Belt and Road: Weighing the Risks and Choosing the Right Path
In Word4Asia’s March, 2018 blog, we presented an overview of China’s Belt and Road initiative. We ended with an optimistic note stating that it’s China’s ability to look past political and economic differences between themselves and potential partnering nations that will ultimately define the success of this tremendous initiative.
This month, we continue our BRI discussion to include topics related to potential involvement by foreign (non-Chinese) firms. These include risk identification, market related issues, risk mitigation and various methods of participating.
As in any business opportunity, potential gains must always be measured along with attendant risks, and there are many potential risks associated with Belt and Road.
- Geopolitical risk: Because BRI projects will span across many territories and nations, they are subject to changes in political regimes and bilateral relations.
- Funding risk: BRI projects are high-costs, requiring significant loans to debtor nations. Each of these nations have a varied ability to pay back these loans.
- Operational risks: BRI projects will involve many different businesses and institutions. Skill sets and competencies will vary among all these stakeholders and these differences open projects to completion delays and cost overruns.
CHOOSE THE BEST PATH
Conduct a commercial viability assessment prior to committing to any BRI project. Such a study will include reviewing the maturity of the supporting ecosystem and confirming that the project complements the company’s other similar projects. It includes completing a robust business case that firmly establishes sufficient market demand and a competitive situation that will allow the firm to achieve its profit objectives.
- Confirm the maturity of the region’s infrastructure: Include the following issues in your analysis:
- Will the firm’s investment be protected through stability in economic policies within the host nation(s)?
- Does the region’s infrastructure include the stable, multi-modal distribution of supplies?
- Are there sufficient supporting facilities in the region? These could include commercial banks, telecommunications systems, basic water and sanitation facilities etc.
- Is the project under consideration a good fit for firm at this time? For example, should a company with one risky project in Kazakhstan undertake a concurrent, similar project in the same region?
Exit plans: Along with having a clear-eyed view of the possible risks involved in a potential BRI project, the firm should also outline a clear exit strategy from the start of the project.
Local Authority alignment: Cultivating strong, positive and respected relationships with local authorities is essential.
Trusted Partnerships: Partnerships with companies having prior experience of working with the local government are critical in B&R projects. Relationships with local companies can provide insight into how things get done, assure sensitivities to unspoken realities will ensure that key individuals are included in planning and execution. Failure in this area could easily cause avoidable delays and expenses and, in some cases, even derail projects.
MARKET ENTRY OPTIONS
Investors: Commercial banks are being invited to participate. Companies can invest in bankable infrastructure projects, either by co-investing with Chinese players or by investing in partnership with existing Chinese instruments, such as the Silk Road Fund. The Chinese government has thus been seeking foreign investment, in part through its infrastructure bonds.
Suppliers: Companies can supply advanced construction equipment, machinery, and cutting-edge solutions for infrastructure projects.
Consultants: Firms with expertise in large-scale infrastructure projects could partner with firms from China by sharing their experiences in designing and developing infrastructure in less developed countries. Consulting can also open paths through Chinese companies to the Chinese domestic market. Similar opportunities are also open to consultants working in international project management.
Management: As operators of new facilities and managers of the newly constructed infrastructure, Chinese company leaders are interested in management experience, especially within emerging economies. A company can bring its operational experience in managing effectively, profitably, and sustainably to new settings.
Word 4 Asia is a consulting firm with a unique focus on China. If your goals are leading you East, we’d like to talk with you. Our experience, skills and expansive network may plan a pivotal part in your success! Contact us at firstname.lastname@example.orgLike this post? Share it on your social media!