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No good building a state of the art factory with all the latest robotics, if suddenly the country you put it in goes to war, or domestic political groups blows it up! Just ask a few major international companies with operations in Indonesia right now. That is why an understanding of the political risk involved in doing business in a specific region or country is essential to the business strategist's toolkit. Hong Kong based Political and Economic Risk Consultancy has been polling a panel of expatriate business executives on their perceptions of the political and economic risk of the Asian countries in which they are based for more than several years now. If you do a search (on the left hand side), you can see results and commentary from previous surveys over several years. The sub-factors included are Regional Security, Direct military threats, Diplomatic relations with neighbours, economic links, fallout from political instability in neighbouring countries, and relations with major trading partners. The sample was of 1,000 "foreign businessmen" (what? no women? -Eds.) in 13 Asian countries. Keeping in mind this index measures "perceptions", which are both subjective but also influential as "perception is reality" when no objective measurement is possible, the current ranking (an index score of 10 indicates the highest level of insecurity, and low scores low levels of insecurity) is provided below:
Given the criteria, India's prominent ranking as the most insecure is understandable given the recent increase in religious tensions in multi-religious areas, as well as the tense standoff with Pakistan over Nepal. Afghanistan is not too far from India, and neither is Sri Lanka. With a thriving IT industry, English speaking professionals and a massive domestic market, many can be forgiven for wondering why India is off the radar screen for many. Other than extreme poverty and differentials therein, India's key strategic weakness is its exposure to both external and internal political risk. The next group of nations polled however are rated remarkably similarly. Taiwan's economic strength is dependent on stable relationships with the People's Republic of China, who see no resolution to fiery diplomatic relations other than the return of the "renegade" province back into the arms of the motherland. Indeed, all official Chinese media and communications refer to Taiwan as a province of a China. Every few years, China likes to display a show of military strength by running military exercises of Taiwan's coast. Despite the relaxation of trade barriers between the Republic of China and the People's Republic of China, uneasy foreign relations between the two is a major factor in Taiwan's security. Internally, as China becomes wealthier, and starts to "look" less like a communist state and more as a free enterprise player, the Taiwanese who fled communism to set up their separate island state, may start to see less differences between the two. Recent WTO membership may well blanket some of the rhetoric as both countries focus on global rather than local issues, but the threat remains a darkish cloud that may differ in intensity from time to time, but shows no signs of lifting altogether in the medium term. The Philippines and Indonesia are both racked by domestic separatist movements, much of the activity fueled by extreme Muslim groups, no longer seen as separate, but since the very visible attack on US targets last year, as interconnected on a regional scale. Surprising however is that Singapore is seen as less secure than Malaysia and even China/Vietnam. A small island state, Singapore has been well aware of its strategic military weaknesses ever since it's independence from Malaysia. Taxi drivers will tell you as you drive from and to the airport, that the central flower bed divider running along the airport roads can be removed in double quick time to provide landing strips should the airport be bombed. Military service is compulsory for all male youth, and military spending is very high compared to the just on 4 million population and tiny territory it protects. Those are just some of the most obvious symbols of Singapore's concern at its exposed position. That delicate position revolves being a wealthy Chinese-dominated tiny island state surrounded by the massive Islam-dominated Indonesian-Malaysian archipelago. Singapore's keen interest in investment in Indonesia does not stem from business perspectives alone. Most importantly, the release of evidence that extremists related to the al-Qaeda had worked from Singapore toppled confidence that Singapore had a major security edge over Malaysia, Indonesia and the Philippines despite its wealth and military strength. On the other hand, China, (and a Vietnam highly dependent on China), gain much of their security from their very size. ...And in the case of China, their potential of taking over from Japan as the world's second largest economy in future. Like Singapore, domestic instability is kept in check by an authoritarian government and a population generally satisfied and grateful to their long serving élites for the prosperity they have brought. While a widening divide between China's impoverished North West and wealthy South and East is showing strains as government factories privatise, at present this is seen as a small problem - smaller then even China's own Muslim enclaves, an imminent threat under-estimated by most analysts, and it seems by expatriate businessmen as well. PERC's report itself picks this up... "...One of the most interesting features of our survey us how little expatriates in China worried about external risks. China is so large and, in many ways, so self contained that they do not think the country faces many outside military strengths... China's kink in it's armour lies in economic ties with the US, as it needs the giant US market to underpin its economic growth..." The less riskiest place to be for business, says PERC's expat panel is, Hong Kong and Australia, the former's ranking due most probably to it's status as a SAR of the influential and powerful China.
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© Asian Business Strategy & Street Intelligence Ezine 2002
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