By Glenn Schloss
Regional Director for Corporate Communications,
Hill & Knowlton Asia Pacific
It’s still too early to say whether the Western-driven failure of the global financial system and economic downturn will hasten the East’s ascendancy during this early part of what has been dubbed the Asian Century.
What is certain is that while companies in Asia’s economic powerhouses of Japan, China and India are somewhat affected by spreading contagion, they remain relatively cashed up. They are well placed to take advantage of the distressed assets in developed economies as they are put up for sale. Sovereign wealth funds in Singapore and China have accumulations of capital that will be deployed to purchase further stakes in Western assets.
The Asian investment spree will likely kick into gear once investors believe prices are bottoming. The weakening currencies in a number of key Western investment destinations (except the US) also will drive acquisitions. The relative absence of Asian investors in the initial phases of this downturn is mostly due to temporary financing constraints as well as a belief equities have further to fall.
The longer-term trend for Chinese companies will continue with “going out” government-mandated offshore expansions. Indian conglomerates and corporates will keep acquiring big brand names, purchase innovation in the form of whole companies and buy access to strategic markets with the takeover of firms. Japanese banks will continue their recent surprising forays abroad, building on Nomura’s purchase of Lehman Brother’s operations in Asia and Europe and Mitsubishi UFJ Financial Group strategic stake in Morgan Stanley.
But there are widespread expectations of rising protectionism following the Obama victory as well as the financial crisis. Combine this with a potential backlash against foreign investment in Western nations particularly the US, Western Europe (excluding the traditionally open UK) and Australia amid this shifting dynamic of rising Asian financial power, and it's clear investors from Asian markets should tread carefully.
Asian companies and sovereign wealth funds may wish to consider the following tried and tested communications principles when investing in Western markets:
Communicate internationally, not just locally. Asian corporations and SWFs expanding abroad can fail to make the transition from competent communicators in their local market to successful operators internationally. This is the point where a number of deals have fallen apart in recent years including Chinese oil giant CNOOC’s ill-fated 2005 takeover of the US’ Unocal. Stakeholders in an acquisition’s market need just as much attention as they do at home, if not more where a company is relatively unknown abroad.
Research and testing to optimise local messages. Don’t just import key messages and points-of-view from home. Conduct research to understand the drivers of local motivations, craft messages that tap into those motivations and then test their resonance with local audiences, preferably through market research.
Open, transparent and proactive communications. Inform stakeholders quickly and proactively about the investment as well as its benefits. Some deals involving foreign interests have gone awry even after the White House approved acquisitions in recent years because Congressional members were upset that they were not briefed. Stakeholders hearing about an acquisition from the investing company first are more likely to keep an open mind, particularly if the benefits for local interests are well framed and any potential concerns about home nations are addressed up front.
Realise corporate image is tied to country image. Acquiring companies and funds will be identified in the first instance with the nation where they are headquartered. There’s no sense in pretending otherwise or attempting distancing tactics if there is suspicion. Companies need to quickly act, acknowledge the concerns and then clearly explain their relationship with/independence from governments in home markets. They need to tackle head-on any taboos or misunderstandings about their home nations with direct communication, transparency and confidence.
Demonstrate the benefits. The paramount concerns in Western markets for at least the next year are likely to be economic with the focus on the impact of rising unemployment. Companies that explain in detail how their investment will benefit local interests particularly protection of jobs and economic contribution (e.g., taxes, innovative practices introduced from elsewhere, skills upgrades, etc.) will provide stakeholders with compelling reasons for support.
Build a local face in local markets. While acknowledging foreign roots, highlighting benefits and being proactive are crucial, companies also need to integrate locally. They should appoint executives and spokespeople who are local, quickly build partnerships with local suppliers, implement local sustainability programs.