Human resources management innovation

I attended an HR symposium which featured a number of well-qualified speakers, such as Dr. T.V. Rao, the founder of the National HRD Network, Rahul Amin CEO of Jyoti, Imon Ghosh, Director of the Academy of HRD, & David Wittenberg of the Innovation Workgroup. Dr. Anil Khandelwal also talked about how he transformed the Bank of Baroda from a stodgy state-owned bank into a market leader. This event was hosted by the SP Jain Institute of Management & Research.

Rao opened by quoting Sam Petroda, who observed that we have a 19th century mindset using 20th century technologies to address 21st century needs. Indians are by nature divisible. For example, if a house is on fire in Japan, all of the neighbors bring a glass of water to put it out. In India, everyone simply looks for a higher power to solve the problem. Corruption must be fought 1st @ the family level, then by both corruptor as well as corruptee. 95% of IIM entrants are engineers, not transformers. There is a great need for organizational transformation, but it’s not happening.

Amin described how he proactively took a number of steps to change the business culture & ethics in his company over a period of years. He started by setting an example himself. He pointed out that organizationally, dependence doesn’t work, independence is better, but interdependence is best. These transformations are like bypass surgery: they’re painful but life-saving.

Ghosh talked about 5 issues:

1. Is HRM too narrowly defined? Hunger & that there are few trained doctors in rural areas in India are national shames.
2. What’s HRM’s impact beyond corporations? We need to not only think with our heads, but also work with our hands, & make decisions from our hearts.
3. What are the key HRD indicators? (missed ‘em)
4. What are the capabilities in the informal sector? 93% of India’s workforce works in the informal sector, so rural development leads to national development. Small cottage industries are bigger than heavy industry. 800M need to be empowered in 600K villages, which are now being served by only 70K bank branches.
5. Offer of a few ideas to reduce poverty & encourage growth-reduce regional disparities, urban migration, rural interest rates; with India’s 5K year banking history, offer credit with US-type unit banking, & integrate financial markets.

Wittenberg offered a presentation on innovation for HRD & here it is:  Innovative HRM for 21 Century 120113 S P Jain

MSU prof on total global strategy

While in Mumbai for a week, I saw a presentation given by Tomas Hult, the director of the International Business Center @ Michigan State University’s Broad School of Business on how to devise a total global strategy.  He also happens to have authored a book by the same title.  He spoke @ the consulting session of the Academic Conclave @ S.P. Jain Institute of Management & Research.

Hult & his co-author G.S. Yip queried 440 industries to determine the differences & universal factors to success in international business.  They found cross-border business growing exponentially in terms of exports, etc.  However 140 countries of the world still need to improve their infrastructure to compete globally.  Certain industries have become global, such as electronics, while others have not, such as furniture.  The new landscape of the world economy equates 1/2 of the economic power in the world to countries & the other half to MNC’s.  Disney & Sony introduce new products every 3 & 20 minutes respectively.  HP earns 70% of its revenues from products introduced in the last year.

Here are the components of Total Global Strategy:

1. develop 1 core business strategy
2. internationalize that strategy by country
3. globalize that strategy across countries

Hult creates a triangle to align globalization drivers for industry, strategy, & the organization.  Markets, competition, cost differences, & government policies all impact upon industry drivers.  companies need to pick strategic markets in which to compete, not always determined by market criteria, such as Finland when Nokia was strong. E-business has significantly increased the potential to reach globla markets.  The key tradeoff is between global consistency & local responsiveness.  India leverages it’s scale while the US balances both.

Which markets you choose, which products/services to offer where, where you locate specific operations, & how you go to market are all strategic levers.  Global market participation depends on strategic importance, growth potential, & synergies with other businesses.  In the hexagon of competitive advantages, a firm needs to have at least 1 of the 6 to be successful.  The best global products/services are those that are designed to be global & that maximize the amount of common global care.  In locating global activities by country, companies still need some redundancy to protect against unforeseen circumstances, but balance this against multilocal value chains with too much redundancy.

Global marketing addresses variations in content & coverage.  For example, Swedes don’t drink Coca Cola in the morning, but Americans do.  Marketers need to evaluate benefits vs. flexibility & degree of uniformity.

Organizing the structure, management processes, people, & culture to build a global organization can’t be successful today if the organization has a board of directors from just 1 country.  Ikea is a rare exception.

Other important issues to address are regional strategies, measurements, & global strategy analysis of plotting actual results against their targets.  Templates & scorecards are given in the book.

managing diversity panel discussion @ the National Institute for Personnel Management of India conference

I was invited to moderate a panel discussion on Managing Diversity @ the National Institute of Personnel Management conference in Visakhapatnam, India.  I would have liked to have summarized it, but I was too busy moderating to take any notes.  So instead, here are 3 of the 4 presentations that were given:

• mine, to introduce the topic ManagingdiversityinIndia
• an examination of managing across cultures by P. Naresh Kumar, Director of people & culture @ Vestas managingacrosscultures
• a different look @ managing diversity by Ananda Kumar Raju, Director of Human Resources @ Air Liquide Managing diversity
• P.K. Joshi, Executive Director (HRD) of HPCL in Mumbai gave a presentation more focused on managing diversity in India, but I havent’ been able to get his presentation.

I’ve received some good feedback about the panel discussion.  If you have something to add, feel free to chime in.

managing diversity in Germany & India

I was recently invited by the National HRD (Human Resource Development) Network on the occasion of their Silver Jubilee celebrations to speak, & chose to talk about Managing Diversity-a cross cultural comparison between Germany & India.  I would report on it, but I was too busy talking to take notes.  Here’s the presentation, if you are so inclined:  Managingdiversitycrosscultural .  This was great preparation for my upcoming blog post.

the challenge of gaining world class university status

A Professor V.S. Prasad visited GITAM (where I teach) to discuss the Challenge of gaining world class university status.  There’s been a fair amount of discussion of this topic in the press lately.  For a country with the resources the size of India, 1 would think that India would have more universities recognized as world class.  Here’s how that could happen.

He 1st likened lecturing to continuous learning, then quoted Confucius stating, “When you aim high, you achieve the average.  If you aspire to no more than average, you land @ the bottom.  If you seek no more than the bottom, you end up with nothing.”  Philip Altbach says “India is a 21st century contradiction:  a world-class country without world-class education.”   Forbes lists 2 Indians in it’s list of the top 10 richest people on Earth, but none of the 1 or 2-ranked Indian schools listed in the world’s top 100 universities.  India does have the largest number of poor in the world.

Prasad broke his talk down into 3 areas:

1. Why aspire to become a world-class university?
2. What are the attributes of world-class universities?
3. What are the pathways to become a world-class university?

1.  There are imperatives to develop knowledge, become globally economically competitive, create social transformation, & enhance learning.  There are 570 institutions of higher learning, 15M students, & 500K teachers in Andhra Pradesh.  But basing education on the profit motive is not the path to becoming a world-class university because the objective is profit & not fulfillment & achievement.  Universities should serve society for the common good.  There should also be a synergy between industry & the national interest.  There is also a relationship between knowledge creation, industry, & society which should lead to personal satisfaction which serves the public interest.

2.  Altbach says, “Everybody wants 1.  Nobody knows what it is or how to get 1.”  In 2009, the World Bank named complementary sets of factors to evaluate world-class universities:

• concentrations of talent in terms of staff & students
• resources in the learning environment & for advance research
• governance-vision, flexibility, & the right economics

Many rankings exist, but how do we know when we’ve reached world-class status?  Malaysia fell out of the top 100.  There is the issue of teaching vs. a research focus, which implies a language factor, i.e. does only research in English count?  International student populations are ideally 18-25% of the student population.  International faculty should be 25-30%, but there are few in India.  Such universities should have:

1. a clearly stated mission & values
2. development of programs by its stakeholders
3. infrastructure
4. leadership idea centers
5. quality systems for continuous improvement

3.  To become a world class university, schools should focus on all around development opportunities for all aspects of life with multidisciplinary faculty with no focus on any 1 area.  Their interfaces should enrich life.  The dynamic systems of universities should resolve contradictions & conflicts.  Universities help understand the universe & make human beings more humane.  External factors are the social context/the level of development; the role of government is to set a policy framework & provide funding to the student base through grants & loans; private initiatives.  Internal factors are leadership/vision; a strategic plan; a quality culture that is the defining element of all activities.

Caution:  Given a world-class university or the democratization of excellence, you need the latter to build the former.  To upgrade existing universities requires unlearning existing cultures & building anew.  Perhaps building new world-class universities works better.  Policies & the social context are interrelated.  There is another danger in that there are no results in the distortion of public resources-competition is required.

When the president of Harvard was asked what it would take to build a world class university 100 years ago, his reply was supposedly, “$500M (a princely sum then) & 200 years.”  It requires autonomy for the colleges-too much regulation leads to collective consciousness.  Universities need to be clear about their purpose.

Indian ministry of defence R&D opportunities

Dr. S Sundaresh of the Indian Defence Research & Development Organization (DRDO) gave a talk @ GITAM (where I teach) on opportunities in research & development with DRDO. He talked about 3 things:

1. national r&d services
2. an overview of DRDO
3. academic interactions with DRDO

1.  India’s growth trajectory is 9%, fueled by the IT industry which is capturing world markets.  Investments in economic reforms are adding to industrial growth & employment.  An emphasis on manufacturing is enhancing exports.  But many of these exports are service-oriented & not producing new products.  Foreign companies are investing in design centers which are creating 3D modeling programs for UK firms, etc. for example.  India must be a leader to sustain this growth.  There are 6 industries where India has the potential to lead in new technologies:

1. nanotechnologies
2. bio-technologies
3. robotics
4. cyber-security
5. energy
6. space

2.  Ideas taken to DRDO often start @ universities as the seeds of ideas, such as UAV’s (unmanned  air vehicles) & LCA’s (light combat aircraft) in aeronautics.  DRDO works with 40-200 partners on these programs.  In electronics, they’re 3D CAR (control air radar).  They have 3 labs in naval systems for sonar.  They’re developing a number of missiles, such as AGNI & NAG which can carry 1-ton warheads & have ranges of 700-5K km.  They also work in materials, demand systems (tanks), & engineering systems (bulldozers, modular bridges, UMV’s (unmanned vehicles), URV’s (unmanned repair vehicles), & ROV’s (remote operated vehicles).  They even have created snow models to recreate avalanches.  DRDO’s partner ecosystem requires finances, domain knowledge, & established facilities, which includes research universities, industry, & users.

3.  DRDO has a directorate which deals with academic institutions for intellectual property rights issues.  Between 2006-11, they’ve had:

• 20 directed research areas
• 180 institutions involved
• 350 ongoing projects
• 250 PhD researchers
• 150 crore Rupees funding
• 10 patents filed
• 2K papers published

They have 6 ER programs & 2 centers of excellence.  Their thrust (pardon the pun) areas are:

• AR&D (aerospace) -1400 projects
• NRB (naval)-198
• LSRB (life sciences) -238
• ARMREB-(armaments) 136

In sum, DRDO has lots of needs for R&D & there are lots of opportunities there.  India has had far fewer articles published than China.  The 19th century was Europe’s.  The 20th century was America’s.  The 21st century will be India’s.

m2′s monsoon wedding

No, no, it wasn’t my monsoon wedding, but I did attend a wedding here in India & I thought you might like to read about it.  I was invited by a faculty member whose daughter was getting married.  Interestingly, both the bride & groom are doctors.  In the Indian tradition, it was an arranged marriage, as I understand 80% still are today.  The wedding took place ~150 km south along the coast near where the groom’s family lives.  I was told 1500 family members & friends were invited.  Interestingly, the wedding ceremony itself was scheduled not for 11 p.m. or 11:30 p.m., but 11:13 p.m., as I was told this was chosen by the Hindu priest as the most fortunate time for the ceremony.  The dinner was held @ ~7:30 p.m. before the wedding ceremony.  I was informed that many of the guests simply come to wish the bride & groom well, have a bite to eat, & then head home before the ceremony.  ~20 faculty members were invited, so the school rented a bus to transport all of us to the wedding.  With only 1 break for tea, we made the trip in ~4 hours.  When we arrived, the bride & groom were already seated on a pair of matching thrones.  All of the guests were lined up to place a little bit of rice on the head’s of the bride & groom as a blessing to wish them well.  Nearby was a table on which was all of the stuff that the groom presented to the bride’s family to win her hand.  The GITAM crew sped quickly outside to the line for food.  A definite upscale version of Indian food was served.  Naturally rice & curries, & not all of it was that hot & spicy, thank god.  I had 2 helpings, 1 from each table, because I just had to make the comparison.  Dinner was followed by 2 scoops of ice cream, which was as close as I could get to my sundae on Sunday.  After chatting with my colleagues for awhile, the loaded up on sweets @ a renowned sweet shop nearby & headed back for home on the bus around 9 p.m.  I stuck around for the Hindu ceremony, which was quite an experience.  The groom was seated along with a couple of the Hindu priests as commenced chanting & what looked like making a number of food platters.  I’m generalizing because I’m told that there is a lot of symbolism in all of these rituals.  So for example, it looked like they placed a number of nuts, herbs, & spices on leaves of lettuce, rolled them up & moved on to the next platter.  The groom donned a special hat from time-to-time.  After ~45 minutes, the bride & her parents entered the stage & sat down on the mats behind a curtain which stood between them & the groom.  Then the bride & her parents did a lot more of the chanting & platter making.    At 1 point, it seemed like the bride washed the feet of her impending husband.  We could see most all of what they were doing despite being behind the screen because in typical Indian tech-fashion, they had a video feed which showed everything going on on a video screen to the left of the stage.  There was seating for a few hundred during the ceremony & it was about 1/2 full.  The bride & her parents came & went a couple of times.
Finally it seemed like they were married.  They took some coconuts in hand & paraded around in a circle around the place where they were seated on the floor & chanting.  Soon afterwards they started posing for pictures, but apparently were not done yet, because the groom took a seat again & joined the priests in chanting some more.  By that time it was midnight & I headed off to bed.
Did anything auspicious happen @ 11:13 p.m.?  Not as far as I could tell.
Here are a dozen differences I noticed with an American judeo-christian wedding:

1. the ceremony involved the parents of the bride for an extended part of the ceremony.  It was explained to me that the reason for that is the bride’s family is essentially giving away their daughter to the groom’s family.
2. inviting 1500 people is 3-5 X the biggest wedding I’ve ever attended in the US
3. the ceremony was conducted in Sanscrit, a language very few even speak any more, so while the symbolism is important, very few understood the words that were being said
4. @ 2 1/2 hours & more, the Hindu ceremony was @ least twice as long as most wedding ceremonies I’ve attended in the states.
5. I was informed that changing the order of the dinner & ceremony was simply a time saving measure, in other words, if they were to have the ceremony 1st, then it would be in the morning to be followed by lunch.  I can understand why that’s not such a good option because it’s still sweltering here.
6. There didn’t appear to be any wedding party, i.e. groomsman, bridesmaids, etc.
7. There was a posse of 5 (?) poojarees who led the ceremony as opposed 1 priest
8. The ceremony was very focused on the bride, groom, & her parents, while everyone else just watched, via a live video stream off to the side.  There were no readings or singing of any songs or music by the “congregation.”
9. True to the Indian way, at least from what I’ve seen, is a certain amount of chaos, people entering & exiting the stage, the band playing loudly & then being silenced, & a bit of uncertainty of what to do next.
10. The wedding was held much closer to the groom’s family rather than the bride’s, from what I’m told because 80% of the guests were from his side of the family.
11. Aside from dinner, there was no socializing, dancing, or celebration in addition to the Hindu ceremony.
12. The Hindu ceremony used fruit, coconuts, bananas, etc. more than any Christian wedding I’ve ever seen, I’m told for they symbolic significance.

Indian Director of housing finance on global economic crisis & it’s impact on India’s economy

Shri. K. Narasimha Murthy, an Independent Non-Executive Director of LIC Housing Finance Limited,  (who looks like an accountant by trade), stopped by the GITAM campus to talk with our Institute of Management students on the global financial crisis & it’s impact on the Indian economy.  He opened by noting that most Indians don’t know academics well, & the importance of the economy, & then equated public finance with life.  In 2008, he lectured about the US housing scam & overt greediness to no avail.  That was compounded by Bush bombing Iraq & spending $TR without the financial muscle to back it up.  Everyone just accepted it which led to a vested interest in accepting it.  That was followed by skyrocketing oil prices, which then affected the bond markets.  When the world runs out of gas, literally as well as figuratively, money stops moving.  US manufacturing companies were importing far less.  Americans have forgotten how to work hard & save.  American culture is in bad shape.

Murthy traveled to London during that time.  When he landed @ Heathrow, he found the airport deserted & becoming somewhat dilapidated.  He saw old cars plying the streets.  The UK doesn’t work much anymore either.  Little is made in Britain anymore.  The manufacturing & work culture are gone.

That US debt is greater than its GDP is a problem.  America’s lower debt rating lowers its borrowing capacity, which increases its costs.  Murthy thought Obama’s job plan was great.  He noted that only the poor are now taxed while the rich are not.  There are structural defects in the US tax system as well as a cultural defect, but no one can control the US

Many years ago, John Maynard Keynes postulated that, along with the Bretton Woods system, if imports &/or exports became greater than 10% of GDP, they should be taxed, so as not to create the massive imbalances we have today.  He also suggested the use of SDR’s (Special Drawing Rights) to settle international accounts rather than any specific reserve currency, which the US$ has become.  China now holds US bonds which have no value.

Greece is now writing off 50% of its debt, which will lead to the value of recapitalized banks falling.  India is being asked to support the European Structural Stability Fund, while France, Italy, & Spain are next in line with problems.  Subsidy development has killed Europe & the US.  The debt/GDP ratio is far too high for France, the UK, Italy, & even Germany.  If Greece isn’t fixed, the Eurozone has a big problem.

India’s saving grace is its 37% savings rate.  Most internal debt supports the government.  He told the story of a modest India woman who lived on 60% of what she earned & stashed away the rest.  The west borrows to buy imported goods, which leads to massive trade imbalances, an indicator of no fiscal discipline.  We simply mint more currency to pay for things, but you can’t change cultures easily.

But in India, inflation is up & unemployment is hovering @ 11-12% while the rupee is depreciating & trade deficit is growing.  India has a structural problem that its farmers, 50-60% of the population, only contributes 17% to GDP.  48% of Indians live below the poverty line as the span between the haves & have-nots keeps expanding.  Inflation is simply too much money chasing too few goods.  The government is an example of unproductive wages when it shows no control & fiscal discipline.

While foreign-based Indians are returning to India, India’s low productivity levels still must be raised.  India is the #2 or #3 producer of many commodities, but doesn’t see the fruits of its labors because of low productivity.  Its current account deficit fueled by oil imports are a problem.  Earlier, Indian workers were required to deposit 10% of their salaries in government accounts.  India’s financial authorities just need to suck the excess liquidity out of the financial system & not raise interest rates, which have been raised numerous times in the last year.

Q&A

• Generally our risk management systems failed, along with our ratings & predictions.
• Good governance leads to good economics, so pray for good people in government to better align the central & state governments.
• The antidote to rising prices is increasing productivity, which requires political willpower.  Reducing inflation is a function of the public expenditure system.
• The reason governments can’t/don’t implement what theory would dictate is populism-they’re not able to make any reforms for political reasons.
• The financial dip in India has hit the middle class & youth the hardest.  The drawback has been investment outside of India while the rupee depreciates, resulting in falling foreign direct investment.
• Keynes said government spending will help lead to growth, but that also depends on capacity.  The socialists are not productive, so a mixed system like India’s is best.
• We can all change to get back to work & bring India’s black economy back into the real economy.

warnings for Indians studying in America

Prasad Thotakora, President of the Telegu (the local dialect spoken in the part of India where I’m teaching) Association of North America & COO of ekNazar.com, was invited to GITAM, the school where I teach, to speak about “Education & social entrepreneurship-a comparison between India & the USA. He’s lived in the US for the past 25 years. When he polled the audience to find out who wanted to study in the US, many raised their hands, but he encouraged them to lower their expectations. After recognizing social entrepreneurship as organizations as ventures for social change which create social capital, he gave a bunch of examples of such people world-wide, starting with Warren Buffett & Bill Gates, followed by Florence Nightengale & Indians like Vinoba Bhave, Rippas Kapur of Child Rights, Jyotindra Nath of Youth United, Jay Vikas Sutavia of Bhookh.com & Madhu Pandit Dasa of Akohaya Patna.

He then quickly moved on to the topic of overseas education. The US issued 35K visas to Indian students last year, while the UK issued 25K, & Australia 15K, proportionately many more relative to student populations. Employability is only 25%, so the the value of this education is questionable. Indian students need to make sure they are applying to & attending accredited universities. The University of Northern Virginia has been a problematic example. Violence is a problem on some campuses & some students have been expelled & deported. Teaching Assistant positions are now more difficult to get in the US. He gave a couple of examples which illustrated how the US enforces the law regardless of who breaks the law, i.e. the Vice President was ticketed for driving with an expired license plate & senators need to go through security checks @ airports just like other citizens. Apparently politicians aren’t bothered by such things in India.  His suggestions were to get good guidance, don’t try to “beat the system,” & don’t try to win @ any cost.

Nasscom indicated that only 25% of Indian graduates were employable & that “finishing school” is required for the rest to be brought up to speed on communication skills, becoming professional & presentable, & working on teams.  Andhra Pradesh graduated 448K grads from 1920 undergraduate programs, 269K from 698 engineering programs, & 50K from 713 MBA programs, but quality has not been maintained.  Students lack analytical problem solving skills.  There is no quick fix-the solution requires hard work & application.  Building camaraderie instills confidence.  There is no need for some Indian students to go overseas to study.  There are centers of excellence right here in India.  He actually claimed that schools in India are on par with America’s Ive League, which was certainly pandering to the crowd.  If you do go to the US, go there for the right reasons.

local techies woo government officials

The Confederation of Indian Industry & Vizag Information Technology Association hosted an event entitled IT Industry in tier II cities:  Prospects & Challenges, which featured many of the local resident politicians who have a say over what local resources can be dedicated to entrepreneurship, technology etc. The purpose of the event was ultimately to lobby for their support.
Information technologies industries have grown 20%/year for the last 10 years in India. As a major port city, Vizag is a logistics hub.
B. Chandra, Secretary, ITsAP & CenterHead-CA Hyderabad,  explained how growth comes about as a result of collaboration. Intergraph was the 1st IT company in Hyderabad, the biggest city in the state of Andre Pradhesh, in 1985-86. Vizag is approaching Hydrabad’s tipping point. $45B of India’s $60B IT market is exported. Each job in IT employment creates 4 more jobs. There is a multiplier for 3X for each rupee invested in IT. In Hydrabad, there is no poaching of employees because Team Hydrabad talks about it. The challenge of a tier II city like Vizag is attracting talent.
Kona Sasidhar, of the Vizag Development Authority promised to provide infrastructure & is opening an investment room.
Ahmed Nadeem noted that power & electricity affect the power of organizations, so they are doubling the substation in Rushikonda, (which is where my school GITAM is located) & also the Rushikonda tech park. They want growth in non-migratory jobs.
Dr. C. Sreedar, Executive Director of APIIC, Ltd. endorsed building IT City, but encourages an innovation center in the center of town.
Shiv Kumar provided the industry view of improving IT in Vizag:

• The city needs to support existing companies, & not just attract new ones.
• Part of the way to do this is by improving HR, training, & hiring incentives by creating a common training facility which offers industrial training incentives of 25-50K rupees ($500-$1K) to hired employees to complement the local Job Knowledge Center.
• A bandwidth subsidy would enable more cloud computing & kickstart WIFI city.
• A licensing subsidy with toned-down enforcement would provide an alternative to the cloud.
• A tax holiday for non-Special Economic Zone companies would level the playing field.
• Power cost reductions would help all companies.
• Marketing support programs which provide financial assistance towards travel & hotels for overseas trade fairs would help.
• An innovation & incubation center that mirrors Kakinda would be welcomed.
• Abolishing the VAT & service taxes on software would cut costs.
• Vizag needs a promotional video.
• To attract new companies, the city must:
• Provide better infrastructure
• Create a better lifestyle

Lav Agarwal, the Vizag Collector & district Magistrate, a powerful position in local government, observed that Vizag is on the threshold of where Hyderabad was 10 years ago. The government’s challenge is implementation. To create a full ecosystem, IT needs connectivity (which is available), power (which is supposedly the best in the country), infrastructure, & human resources. 3k ft2 are available for an incubation center. The video is under development. This isn’t just about land deals-it requires sound business ideas. Vizag has supply issues with drinkable water. The government is partnering with employers to provide housing. More bus frequency is coming. Make a proposal & they’ll consider it.
Peter Schneeburger, CEO of VITA, gave a quick history of IT in Vizag. 1st , big investments by MNC’s need to be championed by government. IT exports are rising 20%/year. In 2000, there were 50 SME IT companies, but the internet bubble burst them. in 2002, miracle software was the 1st to locate outside of the city. VITA was established in 2003, the same year HSBC came to town. Wipro came in 2005 supposedly to do world-class software development. Kanaxa & Symbiosis won product awards in 2008. By 2010, we noticed that there is a brain drain to Hydrabad & Bangalore & there is not world-class infrastructure in Vizag yet.
The Vision 2015 plan envisions employing 10K people in IT directly & 15K indirectly. Anchors would be HSBC, Kenexa, IBM, Satyam, Sutherland. SWOT analysis reveals that strengths in Vizag are it’s location, lifestyle, infrastructure, & skill level. All this requires vision & a common goal. It needs to be positioned in high-tech R&D & low-cost BPO. The goal is to create a $1B industry, create 1-1.5K jobs/year, 40-50 new patents/year, & 1 product company with $20M in revenues.
Sanjay JaJu, Secretary, IT&C Dept., Govt of Andhra Pradesh, admitted that Vizag is his 2nd home. His job is to bring stakeholders together to grow. Andrah Pradhesh is #4 in IT in India. Issues were raised about infrastructure, but the real issue is human resources, which are required for new business models. Space is not a problem. An investment center would be helpful. Special Economic Zones attract investment. IT is being declared essential services. Vizag is an industrial town, where there is a huge domestic spend too. Companies move because of cost arbitrage, which is why companies are moving to the Philippines & VietNam. Vizag needs to exploit these opportunities.

Indian Institute of Management Prof on Indian innovation

The Indian Society for Training & Development hosted Abraham Koshy, a professor @ India’s top-rated business school, the Indian Institute of Management-Ahmedebad who essentially talked about people development. As a pure thoroughbred marketing person, Koshy co-authored a marketing book with noted Kellogg marketing guru Philip Kotler. Additionally he noted that great organizations require solid foundations of people. He sits on the board of directors of 1 of the top 500 banks in asset quality as chair of the HR committee.
He discussed 3 themes:
1. Inevitable competition
2. The requirement for innate competence
3. Individual growth & organizational growth are inseparable
The landscape in India is changing. There is no growth in western markets, so international brands are coming to India & building their manufacturing bases here. The competition is becoming intense & cutthroat. Technologically, tablet computers& “the cloud” are taking over desktops & laptops. End-user applications are changing as the value creation chain changes. The rate of change in the last 3 years is even more rapid than 10 years ago.
The marketplace has changed & now requires a different set of competencies. The environment was predictable before, but no more. There is a real need to “sense” customers & base decision-making on those predictions. 3rd party research & opinion polls are just cold #’s. We must read consumers minds. Competitive mapping provides the capability to plot brands vs. brands visibly & alternative consumer behavior too. Nokia once led the mobile phone market & has since slid. Android has overtaken Symbian as the operating system of choice for mobile phones. Organizations need a competency in adaptability, but how is it measured? Individuals must adapt for organizations to adapt. Re: innovation capabilities, academics are outdated in 2-3 months, so their methodologies are misplaced. There are generational differences. Today’s students are a different species. We need to innovate with students & incremental/linear innovation won’t cut it. Organizations are simply the sum of their individuals.
We must invest in our intellectual maintenance. In investing in individual development, we need to change from the routine to the creative without responsibility for the organization necessarily. Further, we need to move from the mundane on to significant things by transforming from doing to thinking. We must also strive to push daily to change our state of mind from mediocrity to excellence & transition from being followers to leaders. New students @ the IIM’s are inexperienced & don’t even know the theories, so there is an absence to sense. They simply look for data to confirm their biases.
So what do managers do? Assess market opportunities & pursue those opportunities.
Q&A

• There are many tools to assess individual competence. Assessment centers can identify gaps & even map organizational competency.
• Koshy objects to the term “emerging” economy when applied to India. When did India emerge? It will be producing markets soon too & no longer just with cheap labor. The collective performance of the economy has a macro feeling of which Sensex (India’s stock market) is no indicator.
• Most Indian companies have struggled to innovate because they are shy of experimentation. They expect the force of change to start @ the top & work it’s way down, but actually markets change from the bottom up, so leaders don’t actually need to lead these changes. But for the masses to change, it takes time.
• Organizations do change. Even @ Indian factories, now 20% of their workforces are women. Jobs & workrules need to be redefined & organizations redesigned. It’s easier for service organizations to change. Training & retraining are important. There is a leadership role in change & that is in communications.

India’s fed chief on the financial crisis

Dr. D Subbarao, the governor of Reserve Bank of India, i.e. India’s Ben Bernanke, came to the school where I teach the GITAM Institute of Management to talk about “India & the Global Financial Crisis:  What have we learnt?”  He opened by summarizing India’s recent economic history like so: India embarked on economic reform in 1991 with 3 pillars:
1. (I missed the 1st 1)
2. Open up the Indian economy
3. Downsize the public sector
Then he noted that globalization is a double-edged sword with invisible costs & benefits. The 2008 financial crisis took a deep toll on India’s growth. The cause of the crisis was global imbalances & too much financial leverage. Irrational exuberance led to the crisis. But this most recent crisis differs from prior crises in these ways:
1. Earlier a crisis might hit only 1 country, but now it leads to the rest of the world
2. It hit the wholesale side of banking, not the retail level
3. There is no buffer for recovery
Subbarao took office just days before Lehman Brothers collapsed, so he jumped in when India & the rest of the world were just falling into the crisis. GDP fell. Exports fell. The Indian rupee fell. Capital fell. This was a crisis of confidence in real channels which resulted in a flight to safety. Lines of credit dried up & there was a strong liquidity crunch. Despite it’s current economic strength, India was hit too because it’s closely integrated with the rest of the world economy. Trade (20%->40% of GDP) & finance (44%->112%) integrated much more deeply from 1998-99 to 2008-9.
India’s response was fiscal stimulus with “accommodative” monetary supply. Their priorities were to keep the financial markets functioning, provide liquidity, & prevent insolvencies. They created ample rupee & foreign exchange liquidity, & enabled credit to flow. Generally they had to manage confidence & expectations.
The result is India recovered sooner from the financial crisis than most other countries in the world. However inflation is creeping up. India’s fed has raised interest rates 11 times since March, 2010. Inflation is driven by food & oil prices, & demand as incomes increase. The focus today is on rural India. They need to ensure the mid-term range to balance the trade-off between growth & inflation, & savers & investors.
What are the lessons of the financial crisis?  Was there creative destruction? It’s probably too early to tell.
1. Decoupling doesn’t work-the world is already too well-connected
2. We must address imbalances to enhance stability. 3B workers have been added to the world’s workforce in China in the 1980’s & India in the 1990’s. Investors are seeking higher rates, but that’s riskier for the banks.
3. Global problems require global coordination. Each country couldn’t douse the flames of the crisis in it’s own land. The G20 helped, but is losing its effectiveness because now there appears to be less urgency.
4. Capital controls are advisable & unavoidable because there are no benign solutions. There is a preference for equity over debt, but capital flows are difficult to manage.
5. Economics is not physics. Everything cannot be captured in equations. There are different contexts & economics depends on real-life behavior.
6. Economic history prevents & resolves crises. Over the last 800 years, the causes have always been the same. Has the world changed that much?
Q&A
• In India, derivatives are centrally regulated
• The early warning signals to the financial crisis could have been too much leverage, financial institutions lending to the same sector, & even having too much stability for too long.

northern German green technologies

It’s appropriate that the last international event I attended in Chicago before I left for India was with the Krauts, the 1′s who got me started in all this international stuff. They hosted this event: GREEN TECHNOLOGY: COOPERATION PERSPECTIVES FOR THE US MIDWEST REGION AND NORTHERN GERMANY  Part of the visiting delegation was stuck in Hamburg because of bad weather, but the show did go on.

Chicago’s new mayor Rahm Emanuel made a showing  before he ran off to open a school & noted that German firms employ 36K employees in the Chicagoland area.  On environmental notes, he added that Chicago has the most headquarters of wind companies & the most urban solar farms in the U.S.   He also wants to double the number of LEED certified buildings in Chicago.

You should be able to find most of the information presented @ the conference on the GACCOM website, so I’ll just hit the highlights here.

Frank Horch of the city of Hamburg kicked off by letting us know that his city is the 3rd largest port in Europe & 3rd largest aviation location in the world.  Jan Rispens of Renewable Energies Hamburg (erneuerbare energien hamburg, gmbh) said Germany has set a target of 20% of it’s energy needs served by renewable sources by 2020.  Investments of €20B has created 340K jobs & now creates 17$ of total energy production.  Solar is still expensive, but they are building solar photo-voltaic cell farms.  25 renewables companies in Hamburg employ 4K with a turnover of €5B.  60% of the world’s wind energy know-how is within 2.5 hours drive from Hamburg.

Panel 1:  Vattenfall is the #2 generator of wind power.  15% of their electricity comes from renewables & now they must replace the 20% of electricity that was generated by nuclear power.  Nordex created 200 jobs when they opened their new plant in Arkansas.  They see 25% better wind potential than in Germany.  AWEA has 2500 members & collaborates with EWEA.  Commonwealth Edison will be required by law to provide 20-25% of it’s energy via renewables by 2050.

Panel 2:  Buildings consume 1/2 of all energy consumption & create 1/3 of CO2 emissions.  Heating & cooling take the most energy, so investment in insulation is needed.  While green building of CO2 neutral houses mitigates environmental impact, the more pressing issue is how to make the existing housing stock more efficient.  1.6M ft2 are LEED certified daily in the US.  According to energy modeling data, predicted energy use occupancy goals are not being met.

Panel 3:  Energy transmission & storage are still challenges.  Hydrogen fuel cell technology is coming in the next few years.  There are 3 criteria for electrical/utilities issues:

1. Whether or not it’s clean energy is a political issue.  Rechargers are 100% renewable.
2. All users should be entitled to free access.
3. Charging stations must fit with urban development.

Battery-operated cars are coming to the market before hydrogen powered cars, but hydrogen filling stations are expensive & it’s not certain that there’s a market there yet. Changing traffic lights to LED’s saved 70%.  Hamburg’s Climate Action Plan devotes €25M to these issues from the public budget.  We need to use the 3 S’s:  save, store, & substitute.

ILL export conference

My last week in Chicago, I checked out the  ILLINOIS EXPORT CONFERENCE which was part of Illinois Export Week.  Warren Ribley, Director of IL Dept. of Commerce & Economic Opportunity, led off by saying Illinois leads the midwest with an increase in exports of 20% from 2009 to 2010.  Like Obama’s National Export Initiative, he hopes to double Illinois’ exports by 2015.  Governor Pat Quinn noted that there’s jobs in exports as Illinois exports were up 30% in the 1st quarter of 2011 to $14B.

Doug Oberhelman, CEO of Caterpillar, gave the keynote address.  70% of Caterpillar’s revenues come from exports.  Free Trade Agreements (FTA’s) have a negative connotation, but they shouldn’t as long as they’re reciprocal.  So why trade?  He gives 3 reasons:

1. the US is no longer big enough, with only a population of 300M vs. 7B in the world.  ASEAN is importing $14B in airport infrastructure.  Brazil is investing $1.2TR in housing.  Africa is building 1200km of trans-Algerian highway.  India is building 54K miles of highway too.
2. it’s better to play offense rather than defense.  Caterpillar confronted co-leader Komatsu in Japan & won.  With their world-wide footprint, they can serve Brazil’s needs in hydroelectrics.
3. competition makes everyone better because it raises the bar for everyone.  Caterpillar has 150 new mostly low-cost competitors in China & they learn from every one.

Oberhelman offers these action points:

• sign FTA’s with South Korea, Panama, & Colombia-we’re losing opportunities & jobs.  Caterpillar competes with German & Japanese companies for huge truck orders for their plant in Decatur, IL, of which 92% of it’s production is exported.  They’re losing opportunities in Colombia.  The revamped Panama Canal is an opportunity.  Others have duty-free access to the US-we should have the same duty-free access to their markets.
• we must support those who lose their jobs to foreign trade with retraining.
• write to your representatives to keep trade in mind when voting
• don’t forget that the US is under attack @ all levels.

Q&A

• Each tractor that comes out of the plant in Aurora, IL has a magnetic flag attached to it.  NAFTA has been a boon to North America.  The US is based on trade, starting in the 1900′s when we had no competition.  Caterpillar would lose if they moved all of their production to China, Brazil,…despite paying the highest tax rates in the world.
• SME’s should start supplying customers who export & follow them.  Then think about whom do you know & trust?
• Africa is an opportunity, but China is giving lots of aid & investment.

ILL companies export experiences panel discussion:

Bo DeLong of DeLong Company says ILL is a great place from which to export agricultural products.  They relied on the US Soybean Assn. & originally sold through agents & have grown from $100M in 2003 to $1B with 100 employees.

Jeff Dziura of NewMedical Technology has taken them to 36 distributors in 40 countries.  They went to Europe in 2008, Asia in 2010, Brazil in 2011.  They’re in highly regulated markets, but don’t get bogged down in paperwork. There is still cache to “made in the USA.”

J. Hurley Myers of DxR Development Group developed software for clinical problem solving featuring clinical simulations.  They went to Japan 1st, where translatin is key.  You need to do lots of research to find the right market matches.  It took years to find the right people in China where friendship comes 1st, before business.  You need to find someone you can trust, & it’s better if they have the right contacts.  You need local attorneys everywhere you go to protect your intellectual property.  Customer service can be done through local distributors who know the business.

Russell Witthoff of Dukane IAS has exported to Latin America since the late 1980′s & Europe & Asia since the 1990′s.  They focused more on central & eastern Europe than western Europe because they felt those areas were a better fit.  They now have a subsidiary in the Czech Republic which provides sales support for western Europe.  They’re establishing a subsidiary in China with contacts they made in Rockford.  CE standards can be an issue.

Q&A

• Although face-to-face meetings are still best, Dziura found a distributor in Greece through LinkedIn.com
• India is an alternative to a China strategy, but they are 2 different situations.  China exports while India serves customers @ home.  Local representation with a direct presence is critical to show commitment to the market.
• Repatriating profits from China can be challenging.  You need to pay expenses in China from China.

The following awards were given out @ the Export Awards Luncheon:

•                                    Exporter  Continuing Excellence      Exporter of the year          New Exporter
• Small company:  Automated Industrial Machinery     NewMedical Technology  DxR Development
• Avlon Industries
• C&D USA Inc.
• Elastec
• Excel Railcar
• Mid-sized co.:  Dukane Corp IAS Div.                                   Roho Group                           Rauland Borg Corp.
• Williamson Energy LLC
• Big Co.:    Flexco                                                                             Corn Products Intl.
• NOW Foods

• Export Promotion Agency of the Year:  ILL Soybean Assn.
• Intl Trade Center of the Year:  SBDC @ SIU-Edwardsville
• Agricultural Exporter of the year:  DeLong Co.

democracy vs. corruption in India

The Chicago Council on Global Affairs hosted Kiran Bedi, the 1st & highest ranking female officer in the Indian Police Service & founder of the Navjyoti & India Vision Foundation who talked about RESTORING PUBLIC CONFIDENCE IN A DEMOCRATIC INDIA.  Bedi’s life’s mission is to fight corruption & she’s tried to use visual depictions rather than words to document it.  The Right To Information act of 2005 created a revolution in India which created dramatic results & exposures.  India has no anti-corruption authority as in Scandinavia, only an advisory organization, & it’s not mandatory that it is followed, so it is not respected.  There have only been 11 inquiries.  It’s not independent, so it relies on political powers that run hot & cold.  They also can’t investigate those with 25+ years of service without the approval of the government.  Corruption has increased as the economy has grown because there are no checks & balances.

The strength of Indian democracy is it’s 714M voters, more than the sum of Europe & North & Latin America.  Rural governance includes 1M+ women in 1/3 of all village councils.  It’s supreme court is independent & biggest strength, but does depend on other branches for it’s budget.  India’s comptroller general is fearless & exposes corruption in the headlines every day for the last 2 years.  The free & commercial media keeps people on their toes.

Bedi wants to see if Indians in America will raise their collective voice.  The head of the Commonwealth Games went to jail.  The founder of India’s Premier League was exposed as corrupt.  But watchdogs have no teeth.  In bribery scams, there was a system failure & India never fought for the system.  The government is only connected by voting, so there is no ongoing retrograde democracy.

To restore confidence, India filed a complaint about the Commonwealth Games.  They looked at laws in Hong Kong, Singapore, & Sweden & drafted their own bill.  India has been 1 of the last to sign the water treaty.  Indians say they want an honest democracy.  Civil society is using soft power along with mobile phones to influence virtually.

Q&A

An Indian millionaire lawyer took his child back to India against the wishes of his ex-wife & because of his wealth, has escaped the law.  These situations are being addressed in a new bill.

A common ID card with biometrics will clarify who gets what.  The common man needs access to this information.

India is estimated to lose $16B in corruption.

US manufacturing revival?

A full house attended  MADE IN AMERICA: A REVIVAL IN U.S. MANUFACTURING? by the Chicago Council on Global Affairs.  The event was moderated by 1 of my favorite economists Diane Swonk, & featured Chad Moutray of the National Association of Manufacturers, Bill Strauss of the Federal Reserve Bank of Chicago, & David Beebe of Navistar.  Diane opened by noting that recent trade statistics are worse than when we were in the great depression.  We’re down $3B in imports from Japan as a result of changes in the automobile supply chain & the disasters in that country.  There have been structural shifts, such as wage differentials narrowing.  Productivity & transportation costs have soared.  Midwest manufacturers have protected their high-value-added production intellectual property by onshoring.

Moutray stated that American manufacturers are the most productive in the world, generating $1.6TR & 11% of US’ GDP & 9% of employment, but lost 2.3M manufacturing jobs & only gained 245K back.  86% have favorable expectations about the next 12 months, with an expectation of +5% in sales & 1.8% expect a raise.  The rising cost of raw materials is a problem, leading to expectations of 2.3% & 3.6% expectations for growth the next 2 years.  The US needs to attract foreign direct investment & do more research & development.  American costs are 18% higher than our competitors because corporate taxes are too high, for example compared to Canada where they’re only 16%.

Bill Strauss started off talking about the disconnect between manufacturing & policy.  Manufacturing’s share of the economy has fallen since World War II to 9%.  Increased productivity has raised output 600%.  Agriculture now only employs 1.6% of American workers.  Oil prices have increased logistics costs, so supply chains are localizing & not globalizing.  The economic downturn hit the midwest hard:  2.3M of 8.7M manufacturing jobs were lost.  We’ve seen 6.9% growth in the recovery since June, 2009 driven by increased productivity & not hiring.

Beebe said this recession is the worst in the last 50 years.  Navistar added to it’s portfolio to strengthen it’s position in the market & added that product development is key to technology exports.  He offered 4 keys to growth:

1. focus on operations costs & breakeven
2. expand your portfolio by leveraging your platform
3. use a flexible manufacturing strategy with your people, products, & assets
4. enter non-cyclical markets, such as the military

He’s optimistic as Chinese costs are closing & logistics costs are rising, the total cost equation has shifted.  We do need to reduce our corporate tax rate, encourage more free-trade agreements, & reduce regulations.

Panel Q&A

• There are tradeoffs to reduce corporate tax rates.  R&D tax credits have been on & off again.  An onslaught of regulations hit disproportionately on SME’s.
• We need to create a level playing field & keep balanced to bring back manufacturing to the US.  Corporations don’t pay taxes:  individual income & sales taxes fund government.  Those costs are passed along.
• Colombia could be a big success if congress even passes that free-trade agreement.  We need to restart the Doha round talks.  The rest of the world is not stagnant.  The US can’t rest on it’s laurels.
• It’s difficult to hire engineers today.  We need to keep educated immigrants in the US.
• Manufacturing comprises 60% of US exports & were +14.5% last year.  We need 15%/year to double our exports to meet President Obama’s National Export Initiative goal.  Trade increases as goods get smaller.

Open Q&A

• The world can learn from Germany’s educational system.
• When an economy falters, the currency of that economy takes a hit.  The reverse it true in Germany.  If the Deutsche Mark were to return, it would be strong.  But in some ways exporting is overblown:  proximity matters.  Interstate American trade=some international trade.
• The Chinese currency has appreciated since 2005 @ the real rate of inflation +10%. Companies are moving to western China.  There is upward pressure on wages in China.  Chinese labor markets are similar to those in the US.  China had 98M workers in manufacturing in 1995 & 83M in 2002.
• Democrats are requiring trade adjustment assistance.
• Manufacturing extension programs are contributing to SME job growth.  These manufacturers are highly innovative & do 2/3 of the research & development in the US.
• The economic downturn seriously impacted innovation & venture capital, but that has now turned around.  Banks are looking for business. Some businesses are switching banks if their current provider isn’t meeting their needs.
• Automakers supported bailouts of competitors to maintain their supply chains.  Market economies are very scary after a financial collapse.  We hit bottom in mid-2009, & could have been in a death spiral in 2010-11, but it’s been called a depression to frequently.  We won’t come out ahead, but it could have been worse.
• Navistar has not constructed a new plant in the US for a long time, but they have created flexibility in that now they can make all their models in different locations.  Now they take a system-wide view on costs to determine where to produce.
• Job creation is happening now as we create new export markets.  Jobs created for ancillary markets are important.

latin america rising

Fellow Thunderbird alumnus Luis Alberto Moreno, President of the Inter-American Development Bank (IADB), was a guest of the Chicago Council on Global Affairs to talk about The New World Rediscovered: The Rise of Latin America Based in Washington, D.C., the IADB has 26 member countries, & is the oldest & largest source of multilateral assistance in this hemisphere. IADB is seeking a capital increase of $300M from congress. Illinois exports $9.2B to Mexico, which is more than it exports to China.

Latin American (LA) countries are the most democratic emerging markets. The financial crisis shifted the balance of power. Inflation is in single digits as a region & they are now a global creditor. LA bounced back quickly by reaping the benefits on 1990′s reforms. The new middle class now encompasses 60% of the population as illiteracy is being eliminated. They are meeting & exceeding the Millennium Development goals by shifting mortality to less than 23/1000. Mobile phones have penetrated 90% of the population. US influence is waning from 55% of imports in 2002 to 32% of imports on 2009. Asian trade, particularly with China, is picking up that slack. Copper prices supported Chile in the crisis, but they are getting away from the boom & bust commodity cycles of the past. The stock exchanges of Colombia, Peru, & Chile recently merged. SME’s comprise 90% of business & create 70% of jobs.

Unequal distribution of wealth is still a problem. There is slow progress in Haiti. Public services need to be improved-80% of sewage is still dumped raw. Productivity still lags. Violence issues affect 8% of GDP. LA is still vulnerable to disasters & climate change. They are implementing disaster risk management strategies against hurricanes, floods, droughts, etc. IADB is financing sustainable energy projects. Some places get 65% of their power from hydroelectric power, but droughts impact upon that. Education & innovation lags as indicated by standardized tests & patent submissions.

Luis was in Santiago, Chile for Obama’s speech there, when he encouraged new trade ties & vowed to connect LA SME’s with American SME’s. Lessons learned from dictatorships were that democracy works best. An LA summit coming up sets the goal of doubling GDP, dropping poverty from 32% to 10%, having the middle class reach 500M by 2025, which requires 4.8% growth.

Q&A

• US consumption of drugs drives problems in LA. As ambassador of Colombia, Luis took 120 congressmen to Colombia. None were willing to legalize drugs. The US needs to consider gun use too. We need to take a hard line on crimes by starting with drugs & moving on to other crimes too.
• LA learned the hard way about money-laundering. They had 31 financial crises from 1975-2001, & have made huge advances by subsequently changing their banking laws.
• Advice to America: quick responses help. Send bankers to jail. Taxpayers shouldn’t save those too big to fail. Solve major fiscal problems. Economic power is greater than military might.
• LA has had good & bad history with privatizing public goods. Water was privatized @ the city level in the 1980′s & that failed because people didn’t want to pay for water. Chile changed pay as you to to a system where they created a 3^rd pillar with more private savings. Telecom, toll roads, & airports have been successful privatizations.
• Chinese consumption drives LA agricultural growth. The Chinese are interested in ports & logistics. The US consumes on China’s credit card. There is competition out there, so strategic vision is required to compete.
• IADB should be lending 25% of their projects on climate change, for example on watersheds. 70% of LA live in cities, so there is a local dimension. They adopted mass transit early on. Clean coal, hydroelectric, & natural gas are all important power sources.
• Despite the fact that Brazil & Mexico comprise 2/3 of the GDP of LA, they should deepen their relationships regionally. Soon all countries on the Pacific will have Free Trade Agreements, so they need to develop reasons to group together.
• Unions fight the trade agenda. There is no risk to the FTA with Colombia. We pay duties on goods being exported to Colombia while they pay none in the reverse direction.
• America’s rising health care costs provided opportunities to provide health care in Costa Rica.
• Despite Corporate Social Responsibility programs, poverty is not being alleviated. Coke sent mangoe juice to Haiti. We need to apply success of intervention in public/private partnerships.

 

human rights vs. rights of foreign investors

I had lunch & learned with Prof. Sabine Schlemmer-Schulte Fragmentation of International Law: The Case of International Finance & Investment Law vs. Human Rights Law  when she talked about which essentially pits the rights of foreign investors against the human rights of people in the host country receiving that investment. Cases in Germany & Argentina examined the issue. Argentina provides a case in point. In pursuit of growth, the Argentines privatized/sold public sector assets to foreign investors, but the anticipated growth was not achieved & Argentina defaulted on it’s debts, creating an upward debt spiral. Foreign investors didn’t want to restructure the debt. Courts in Germany & the US looked into the rights of investors in their countries. Given the dire situation in Argentina, they have to wait until after economic restructuring for enforcement. There is no sustainable solution. Breaches of contracts are clear contract cases, but were environmental treaties violated? Investment treaties protect international investors while there are also international covenants on human rights. There are conflicting international norms. International financial institutions have not subscribed to financial treaties creating a new body of law. The fragmentation of international law requires the rethinking of the rudimentary hierarchy of international law norms. No 1 disagrees with debt restructuring-80% of Argentines agreed to restructure. Different approaches to these fragmentation issues bring more questions:

• Does this create a race to the bottom?
• Do human rights trump commercial rights?
• Does corporate social responsibility have any teeth?
• Why isn’t this all more similar to domestic laws?
• Does suspending debt payments work?
• This is a WTO issue of trade vs. the environment. The tools are already available. We could integrate human rights concerns. We need a comprehensive overhaul of the rules of the game.

Prof Karen Halverson Cross added her commentary. The US constitution says both treaties & federal statutes are the “supreme law of the land.” Statutes are to be construed consistent with international law. Customary international law trumps inconsistent state laws. But the International court of Justice’s judgments create international obligations, but they aren’t directly enforceable in US courts. Venture funds in the US bought Argentine debt for $.25/$1 & sued for the full $1 value of the debt. Creditors should be able to enforce a contract. They were invited to bring in international law. Bilateral investment treaties say “investment shall …be accorded fair & equitable treatment.” 3 foreigners claims were brought by bondholders against Argentina, which then became an issue of jurisdiction. Is the basis for the bondholder’s claim a breach of the debt contract or a breach of the bilateral investment treaty? Collective Action Clauses (CAC’s) allow qualified majority holders of debt to change the payment terms of the bonds & restrict the ability of a single bondholder to accelerate or bring suit to enforce the debt. As of 2006, the worldwide stock of bonds with CAC’s stands @ 60%.

thru hong kong to china

The Hong Kong Trade Development Council put on another even bigger event  china” href=”http://edm.tdctrade.com/intimate/viewMessage/content_path/messageId_131028644/logEnabled_true/ctEnabled_false/trackerType_3″>HONG KONG: YOUR PARTNER FOR SUCCESS IN CHINA to promote approaching China through this SAR Special Administrative Area. Mary Roberts of the Illinois Trade & Investment office said Illinois exports through Hong Kong were up 23% in 2010. Rita Athas of World Business Chicago made a trip with then mayor Daley & 30 business leaders to Hong Kong in March. 30 big name Chicago companies already have operations in Hong Kong while there are at least 30 Hong Kong companies in Chicago.

Dr. John Chai, Managing Director of Fook Tin Technologies, Ltd. Gave the keynote address. He returned from the US to Hong Kong 10 years ago & found the city had totally changed. ½ of the world’s population is within 5 hours of Hong Kong. In China, there are now 50K companies which employ 10M people. They have not been prepared for inflation, so their goal is to cap it in the single digits. Hong Kong has 13 universities, 68 colleges, & 6 science parks. It’s Chinese neighbor Shenzen has a population of 15M, 11 universities, & 6 science parks, & is the most affluent province in China. The Hong Kong Shenzen Innovation Circle is a self sufficient subsidiary. 1.9% of 5048 companies spent $5.5B on some form of R&D in Hong Kong in 2009. 13% of companies spent HK$14B on some form of design activity. The government has commissioned 5 R&D centers to be created to become a testing & certification center. Onlyh ½ of R&D takes place in science & technology parks: 344 companies are in incubators. In 2000, only 34 foreign MNC’s were doing R&D in Hong Kong. That has risen to 750 by 2005. By 2007. 1/3 of respondents were setting up in China. 60% consider the business location ideal.

Panel 1: Hong Kong was H2O+’s 1^st partner in Asia 20 years ago & are now in 22 countries in 2010. They are launching Korea, Vietnam, & Russia in 2011.

Calumet Industries has 28 factory locations in 5 countries, ½ of which are in Hong Kong/China. They use Taiwan, Hong Kong, & Shenzen as a staging platform for the region.

Panel Q&A:

• Hong Kong trade shows are the best way to meet potential customers & local partners.
• Globalization is having severe impacts on prices.
• Calumet sourced in China much earlier than other companies & their competition followed & is coming directly to the market.
• It’s important to be consistent around the world. Although sizes of products might differ, trends are shortening.
• Regardless, it’s still important to tailor products geographically based on what the competition is doing.
• Hong Kong can be a great springboard to other markets.
• A physical presence is required: visiting partners/customers once every 6 weeks is not enough to build the proper relationships.

Open Q&A

• Chinese consumers look @ trends in Hong Kong.
• Launching in Hong Kong can allow you to be the 1^st to seed the market.
• Hong Kong nationals are more westernized than the Chinese, so communication is easier in HK.
• It’s best not to compete head-to-head on price with Chinese companies. Focus on quality & on specialties rather than mass markets.

Louis Ho of the HKTDC talked about the Pacific Bridge Initiative, for which a Memorandum of Understanding was signed in Nov., 2010.

Panel II

70% of health care companies have some kind of branch or office in Hong Kong, which plays a role of health care reformer. They’ve adopted & harmonized with international standards & legal systems. The HK$ is more stable than the renminbi. Hong Kong is home to 4 of the top 100 universities in the world, which contribute more intellectual property and the top 100 in China. Hong Kong offers easier certifications of medical devices. Adapting for the Hong Kong market is still important. “Clinically proven in the USA” helps. Legally, patents are not extra-territorial, so it’s important to secure intellectual property rights in Hong Kong. There are no international patents, so they effectively stop @ the border. Register in Hong Kong with a Hong Kong attorney (http://ipd.gov.hk) , but be sure to pay attention to tight deadlines. Use non-disclosure agreements & don’t publicly disclose patent applications. Do your intellectual property due diligence to avoid infringement problems.

naked vs. undercover economist

The Chicago Council on Global Affairs Young Professionals hosted another hip function THE UNDERCOVER ECONOMIST MEETS THE NAKED ECONOMIST  Alas no bodies were bared.  Charles Wheelan was back at it again, while Tim Harford was plugging his new book on how complex problems are solved.  His toaster project, to build a toaster from scratch in the forest, symbolizes how complex our lives have become.  He also noted that there are 10B distinct bar codes for products sold just in Chicago’s economy.  But all problems can’t be solved by markets, which are not necessarily the sum of businesses run by smart people, rather a result of lots of trial & error, which creates it’s own selection mechanism.  As innovative as the printing press was, Gutenburg went bankrupt because of the bible:  it’s 1st profit came only when he printed papal documents for the catholics.  To fix a problem, you need to experiment & make many failures, but society doesn’t value it.  Denying failure & the psychology of it is a bad process.  For poker players, the most dangerous time for them is right after their 1st loss, when they tend to double up.  Stock investors tend to hold on to losing shares too.  We suffer from loss aversion when we won’t admit even small losses.  Students experiment & fail safely.    Failure is inevitable, so get used to it, but fix it fast.

Wheelan noted that Harford’s book crosses interdisciplinary lines & drills down on what works & what doesn’t.  It’s important to understand when markets don’t work.  For example, recognize the public costs of driving when observing the private costs differ from the public costs of climate change.  Car fleets should run @ 24 miles/gallon because there is currently no incentive to get better gas mileage than that.  Regardless, all economists, myself included, argue for a carbon tax.

Panel Q&A

• Hindsight is 20/20 in reinterpreting the past.  Make little bets on your career & all might not work out, but it should be much more interesting.
• All Wall Street firms made bad bets which led to the financial crisis, & there were no small bets.  Now there is no room for failure.  Banks can & will fail-whistle-blowers are important to exploit errors.
• Google inspires a culture that encourages innovation & failure.

Open Q&A

• It’s not helpful to think of whether knowledge comes from the enlightened or collective thought, rather “What should you know when you need to know it?”
• We don’t know if risk-averse financial institutions recognize resource misallocations.  “Black swans” (not Natalie Portman)  are high impact events with low probabilities that are based on few data  points.  We need more modular safety gates which decouple the dominoes in finance.
• Innovation transfer happens better in health care than in many other industries.  Professors are practicing clinicians & their journals create a tight evidence loop.
• There is no bottom line measurement of success in education.  Kids learn at different rates & we don’t really know who’s doing well & who’s not.
• Creative people are often simply stubborn, impossible to intimidate, & indomitable.  Entrepreneurs are more likely to be delusional.

 

revolutionizing development economics

The Chicago Council on Global Affairs hosted a lunch for Esther Duflo of MIT who is Revolutionizing Development Economics.  She’s written a book about how she’s seeking to understand how the poor function & how to design effective policy to help alleviate poverty & check it’s effectiveness.  The debate on aid & poverty is how broad & general should it be?  The US has no solutions & only creates problems which are difficult to resolve.  Africa received lots of aid during the 1960′s & still has little GDP growth today.  They still don’t have many good alternatives.  We’re obsessed with aid because we only see it dispersed from here, but only a small percentage is actually spent.  The real question is “How can aid monies be spent more effectively?”

There is a fair amount of ineffective policies that adhere to the 3 i’s:  ideology, show ignorance of reality, & can’t overcome existing inertia.  Where are the levers?  How do we lead the charge?  What constitutes success?  There are no new products or markets to tell us.  Social policies operate where markets are missing.  When social value exceeds private value, it leads to subsidies.  Assuming schools are a given means they won’t change unless they are private.  Randomized control trials create comparable results.

Esther has uncovered a number of surprises in her research.  The poor are actually not hungry.  Indians are eating less & less, but rice is only subsidized 10%.  If it becomes any cheaper, they will eat anything but rice.  There is a nutrition problem:  ½ of poor women are anemic.  Poor people still make rational conscious decisions.

We can improve education by removing the best students, which is good for everyone.  In Kenya, the educational system was biased towards the elites & tended not to change.  Parents are only interested when their students are doing well.  Classes that were heterogeneous made teaching become more focused.

Many are entrepreneurs, but they don’t want to be.  They are simply resilient.  80% of parents say their children should become civil servants.  Entrepreneurs move up to close the “Missing Middle” but there’s still a growth gap.  They’re invested in moving up but can’t lift themselves out of poverty.  The objective of microcredit is not to lift people out of poverty because it will never grow big enough to bridge the gap.

People don’t like women politicians, but they’re more reluctant to change.  After they’re exposed to women leaders, the biases disappear.  Women are good leaders who take fewer bribes, but men rate them lowest.  Politics matter, but there is still slack to do better.  We need to aspire to better than leading good institutions with bad policies (the 3 i’s).  Improving the lives of the poor may or may not spur economic growth, but poverty is everybody’s problem.

Q&A

• Randomized control trials are easy to explain & a good way to get the ear of politicians.  Esther encourages experimentation, asking-not telling, & leaving behind a monitoring ability.
• The role of for-profits needs to be “spaced” adequately with non-profits.  For example, there’s no money in immunization because the money is in vaccines, so identify what’s missing to find opportunity.  Not everything can be solved by for-profits:  use the right tool for each problem.
• Modifying existing food like sweet potatoes to be more nutritious makes more sense than promoting macronutrients.
• Corruption is a result of institutions which needs to be fought with sets of rules that make the population more incumbent.
• The new leaders of South Sudan shouldn’t listen to the elevator pitches of all the experts, rather they should subscribe to a plan & learn what will work for them.  They do need to legitimize themselves from early on.

 

bye Chicago-hi India, EU & Baker McKenzie on China, invest in Bulgaria, BRIC middle classes, enter India

WELCOME TO “GOING GLOBAL,” THE INTERNATIONAL BUSINESS NEWSLETTERIf for whatever reason, you are not able to view any part of this newsletter, feel free to view it as a webpage.Please subscribe here or if you must, unsubscribe here follow my tweets on twitter. schedule an appointment on my calendar. this month’s entries on the “going global” international business blog Subscribe in a reader or Subscribe to global american technology alliances blog by Email goodbye Chicago…hello India The Economist & Baker-McKenzie on China invest in Bulgaria? the growing middle classes in the B(R?)IC countries how to enter India ↑ Grab this Headline Animator columns & podcasts: local tech exec on opportunities in Iraq listen to the podcast here How to avoid legal hurdles when expanding overseas listen to the podcast here Navigating the legal landscape of overseas expansion listen to the podcast here More global expansion how-to from Ed Hamburg listen to the podcast here Ed Hamburg tells how SPSS expanded overseas listen to the podcast here Should small businesses be charitable? Access past columns contributed to eprairie/midwestbusiness.com here & listen on the gata website on your media player or on itunes Subscribe in a reader ↑ Grab this Headline Animator Jobs with an international non-profit organization-awhile ago I interviewed John Kamperschroer of Opportunity International (part 1, part 2, part 3). After he received my last newsletter, he requested that I make readers aware of opportunities with Opportunity International. Here they are: http://search10.smartsearchonline.com/opportunityintl/jobs/process_jobsearch.asp global american technology alliances is an international business development organization focused on helping technology companies grow globally. Please consider gata to assist you in your international expansion needs. company international readiness assessments global alliance partner search world-wide customer search foreign competitor analysis & evaluation ebooks-going global international interviews on worldwide expansion finance & management technology offshore outsourcing May, 2011-iraq biz, europe, china, turkey, middle east, brazil, APEC, Austrian R&D, european freedom, global taxes, canadian wireless, hungarian IT, 8 events & more… April, 2011- India biz, higher ed., more wall fall, environmental rights, future cities, Austrian entrepreneurs, McKinsey/Boeing on India infrastructure, Panama & Singapore IT, 10 events, & more… March, 2011- Parisian ads, $lovakia, Intl ♀’s Day, C/E Europe conf, Japan finances, invest in Canada, Artentine IT, convergence & e-scripts opps in Greece, 10 pretty interesting events, & more… February, 2011-country/market selection, o-sum world?, EU future?, Swiss-US financial history, Thai wireless comm, 11 very interesting upcoming events, & more… January, 2011-Chinese in Chicago, Japan biz, World Bank prez, Morgan Stanley on Asia, RR in Brazil, population booms, telecom components in China, events, more… December, 2010-o/s legal hurdles, H. Paulsen, city problems & futures, Greenbuild, west side, Dutch, China, India, Hong Kong, Oz channels, Colombian & Korean ICT sums, coupla events, more… November, 2010-overseas legalities, more Hamburg, Intel CEO, German wind, ATKearney/DuPont, microfinance, Brazil, Lithuania, Chinese, innovation, Singapore sum, 7 events, & more… October, 2010-global SPSS, charitable?, chicago #6 city, 4G world, Poland investment, global real estate, Kraft British dinner, global UPS, go Beyond Sport?, Romanian IT, Turkey IT Security + 9 events September, 2010-language<->thought?, India summit, consumer demand, swiss innovation, Italian & Romanian manufacturers, Korean leaders, Australian telecom, Spanish cybersecurity, 10 upcoming events, & more… August 2010-ceo’s abroad, World Trade/Brazil chamber, globalizing minority firms, global dress, German telecom, upcoming events, & more… July, 2010- cultural diffs, climate bridge, MacArthur Foundation, German sweets, MidAmerica Committee/Illinois Global Partnership, b2b in Africa, translation, Indian CAD/CAM, Mexican IT June, 2010- BIO wrap-up, Japanese high speed rail, free market end? climate economics, São Paulo report, Venezuelan governor, Argentine IT May, 2010- Poland’s biotech, japanese health care, global mktg/branding, Groupon in Europe, German CG on the wall, islamic capitalism, Brazilian broadband, Czech e-commerce newsletter archivesfyi-Your e-mail address will not be provided to anyone else under any circumstances. gata partners:

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goodbye Chicago…hello India

It’s with a tinge of regret that I let all of my faithful readers (& anyone else who’ll read this) know that I’m leaving Chicago to teach @ the Ghandi Institute of Technology & Management in Visakhapatnam, India.  I expect I’ll be teaching international business, marketing, management, etc.  The hook for me was the opportunity to work with the GITAM School of International Business.  The semester starts 7 July, so I’m already in India getting over my jet lag.

On a personal basis, I’ve been looking to work abroad for quite awhile.  In 2006, when I was in AZ @ my Thunderbird class reunion, I was in an automobile accident.  I walked away, but it was a “come to Jesus” moment, in that it forced me to look @ what’s important to me & I determined working abroad should be a priority.  The next year I had an opportunity to teach in Taiwan, which I turned down.  Then I got involved with a woman which postponed my pursuit of that ever-elusive foreign gig.  After that romantic relationship ended, I received a verbal offer to teach in Korea, but never got a written confirmation.  Last year I went through the interviewing process with a consulting firm based in Paris, & made it to the final stage, but was not the chosen one.  Going even further back, my grandfather owned a travel agency & he gave us the travel bug when we sat in his basement watch 8mm movies of his travels throughout the world.  My dad worked in the travel incentive business, so he got to sell travel incentive programs & then get to go on the trips.  Exploring the world is in my blood.

Why India?  It’s the future.  The media & many businesspeople maintain businesses should have a “China Plan.”  My feeling is if you have a China plan, you should have an India plan too because in some ways India is a much better market for western companies.  Indians speak English.  India has a heritage as a British commonwealth country, with vestiges of British common law.  India has an entrenched democracy that will not be usurped anytime soon.  Although there are certainly problems like corruption & bureaucracy, I believe India has the best long-term future in Asia.

I’m a little disappointed to give up gata, but I never found a consistent way to find new customers.  I tried a lot of different means to reach out to potential clients, but even when I did, you have to be careful what you ask for.  Last year I got a project that lined up well with what I professed to do, finding a distributor for a high technology client in Brazil.  It took 4-5 months to find a handful of qualified prospects, then we went down & interviewed them, & picked who we thought was the best fit.  The client was satisfied, but I ended up being dissatisfied.  If you’ve read this blog, you know I rail against businesspeople who fly around the world, pop into different business environments, & then claim to be experts in those countries.  My take is those are superficial experiences, so my aspiration is to learn business cultures in a more deep & meaningful way.  When I lived & worked in Germany many years ago, it was an enlightening experience to learn that you can be successful in a way that’s not American.  I yearn to learn those kinds of things again.  The Indians are very open about encouraging their faculty to pursue consulting work, so hopefully I’ll be able to get engaged with the local business community & work on some consulting gigs there.

Going forward, I still have blog posts on events in Chicago to post, so those will be upcoming in the next month.  After that, my blog & newsletter will simply take a different focus.  Stay tuned if you’re interested on my impressions of India.

My hope is that I’m not done exploring by living & working in India.  Next year may present other opportunities for me to learn about even more places, so keep posted here if you’re interested in where I am & what I’m doing.  Thanks for reading.

The Economist & Baker-McKenzie on China

The good folks @ Baker & McKenzie were kind enough to extend an invitation to an update on China: China Update Roadshow 2011-Structuring for Growth in a Changing China.  Mike Morkin, Managing Partner of BM’s Chicago office, Jia Zhao, the 1st Chinese woman to earn a western law degree & pass the bar, & Tom Doyle, Chair of the North America-China Initiative, provided opening remarks.  We then jumped into new legal developments:

• Bing Ho said 85% of BM clients are making money in China, & 20% said China is their most profitable market globally.  Foreign Direct Investment reached $90B in China during the financial crisis, & is now @ $105B.  The government continues to roll out the red carpet & is downsizing it’s approval domain by raising the level which it uses to approve investments from $30M to $300M.  Investing in China still requires skillful due diligence & lots of work post-acquisition.
• Michelle Gon spoke to compliance & corruption in admitting China is not yet “civilized.”  There is less bribery of public officials, & now no one is exempt from prosecution.  China does have an equivalent to America’s Foreign Corrupt Practices Act including it’s extraterritoriality, but state secret issues are still vaguely defined.
• Brandon Kelly expounded on taxes.  Shares transfers require a 10% withholding tax on capital gains, which were rarely paid before 2007.  Now transactions are more difficult with more reporting obligations because there are fewer shells in which companies can shelter income.  The withholding tax was reduced to 5% in Hong Kong & Shanghai, but you must have real substance to justify the lower rate, which changes how you structure deals.
• Joseph Deng talked to employment.  As Chinese demographics change, the is no more endless labor pool.  The dependency ratio is changing from 10:1 to 3:1.  Companies that came to China for labor savings are staying to serve local consumers.  Unions in China are passive & work with the government on development.  Regardless, unrest is now further, deeper, & more dangerous.  The government should not be paranoid about the Jasmine Revolution, but should be afraid of dissatisfaction.  Employee demands for individual rights have increased the last 3 years & we are starting to see some overtime actions.
• Clement Ngai informed us about intellectual  property (IP).  Because China sees it’s future in innovation, technology, R&D, invention, & patents, rather than as the world’s factory, filings are up the last 5-6 years.  HuaWei was sued by Cisco & they settled, & HuaWei now is a joint venture partner of 3Com.  There is new legislation on patent law:  inventors are required to file in China 1st with creations created in China.  Inventor compensation is now mandatory, but the issue is ownership.  The presumption is the creation belongs to the employee, who receives ongoing remuneration of 2-10%.
• Howard Wu espoused on  supply chains.  There is a shift from broad assembly for export to turnkey manufacturing for local consumer consumption to add more value & pay more taxes.

I attended the break-out sessions on investments/acquisitions & R&D/IP.   Mergers & acquisitions have increased from $41B in 2001 to $105B in 2011.  The number of projects has dropped from 45 at it’s peak to 28 now.  87% of respondents said their investments are profitable, & 68% are better than overall.  74% make China a top 5 priority & 66% are accelerating their commitment, while 61% are producing locally for the Chinese market.  31% say bureaucracy & 30% say finding capable management are the most pressing challenges.  The Chinese are tightening up on the approval process, having adopted a European model which requires lots of information.  The specifics of a new National Security review are unclear.  If for some reason your deal is rejected, it’s better to negotiate further rather than going to court to overturn a decision.  Pre-acquisition due diligence & post-acquisition integration are key.  The questions respectively are “What will you tolerate & not tolerate?” & given 3 typical sets of books, how do you set a price?  1 result is pushing Chinese multi-national companies out to better compete globally.

To R&D/IP, R&D has increased .45% to 2.2% of Chinese GDP.  High New Technology Enterprises (HNTE) & Technologically Advanced Service Enterprises (TASE)  seek to create National Indigenous Innovation Products (NIIP).  HNTE’s get 10% tax breaks from 25% to 15%.  TASE is created to confront India in services.  Chinese companies compensate inventors with either a 1-off payment when a patent is filed &/or 2-10% when a patent is granted 2-5 years later.  NIIP product certification is done @ the local level, but may transition to federal, & impacts upon government procurement opportunities.

Ran Xu of the Economist Intelligence Unit offered insights from their research.  Although American living standards are still higher than those of the Chinese, China wields more clout around the world today.  Chinese household income is $15K/year, & will equal that of the US in 2014.  The Chinese market is the #2 market in many global sectors after the US.  Chinese growth will fall from 7.5%/annum 2011-2020 to 5.5% 2021-2030.  Rebalancing investment, consumption, & exports is tricky.  The financial crisis exasperated imbalances.  China has 100K infrastructure projects where corruption & quality are problems.  What could go wrong in the next 5 years?

• a volatile stock market with lots of insider trading & the end of cheap Chinese labor could lead to inflation
• changing demographics lead to 1 worker feeding 4 mouths as the young decline & the aged rise
• the centers of wealth are changing 2009-2015 with new consumer markets:  Carrefour moves fast & makes decisions after opening a store whether to stay open or close in 1 year; Burberry is buying back it’s franchises.  Income disparity is leading to social stability issues as local governments are beholden to the rich, & there is lots of hidden wealth.  Shanghai residents have 1.3 computers while the national average is .6-.8
• In 2012, the majority of the Chinese population will live in urban areas, which is increasing property values, & potentially leading to another bubble.  The majority of the Chinese can’t afford to buy a home, (men have lost wives due to lack of a house) but there is little incentive to build low-cost housing.  Property value has been divorced from rent.  The population was angered when, during China’s most recent earthquake, the government buildings withstood the melee while schools did not.
• China is the world’s biggest consumer & emitter of CO2, so they are desperately seeking new energy sources, but China doesn’t develop it’s own technologies:  it imports or “shares” them.

Q&A

• Whether inflation will kick in depends on whether or not you include food & housing in the definition
• GDP/per capita will plateau in 2015 & then show 5% growth
• China will not crash in the next 1-2 years

invest in Bulgaria?

The International Trade Association of Greater Chicago invited us to learn about Bulgaria-your strategic gateway to southeastern Europe which featured speakers from Johnson Controls. Kraft, & McDonald’s.   Ambassador of the US to Bulgaria James Warlick kicked off the road-show’s 1st stop in the city with the most Bulgarians in the US to introduce Bulgaria to investors & exporters.  The US was the biggest investor in Bulgaria in 2010 & forecasts 3 1/2 % growth for 2011.  The remaining issues are the legal system & infrastructure.

Elena Poptodorova, Ambassador of Bulgaria to the US, let us know Bulgaria joined NATO in 2004, the EU in 2007, & contributed to defense cooperative agreements in 2006 in Afghanistan & Iraq, which creates bonds stronger than politics.  Big investors like McDonald’s & Starbucks are now part of daily life in Bulgaria, but SME’s are a focus, such as special programs for rural areas.

James Kramer, VP-Intl Franchising for McDonald’s, expounded on Mickey D’s experience in Bulgaria.  They entered the market in the mid-1990′s as owners & built 19 restaurants then transitioned to a franchise structure in 2006.  Since then, they’ve added 15 new stores, + 2 this June, & 8 McCafes to employ 1300 people.  On the Corporate Social Responsibility side, they’ve opened a Ronald McDonald House in 2002 & raised $300K & also sponsor McHappy Days.  McDonald’s has won a best employer award in Bulgaria & internal awards for the highest quality & employee experience in Europe.

According to Sherrie Esposito, Assoc. Dir. of Global Issues Management, Kraft entered Bulgaria in 1993 with the acquisition of a chocolate plant that employed 500 people.  In 2001 they expanded to Nova Brasilia with 100 employees & made a $30M expansion in 2009.  Kraft is #2 to Coke in recognized brands in Bulgaria.  The reasons Kraft went to Bulgaria are:

• member of EU, including Schengen agreement
• low costs & skilled workforce
• low taxes (10%)
• location

In the future, the Bulgarian government needs to:

• streamline government
• establish the rule of law
• build infrastructure

Johnson Controls Director of Sofia Development Center (SDC) Roman Vasilev told us about their batteries & power solutions for autos & building efficiency.  At their SDC they made a long term commitment to do R&D on hardware, software, & mechanical design for 5-10 years there.  They’ve actually invited R&D competition because that is better for everybody.

Q&A

• it takes a few months to incorporate in Bulgaria
• there are no restrictions on foreign ownership
• Johnson Controls bought an instrument company in 2001 with 50 engineers which has now grown to 500 engineers.  The cultural fit & mobility of Sofia’s engineers keeps Johnson Controls there.  McDonald’s expanded into a number of other similar countries @ the same time.  The size of each market determined if they entered as owners or franchisees.
• Bulgaria is ready for €RM2 & it’s banknotes are simply tied to the €.
• Because of it’s educational system, Bulgaria is a technology-driven economy.  There are no issues with intellectual property.  The # of FTE’s (full-time engineers) is comparable to Egypt, a much larger country.  Unlike other emerging technology centers, Bulgarians ask more questions up front so that there are fewer problems later on.  McDonald’s focuses it’s technology on consumers & reporting.  Internet penetration in Bulgaria is 48%-broadband penetration is higher than in Western Europe.
• McDonald’s uses a single franchise model in Bulgaria because it’s the best model for McDonald’s, which allows them to manage risk better by engaging local business people with high profiles & financial resources to build the business & brand.  They take no real estate interest to minimize their risk.
• McDonald’s employs only 1 American in all of Europe, which has 6K restaurants, because there are talented people everywhere “with ketchup in their blood.”  Johnson Controls was skeptical of Bulgaria before it hit bottom, but entered @ the right time as the people & government matured.
• Inflation is predictable @ 3-7%.

the growing middle classes in the B(R?)IC countries

The University of Chicago hosted a conference focused on the BRIC (Brazil, Russia, India, China) countries called BRIC in 2020 which I was only able to attend for the 1st day, which focused on the emerging middle classes in those countries.  You’ll find many of the presentations on the website.  Dipesh Chakrabarty of UC’s dept. of history opened with a quick summary of today’s global middle class, in families cut across borders.  As the older middle class rode a wave of prosperity, today’s growth brings environmental & inequality problems along with it.  As there is more economic growth & “globility”, there is also more conflict.

Marcelo Neri’s presentation on Brazil is here or here:  brazilsmiddleclass

Harley Balzer of the dept. of government @ Georgetown addressed the middle class in China & Russia by 1st acknowledging that Russia really doesn’t share the growth characteristics of the other BRIC countries.  It doesn’t have the historical links or geographical proximity that the others do.  It’s not a member of the WTO & hasn’t diversified it’s economy off of oil, plus Russia is losing it’s educational & science/technology role.  Russia’s middle class is richer, but a smaller % of the population, the same as in 1995.  There are mostly private, & very few public goods.  There are also big security & mobility issues there.

In both Russia & China, higher education enrollment is increasing, but neither is expanding faculty.  The political role of the middle class is ambiguous because a sizable middle class is necessary but not sufficient for democracy.  Typically the professionals provide leadership & lead revolutions & they’re just not doing that.  Their welfare states are under pressure & demographics & income disparities are becoming problems.  The middle class is vulnerable to housing bubbles & food & energy price shocks, while governments are cutting services & jobs.

The number & wealth of China’s middle class is growing, but more education is not leading to better prospects, so China might not be changing fast enough.  It’s growth curve is leveling off.  Western companies have experienced consumer market failures like Best Buy Home Depot because of intense price competition & the focus on consumption is pernicious.

Devesh Kapur of the Center for the Advanced Study of India @ Penn addressed 4 topics:

1. fractured coherence/cohesiveness-15-20% of the Indian population still lives on $2/day while the number of taxpayers has risen to 30M households, 1/6 of the population.  50M or 15% of the population, have college degrees but their incomes are still less than in the west.
2. characteristics-in the 1990′s, jobs were linked to state employment, which is now flat.  The middle class has grown from self-employment & entrepreneurship, although less Anglicized & moving from major metropolitan areas to smaller cities.
3. attitudes-Pew global surveys indicate India is an outlier in that middle class attitudes are similar to those of the poor with no gap, & rate their past lives low & are optimistic & not nostalgic.  That they’ve become consumerists is no surprise.  The professions won’t play the same role as in the past.  They can be crusaders against corruption, but many self-governing bodies are corrupt themselves.  The media is corrupt too, so they don’t report on corruption.  Ultimately there is no vanguard for change.
4. political roles-the middle class is the base of power but are disenfranchised & dislike the democratic process.  The Right to Information Act was a result of middle class activism.  Whereas the old left looked to the state, the new left is skeptical of everything, the state, markets, etc.  2M non-governmental organizations (ngo’s), of which many are great & many are crooks, have substituted for the state, which parallel the for-profit sector.

Panel Q&A highlights

Brazil’s universal health care & public services provide poor quality, but it’s population wants a big state role.  Brazil’s diverse but integrated culture helps so they can take a middle path.  It has a relatively closed economy, but that has internal advantages.  Brazil is targeting OECD levels of education by 2020, which is the #2 priority now, up from #7.  They are learning from the Chinese in “working the plan.”

Russia’s Putin closed their 1990′s trajectory & discredited democracy where corruption has blocked globalization, which will all take a generation to change.  As they view the outside world, they may demand changes.  A Russian bubble would be tied to oil, but a petro-carbon-based economy can’t last.  Their future now depends on the price of oil & their budgets are in trouble.

India’s middle class is exiting from the state’s education & health sectors because they paid taxes but got little in return, but there is rapid growth in taxpayers.  The fastest rising asset class is student loans, debt & mortgages are rising, leading to supply & demand imbalances.  The poor still favor democracy as a fundamental right, while it’s extremely heterogeneous population has both positives & negatives.  Despite many communists losing elections recently, there are still photos of Stalin in every office.

China has reestablished the intrusion of the state into life.  Housing & food price bubbles could pop up because their economic history dictates that their current growth rates are not sustainable.  Their large & integrated domestic market leads them to be optimistic, similar to the US in the 19th century.  Chinese savings are a result of a lack of valid pension schemes, so the government is concerned about inflation.

how to enter India

The Chicagoland Chamber of Commerce Global Connections Council presented a much improved forum INDIAN BUSINESS FORUM: NEW BUSINESS OPPORTUNITIES IN INDIA which featured Eric Cohen of Power Plant Services & George Molokal of Alcor Fund & was hosted by Allen Ginsburg & Raj Shah of DLA Piper.  Those techy Indians opened with greetings from the Consul General in Chicago sent via video feed.  She informed us that her US region did $4-5B in trade in the Midwest, the most with Illinois & Michigan.  There are at least 13 Illinois companies working in India.  India’s GDP is growing @ 8.5%, & 2nd in the world in Foreign Direct Investment, while India has invested $5.5B in the US, which is more than the reverse.  If you’re interested in working in a country with a stable democracy, large & young population, (their growing middle class is now bigger than the population of the U.S.)  that is investing in infrastructure, India is your place.  But because India prohibits foreign law firms to practice there, foreign lawyers have to partner up with the locals.

George Molokal was kind enough to send over the very comprehensive presentations by him & Eric Cohen.  Here they are:  India Forum – Alcor Presentation

Q&A

• Corporate taxes are uniformly applied @ 35%.  Withholding taxes are 15% on dividends.  There have been no issues with repatriation of profits for the last 15 years.
• Doing 360 degree interviews with employees & customers of 8-10 potential partners as an extra layer of due diligence should enable you to find partners you can trust.
• The Indians are more process-driven & capitalistic than their neighbors to the east, so political connections are less important than they are in China.  However, certain industries, like infrastructure, have more political controls…
• It’s best to take services & construction companies to India via partners, which is easiest & cheapest.  To hire & build takes experience & a long time.
• Meeting partner expectations on both sides is a cultural risk.  Contracts very well may change in 6 months, so design that into your plans.
• Because of India’s focus on education, the caste system has diminished in the last 15-20 years.  Now capitalism & merit-based systems prevail.
• Geographically, there is more manufacturing in the west;  silicon valley is in the south; the auto industry is centered around Chennai; the northeast is the weakest.
• More Indian women are joining the workforce, but most still stay home.
• India’s Right to Information (RTI) act has opened up government bureaucracies so that they are now more transparent & move faster.  Thus, these bureaucracies have been losing power the last 5-7 years.
• India is culturally different in being more family-driven, showing respect to elders, & minimizing individualism.

europe @ different speeds

Much to my surprise, in the aftermath of the fall of Neil Hartigan’s World Trade Center Chicago/Illinois, the Chicagoland Chamber of Commerce has started an international group called Global Connections Council, which hosted this event EUROPE AT DIFFERENT SPEEDS: DOING BUSINESS IN THE EUROPEAN UNION .  I knew that Shufen Zhao, formerly of the WTCC/I, had moved over to the CCC & was organizing international events, but this group was news to me & others.  Pres. Dr. Lance Pressl announced that they had led a trade mission to Turkey a few weeks beforehand.

The event featured Antonio De Lecea, Minister of Economic @ Financial Affairs of the delegation of the European Union to the United States, W. David Braun, Partner @ Quarles & Brady, & David Pistrui, Managing Director of Acumen Dynamics, LLC.  De Lecea was the keynote speaker & addressed 3 issues:

1. why do business in Europe?-because it leads to profitability & job growth.  @ $210B earnings are 20X that of China & India combined $8.7B, & 40% more than Latin America & the Asia/Pacific combined.  This has created 13-15M onshored jobs, 7.8M of which are directly employed.  The EU is the biggest investor of Foreign Direct Investment (FDI) in Illinois, up 44% to $22B, which has led to 53K jobs, of which 25% are in manufacturing.  In 2009, the EU bought $9.5B worth of chemicals, computers, & machinery.
2. the financial crisis in Europe-which brought up 4 issues which were addressed head on:  A.  mispriced risk & credit with too little surveillance & cyclical tax bases was addressed by recapitalization & regulatory reform  B.  bloated public consumption & social security net which led to fiscal problems was addressed by consolidation for long term stability  C.  market distortions & lack of access to finance which led to lack of critical mass & competitiveness is being addressed by deep broad structural reforms  D.  lack of policy government coordination led to segmented markets with no sovereign credit mechanisms is addressed by creating a €-area sovereign crisis mechanism, financial supervision & coordination, & enforced surveillance.
3. European stability & growth with budget austerity-fiscal conservatism is growth friendly as they cut non-productive expenditures & change tax codes & their enforcement.  Portugal has eliminated the mortgage interest tax deduction.  The Europeans are putting an emphasis on innovation, (which mirrors Obama’s State of the Union speech), by encouraging cross-border venture capital, creating a single EU patent, increasing the effectiveness of R&D aid rules, recruiting non-nationals in research, providing open access to published research publications, & national funding of R&D.  They are also pooling EU resources by coordinating R&D, prioritizing infrastructure, opening research to US organizations, creating markets through coordinated public procurement, & creating innovative financial models.  Finally, they are trying to strengthen trans-Atlantic partnerships with the Trans-Atlantic Economic Council.  The collaboration between the FDA & European Medical Agency is 1 example.  In sum, the crisis was an opportunity to change @ the national & EU levels.  The EU has made more structural reforms in 1 year than the prior 10.

A simplistic panel Q&A followed:

• Europe is complex, so do your research to learn about your potential clientele to get started
• Network, join chambers, go to trade shows in Europe to seek out like-minded people/partners, engage in daily life there to understand the culture
• You can structure operations essentially 3 ways:  A.  sales representation  B.  distribution  C.  foreign direct investment to build your own organization.  There are different costs & amounts of work for each.  There is no uniform system of law across countries, so local legal counsel is required everywhere you go.
• Europe is not repopulating, which is not sustainable & leading to a shortage of technology workers, but Europeans are xenophobic.  This labor shortage is combined with a pension problem.
• There is no United States of Europe.  You must still meet the particular needs of each market with particular products.
• We need to change the mindset to pursue foreign markets since, for example, even only 4% of French companies export.

This event proceeded @ different speeds.  The keynote on Europe was very detailed.  The panel discussion was overly simplistic.  Participate with your eyes wide open.

chinese consul general on china & US

Had breakfast with Yang Guoqiang, the Consul General of China in Chicago @ the Niagara Foundation where he talked about THE RELATIONS BETWEEN CHINA AND THE U.S.: STATUS, POTENTIAL AND PROSPECT.  He led off by noting that the bilateral relationship between the US & China is 1 of the most important in the world.  Hu Jintao’s visit yielded a historic bilateral agreement which spelled out a mutually respectful partnership which pursues common goals.  A fundamentally good relationship between these 2 countries is better for the whole world.  Never before have we worked so closely on so much.

China recently unveiled it’s 12th 5 year plan, which outlined projections for China’s economy, politics, society, & culture.  It sets 3 goals:

1. Continuously rising living standards-the focus is on bringing low-income earners to equality in China’s midwest & west.  There has already been big changes, reflected in increases in the price of food.  Whereas earlier, they would eat pork once/week, they are now consuming pork 2-3X/week.  The poor are rising as a result of the dynamics of supply & demand, which will affect domestic consumption.  For the 1st time in 20 years, they had a trade deficit.
2. Upgrade industries-to add quality & higher value as businesses & manufacturing shift.  Inflation will create wage increases.  The shift to higher value-added products will lead to a shift from east to west.
3. Environmentally friendly & sustainable economy-clean energy.  They recognize that massive development leads to less environmental control.  Their goal is to share lots of business opportunities.

China is a pro-free-trade country which contributed 20% to global growth.  Education will be a focus to reach 4% of GDP.  Many municipalities are already meeting this goal.  While China’s economic growth was 10.2% in 2010, that is being scaled down to 7.5% for the next 5 years, with more investment in infrastructure, agriculture, & transportation.  They target 3% of GDP going towards science & technology.

Q&A

• Economic development creates demand for oil throughout the world, especially among the BRIC countries.  The world must work together to solve this problem.  It’s not just the price of gas that’s the problem:  it leads to less systematic stability.  Better technologies which are clean & sustainable have not been developed yet.  The US Dept of Energy is working with China in monthly & weekly meetings.
• China has invested in pork production in the US & imports pork, meat, feed, corn, soy from the US.  Food processing has good potential in China, of which there are 500 enterprises in Chicago.  This report discusses Chinese investment in the US:  An American Open Door? | Asia Society
• Rich Daley has made 2 trips to China in the past 6 months to make Chicago the most China-friendly city in the US with a focus on education & creating business relationships.  Pat Quinn is going to China in the fall with a group of other governors.  China is determined to invest in manufacturing abroad so that they can learn better management skills.  They recognize that transportation, trucking, etc. are best in the midwest.
• High speed rail is 1 of 10 core innovation technologies China is developing, which is taking a global focus over the next 8-10 years.  Their technology is suitable to a flat environment & urbanization will happen along those lines.  It will never pay for itself, but the world needs it because air traffic pollutes the most on a per capita basis.  China has 5K miles in operation with Shanghai-Beijing coming online in June & more in the next 2-3 years.
• Yang is no expert in exchange rates, but China believes the rate must be decided by the market with governmental guidance, as all governments exert some control over exchange rates, right?  They watch & monitor other currencies & established an exchange rate swap market in Shanghai.  Given the experts say China’s currency should appreciate, the question becomes how to do it in a stable & sustainable manner.  The Chinese government has 2 concerns:  1.  hot money which creates opportunities for speculators, & 2.  the capability for industry to digest an appreciating currency, which are ultimately passed on to end-users/customers/consumers.  If prices increase too much too quickly, consumers won’t pay , & businesses won’t be able to adjust.  Exchange rates are reflected on retail racks in 6-12 months & have risen 4-5% in the past few years.

turkey & the middle east

The Niagara Foundation invited us to lunch to listen to Kerim Balci, Journalist & Chief Executive Editor of Turkish Review, talk about TURKEY AND THE RESTRUCTURING OF THE MIDDLE EASTERN REGIMES.  Turkey is changing.   9/11 marked the beginning of the 21st century with the death of liberal capitalism & a return of Islam to history.  World War I took hope from the Muslim world.  Change is now accelerating, as Tunisia’s leader left in 3 days, much to the surprise of protestors there.

In Turkey, the Justice & Development Party has more potential to contribute to change.  They’ve set new policy objectives, such as the “No problems with neighbors” policy, which the EU mandated as a condition to apply for membership.  Historically Turks were educated to believe that they were surrounded by enemies in Greece & Bulgaria, & other nearby countries differ in religions, Iraq’s Kurds & Iran’s Sunni’s vs. Turkey’s Shia.  Turks were led to believe that the world was against them & that they have no friends, so there was no cooperation with anyone.  It bred a fear of an us vs. them mentality.  His daughter is now Facebook-educated, so her generation knows that they have plenty of friends, on Facebook & elsewhere.

Social mobilization occurred horizontally & vertically in Turkey.  Rural populations moved to urban areas in the 1980′s & this changed their understanding of the world.  The periphery moved to the center as villagers moved to the cities, which changed the perception of what Turkey can do.  They entered productive dialogues with the Greeks.  In 1998 Turkey almost went to war with Syria, but is now in a common market with them that’s growing.  The EU was the best peace project in history.

Turkey has turned into a moderator & bridge-maker between east & west as there has been an axis shift from west to east.  They won’t leave the west because it’s attractive to the Muslim world.  Support for EU membership is higher in Kurdish Iraq than it is in Turkey.  EU allies are less willing to accept Turkey, but that”s OK because the EU is sick financially & socially.  Turkey will be the biggest economy in the EU if it enters the EU by 2050.  Turkey has good relations with the Middle East, India, & China, which gives it more bargaining power with the EU.

The current regime made 2 major mistakes lately:

1. it’s decision to abstain on the nuclear issues in Iran
2. Arab states need Turkey to talk with Israel.  They don’t trust Americans & Turkey can talk to both.  As moderator, Turkey needs to talk with all sides.

Q&A

• Turks don’t use the term Ottoman empire, which is simply an ethnic identification. It was more of a multinational alliance. Turkishness became a creation years later & they’ve lost the feeling of belonging for an identity.  Turks were not even in the majority of the Ottoman regime.
• Turkey’s decision to not allow the Americans to enter Iraq from the north reflected the national sentiment.  A closed vote was taken twice & rejected.  There were domestic incompatibility & capacity issues as they did good without knowing it after seeing the results.  In the Arab view, March 1 is the day American imperialism was resisted.  They are hopeful that the Arab Spring will flow into central Asia, but legitimacy is lost when western powers bomb opponents in those areas.
• Egypt is in an embryonic stage of democracy.  As bridge-maker between east & west, they were 1 step ahead of the Oslo negotiations between Israel & Syria.  Turkish multi-party democracy is a good example to follow while single party bureaucracies must change so that governments can govern.
• The Arab world can learn from Turkey’s mistakes.  There is no new world order; it’s a new human order.  Turkey has been active in Ireland moderation between the Catholics & Protestants.

lunching with the brazilian ambassador

Had lunch with Mauro Vieira, Ambassador of Brazil to the United States & other members of the Chicago Council on Global Affairs @ BRAZIL AND THE UNITED STATES: BILATERAL PARTNERSHIP AND GLOBAL PERSPECTIVES where he shed some light on Brazil’s perspective on inter-American relations.  Pres. Barack Obama stressed on his recent trip to Brazil, the country’s rise to 7th largest GDP ($2.1TR) in the world with 7.5% growth, & recognized that our partnership has become deep & intense.   The U.S. is Brazil’s #2 trading partner with $58B of $383B in international trade.  Brazil received $10B of it’s $48B in foreign direct investment (fdi) from the U.S., while Brazil has a total stock of $16B of fdi in the U.S., $3.9B of which came last year.  Exports to Brazil support 250K jobs in the U.S., while exports to the U.S. support 120K jobs in Brazil.  Brazil grew so much the last 15 years as a result of the imposition of social justice, which created 14B jobs & raised wages 42%.  24M were lifted out of poverty as 30M joined the middle class as GDP/per capita rose 80%.   The 2008 financial crisis was a turning point which caused the emergence of closer involvement of the emerging markets.  Obama supports an expansion of the UN  Security Council (I assume to include Brazil), & Brazil is now producing oil, of which Obama wants the U.S. to become 1 of Brazil’s best customers.  Brazil & the U.S. have come to many agreements on trade & economic cooperation, aviation-open skies, & cooperation on education & innovation.   They signed a peaceful use of outer space agreement which will allow the U.S. to launch space ships from northern Brazil.  Dilma Roussef wants more Brazilian students studying the hard sciences in the U.S. while Barack promised to increase the number of Latin American students to 100K in the U.S.  Earlier that day a US-Midwest Brazil Business group was launched.

Q&A

• The middle class has grown to become 53% of Brazil’s population.
• Lula & Turkey built confidence with those who weren’t talking to Iran.  Dilma stands ready to contribute in the future.
• Brazil has lots of legislation, programs, & multilateral fora to fight violence, police excess, & human rights violations.  They favor general overview actions rather than specifics in fighting these problems.
• Trade is important (exports=25% of GDP) to Brazil.  China is their #1 trading partner.  Bureaucracy & corruption are not impediments to foreign trade, as there is no pattern to discern in either.  They want better regulations & legislative control.
• Hillary Clinton was interested in the bilateral agreement against racism 3-4 years ago, which it is assumed will be discussed @ an upcoming meeting in Minas Gerais in June.
• Brazil thrived during the financial crisis because the government took quick action on stimulative VAT consumption taxes, which were reduced to 0 for popular cars & home appliances.  The President went on T.V. & said “Continue to work & spend.”  The government also built houses.

US trade rep says “attend Asia Pacific Economic Cooperation conference”

The Chicago Council on Global Affairs welcomed US Trade Representative Ron Kirk to talk about THE ASIAN MARKETPLACE: DRIVING AMERICA’S ECONOMIC GROWTH, which was essentially a promotion for the upcoming Asia Pacific Economic Cooperation Conference (APEC) later this year.   This conference will gather leaders of 21 of the largest economies of the world which account for 40% of the world’s GDP & 1/2 of the world’s population.  The US is the host of a yearlong series of meetings on transpacific partnership in San Francisco & Montana.  Private industry will participate too, contributing to public/private partnerships.  Pres. Obama will take part in Hawaii in Nov.

Kirk kicked off saying 70% of Americans think trade is not good for America, that we’ve traded electronics & t-shirts for jobs, & that America is helping emerging economies, while the opposite is also happening.  Illinois exported $50B in goods & services, which results in employing 348K people.  If was sell more to the world, that’s good for us, so we’re lowering their barriers to sell them more.  APEC countries are responsible for 1/2 of the growth in the world, so they are prime target markets.  Kirk’s office is trying to make it cheaper, easier, & faster to sell abroad.  His focus is on strengthening integration with supply chain connectivity so that we can plan & expedite our value.  He’s trying to eliminate tariffs on green technologies with regulatory cooperation.  SME representatives are invited to APEC to meet with trade ministers in Montana.

Q&A

• Visa issues are a challenge.  We’re open to retaining the best & brightest talent, but congress is zealous in protecting our borders.  We need to relax/expand our visa programs again.  More tourism leads to more trade.
• The Trans Pacific Partnership started 1 year ago to build the next generation trade model & has had 7 rounds of negotiations with 8 countries.  They’ve agreed to put everything on the table & be as aspirational as possible.  They are now getting to the hard part, crystallizing differences & making the tough decisions.  It’s progress has been put off because of natural disasters in the region (earthquakes in Japan & New Zealand & floods in Australia) & elections in 5 countries.  Kirk is working together with congress to protect intellectual property for pharma, etc.
• Congress is bitterly divided on the 3 Free Trade Agreements the Obama administration inherited.  The administration vows to do it better & not fall to false choices to rectify the imbalances of access to foreign markets.  Ford & the UAW have embraced the worker protection & human rights efforts.  $38B could be won in exports to Korea & 80% of that would be manufacturing.  Also no industry is more dependent on exports than agriculture.  Services would be opened up too.
• Trade is 13% of GDP, although some people are frustrated with & even hate trade.  The administration is trying to create wise policy that supports job growth.  Other countries are taking advantage of us, so trade rules need to be enforced.  For example, China shouldn’t be able to dump products below cost in the US.  Made in America is still the best brand in the world.

Kirk spoke with the press after the event & here’s what the Chicago Tribune reported:  U.S. puts condition on talks with EU to resolve airplane subsidy dispute