The bricks nations: how to get ahead in Asian construction21st Jun '16
As part of the Routes to Growth series on trading in Asia, Andrew Cave meets a building consultant who has seen what can go wrong.
Company: Systech International Trading in: Hong Kong, Singapore, Vietnam, South Korea, Japan, Taiwan, Malaysia Sector: Consultancy
When things can go wrong, they will go wrong. The maxim wasn’t written for the construction industry, but it describes many situations only too well.
The key is to get things straight from the start, according to Systech International, a consultancy that helps resolve disputes on big construction, infrastructure and energy projects in south-east Asia.
For 25 years, the London-based firm has worked with contractors on projects ranging from Singapore’s Marina Barrage, Taiwan’s High-Speed Rail and South Korea’s West Hercules drilling rig to international airports in Hong Kong and Kuala Lumpur. It deals with documentation, estimates, sub-contractor appointments, claims and legal services.
“Open confrontation and losing face are taboo. Asian businesses prefer consensus to creativity
“One of the benefits of doing business in south-east Asia is that we don’t experience problems being paid,” says co-founder and joint group managing director Stephen Rayment. “Asians expect to pay so we don’t need credit control there.
“But it can take a lot of time, effort and money to undo or move [legal and administrative] structures, so you need to look at how you’re going to operate in each country. You have to look at taxation treaties, withholding tax, work permits and transfer pricing.”
Another problem in Hong Kong, South Korea and China, as well as Japan, is that contractors who fall behind or are running over their agreed costs don’t tell clients until the very last moment because they fear losing face.
On one project with this problem, Systech had to use high-level government contacts to smooth relations. The company offers independent monitoring, providing clients with regular checks so such late reporting should not occur.
Trouble also arises because many Westerners assume that what worked at home will work anywhere, according to Eric Webb, Systech’s regional director for Korea.
“Open confrontation and losing face are taboo,” he says. “Asian businesses have a strong commitment to their staff and customers and are team-oriented, preferring consensus over creativity and gradual, rather than radical, change.”
Systech is now moving its Asian headquarters from Singapore back to its original base in Hong Kong. “We went to Hong Kong
for our first international office in 1995,” Rayment explains. “But when the Asian Tiger economies hit difficulties in 2000, we moved to Singapore.
“Now about 60 per cent of our business in Asia is in contract management and project controls for South Korean and Japanese contractors. Our work is on their international projects in places like Vietnam, Indonesia and Taiwan, where they need English language and legal skills. Hong Kong is a better place to support that.”Hong Kong and Singapore have different tax regimes. Employees in Singapore have to pay full taxes, even if they spend a lot of time elsewhere. But employees in Hong Kong are taxed only on how many days they spend there, so it is an easier place to recruit.
“The skill base that we recruit from and manage likes to be based out of Hong Kong, so it’s a better place to attract resources that we can then deploy elsewhere in south-east Asia,” Rayment says. “Ninety per cent of our global workforce is British. Our clients need us to have mobile and responsive resources. If we have people who won’t travel, we’re at a disadvantage.”
About 120 of Systech’s 500 staff are based in Asia, while 50-60 per cent of its expected 2016-17 sales of £70m will come from overseas.
China, in Rayment’s eyes, can be challenging. He says: “It’s harder to communicate there, harder to get around and harder culturally for expatriate Brits. But it’s a market we have to be in. It’s just a question of finding the right entry point and timing.”