Foreign Production Project Planning In The Real World - P. K. Kauppi - E-Book

Foreign Production Project Planning In The Real World E-Book

P. K. Kauppi



In the complex world today, the foreign project planning and development is faced with a chancing flow of decision situations. Added to this must be Covid 19 virus with its world wide impact that complicate the situation further. The degree of impact varies on case basis, the location, activity or sub disciplines associated with the scope and the partners' role in the project. In the changing world situation it is not realistic to outline a detailed blanked coved impact to all typical project activities. Rather, in more general terms and strong foreign field experience create awareness of important project planning issues for engineers and responsible managers. The book is a Rare and Unique introduction to the topic with illustrations to clarify the issues. The outlined method is for a complex project with combination of strong practical engineering, management skills, field experience and need-based analytical techniques. The approach can be tailored and employed in the management of any kind international project development and planning consideration and in the project management training.

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Dedicated to those engineers, managers and supervisors in many Asian Countries, North America and Europe where the writer had a unique opportunity for an engineer to be associated with over his long time involvement in complex industrial project development of the international scale. The dedication belongs to those who worked in large processing plants, in technology and manufacturing industries and in international financing institutions in those locations. Without these types of associations this, in many ways Rare And Unique, introduction to the complex topic could not have been provided to the readers.


Dr. Kauppi's engineering and management engineering background and industrial project development experience is truly international. He has degrees in mechanical engineering from Finland, in pulp and paper engineering from Sweden, and an M.S. and Ph.D. in management engineering from the United States. His Ph.D. Dissertation dealt with the analysis of complex international projects. He has worked in Scandinavia and in Canada with multi-national industrial technology and machinery companies, with resource-based industrial manufacturing operations, and with some of the world's leading consulting engineering companies in senior positions on international project development and engineering. He has published many papers on complex international projects in well-known industry publications, served as an editorial advisor of the Paper Trade Journal Magazine of the United States, and obtained several industrial process and equipment patents in the United States, in Canada and in Scandinavia. He has also written several books.

Since 1980s Dr. Kauppi has spent most of his time in the international arena involving engineering, planning and development of high capital resource-based manufacturing projects as well as high-tech projects in the developing countries, while being based in North America. His work has covered assessment of existing industrial operations, development of complex new projects, structuring foreign equity joint ventures, sourcing for foreign joint venture partners and international financing. He has strong industrial project experience from South America, China, India, Malaysia and other Asian countries, the most challenging regions in the world to do business with, and yet have plenty of opportunities for foreign-invested joint ventures and other types of project participations.


List of Figures

List of Tables




1.1 Summary

1.2 The Process

1.3 Financial Crises and International Project

1.4 Impact and Opportunities

1.5 International vs. Home -base Project

1.6 Definition of International Project

1.7 Comparative Analysis

1.8 Complexity Realization

1.9 Turmoil and Freedom

1.10 Opportunity and Risk

1.11 Need for Foreign Participation

1.12 Need for Financing

1.13 Need for Promotion

1.14 Opportunity Selection

1.15 Questionnaire

1.16 Importance of Development and Planning Phases


2.1 Summary

2.2 Definition and Source

2.3 Local Partner

2.3.1 Attitude

2.3.2 Experience

2.4 Local Situations

2.4.1 Availability of Information

2.4.2 Accuracy of Information

2.4.3 Specific and Common Obstacles

2.5 Foreign Partner

2.6 Obstacle Solutions

2.6.1 Alternative Solutions

2.6.2 Developed Solutions

2.7 Conclusion


3.1 Summary

3.2 The Process

3.3 Elements Approach

3.4 Elements and Balance

3.5 Direct Elements

3.5.1 Operation and Technology

3.5.2 Marketing

3.5.3 Environmental

3.5.4 Raw material Recourses

3.5.5 Fresh Water

3.5.6 Power

3.5.7 Fuels and Chemicals

3.5.8 Transportation

3.5.9 Economic and Social Benefits

3.5.10 Corporate Tax System

3.5.11 Manpower and Training

3.5.12 Capital Cost

3.5.13 Implementation Plan

3.5.14 Production Schedule

3.5.15 Manufacturing Cost

3.5.16 Operation and Corporate Planning

3.5.17 Balance Sheet

3.5.18 Accounting System

3.6 Environmental Elements

3.6.1 Political

3.6.2 Economic

3.6.3 Social Integration

3.6.4 Cultural

3.6.5 Physical

3.6.6 Legal

3.6.7 Environmental Policy

3.6.8 Moral and Ethics

3.6.9 Corruption

3.6.10 Management and Labor

3.6.11 Educational

3.6.12 Status

3.6.13 Contractual

3.6.14 Insurance

3.7 International Elements

3.7.1 Political Climate

3.7.2 Foreign Partner

3.7.3 Foreign Investment

3.7.4 Technology and Know-how Transfer

3.7.5 Marketing Assistance

3.7.6 Management Assistance

3.7.7 Strategic Planning

3.8 Other Elements

3.8.1 Local Partner

3.8.2 Sales Arrangements

3.8.3 Supply Agreements

3.8.4 Other Agreements

3.8.5 Culture Shock

3.8.6 Health and Security

3.8.7 Translators

3.8.8 Promoters


4.1 Summary

4.2 Needs and Use of Analytical Approach

4.2.1 From Whose Point of View

4.2.2 Focus on Approach

4.2.3 Terminology

4.3 Analytical Method

4.4 Critical Requirement and Solution Analysis

4.5 Benefit of Method

4.6 Expansion of Method

4.7 Conclusion


5.1 Summary

5.2 Objective

5.3 Characteristics of Industry and Project Situation

5.4 Contents of Development Plan

5.4.1 Executive Summary

5.4.2 Introduction

5.4.3 Development Concept and Objectives

5.4.4 General Project Conditions

5.4.5 Environmental Impact

5.4.6 Environmental Matrix

5.4.7 Markets and Marketing

5.4.8 Plant Site

5.4.9 Fresh Water

5.4.10 Power, Fuel and Chemicals

5.4.11 Raw Material Supply and Quality

5.4.12 Transportation

5.4.13 Description of Plant and Technology

5.4.14 Personnel and Safety

5.4.15 Investment Cost Estimates

5.4.16 Production Cost Estimates

5.4.17 Financial Analysis

5.4.18 Economic and Social Benefits

5.4.19 Financing

5.4.20 Implementation

5.4.21 Joint Venture Organization Management

5.4.22 Project Sponsor's Background.

5.4.23 Future Plans and Options.

5.4.24 Opportunity Risk Assessment

5.4.25 Conclusions

5.4.26 Recommendations

5.5 Enclosures and Support Material


6.1 Summary

6.2 Objective

6.3 Who's to Lead

6.4 Establishment of Overall Plan

6.5 Joint Venture Structure

6.6 Joint Venture Contract

6.6.1 Simplifying Complexity

6.6.2 Main Contract

6.6.3 Supplementary Agreements

6.7 Articles of Association, Shareholders' and Other Agreements

6.8 Legalization and Company Formation

6.9 Special Consideration


7.1 Summary

7.2 Development Sub-Phase

7.3 Characteristics of International Industry

7.4 Project Element Impact

7.5 Investment Guidelines

7.6 Development of Financing Plan

7.7 Financing Sources

7.7.1 Multilateral Development Banks

7.7.2 Export Credits

7.7.3 Creative Financing



7.8 Venture Capital

7.9 Due Diligence

7.10 Payback Period

7.11 Conclusions


8.1 Summary

8.2 Demanding Field

8.3 Individual Manager vs. Management Team

8.4 Relationship with Corporate Management

8.5 Educational Background

8.6 International Experience

8.7 Character, Personality and Cultural Attitude

8.8 Freedom and Responsibility

8.9 Selecting International Manager

8.10 Corporate Environment

8.11 Kickbacks and Commissions



Executive Summary Example



List of Figures


Figure 1.1 Opportunity Assessment Process - A Development Pre-Phase

Figure 1.2 Those at Risk and Those That Benefit from Financial market Crises

Figure 1.3 International vs. Home-Base Development Forces For and Against Uniformity

Figure 1.4 Comparative Examples and Issues in International Project Planning

Figure 1.5 Comparative Balance of Direct and Environmental Elements

Figure 1.6 Turmoil Balanced by Freedom

Figure 1.7 Risk Balanced by Reward

Figure 1.8 System Approach in Complex Task / Project Planning

Figure 1.9 The Basic Standard Development Process


Figure 2.1 Development Obstacles

Figure 2.2 Fundamental Attributes for Complex Tasks / Projects

Figure 2.3 Classification of Obstacle Solutions


Figure 3.1 Project Element Impact Factor Impact

Figure 3.2 Overall Balance of Project Elements must be Maintained

Figure 3.3 Direct Elements

Figure 3.4 Joint Venture Marketing Issues

Figure 3.5 Accuracy of Various Estimates

Figure 3.6 Environmental Elements

Figure 3.7 Balance Must be Maintained with Four Elements Connected to Political Situation

Figure 3.8 Factors in Selecting Suppliers.


Figure 4.1 Two Levels of Critical Requirements in Pyramid

Figure 4.2 Critical Requirement Solution Summary


Figure 5.1 Four-Development Strategies

Figure 5.2 Parameters for Sensitivity Analysis


Figure 6.1 Joint Venture Development Matrix

Figure 6.2 A Three-Step Plan to Accomplish Joint Venture


Figure 7.1 Financing Eligibility Matrix

Figure 7.2 Step Plan for Financing Development

Figure 7.3 Payback Periods. Financiers” Reaction

Figure 7.4 Foreign Financing Sources for International Investment Opportunities


Figure 8.1 Four-Requirement Categories for International Manager

Figure 8.2 Step Plan for Development of International Management Skills

Figure 8.3 Personality Essentials Matrix for International Manager

List of Tables


Table 1.1 Industrial Productions in Developing Countries

Table 1.2 Background vs. Comparative Base Rating Among Three Cases

Table 1.3 Project Risk Identification

Table 1.4 Typical Local Partner’s Needs

Table 1.5 Input and Promotion Needs in Two Cases

Table 1.6 Wrong Input Selection


Table 2.1 Local Partner as Obstacle Source

Table 2.2 Some Specific Country Obstacles

Table 2.3 An Approach for Existing Operation Situation Analysis

Table 2.4 Foreign Partner As Obstacle Source


Table 3.1 Project Elements

Table 3.2 Technology Acceptability

Table 3.3 Training Plan

Table 3.4 Contents for Planning

Table 3.5 International Elements

Table 3.6 Other Elements

Table 3.7 Local Partner’s Training Need.


Table 4.1 Requirements for Involvement

Table 4.2 Solution Classification of Level 1 Critical Requirements

Table 4.3 Three Examples of Level 1 Critical Requirements

Table 4.4 Three Examples of Level 2 Critical Requirements

Table 4.5 Three Examples of Level 1 Critical Requirement Solutions

Table 4.6 Focus on Efficient Critical Requirement Isolation

Table 4.7 Focus on Efficient Solution Development

Table 4.8 Consideration of Method Expansion


Table 5.1 Format for EIA Report

Table 5.2 Contents of Environmental Impact Matrix

Table 5.3 Focus on Market Study

Table 5.4 Evaluation of Site Alternatives

Table 5.5 Opportunity Risk Assessment


Table 6.1 Contents of Joint Venture Contract

Table 6.2 Supplementary Contract Documents


Table 7.1 Investment Guidelines

Table 7.2 What Investors May Think About Investment Opportunity

Table 7.3 Investment Proposal

Table 7.4 Due Diligence Scope Considerations


The worldwide appearance of the Covid-19 had a disastrous impact to the economy of many countries and spreading difficulties for companies involved in the international project field. This was such a wake - up call that it would be naive to ignore in any book that has the focus on the foreign project field today.

Being aware and understand the Covid-19 and future of these types of potential health / security hazards when involved in the international project field is a must. How to best deal with them, prepare and plan for the impact? This is a serious question for all foreign projects. Additionally, note particularly the book back cover text and the Chapter 1 with the related discussions.

The book views the foreign project development and planning formulation task as a project of its own needing attention how to accomplish best in each case. This book offers helping material.

Appropriate education, field experience and the subject focused training of the Responsible Project Manager matters.

Otherwise, this book is about complex Foreign Production Project Planning and development process. It is designed for people in any globally oriented industry, for investment and financing, engineering and management consulting, and personnel in international business development, management, education and training. The text provides a solid base for what is important in international project development, improvement of industrial project panning skills, and helping newcomers planning for a successful career in the field. When a project development is considered as a Complex Foreign- Local Joint Venture it provides a case example for highly qualified project engineering and management skills requirement. From this level scaling down to fit for any kind and size project planning and development to have a successful implementation phase and a long-term operation is within a reach.

A helpful background for those readers who plan to use the techniques presented in the Chapters of this book would be knowledge in management principles and systems engineering.

There are publications that focus on International Management, Multinational Organizations and International Operations Management on petroleum, chemicals, plastics, mining, personnel, health care, computer, telecommunication, automobile, soft drink, and fast food products projects. However, it is difficult to find books that focus specifically in the real-world Foreign Production Opportunity Assessment and Project Planning. The main reason for the situation is lack of access to suitable real life circumstances and the need for substantial reference material to cover this complex field. That all demands contributors experience with direct involvement, objectivity, flexibility, and a tolerant attitude when working under difficult conditions with people from various backgrounds and life values. Hence, in some cases there is a need to treat the subject as a new sub-field in management to blend analytical techniques fit for field application with diversified hands-on international experience. It is equally important to focus more on development management of the pre- and sub-phase project aspects than typically necessary on the home-base projects. The book fills the gap by focusing on the management of international opportunity (project) planning and development. It provides a creative need-based management approach in this most rapidly changing field that offers rewarding experiences and opportunities for those who get actively involved.

Therefore, even with fully understanding the basic management theory, writing about practical international industrial project planning and development process introduces several obstacles for educators. Lets summarize these:

Strong hands-on experience in the international arena

Access to sufficient number of complex real-life project examples from various developing countries

Access to nationally significant project samples involving various levels of governments and other agencies with elements such as:

International financingEnvironmental impact considerationsLocal and international marketingTechnology and know-how transferForeign operation management assistance needForeign equity joint venture considerations

Even for similar industrial projects, under normal situations vary significantly from one developing country to another. This, of course, adds to the difficulty. Even to select a common base (so called standard and prior to Covid-19) for the presentation has been a challenge considering diversity of requirements there can be for projects in the foreign industrial production field.

The new comer Covid-19, the mother of all complications, and similar future disturbing developments with variations in individual countries and impacts that can change rapidly and with little warning creating unforeseen situations.

For the reader it is important to be aware (and as a warning) of the Covid-19 type potential impacts in the international project development, planning and operation undertakings. Underestimate, deny or otherwise downplay significance of concerns of others could turn out to have significant consequences. To add this kind of thinking into the standard project planning approach is a wise decision.

Note example of the Chine’s Government zero-Covid policy in the Covid-19 control with impact to planned projects and foreigners already in the country.

P. K. Kauppi

Vancouver, Canada


Project Opportunity Assessment

While the project plan assessment and preparation is taking shape it should be noted that the project Questionnaire (1.15) is important. Still, Covid –19 like and other risks and issues in future (1.16) are important to keep in focus for the undertaking and beyond. With all this one should not forget the contingency plan and the fact that things might be changing during the project work. needing adjustments. Observing and causes approach has its benefits.

1.1 Summary

The Chapter 1 has focus on the international production project field, its opportunities, complexities, risks and rewards, where regional stability plays a key role. History has a lot to teach about financial and political crises and reasons behind them. The financial crisis can divert a project at any stage of the development or implementation. For that reason the topic coverage is rather extensive. The presentation in this Chapter follows the approach of the book - how the international project opportunities are viewed with focus on the foreign-controlled equity joint ventures, and more specifically, on the opportunity assessment as the first pre-phase of the development under consideration. Conditions for international projects vary from one country to another, creating a challenge for the international manager responsible for the development. The sooner the manager is prepared to recognize the extremely complex nature and special requirements of the field, the better he will be prepared to focus on the opportunities to bring efficiency into the development. Special attention must be devoted to understanding where to start when there is no specific project plans to focus on, or any kind of commitment for involvement, but perhaps only a sketchy expression of need and definition, including a statement of desired outcome. As stated, attention in this Chapter is focused on the opportunity assessment process ending with the recommendation to undertake, or reject, a specific opportunity for development. The Chapter ends in the form of Figure 1.9 statement about the importance of the development phase in the international opportunity field.

1.2 The Process

The opportunity assessment can be (subject and situation depended) the first pre-phase of an international development followed by the planning phase. The process (including the comparative analysis - see Section 1.7) is executed for all alternatives under consideration as the case may be. The process is summarized in Figure 1.1.

Once the suitable opportunity alternatives have been realized in a region or a country of interest, the need and the desired outcome statement already prepared in step 1 (Figure 1.1), then steps 2 and 3 are to proceed. The material presented in this Chapter will help to focus on those issues and topics that are a vital part of the process, and ends with a recommendation (or a rejection) of the opportunity for a more detailed development that is the focus of the forthcoming Chapters.

Figure 1.1Opportunity Assessment Process - A Development Pre-Phase

A wise first glance opportunity assessment is based on the awareness of the past, knowledge of the present and analytical prediction of the future.

1.3 Financial Crises and International Project

The international financing crisis can impact development implementation and operation of any foreign-participated ventures in the developing countries to a high degree and when the crisis starts, it typically lasts for several years. Large foreign-participated industrial investment opportunities take a long time to develop and implement in the developing countries. Needless to say, timing could mean everything for successful implementation financing. For these reasons we address the financial crisis development in length and in historical context. The history has much to teach and the material is very valid today.

According to Dr. J. Becker:

"Financial crises are the most perceivable sign of deeply rooted economic and political structural difficulties. This applies at the national and international level. The world economic crisis that has persisted since 1980 and which has been portrayed as the Developing Countries Debt Crisis is only the monetary expression of the structural conflict between the North and the South. Its chief characteristic is the unbalanced process of development that widens the gap between the metropolis and the periphery. In this respect financial policy can be allotted only a limited place in the theoretical development of conflict solution strategies oriented towards the interests of the developing countries. Yet for projects initiated by state development agencies of the industrialized nations such policy considerations become a decisive operation factor.

"The Debt Crisis" means the difficulties that underdeveloped nations have experienced in repaying the loans they received, for example, from Western industrialized countries during the period 1975-1985. This phenomenon, in contrast to earlier periods, is not just limited to state or interstate financial transactions. Throughout the 1970s a large number of private banks entered into loan agreements with developing countries. At that time these arrangements seemed to present no repayment problems. The principal recipients of such loans were the emerging and oil-rich countries such as Brazil, Venezuela, South Korea and Taiwan.

"These heavily populated countries with strong export sectors and large absorption capacity experienced loan repayment difficulties because, since 1979, there has been a rapid decline in the demand for their products, and the price of raw materials has also fallen steeply. By mid 1979, the four oil producing and emerging countries of Latin America, Brazil, Mexico, Venezuela and Argentina owed $35.7, 25.9, 16.6 and 10.6 billion respectively. The combined debt of these four countries comes to $88.8 billion or 40.1% of all outstanding debts owed to private creditors by developing countries.

"From 1976 to 1981, and including state credit institutions, the developing countries have managed to accumulate a debt mountain of $630 billion, $140 billion of which was in the form of short term credits with a term of less than one year. Yet in 1976 debtor countries owed only $251 billion. The high interest levels, produced above all by the financial policies of the Federal Reserve Bank and by President Reagan's economic policies, worsened the situation, as did the balance of payment deficit, and was responsible for the lowering of currency reserves.

"The balance of payments deficit of all the oil-importing nations of the Third World reached $21 billion in 1979 and $56 billion by 1981. The combination of sinking exports revenue and high debt servicing was responsible for this disastrous situation. According to statistics issued by the International Monetary Fund (IMF) in April 1982, more than 50% of all these countries had balance of payment deficits of 12% or more of their Gross National Product (GNP) in 1981. Already in 1978 17% of their export earnings was being used to service external debts. By 1980 this portion had, on average, reached 20%.

"Between 1976 and 1981 the debt rate rose by 20% per annum, which was way above the growth rate of their respective GNP, their industrial and agricultural production and their exports.

"Significant for the developing countries in the period from 1970 to 1979 is the large increase in imports as against the previous decade, with a parallel decrease in the rate of exports; in the previous decade it was the reverse. Thus the faster growth rate of the BSP and of the per capita BSP of the developing countries compared with the industrialized countries in the previous decade must have come about through, among other things, debts, as their agricultural and industrial production grew at a slower rate than before. And finally, a not-well-thought-out, "wild" transfer of technology must also have contributed to the debt crisis in the developing countries. A PROGNOS report for the German Ministry for Economic Cooperation (MBZ) of 1979 correctly warns against any non-selective transfer of technology. As United Nations Conference on Trade and Development (UNCTAD) estimates have shown, the expenditure of the developing countries for the technology imported from the North increases two-and-a-half times as fast as their indigenous industrial production.

"As the Second Report of the North-South Commission demonstrates, the export growth rate of the disadvantaged, underdeveloped countries with a small income (i.e., those countries termed Least Developed Countries (LLDC) or Most Seriously Affected Countries (MSAC), thus not emerging or oil-exporting countries), decreased drastically in the 1970s compared with the period before that; from 5.3% to 4.2%. Their export increase in the 1970s was only $3 billion. Compared with $118 billion in the emerging countries and $105 billion in the oil-exporting Third World countries, this was disturbingly little.

"Western publicity concentrated mainly on the large debtor countries such as Mexico, Argentina, South Korea, Venezuela and Brazil; those countries which, along with Israel, Indonesia, India, Algeria and Egypt are responsible for more than half of the debt load of the Third World. A national bankruptcy or a moratorium on loan repayments - although politically highly unlikely - could in effect ruin the Western banking and financial system. It is the least developed debtors who are hardest hit, however. These countries, with their relatively small GNP and comparatively insignificant export sectors, feel the internal effects of such situations much more strongly.

"When one compares the situation of the principal debtor nations with other selected countries of the Third World, the following becomes evident:

In regard to the volume of debt the twenty Third World countries selected for review with the exception of Egypt and Morocco were far behind the five largest debtor countries.

With the exception of Gabon, the per capita debt of these countries was less than that of the main debtor nations. The five largest debtor nations; Brazil, Mexico, Argentina, South Korea and Venezuela, had on average a much higher per capita debt than these twenty countries, most of which were the LLDC or MSAC categories.

Because indigenous industry in developing nations is particularly burdened by debt and interest repayments, special attention must be given to the relationship between debt servicing and exports. The accumulation of high foreign debts does not necessarily mean that a country is in trouble, as long as the debts do not exceed the point where repayments use up most or all of the export earnings or where vital capital goods, semi-manufactured products, raw materials or consumer goods cannot be paid for.

"Mexico, Brazil, Argentina and Venezuela were also in this situation. Yet these relatively developed countries had sufficient food for their populations, relatively high standards of living, and possessed reasonably highly developed industrial sectors. Thus, for them such a situation, which invariably produced economic contraction and social distress, had not the same overall consequences as it had for LLDC countries such as Malawi or North Yemen. It must be borne in mind that the statistics for the above mentioned twenty countries are from the year 1980. Since then, despite the imposition of some import restrictions on goods from industrially developed nations, the situation has become even more critical due to the rapid fall in the price of raw materials on the world market and to the drop in demand for Third World products.

"It is in no way accidental that there is a considerable difference between the effects of the debt crisis on the emerging countries and on the LLDC countries. This reflects the inner logic of contemporary global economic relations. Between 1974 and 1979 the Third World's debt volume to western private banks trebled in size while at the same time the volume of the debt burden arising from inter-governmental credit agreements with western nations declined. This process had resulted in, among other things, the initiation of a tendency towards concentration and consolidation within those sectors of the banking community with Third World debt exposure. According to Business Week, of the 1,000 banks having current credit agreements with Third World countries and in a position to deal with this financial risk, only 100 were expected to be operating within this sector in a few years' time. The few larger banks that achieve this consolidation could perhaps utilize their world-wide control capacity as follows: the poorer Third World countries, because of the dependence of their national economies on exports, will produce the finance and the goods these banks will in turn invest in the rapidly growing industries of the emerging countries. In his statement: "We want to control the borrowing countries' access to markets," a Canadian banker focused attention on the fact that in this way it may be possible for some western banks to even benefit from the Third World's enormous debt.

"Given these circumstances, particularly in the LLDC countries, if industries are to be established without increasing dependency on credit, most of the following conditions must be met:

Commitment to fight unemployment in the least qualified segment of the population through suitable job creation programmers.

Import substitution that would contribute to the stabilization of the relations between production capacity and balance of payments, while at the same time minimizing the incidences of external control.

Creation of forward and backward linkages within indigenous industrial structures that can be integrated into and beneficially affect the national economy.

Accumulation of foreign exchange through those exports that do not distort the internal economic balance.

Education and promotion of indigenous expertise.

Expansion of Least Developed Countries (LLC).

Elimination of deficit production. Production strategies should aim at attaining sufficient profits to ensure that no recourse to outside help is needed

Dismantling of protectionist measures by industrialized countries.

Access to markets in industrialized countries for products from the Third World that are particularly work-intensive.

"The current policies of the IMF do not seem to be oriented towards enlarging the trading possibilities of Third World countries, which in the long term could be a disadvantage for industrialized countries. If the extensive internal markets of the Third World were developed to meet the needs of their national economic self-reliance, then in the long term trade with the West could be more rewarding for both partners than it is today.

"Summary: In the present situation the Third World can scarcely finance even the most necessary exports. The poorest of the underdeveloped countries must struggle to maintain what small achievements they have managed to attain. New credits must be entered into in order to finance interest on and repayment of old debts. This in turn gives a dangerous social and political dimension to unemployment and malnutrition. All these factors taken into account, there remains very little financial scope to create new industries, particularly where they are either capital intensive or dependent on delivery of semi-manufactured goods from the industrialized countries. The development of industries can be of real benefit to the Third World only if they are set up using the least possible amount of technology, energy or raw materials."

Source: Dr. Jorge Becker. Deutsches Zentrum fur Entwicklungstechonologien-GATE and Department 32 - Communications in: Deutsche Gesellschaft fur Techniche Zusammenarbeit (GTZ) GmbH, Eschborn 1988. Paper Technology and the Third World. Published by Friedr. Vieweg & Sohn Verlagsgelleschaft mbH, Braunschweig. Reprinted with permission. Prof. Dr. Becker is with KomTech-Institut, Solingen, Germany.

In more recent years the number of projects initiated and operated by the private sector has increased rapidly, particularly in Southeast Asia, China, India and even in Russia. The more recent economic troubles, currency depreciation and economic downturn started from Thailand in 1997 and quickly spread to Malaysia, Indonesia, South Korea, Japan, Hong Kong, Philippines and Singapore. Even several years after the Asian economic crisis started, the trouble sources for Thailand, India and Indonesia are recognized when a large number of unproductive bank loans remained. This whole crisis situation provides an excellent sample of how unpredictable the international economic conditions can be when Asia, the leading growth region in the world, is hit so hard with disastrous results. China avoided the crisis by not devaluing its currency, a positive sign for anyone planning to do business in China. For those who have continued to do business in China this was also a sort of reward for their forward-oriented long-range approach. The Chinese and Japanese economics may be considered as locomotive economics in the region, and India is expected to join the club in the coming years. In today's increasingly expanding open market economy, financial troubles in one region of the world can have serious impact in other regions. According to some Asia specialists, it is becoming apparent that international investors may bear a share of responsibility for the latest economic turmoil in Asia, which could have led to dangerous infections in the West. The question, pondered many financial specialists and governments, is how to restore stability to investment flows within the philosophy of uninterrupted liberation of the international market. It is challenging but a necessary task for an international manager to stay in tune with the events in the international market and economy, as such developments will have an impact on the projects under consideration for foreign investments.

When the Asian countries succeed in organizing the Association of Southeast Asian Nations (ASEAN) and get it out of troubled waters that will be a good step towards unity. The unity can be expected to bring more financial stability to countries in the region with a population of 500 million. The pressure to move forward with the ASEAN is not dismissed by the fact that the European Union (EU) has been established, with its own parliament and common currency. The EU, with its 370 million people and a GNP comparable to that of the United States, is a market no longer limited to a particular country.

An economic crisis such as the one in Asia takes some time for the market to clear from ills that started it. Initially, five years' recovery time was estimated for Thailand, but it may turn out to be a long time before the previous good times return.

In the case of Thailand, the following are some contributing reasons for the crisis that took several years to surface as devastatingly as it did:

High domestic interest rates

High international borrowing

Incompetent labor force-cheaper labor in other Asian countries

Lack of education reforms

Export sector difficulties

High cost of industrial land

Powerful domestic banking sector

In the fall of 1999 Thailand was considering a trade liberation and investment stimulus package to speed up the country's recovery from recession. The package was to include sweeping tariff cuts for industrial products to reduce costs for Thai manufacturers. The package was to include a six-month delay in corporate tax payments, and lower tariff rates for raw materials and machinery essential to Thai industries to be internationally competitive. The gains would be for all small-to-medium-sized manufacturing operations. Towards the end of 1999 and in early 2001 the economic recovery showed some positive signs.

Malaysia went through a similar crisis in the 1980s but cleared itself in a surprisingly short time. Some cycles are repeating themselves, and the recovery from the latest Asian economic crisis in Malaysia was well on track by early 2001, about four to five years since it actually started from Thailand.

One-half of the world's population is in Asia, and China will be a major player in the world's economy within 20-25 years. When one considers India with its huge population and a large group of wealthy individuals, relatively stable conditions and strong policy reforms, the country can be expected to play a major role in the world's economy in a relatively short time, although perhaps not as soon as China. With Japan, South Korea, Malaysia, Thailand and Indonesia added, it is not a surprise that the world takes notice when the economy in Asia is shaken.

Those who have followed the leading newspapers and magazines over the last few years have seen numerous articles listing the Asian situation from different foreign viewpoints. As stated, the keen interest in the situation was due to the increasing Asian influence and impact in the international economy. Caution must be exercised when making conclusions based on international newspaper headlines and articles. The true situation can be very different and the accuracy of the information cannot always be admissible.

In closing, following is the comment that appeared in Pima's Papermaker under the heading "Why should we care about Asia?

"Some might even be glad to see these countries have their comeuppance. After all, some Asian commentators, proud of their accomplishments, have seen fit to lecture the West about how our democratic institutions - based on individual rights and checks and balances in government - are outdated. The supposedly superior Asian development plan, based on heavily handed government involvement in economic and social issues, and cozy deals between governments and large business conglomerates, was seen as the new model. Comments by the Prime Minister of Malaysia, Mahathir Mohammad, who blamed the Asian financial crisis first on investor George Soros and then, in a particularly vile comment, on an international "conspiracy" of Jewish financiers, showed an ugly side of the "Asian Miracle."

Source: Pima's Papermaker, "Why Should We Care about Asia", January 1998. Reprinted with permission.

On the whole the world has changed a lot since above material was issued, and for the foreign participated projects in foreign lands even more so with the Covid- 19 created complications. For involved foreigner there is a good reason to be concerned and to plan for.

1.4 Impact and Opportunities

Assessing the situation such as the Asian crisis, which started in 1997 in Thailand, there are both regional and international companies that can benefit as well as be at risk during such crisis. Figure 1.2 illustrates a typical risk and benefit situation for some companies involved in the manufacturing industry.

Consequences of such economic crisis will be restructuring and increasing internationalism in Asia that will lead to increased exposure to international business, including financing. The overall position of industry will change to be more internationally competitive and informed. Eventually, the cycle will repeat itself with a new and different international setting and changed conditions.

We would emphasize that the international manager be on the lookout for unique opportunities in developing countries during financial and market turmoil. That is local companies plan for new ventures, looking for international partners, and new industrial groups that usually emerge during such times. To find an acceptable low risk opportunity is more difficult when the crisis has passed, international competition increases again, and the local companies have more options. It is something like standing on a bridge across a small rocky creek and trying to catch an object that is floating in the water towards the bridge. Quick thinking could lead to catching the object before it goes under the bridge, rather than waiting until it emerges from the other side. There is always a possibility that the object will get "stuck on the rocks under the bridge."

Whatever the target and strategy is, it is vitally important when involved internationally to try to stay focused on the task in hand during troubled times. Nobody can demonstrate better how to stay focused than the former United States President Bill Clinton when he hit troubles during his second term affairs. Mr. Clinton did not bend under the pressure from his critics and enemies, or let him be influenced by the events around him.

Figure 1.2Those at Risk and Those that Benefit from Financial and Market Crises

1.5 International vs. Home-base Project