Asia’s phenomenal growth has a logical corollary: multinationals have equally phenomenal expectations for their operations in Asia. CFOs there complain that managers half a world away expect the same precision in planning that they would enjoy elsewhere. Truth is, the diversity and unpredictability of emerging markets make it difficult to plan effectively.
Getting bosses and boards back home to accept that is a challenge. For one, Asia’s fast-changing political and regulatory climates can be perplexing to managers more accustomed to the slow-moving bureaucracies of Europe and the United States. For instance, last year, to cool certain segments of an overheated economy, the Chinese government simply barred working-capital loans to targeted industries such as auto and steel. The impact rippled through the economy. This year, after an embarrassing spate of accidents, China responded by ordering overloaded light-gauge trucks off the roads overnight. Result: shortages, manufacturing delays, and a scramble to buy larger trucks at ever-escalating prices.
CFOs’ frustrations are compounded by a lack of data needed to build the investment models demanded back home. “It’s very tough to make a net present value calculation on investments other than strict manufacturing, where there’s historical knowledge,” says Ng Wailun, CFO of Astra Zeneca China. Case in point: when sales soared in 2002, Ng increased the unit’s sales force by 40 percent. Growth continued, but by 2003, territories were saturated with salespeople. He proposed increasing the force by a modest 10 percent. Headquarters took him to task on the limited expansion. Ng says he won the point, but the charges still sting.
Ironically, India’s history as a British colony makes it easier to plan there. Data there is plentiful, reliable, and easy to find. T.S.E. Easwaran, CFO of EDS Electronics India, says he had no trouble building viable business models when the firm expanded across the subcontinent in 1999. In contrast, when the firm wanted to evaluate the cost of moving some operations to Malaysia in 2004, Easwaran had to dig hard for reliable data on costs.
In response, CFOs in Asia are devising some creative solutions. Christophe Le Caillic, regional CFO of American Express, uses a real-options approach to planning. Others concentrate on investing only in physical assets, which have values that can be easily measured and tracked.
Asian CFOs say more communication with the home office would lessen some of the frustration. Ng believes top executives need to spend more time in Asia. Two trips a year — the unofficial standard for home-office executives — aren’t enough to understand the complexities of business there. Other CFOs advocate formalizing better methods of reporting back to headquarters.
Asian markets aren’t the only entities that need to mature. So do the companies profiting from them.
Tom Leander is editor-in-chief of CFO Asia.