The Channel Islands look East

Written by: Kirsten Morel Posted: 08/05/2018

BL56_AsiaThe Asian market has long been viewed as a potential growth area for Guernsey and Jersey, but just how do they get to grips with the region’s remarkable diversity?

When describing the regions of the world with a view to doing business, there’s little to be learned by referring to a market or group of clients as ‘Asian’. The world’s largest continent is home to thousands of cultures and languages, each with different customs, expectations and ways of doing business.

This means that any company looking for work in Asia should carefully do their homework before deciding which countries to target.

“Asia is a huge area with a vast population, within which there’s huge diversity, culture, economic wealth and development,” says Marcus Leese, Partner at Ogier in Guernsey. “At one end of the development spectrum, you have Japan, which is hugely wealthy and highly developed. At the other end, you have Myanmar. There are also different government structures with different versions of democracy, or not.”

Geographically, Asia encompasses the world’s largest and most populous countries. But while Russia is principally an Asian nation in terms of its area, from a business perspective the tendency is to classify it as a European country, albeit an idiosyncratic one. 

India and China are home to about two-fifths of the world’s people, and their burgeoning economies are attractive as new markets for the Channel Islands. Sub-continentality aside, however, the focus here is East Asia, because when it comes to island businesses looking towards Asia, the main thrust of their efforts is generally towards the East and Pacific Rim.

“Most companies want to go to China, but actually the bulk of business comes from Hong Kong, Singapore, South-East Asia and also India,” explains Nancy Chien, Partner at Bedell Cristin. “Some banks have work in Taiwan and Japan, but that’s more in the corporate space.” 

It may be natural for island businesses to see Hong Kong and Singapore as competitive jurisdictions, but to do so would be selling them short, says Leese. “Hong Kong and Singapore play a role that’s not dissimilar to the one played by London – as a hub for citizens of other countries. Singapore is a hub for countries in South-East Asia, while Hong Kong acts as a hub for China and countries in northern Asia. Importantly, both Hong Kong and Singapore are incredibly well set up for foreigners to do business.”

On the ground

Geography will always play some part in determining the ease of gaining business in new markets, but distance shouldn’t put off the Channel Islands.

“There are advantages for IFCs with close geographical proximity to their target markets,” says Richard Nunn, Head of Business Development at Jersey Finance. “Our geographical proximity to Europe and the City is seen as a positive attribute, as is our time-zone. We can do business with China in the morning, North America in the afternoon, and Europe all day long.”

Of course, another way of overcoming geography is to travel to the markets under consideration. But is travel enough or should businesses take up residence? “Not all locations require a permanent presence,” says Melanie Ison, Managing Director of Nerine Trust, Hong Kong. “However, clients seek a service provider or services from businesses they feel will be around for the long term. They want commitment – so having a physical presence in Hong Kong or Singapore, which I believe are the most important to having a successful business in Asia, shows you have that.”

Ultimately, it’s the markets that provide the best match for the Channel Islands’ skill profiles that become the target for island-based businesses. “Broadly, the Asian markets we target are selected because of the strategic fit of the products and the services we offer, with banking, private wealth, capital markets and funds all featuring,” says Nunn.

“At Jersey Finance, we work with researchers to produce reports on key markets, exploring what their priorities are, so that we can provide the most bespoke and tailored service to individuals and firms in each region.”

BL56_Asia-dragonsDifferent strokes

Those in the Channel Islands know that their strengths lie in their stability as jurisdictions, as well as in the depth of their expertise, which Melanie Ison believes is their trump card. “Given the growth we’ve seen and what these clients are looking for – whether it’s in the private wealth space, funds, insurance or other industries – they look to jurisdictions like Guernsey for specialist services. Guernsey’s been a leading jurisdiction for years and the expertise and technical knowledge is exactly what I believe clients in Asia need.”

Much of the business coming out of China is private wealth work that often involves finding solutions for individuals as well as their families – but there are cultural differences that make the client ‘onboarding’ process rather more complicated than would be the case with European customers.

“Each country comes with its own set of nuances and there are definitely issues around clients not wanting to give up control,” says Vicky Mills, Director, Private Clients, at Hawksford. “You have to look at ways to reassure them about giving up assets to a trust, so education on what a trust is and means is definitely needed.”

Education is a two-way process, however, and Channel Island companies looking to work in Asia will have to be prepared for a very different understanding of concepts such as ‘ownership’. 

“For many South and South-East Asian families, property is seen as a ‘family’ asset, but is rarely codified through trust structures,” says Susanne Shah, Director at UK-based law firm Vardags. “There’s a huge degree of fluidity of ownership, both legal and beneficial, which is hard to reconcile with an English approach. Assets will often be seen as belonging to whoever’s most convenient at the time, in a way that English law struggles with.”

Cultural challenges

Among the nuances that come with working in East Asia are the differing demographics between nations. China’s population has been shaped by its infamous ‘one-child policy’ and some of the consequences of this can be seen in the concerns that clients have.

“Countries such as Hong Kong and Taiwan, where there’s old money, are looking to set up trusts more for wealth planning and confidentiality. In China, the motivation is more tax-focused than succession planning,” says Nancy Chien. “The one-child policy may be a reason, as well as the new money mindset, which focuses on generating wealth and views taxation as getting in the way of this.”

Where more established wealth is concerned, there’s a desire to ensure succession planning that will protect the family’s assets over generations – but as with all things family-related, many aspects of this don’t run as smoothly as hoped.

“Family disputes are an issue. In some family businesses, the patriarch is ageing and wanting to step away. But the younger generation tend to be less interested, and their elders want to ensure that the business will be managed properly in the future,” explains Mills.

On top of differing generational expectations, a tendency to view the family as a single unit means that if a couple divorces, it can cause serious complications that can affect the structuring of the family’s wealth.

“The big issues tend to involve trying to untangle the joint family financial structure first, as families often structure their finances in a way that benefits the family as a whole,” says Susanne Shah. “Funds are often in the name of an elderly parent and not either of the parties, or at best jointly. Often, they’re not held in formal accounts and large cash sums are held instead.”

The biggest faux-pas a Channel Island business can make when targeting clients in Asia is to try and create a template service that treats wealthy individuals and families as one homogenous group. 

Whether dealing with a younger generation that wants to enjoy life rather than taking on their parents’ business, or a family caught up in marital disputes that require the restricting of trusts and corporations, there’s no one-size-fits-all solution to doing business in Asia.

Clearly, there are advantages to having a presence in the East Asian hubs of Hong Kong or Singapore, but if creating a new branch is beyond the capabilities of your business, be prepared for extensive travel. 

As Nancy Chien says: “A lot of providers from the West expect instant returns, but after one or two meetings, they won’t be ready to do business. Channel Island companies shouldn’t expect instant returns. They have to be in it for the long run.”

CULTURE CLUB

Among the cultural differences between households in East Asian countries and Western jurisdictions is the attitude towards saving. According to the OECD, China has a household savings rate of 37 per cent, meaning that, on average, households save 37 per cent of their income. 
   This Chinese figure dwarfs the five per cent found in the US, which itself stands head and shoulders above the UK’s minus one per cent. Of course, there are economic reasons for these differences, such as the UK’s diminished wage growth in comparison to inflation, as well as the availability of credit in both the UK and US.
   However, when it comes to savings, culture plays a large role and East Asian attitudes to putting money aside include an interesting form of group saving called ‘hui’. These savings groups are often built around families or neighbourhood structures. A group’s members come together once a month to pay in their pre-determined monthly amount and 
to bid to take the money home.
   In Vietnam, when a hui group gets together, the bidding for that month’s pot can have the appearance of a crowd of lively gamblers. But the reality is that they’ve come together as a savings club.
   Each month, individuals bid for the monthly pot, but they’re only allowed to take it home once in the year. The bid they make is the amount they’re willing to pay the other members to take the pot, and each month the bids rise above the level of the previous gathering.
   The effect is that the bids operate as a form of interest payment to the other group members. The whole system has been described by the World Bank as a ‘rotating savings and credit system’.

 


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