APPENDIX 5
Supplementary memorandum submitted by
Rolls-Royce
1. How does Rolls-Royce
regard South East Asia? Do you rate it highly as a growth area?
Can it be treated as a single entity or does each country have
different problems and potential?
Rolls-Royce regards the ASEAN area as an important
market with considerable growth potential. We have been present
in the area for many years and in recent years have had notable
successes details of which are described in full in our memorandum.
We are currently active on some large opportunities.
Whilst the current absolute size of the ASEAN
markets lags behind the USA and Europe its predicted growth rates
in GDP in percentage terms exceed both. Since most of our markets
are GDP driven this represents a very significant opportunity.
Although business in the region slowed during the financial crisis
our interest in the area was not adversely affected and we have
continued to strengthen our competitive position in the period
since.
In our view, South East Asia cannot be treated
as a single entity, despite the obvious linkages between its economies.
As suppliers of capital goods we have to approach each country
individually, bearing in mind the different economics, political
and other characteristics of each country and then each customer
individually, noting their particular needs, culture and distinctive
decision making processes.
INCENTIVES FOR
FOREIGN INVESTMENT
2. What sort of incentives are available
to attract foreign direct investment in the countries in which
Rolls-Royce is based? For example, are there tax incentives, favourable
policies on foreign equity holdings, or assistance with establishment
and training costs? How do these vary from country to country
in the region?
The type and level of incentives vary significantly
between countries in the region. The increase in Foreign Direct
Investment (FDI) to China is recognised by countries and is seen
as a result of the sizeable domestic market. As such some ASEAN
countries are beginning to understand the need to look at FDI
as being a gateway to the Asia markets.
Singapore
In Singapore there are many incentives for foreign
direct investment. These include Pioneer Status for start-up enterprises
for up to 10 years (zero tax), equipment grants and training grants.
There are also several launch programmes for companies expanding
into sectors of core interest to Singapore. These include covering
development costs of Singaporeans in the company's home country
for up to 18 months with the intent of placing those people in
the company's now expanded operations in Singapore. The company,
if they decide to take the staff on, then covers 30% of the 18
months cost. There is no obligation to take up the staff after
the 18 month period.
Malaysia
Malaysia offers fairly significant grants and
incentives and other fiscal means to attract investment. More
recently in certain key industries (mainly high tech) it has permitted
100% foreign ownership. Malaysia also desires to move into high
technologies and move up the value chain and create niche centres
of excellence.
Thailand
There are tax breaks and incentives available
which vary from region to region.
Inward investment may be affected by doubts
cast over investor protection in cases such as Thai Petrochemical
Industries where, post bankruptcy, the government came down on
the side of the local company rather than the foreign investors.
Indonesia
Very little is publicised about the country's
incentivisation programme.
3. Were such incentives instrumental in persuading
you to establish yourselves in Singapore and Malaysia, or were
your investment decisions driven more by competitive labour costs
and other factors? What persuaded Rolls-Royce to establish bases
in Singapore and Malaysia?
Singapore
Rolls-Royce's presence in Singapore dates back
to the mid 1950s and our relationship with Singapore Airlines
was launched when the airline chose the Trent 800 engine for the
Boeing 777 aircraft in 1995.
The establishment of our Joint Ventures in Singapore
was based on a direct business case assessment and the technical
capability of our partners. The location of these JVs allow Rolls-Royce
to provide world-class repair and overhaul services to Rolls-Royce
engine operators in the Asia Pacific region.
The incentives Rolls-Royce received, such as
Pioneer Status, were achieved after the establishment of the JVs
and did not tip the balance in the fundamental decision to proceed.
Rolls-Royce continues to pursue incentivised expansion of the
JVs in Singapore.
Malaysia
At this stage Rolls-Royce has made no investment
in Malaysia choosing to work with local companies to support the
product in country.
4. When the Committee undertook an inquiry
into trade with China and Taiwan two years ago, it was told that
many UK companies still found it easier to do business in Hong
Kong than in Mainland China because of the common tradition of
commercial law, the legal certainty provided by the court system
and the congenial business culture in Hong Kong. Are these factors
relevant to British companies considering establishing themselves
in South East Asia?
Countries where the legal framework was built
on the British system facilitate location decisions for UK companies
because of familiarity with legal rights. English being widely
spoken is also a significant advantage. Additionally, the banking
system, basic infrastructure, living conditions and incentives
offered make it easier to establish an enterprise in ASEAN.
In countries, such as Indonesia, more progress
on legal reform would be a greater encouragement to enhance investment.
Rolls-Royce does not have any investment in Indonesia or significant
exposure. This is likely to remain the case for the immediate
future.
BUREAUCRACY
5. What sorts of bureaucratic problems has
Rolls-Royce encountered in establishing and maintaining businesses
in South East Asia? How do the South East Asian countries compare
with each other in the bureaucratic barriers to business that
they impose?
Singapore
The Singapore government has created an extremely
unbureaucratic structure as part of their strategy to attract
companies to set up business headquarters. This also applies to
Employment Pass applications for foreign workers, which is part
of a strategy to access the international workforce given the
restricted availability of domestic skills.
Malaysia
The inherent government bureaucracy and slowness
in responding does provide barriers to business. Once set up,
however, MIDA is helpful and is implementing an improvement process.
Thailand
Rolls-Royce (Thailand) Ltd was formed in 2001
under Board of Investment approval. This proved to be a very straightforward
process and allows Rolls-Royce to provide services and trade in-country.
Indonesia
Conducting business is complex requiring an
in-country presence, in-depth understanding and established relationships.
Whilst there are issues compared with other SE Asian countries,
Indonesia presents good opportunities and manageable risk.
INTELLECTUAL PROPERTY
6. Have you experienced any problem in protecting
your Intellectual Property Rights in the region?
Rolls-Royce has experienced no problems to date
but protection of IPR and confidentiality of contracts is a major
issue for many companies, including Rolls-Royce.
CORRUPTION
7. Earlier this year, the Economist published
an article highlighting problems with corruption in South East
Asia, and implying that, despite government efforts to reduce
it, this is still a major difficulty for those wishing to do business
in these countries. Has Rolls-Royce encountered any problems?
If so, are they more acute in some countries than others?
Rolls-Royce is committed to best practice in
its ethical conduct, complies with all relevant legislation and
observes fully codes of conduct such as those issued by OECD.
As such we are at pains to ensure that appropriate due diligence
is carried out when, for example, involving advisors or other
third parties in particular sales campaigns or other business
transactions.
EXPORT MARKET
POTENTIAL
8. Is South East Asia a mature market for
UK goods and services? Are there parts of the region with significant
market potential still to be tapped—and, if so, are UK businesses
alive to the possibilities?
Because of their significant economic growth
rates even the more developed countries in the region offer attractive
business prospects. Customers in these countries demand the most
modern technologies, the most demanding value propositions and
the most sophisticated after sales services. They also offer opportunities
for partnering as their own capabilities and funding abilities
continue to develop. In the less developed economies there is
equal, though different potential as its populations come to demand
more energy, travel and infrastructure. However, they often wish
to go beyond simple acquisition and look for technology transfer,
offset or other inward investment as part of the packages for
successfully winning business. It is important for potential suppliers
to these markets to understand and react to these dynamics.
Specific examples of growth areas include the
intra Asian travel with good opportunities for our Airlines business
and the growth of deepwater oil finds in Malaysia giving opportunities
for our Energy and Commercial Marine business.
Thailand is well understood and we are well
positioned. Myanmar, and to some extent, Cambodia may offer future
prospects, depending on political developments.
Indonesia is a growth market. The UK is the
second largest investor after Japan.
9. Large companies experienced in foreign
trade, such as Rolls-Royce, probably do not have to make much
use of the services provided by UK Trade and Investment; but as
a company with a great deal of knowledge of foreign trade and
of this region, how good is the support given to UK businesses
by UKTI? What are its strengths and its weaknesses? How does it
compare with the sort of support available from other countries'
trade promotion bodies to their companies?
As a large company, with regional representatives,
we have a very limited need to call upon UKTI. Where we do, this
is usually to provide additional focus to particular events or
help facilitate inter-Government contracts. We have, however,
found local UKTI representatives extremely responsive and keen
to offer support. Their services are probably of much higher value
and impact to smaller companies, with little expertise of the
region and practices.
Other departments across Whitehall are also
very supportive of UK businesses. A recent example of this is
the creation of a small taskforce set up to help support our current
campaign in Malaysia. The taskforce was initiated by DTI and the
members consist of representatives from DTI, UKTI, ECO and Rolls-Royce.
Another source of support is from Embassies and High Commissions
whose advice is invaluable.
TRADE AGREEMENTS
10. Singapore and perhaps other countries
in the region would like an EU-ASEAN trade agreement. However,
at the moment ASEAN is too loose an association to make this practicable.
In the meantime, Singapore and Malaysia are actively pursuing
bilateral Free Trade Agreements as an alternative or addition
to the WTO negotiations. Would there by any advantages—whether
economic or political—to your business from either an inter-regional
or bilateral agreement?
Singapore
A bilateral ETA between Singapore and the EU
would be beneficial to our business in that it would level the
playing field with our US competition. Singapore already has an
ETA with the USA. There may be certain withholding tax advantages
to our customers when selecting EU-based equipment, which the
US FTA already allows. This is almost certainly the case in the
financial, insurance and legal sectors. Being seen to be positively
active in this regard (Singapore-EU ETA) is in itself helpful.
Malaysia
Almost certainly where Rolls-Royce has business
across the EU any framework which eases trade has to be welcomed.
Thailand
EU-ASEAN would help to establish the EU as more
of a trading block to off-set the power of the US.
Indonesia
Yes.
13 October 2004
| 
