"It would be far better for entrepreneurs to think of each country, or better still the major cities within those countries, as distinct markets; and plan and prioritise accordingly."
Is it possible to summarise the Asian startup process in less than a book? We gave the challenge to Gilbert Leong, Senior Partner in the IP & Technology Practice at leading law firm, Dentons Rodyk.
To start with, let’s be clear: there is no monolithic market known as “Asia”. As a geographical region, Asia consists of almost 50 states and there is little in the way of economic or political cohesion that is pan-Asian. For example, there is no currency union or cooperation as is found in the Eurozone; and parts of Asia are also politically volatile.
Ignoring the Middle East which traditionally stands alone and the nearer parts of Asia which border Europe, you can most easily think of the market in terms of three or possibly four regions:
- South Asia: Bangladesh, India, Pakistan and Sri Lanka;
- South East Asia: the ten ASEAN countries (Thailand, Cambodia, Laos, Myanmar, Vietnam, Malaysia, Singapore, Indonesia, Brunei and Philippines) and Timor Leste;
- North Asia: China, Japan, South Korea, Hong Kong SAR and Macau SAR; and
- ANZ: Australia and New Zealand. Although not usually considered to be geographically a part of “Asia”, most companies would put Australia and New Zealand into the mix when considering expansion in Asia.
It is perhaps possible to treat the ANZ region as a single market because of the cultural and linguistic similarities between these two countries and the relative size of the New Zealand market.
It would be far better for entrepreneurs to think of each country, or better still the major cities within those countries, as distinct markets; and plan and prioritise accordingly. In each of them, you need to think carefully about the opportunities and the risks. For example, there are major challenges in moving capital in for some, and more importantly out of other Asian countries. Asia is huge, beguiling and offers much promise, but demands a lot of thought.
Here is a typical and well-travelled process:
Start by registering a representative office in Singapore, staffed by a representative of the head office, to conduct market research, feasibility studies, and evaluate the viability of doing business in the region. These representative offices are allowed to operate for a maximum of three years; and to qualify for registration, you must have a sales turnover of more than US$250,000 and have been established for more than three years.
Once you have identified an opportunity, wherever in South East Asia it may be, you can set up a Singapore-incorporated private limited company which can be 100% owned by the foreign parent, provided at least one director is ordinarily resident in Singapore. Singapore citizens, Singapore permanent residents, EntrePass holders or, subject to compliance with certain laws and regulations, employment pass holders, qualify for such requirements. If necessary, you can raise money locally through the Singapore-incorporated company or get the foreign parent to inject capital via shareholder loans.
With the Singapore-incorporated company set up, you can then use Singapore as a base to explore opportunities in the region, taking advantage of the competitive tax rates and double tax agreements with more than 50 treaty partners including India, Thailand, China, South Korea, Australia and New Zealand.
Furthermore, Singapore inherited the English common law tradition characterised by the doctrine of judicial precedent and this legal system will be familiar to UK and European companies.
Take the time to understand the political, infrastructural, legislative and cultural differences across the region before honing in on any specific country:
- Some countries have more political challenges than others and may also have less advanced infrastructure.
- Certain countries in the region, such as Japan and Thailand, operate under a civil law regime rather than common law.
- Cultural nuances like the use of respect and deference can be important.
- Personal connections are of particular significance in the Chinese business environment.
Last but not least, relationships and networks are of vital importance and will take time to establish. With these in mind, consider using the Singapore-incorporated company to enter into joint ventures with local players to support your expansion into the region.