Mar 29th 2007 | HONG KONG
From The Economist print edition

Are foreign firms as keen on Asia as they claim to be?

THE announcements come in bold headlines. On March 26th Intel trumpeted plans to build a $2.5 billion chip plant in China. This follows deals in various other industries, including pharmaceuticals and aviation. With $6 billion of foreign direct investment pouring into China alone each month, and other Asian countries growing at a feverish pace, it seems that foreign firms are racing to build up their operations.

But are the headlines and the big numbers misleading? The Boston Consulting Group (BCG) analysed several large western firms and found that, although an estimated 34% of the potential market for their goods is in Asia, the region accounted for only 14% of sales, 7% of employees, 5% of assets, 3% of research and development and 2% of their top 200 people. And these disparities are growing larger, not smaller. “When most corporate groups see this analysis, they say ‘That's our company, too’,” notes David Michael of BCG.

Several explanations spring to mind for the discrepancy between perceived opportunities and actual behaviour. Going into new markets is risky; Asia's boom is still young, so big firms lack the hard data they need to commit; and of course there are currency and foreign-ownership restrictions to worry about (China, South Korea, Thailand, the Philippines, Indonesia, India), the threat of expropriation (South Korea, Thailand), subtle legal changes aimed at foreign firms (Japan) and corruption (everywhere).

Staffing is also a problem. For top executives, moving to Asia requires a leap of faith. A senior manager at one global firm says that, with rare exceptions, Asia is a “career killer”—at the end of a successful tenure there is nowhere to return to at head office. Putting locals in charge can result in embattled regional offices without strong links to headquarters, and headquarters without strong local knowledge.

Some bosses think that a lot of travel in Asia signals their commitment to the region, says BCG. Aircraft to China and India are packed with executives trying to inhale whatever it is that produces rapid growth. The trouble with this approach is that in regions where efficient execution is paramount far too much time is spent ensuring that visitors from head office have a successful trip. And as local managers go overboard to display their success, they weaken the case for more resources.

One example has become a well-understood signalling device for who is visiting China: the rental of a huge billboard on the road between Beijing airport and the city to advertise a firm's products. The idea is that a visiting boss will see it on the drive into town and remark on the company's prominence in China. The sign is changed a few days later as the next boss, from another firm, touches down.