U.

U. S. C
C h a m bb e rr o f C
C o m m
m ee rr cc ee
International Investment Criteria in Emerging Markets:
MAP in Thailand and Lebanon

Aram B. Zamgochian | U.S. Chamber of Commerce

U.
U. S. C
C h a m bb e rr o f C
C o m m
m ee rr cc ee
Contents

• U.S. Chamber’s 12 Criteria

• Background and Objectives: Thailand
• Project Components: Thailand
• Case Studies: Europe and Southeast Asia
• Thailand Successes
• Lebanon Dimension & Challenges: 12 Criteria
• Training for Success

U. S. C h a m b e r o f C o m m e r c e
Criteria for International Investors

• Size of Internal Market

• Freedom of Access to the Market
• Labor Force and Raw Materials
• Protection from Currency Devaluation
• Regulatory Burdens
• Favorable Taxation/Tax Incentives
• Political Risk Factor
• Predictable Macroeconomic Management
• Remittance of Dividends
• Property Rights Protection
• Export Potential
• Reliable Infrastructure Support
U. S. C h a m b e r o f C o m m e r c e
 Background and Objectives: Thailand

• Supported by a grant from USAID, the U.S. Chamber developed

and has managed a U.S.-Thailand Business Partnering program

• Internet community of qualified firms

– Online matching of business interests
– Off-line follow-up by trained staff in both countries

• Target sectors: Automotive Components, Software Development,

Agribusiness and Food Processing, Gems and Jewelry, and
Home Furniture

• Institutional partners: Thai Chamber of Commerce, Federation of

Thai Industries, Department of Export Promotion, Software Park,
U.S. trade associations and local chambers of commerce.

• Results: 1850 US and Thai companies recruited into an on-line

community, 1000 Thai executives trained, $25 million in new
business for Thai firms generated.

U. S. C h a m b e r o f C o m m e r c e
 Project Components

1 Company Selection
Based on the profiles and our experience with the Thai SMEs participating in
MAP Process the SIAM Partnering Program, we recruited candidates for MAP. Our target
was to identify approximately 100 firms in each of the three years

Company Selection 2
Company Assessment
The candidates completed a comprehensive corporate assessment
Company Assessment covering such areas as current export performance, productivity,
sales and marketing strategies, pricing, etc. This was supplemented
with interviews by sector specialists
Sector Market Research
3
Product Sample Sector Market Research
Feedback A portrait of key trends, challenges and opportunities for
Thai exporters in the target sector was performed by the
Int’l Expansion U.S. Program office
Action Plan

Trade Exposition 4
Program
Product Feedback
Thai participant’s products (either via sample or
U.S. Market detailed specs) were conveyed to selected
Incubation industry experts, for evaluation and comment

U. S. C h a m b e r o f C o m m e r c e
 Project Components: Thailand

• The company had to:

– Be in business at least three years
– Have at least an annual sales of
3 million
Sector Analysis
– Have at least one year experience
High
Frozen
in international business Food Processed
– Management committed to Food

U.S. Demand
international expansion Software
– Have solid finances
Plastic Gems

• The company’s business had to

be in the targeted sectors, and its
principal products or services had Rubber
to be sufficiently competitive in the Textile and
U.S. market Apparel
Low
• The company had to be able to Low High
demonstrate its commitment and Export Readiness
financial resources to fully
participate in the MAP grogram
U. S. C h a m b e r o f C o m m e r c e
 Case Studies

Network Electronics: Establishing a North American Division

OBJECTIVE:
European communications manufacturer,
Network Electronics, targets Western
Hemisphere for expansion
 Little familiarity with local market here
 Cost a key consideration
 Speed and time-to-market secondary concerns
SOLUTIONS:
Establishes Network Electronics U.S., Inc.
 Recruits sales personnel in New York and
California
 Acts as Network Electronics’ U.S.
administrative offices
 Services provided include accounting,
financial, legal and human resources

RESULTS:
 Sales forecast for first year (2001) of U.S.
 Operations in excess of $750,000
 2002 sales projection is 50–75% higher than 2001
 Attend/support company at SuperComm trade show
 Operating expenses reduced 75-85%
 Serves as in-house financial, legal and administrative team

U. S. C h a m b e r o f C o m m e r c e
 Case Studies

TEK Guthrie: Building a North American Sales Network

OBJECTIVE:
TEK Guthrie, a Singapore manufacturer
of machine tools, seeks to expand sales
in North American market through
direct sales in the U.S.
SOLUTIONS:
 Establish TEK Guthrie, Inc. in California
 Help Assemble TEK’s U.S. distribution
network - including hiring full time sales
representative
 Investigate other distribution channels
including VARs, independent distributors,
wholesales, agents and other partners.

RESULTS:
 Sales in TEK’s largest market, California is projected to
increase by between 25-30% in 2002
 Total U.S. sales projections exceed $1.8 million
 U.S. subsidiary administrative costs are less than 20% of
comparable management employee’s salary and overhead

U. S. C h a m b e r o f C o m m e r c e
Thailand Successes

• Increased long-term business relationships

between Thai SME’s and U.S. firms

• Strengthened capability of Thai business

organizations to motivate and assist Thai SMEs to
increase their international business

• Improved quality of information about Thai firms

• Greater U.S. business interest and engagement

with Thai SMEs

U. S. C h a m b e r o f C o m m e r c e
Lebanon Dimension: 12
Criteria

U. S. C h a m b e r o f C o m m e r c e
Size of Internal Market

• GNI Per Capita (Atlas Method): $6,180 (2005 est.)

• Purchasing Power: $21.45 billion (2006 est.)

• Population Below Poverty Line: 28% (1999 est.)

U. S. C h a m b e r o f C o m m e r c e
Freedom of Access

• Lebanon welcomes foreign investment, with some restrictions

– real estate, insurance, media companies, and banks

• Residents and non-residents may hold foreign exchange accounts

• Since 1997, several U.S. companies have opened branch or

regional offices
– Microsoft, American Airlines, Coca-cola, FedEx, UPS, General Electric
and Pepsi Cola.

U. S. C h a m b e r o f C o m m e r c e
Labor Force/Raw Materials

• Lebanon has a labor force of 1.5 million people and an

additional one million foreign workers

• Unemployment is estimated at 20–25%

• The civil war caused a decline in the educational and

vocational training levels

• The literacy rate of the population is 87.4 percent

• The non-salary cost of employing a worker can be high,

and eliminating redundant employees is relatively costly

U. S. C h a m b e r o f C o m m e r c e
Currency Devaluation

• Lebanon’s history of political strife left the

economy unstable with high inflation

• Stabilization has brought inflation down from 15

percent in 1990 to 0.3% in 2005

• By the end of December 2005, the fiscal deficit

reached approximately 8% of GDP

• Investment promotion has come in the form of

fiscal incentives and facilitation services through
the new Investment Development Law

U. S. C h a m b e r o f C o m m e r c e
Remittance of Dividends

• Lebanon has established ideal conditions for

conducting business

• Lebanon’s financial sector is one of the region’s

most liberal and sophisticated

• Hard currency can be taken out of the country

and there are no reporting requirements

• Lebanon’s index of investor protection also falls

above the regional average

U. S. C h a m b e r o f C o m m e r c e
Property Rights Protection

• Lebanon has a strongly developed and non-

discriminatory legal framework

• Lebanon’s 1999 Copyright Law largely complies with

the WTO
– Enforcement is weak
– The judicial system is not effective in deterring IPR crimes

• The United States will monitor the IPR situation in

Lebanon closely, particularly under the GSP petition
for inadequate copyright protection

U. S. C h a m b e r o f C o m m e r c e
Export Potential

• Lebanon’s geographic position opens the country to a

wide variety of markets

• Lebanon served as a regional banking center

– The 1975–1990 Civil War nearly destroyed the
Lebanese economy

• Lebanon’s major export partners are Syria, the UAE,

Switzerland, and Turkey

• The United States’ position as the fifth-largest source

of Lebanese imports creates a strong economic bind
between the two nations

U. S. C h a m b e r o f C o m m e r c e
Regulatory Burdens

• The process of starting a business represents a

major hindrance to investors

• Entrepreneurs can expect an average of

approximately six procedures
– Well below the regional average of 10.3
– The time it takes on average is 46, above
the 40.9 day regional average

• The advantage of launching a business in Lebanon

– The minimum capital required as a percentage
of GNI per capita

U. S. C h a m b e r o f C o m m e r c e
Tax Incentives

• Lebanon grants temporary fiscal exemptions to

new industries

• Lebanon has low tax rates

• Companies taxed on income solely derived from

operations in Lebanon

• Companies are subject to a yearly lump sum tax

• In February 2002, Lebanon created a ten percent

value-added tax

U. S. C h a m b e r o f C o m m e r c e
Political Risk

• After independence, Lebanon became a

model for social and economic development

• 15-year civil war ravaged the country

• After Ta’if Accords, Lebanon recorded a

strong recovery

• The 2006 summer conflict with Israel greatly

damaged the newly rebuilt Lebanese
economy

U. S. C h a m b e r o f C o m m e r c e
Macroeconomic Management

• Since 1992, all economic programs have focused on

achieving stability and supporting economic revival

• Economic growth was strong from 1991 to 1995

– Due to the high debt burden the increase in GDP has
slowed since the mid 1990’s

• Large and persistent fiscal deficits have increased

public debt stock

• The international community gave Lebanon some

relief from its high debt

U. S. C h a m b e r o f C o m m e r c e
Reliable Infrastructure Support

• Lebanon embarked on a massive reconstruction

program in 1992

• The formation of a government headed by a successful

businessman was seen as a sign that Lebanon would
make a priority of rebuilding the country

• Much of the civil war damage and been repaired

throughout the country

• Efforts to stabilize the economy suffered a severe

setback with the hostilities from July-August 2006

U. S. C h a m b e r o f C o m m e r c e
Training for Success

• The U.S. Chamber of Commerce trained over 350 Lebanese

small business owners, executives and employees at the
American University of Beirut.

• Three course series:

– Strategic Planning for Small Business
– Developing an Effective Marketing Strategy
– Improving Small Business Performance

• Results:
– Helped firms develop the best possible “plan”, given all the
constraints that Lebanese industry face
– Improved management capabilities by increasing awareness of
modern business principles
– Better equipped Lebanese firms to prepare introductory
management plans and organizational structures
– Helped firms make better management decisions that will
increase profitability and improve quality of production and
services
U. S. C h a m b e r o f C o m m e r c e
 Training for Success

Reduce firm-level constraints in finding, Increase long-term business relationships

qualifying, attracting and interacting and real partnerships between foreign firms
effectively with U.S. firms and U.S. counterparts

 Present qualified Overall Program Support Tools  Register U.S.

pool of foreign firms to
firms to U.S.  TA & Training  Information participate
partners  Strategic Services:  Disseminate
 Enhance Partnerships – Web-Base Portal
relevant, sector-
and – Customized Toolkits
capability of – Project specific
firms to leverage Relationships Opportunities commercial
electronic  Partnership Facilitation Services information
commerce  U.S. Chamber Small Business Summit  Facilitate
 Increase access  Implementing Partners Meetings business
to credit  Stakeholder Consultation & Coaching proposals/offers

Overall Program Objective

Create Real Business Partnerships in Emerging Markets

U. S. C h a m b e r o f C o m m e r c e
Training for Success

U. S. C h a m b e r o f C o m m e r c e