and Trade Relationships

As recent as a decade ago, European investors have not accorded the same relative importance to developing Asia as have investors from the United States and Japan. That is beginning to change. In July 1994, the European Commission published "Towards a New Asia Strategy", stressing the importance of modernising the relationship with Asia, and of properly reflecting Asia’s growing political, economic and cultural significance. Asia-Europe relations has been steadily growing and efforts are underway to promote two-way investment and trade flows between Asia and Europe. Ms Benita Ferrero-Waldner, European Commissioner for External Relations and European Neighbourhood Policy, said that The European Commission will continue to work with all parties concerned in the promotion of a closer Asia-Europe partnership. No wonder. Asia and Europe combined attracted 50% of the world’s FDI inflows in 2004 and contributed 52% of world GDP in 2005.

European Investment in Asia

In 1997, the European Commission reported that European investors then were seeking greater investment activities in Asia, with an initial focus on trading activities but with a willingness to undertake investment activities where necessary.

Asia Investment in Europe

With the exception of Japan and recently South Korea, Asian investment in Europe has been relatively recent. Most Asian investors are not actively seeking significant investment opportunities in Europe. They are more interested in obtaining technology and financing from European investors than in breaking into European markets. To achieve these goals, they are willing to enter into joint ventures with European investors. This atmosphere of Asians becoming more pro-active to invest overseas is starting to accelerate but cultural norms, values and habits still reign strong.

Both Hard and Soft Analysis are important

I cannot emphasise enough the need to build personal relationships alongside hard economic analysis of investment facts and data.

Let me cite you an amusing example in September. On an ongoing Asia FDI attraction campaign for a European IPA client, the investment office remarked that “a business trip to Singapore may occur only after a real business relation has been established based on a real common interest and comprehension of the needs, information and figures, and so on, because European confidence in business take more time for them than for Singapore people”. It beats me how you can do that without even meeting a potential partner face-to-face?

Compare that to another Singaporean director who took time to personally fly to a different European IPA client’s location to scout around on a ‘gut-feel mission’ and talk to potential JV partners even before looking at the hard numbers. His company has several hundreds of spare millions of dollars, ready to do hard number crunching later and could invest anytime. Some CEOs have remarked, “Within 15 minutes of meeting and talking to a potential JV partner, I will know whether this guy can be my good partner. There are plenty of rich CEOs and potential partners but some are not willing to work hard to make the JV a success. I must sense that my partners must share similar values, willing to commit to work hard and not be back-stage sleeping partners to get the business up and running and then we will do the hard numerical analysis and feasibility studies”.

We always advise our clients to not just solely depend on hard quantitative analysis (though quantifiable) but to take time to know their partners, feel there’s a heart-to-heart engagement and sometimes go by their personal sensing and gut-feel.

Another airline director client, a former fund manager with no airline management experience, had ignored our advice to factor in soft analysis and feedback. He demanded just our hard quantitative analysis on an air travel market attractiveness study. He had wanted to invest millions of his company’s money, had listened to wrong people who were purely dependant on intellectual toolkits, not ‘on the ground’ and could not sense ‘in the heart’ and only wanted our objective data and could not accept market realities of the qualitative soft aspects of our interviewees comments and feedback on some issues. Thankfully, these are not representative of all the clients we face, as most clients are teachable and open to receiving advice.

Hard Factors: Economic stability, Productivity, Costs, Property, Local support services and networks, Communication infrastructure, Strategic location, Incentive schemes and programmes, Feasibility study, Cost-benefit analysis. We often advise our clients that these hard facts are good but not enough to justify investing millions of dollars. Also, they should look at the soft factors.

Soft Factors: Niche development, Quality of life, Professional and workforce competencies, Culture, Personal relationships, Management style, Flexibility and dynamism, Professionalism in contact with the market, Entrepreneurship, Gut feel, ‘I like the guy’ factor. We are after all humans. To solely depend on MBA-type cold hard quantitative analysis and information can quickly kill all the investment potential and returns. This is something that no government IPA investment officers can do on behalf of CEOs. Take the time to enjoy the different cultures, lifestyles and values of the target region and location. If CEOs do not have the time to do these personally, they should outsource some of these functions to external parties they can trust and rely on for their market insights and influence.

Private-sector Initiative

Hence, there are limits to what governments can do to facilitate and attract investments after they have addressed the twin pillars of the investment environment. Once IPAs have drawn up their investment policies and regulations as well as formulated and executed their investment promotion strategies, the onus still remains on the investing companies to decide to invest or not. CEOs of Asia and Europe do not necessarily listen to the vested interests of IPAs and they should listen to neutral sounding boards and third-parties.