“Good preparation is better than fast action.” This basic principle applies especially to direct investments in foreign countries (FDI). In the first two parts of this article series, I have given hints to the necessity, the content and to the process during the creation of a feasibility study and an evaluation of the location. Today I want to occupy myself with the internal organization of an investment project.
The Project organisation
The following tips and notices are thereby based substantially on Denk, “Asia for the middle class – strategies instead of illusions”, OLZOG-publishing house, München 2007. Here (at the specified location, Chapter 3), the development of a total strategy for Asia is described detailed and descriptively. Interesting for us at this point is, however, only the project organization.
Whoever completes the classic military planning criteria of “power, resources and time” (and in Asia quite a bit is deducted out of the “Art of War” by Sun Tzu) by adding the keyword “structure,” has already realized the basic criteria of a successful project organization correctly.
Project Management and “Asian-Team”
Every important project in the company requires the allocation of a responsible project manager. At investments in foreign countries occasionally the general manager takes over this role in middle-class companies. This may have its advantages: Thereby it is firstly particularly guaranteed that the company management really backs the project and its implementation. Decisions are speedily induced and converted.
Whoever organized his company in such a way that he can actually utilize the bigger part of his workforce (70-80 %!) for the execution of this project, he may pronounce himself as the leader of this project without second thoughts. Sometimes it is a fruitful task to steer the development of the company directly.
But the operational structures do not always allow this solution. Then the management board has to commission an (internal!) project manager that
- is immediately subordinated and reports directly,
- can devote 70-80 percent exclusively for the project,
- also has the complete in-house trust of the management, and
- sees the task as appealing for his own development.
With a bit of luck, this employee develops himself during the project to an “individual man” at the location, that can later on even take over the management of the new operation.
The project manager must be able to put together an Asia-Team, that represents all important functions in the company. In this context, it might seem surprising that my
Recommendation 9: Only in exceptional cases it is advisable to delegate the management of operational departments to an Asian project. Members of the project team should be employees from the second line of the departments that see their own promotion prospects within the company connected to the project success.
For the one part, the managers of the involved departments are mostly working to capacity at their leadership tasks and cannot devote the required time to the investment team. For the other part, at foreign investments, leadership people tend to transfer their own structures 1:1 onto the foreign investments. This in general fails because whoever “goes to Rome should do as Romans do” und not necessarily as he is used to from at home.
Many foreign investments fail due to all departments of the mother company being interested in finding and securing their structures in the new investment. Employees from the “second line”, on the other hand, see in such a project rather a possibility to introduce their own ideas and capabilities into the operation. They do not have to defend or justify existing structures.
Depending on the structure of the company, regularly the following functions in the company should be represented in a team:
- The logistics, that nearly always has a big significance at foreign investments;
- the controlling that can, at the same time, be the joining link to the financial department;
- the sales,
- the quality control,
- the product development and
- the production.
They all support the activities of the project manager; that reports to the management.
The Project Budget
Not only the investment itself, but also the project organization are to be furnished with clear requirements and especially with a budget. Between the management and the project management the following has to be specified:
- The reporting and the requirements of reports of the project manager to the management board
- The regular cycle of the project team meetings
- Milestones of the project with time requirements
- Meetings of the „steering-teams” with the management board, project management and, if required, external consultation for the evaluation of the milestones and the critical path of the project. Hereby, the management board invites the competent department managers according to requirements.
- Timeframe and budget for the investment.
It cannot be harmful to specify already at this stage the guidance for the project budget. The frequency of travels to the location in the country of investment, the chosen ticket classes, hotels or trust-based expenses can decisively influence the fun of the planning, especially if the project manager has to submit to discussions about the expenses after every trip. Of course, the project team does not have to stay in the most expensive 5-star hotel, and also, external persons do not have to fly first class at the expense of the company. The more is pre-defined here in advance, the fewer conflicts obstruct motivation and continuation of the project teams.
At the beginning of the coordination between management board and project team stands the creation of a budget frame for the investment. At this, the details do not have to be “chiseled into stone” at once. But a rough frame and a few guiding values must be placed. Nothing is more frustrating for employees, as for example, having to work out solutions and suggestions that will unexpectedly (!) be discarded by the management due to financial reasons.
Clarity about the reason for and the size of the available funds enable a custom tailored project strategy.
First of all, I do not think well of the numerous “Asia consultants,” that with a superior smile, announce the sure failure to the businessman should he do not avail of his help. An Asian investment is no work of miracles. Some middle-class persons have solved more problems in their lifetime than some of these consultants can think up as justification for their appointment.
A successful investment is, after all, a good piece of handiwork. That the “shopping” for external support for the evaluation of the feasibility and that the choice of location belongs to this trade, I have already outlined in Part I and II.
Nonetheless, there are two reasons to consider external support also during the implementation of the investments. For the one part, it is usually so that neither the businessman himself nor the project manager can actually invest the 70-80 percent of their time into the project. The second reason for the inclusion of externals being their sector-crossing and very special contacts, connections, and experiences, that mostly even the project managers with all their Asian-experience cannot have available.
Decisive is the choice and the application of the externals. At the choice, it is just as with other services, whether doctors, lawyers or architects: Their previous work is viewed including the structure of their business and then it is decided in an absolutely subjective and personal manner whether wanting to work with this consultant or not. With other words: The choice is a purely based on trust or sometimes also on the matter of “gut feelings.”
The biggest „guru“ could be the wrong person as a consultant when he is not liked. Nowhere else in an operation is money thrown out the window as senselessly as for the consultants whose advice is not really trusted or regularly rejected. Such cooperation is a nightmare for both sides.
Once you have decided to include external support in the project, there are typical tasks that he has to be able to fulfill. Included are for example:
- The support at the of the investment by inclusion of his experience, f.e. about properties, construction costs or legal expenses
- The local coordination of all activities initiated by the project manager
- The search and pre-qualification of other service providers like accounting, lawyer offices or IT- service providers.
- The negotiation of the investment support
- The preliminary with property owners and/or industry parks
- The preparation and accompaniment of negotiations with other relevant authorities
- The pre-selection of general contractors or construction service providers
- The leadership and/or coordination of the tendering process
- The support with the procurement of local production or operational resources
- Recommendation and search of the local management personnel
- The organization and visits of the manager locally
I urgently want each businessman to take to heart the
Recommendation 10: an external consultant never replaces the project manager and his regular availability at the location in the country of investment.
The reason for this recommendation is very simple: Consultants can and should prepare decisions but are not allowed to make them. Decisions are a matter of the company. The consultant is – as the word already implies – for consultation. And decisions at the location come up nearly on a weekly basis. And whoever makes them should do so at the location with own impressions and the “feel of the situation”.
It is, therefore, ideal if the internal project manager spends his time mostly at the site of the investment location and is confidently active with the consultant. Every few months he will then travel back to the mother company and report on all his measures, coordinate and request all necessary support or decisions of the management.
The minimal presence lies at about 1/3rd of the time, respectively about 10 days per month “at the location.” Only in this way consultation resources will be utilized well and decisions are really discussed and implemented in a timely fashion.
Also here something concerning the costs: For an extensive accompaniment of an investment, between 3 and 5% of the total cost (depending on the total sum of investment) should be calculated, whereby at investments below 3 million EUR the higher value should be positioned, above that the cost of support will develop degressive.
Ideally, the consultation costs will be set-up for a planned project timeframe of, for example, 18 – 24 months with fixed monthly amounts and a clear agreement on the performance that is to be delivered.
This has the advantage that the monthly expenditure will stay flexible. At every investment, there are times with heightened expenditure and rather “calm times”, for example, the “calm” time of the construction execution after the time-intensive moments of the tendering and awarding.
Additionally, the time-based fees that some consultants “value a lot” can be avoided, they are, even though being accounted according to time, never really transparent and most of all not orientated according to success. Consultants and businessmen should mutually feel the pressure of time and cost of a project.
The author Dr. Gunter Denk was himself, for 25 years, a responsible businessman and lead a German branded company with several locations in Europe and Asia. In the year 2000, he took, after fusion, the executive responsibility for a company that is noted at the stock-exchange in China. 2004, he founded the SANET ASEAN ADVISORS, a group of industry consultants at 5 locations in Southeast Asia. The group accompanied and accompanies under his leadership various direct investments of market introduction projects in china and Southeast Asia.
Of course, not all challenges of a foreign direct investment are covered by these pointers of this article series. Logistics, planning horizon, quality control are just a few processes in the company that needs to be influenced sustainably. Whether all departments are really “fit for Asia” has to be determined without vanity. Also, for this, the SANET ASEAN ADVISORS have developed a self-test that can form the basis of necessary internal adaption processes.
Often forgotten is also the internal (to employees, work council) and external (to banks, customers, suppliers) communication of the undertaking. The information should be given in an open and offensive manner by the management. The rule applies that all rooms are being filled with information. If the management does not fill these rooms, then others will do it. Misunderstandings and resistance are often the result.
I would finally summarize the guidelines for foreign investment that have been recommended here as follows:
- A good preparation of the foreign investment is a core duty the risk management of a company board.
- Means for the investment are only released in the amount as this is justified by the growing knowledge about the chances and risks of the undertaking.
- At the beginning of all deliberations stands the and documentation (!) of the motives and targets of the investment.
- The possible countries of investment are examined and evaluated according to a – multiple – feasibility study and according to clearly defined criteria concerning their framework requirements and the legal and economic feasibility.
- If important criteria in one or several countries are under established doubt, the country is eliminated as an location. If applicable, the project is to be relinquished if the investment seem unreachable or economical-wise seem not.
- After determining the country for investment in the framework of a location two to three possible locations are evaluated and compared according to pre-determined criteria.
- If the decision about the location and investment is made after that, a responsible project manager assembles a project team that will receive predetermined tasks and work organization.
External consultation and is not allowed to replace the commissioning and presence of an internal project manager at the location, he contribute mainly to a disturbance-free, fast and risk-minimizing project procedure. The choice of the should take place according to objective references and structures but in the end mainly due to a very subjective evaluation by the company management.