Get used to it – A Positive ROI takes longer in Asia

What is your standard period of time to achieve a positive Return on Investment (ROI) for any new investment in your business? If it is three to four years, then you can count on it being at least double that when it comes to a capital investment in Asia.

I am not trying to dissuade you from doing business in Asia.  My proposition is it is important to recognise the reality of the situation when it comes to achieving a positive ROI for any start up Asian investment.

A number of years ago I prepared a capital expenditure proposal for a green field start up business for an Australian corporate in Indonesia. The proposal had to be approved by the Board of Directors back in Australia. The company had set a benchmark for a positive ROI for any project of no more than four years. There were no exceptions.

While a positive ROI of four years is the norm for most western markets, there was no way I was going to guarantee four years for this Asian venture. The proposal was based on a positive ROI of eight years with some strong returns once the business was established.

When I let the Board know this, it did not go down well at all. There was no recognition that the payback for this particular Indonesian project was going to be longer than in other parts of the world. The Board was simply not prepared to make an exception.

I am fiercely honest when it comes to business and I was not going to manipulate the numbers to achieve a positive ROI after four years so we could get this particular project approved.

My conversation with the Board went along the lines of “I am giving you honest numbers. Do not expect an immediate ROI. It will take time and we need to be patient. If you do not understand that, please do not invest in the project. There is no point in me giving you a false expectation on the ROI now because, once the business is operational, you are not going to be happy find those numbers were not right.”

In Asia, you have to expect the unexpected. There are going to be roadblocks you will not see coming on a daily basis. Risk analysis and contingency plans need to be part of the project and business planning. This is part of the reason why a positive ROI is going to take longer, depending on how you handle these roadblocks and surprises.

It is vitally important that companies realise investment payback will take more time than if they were doing business in a western country. In saying that is not a reason to scrap plans for Asian investment as the returns can be enormous once the business is established.

It is all about having the correct mindset when it comes to investing in Asia. The internal thinking must be “OK, it is going to be difficult and take time to get an acceptable ROI. However we have a robust business model and good people so let’s go for it and be patient”.

My advice is if you or any of your key stakeholders in your business do not think like this and are not prepared to change, then do not waste your time looking for Asian investment opportunities.

Campbell MacKintosh 8th March 2018