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Oct 23, 2011

Don't Waste Your Money in Asia: Commission a Feasibility Study before Hitting the Bricks in China, Korea, Vietnam and Cambodia

I see too many investors engage in projects in Korea, China and Southeast Asia without conducting an adequate feasibility study.  The feasibility study should be performed by an attorney with the active participation of a business consultant and potentially an accountant. 

A business consultant, alone, is not enough.  Attorneys deal in numerous projects simultaneous and normally have a better grasp of the market and pitfalls than business consultants and accountants, because of this experience.  Beware, however, some attorneys that only deal with transactional work are also, too often, not adequately prepared to give the advice necessary to assist clients.

I always work with business consultants, since they often do a great job of complementing my experience.  I find that any law firm not utilizing business consultants are, too often, the wrong law firms to utilize.  These law firms, often, look down on the role of consultants – the reasons I am not quite sure of.  Often, attorneys, are blinded by the risk and consultants are blinded by the opportunity – the two make a very useful team.  Get them on your team.   

Only decide to engage in investment in Asia after a complete feasibility study that includes:
  1. Legal Feasibility:  The study should include, at a minimum, the basic regulatory, environmental, tax, incentive, and license framework with a legal opinion addressing the feasibility of the project under the relevant law.  The study should also detail the estimated timeframe for approvals and the major risks of JVs, OEM, and like relationships;
  2. Technical & Operational Feasibility:  The study should include, at a minimum, the ability and timeframe of the host nation’s companies to be able to satisfy the technical and operational requirements of the foreign investor.  This should include issues of sourcing, land procurement, labor sourcing and risk and, if relevant, political risks;
  3. Economic Feasibility & Market Study:  The study should include, at a minimum, a detailed market study, cultural relations study, efficiency study and the competitive advantage of the nation versus other nations.  Increasingly, Asia is becoming more costly to manufacture in and, thus, a mere labor cost evaluation is not enough, since labor efficiency rates are lower and material costs and utilities are often higher than in the West, thus, negating some of the benefits of manufacturing abroad.