Since AVCO Legal was established in Malaysia eight years ago – first with a representative office and then, after verifying the potential of the Malaysian market and, by extension, that of other nearby markets – it has continued to accompany and advise Spanish and Latin American companies in Southeast Asia, as well as companies from this region wishing to do the same in Spain or Latin America. Judging by the results, the experience, seen over the time elapsed, has been undoubtedly satisfactory, especially because its first consequence has been to make visible an undeniable reality: that of ten countries with a privileged geopolitical position; stable economic growth, well above the world average, at 5.5% in 2022 and a forecast of 4.7% in 2023; increasingly liberal trade policies; and an attractive alternative for those seeking to reduce their exposure to China, given the tightening of its regulatory framework and the progressive increase in its costs.
Although Southeast Asia is on track to become the world’s largest single market in 2030, and has a number of sectors in which foreign investment is expected to play an increasingly important role – manufacturing, infrastructure, renewable energies, agribusiness, logistics and transportation, tourism or digital economy, with a gross value of $200 billion in 2022 in the latter case – there is still some resistance for Spanish and Latin American companies in Southeast Asia to develop business plans there. The reasons, which are several, range from a great unfamiliarity with their possibilities to a reluctance to venture into markets other than European or Latin American ones, passing through the refusal to immerse themselves in cultures that demand, in order to turn the attempt into a positive one, a significant effort of knowledge, understanding, and adaptation. Not to mention, of course, a common misconception that is repeated time and time again, that these markets are almost impossible markets, forgetting thereby that there are no impossible markets, only wrong strategies.
In my opinion, the first step of a correct strategy is a cultural step, understanding this term in its broadest sense, that is, as a corporate, business, or institutional culture, composed of a set of beliefs, values, norms or rules that define the behavior of a group, an organization or an entity, and which must be understood in order to understand the rules of the game. A culture in which the sense of hierarchy occupies an important place, as well as decorum, for which some countries, such as the Philippines, have coined a particular expression, “hiya,” which is decisive in all kinds of relationships, professional or personal, as well as the sense of family. Indeed, business in the Philippines or Thailand, for example, is often structured around family relationships, which is why it is important to be aware of this so that a plan to enter any of these markets must start from this principle and adapt to it, and not the other way around, as is erroneously attempted at times.
The second step for Spanish and Latin American companies in Southeast Asia when drafting a business plan is to conceive this business as an on-site, patient and prolonged activity, extended over time, that is not driven by short-term profitability but rather planned for the medium or long term. It is based on relationships where loyalty predominates. Building these types of relationships takes time, and time, in this region, is more about “trust” than “money,” an element without which it is practically impossible to establish lasting and reliable business relationships or to have the cooperation of a local partner who can help the Spanish or Latin American investor navigate the local market, introduce key contacts or assist in obtaining the necessary permits or licenses. Selecting this local partner is not always easy but despite its difficulty it is absolutely necessary, especially when this collaboration is essential due to the peculiarities of the country in question.
In addition to these two steps, a third step must be considered as important as the previous ones, which is the regulatory framework. Regulatory frameworks are generally complex and bureaucratic, not always suitable for the faint-hearted. But which regulatory framework isn’t complex, especially when the legislator in question, locked in his office, barely has experience of the problems companies face? Be that as it may, this complexity is somewhat mitigated if not eliminated by the existence of a certain legal certainty and political stability or by the adoption of increasing liberalizing measures; as well as bureaucracy being mitigated by the existence of various types of one-stop shops which operate under different names across these countries such as OSS in Indonesia or NSW in Malaysia or the Philippines. A separate comment deserves official validation of documents subject to legalization if The Hague Apostille Convention is not applicable.
Finally, there is another step, no less important than the previous ones, to which Spanish and Latin American companies in Southeast Asia must pay attention: the recruitment of expatriates. These are workers sent by the parent companies to representative offices, branches or subsidiaries in destination countries. This displacement poses problems of various scopes and contents that parent companies have no choice but to face: labor contracts and their governing law; work and residence permits; applicable taxes considering also any double taxation treaties that may exist; social security and its contributions sometimes influenced by bilateral agreements and corresponding economic benefits regarding disability, maternity, retirement, death or accident; family reunification and their respective visas (Dependent Visa) under different immigration regimes as interpreted and applied by different immigration offices.
Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal
