Archive for May, 2009

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foreign service careers with Dept of State

Thursday 28 May, 2009

The American Southeast Europe Chamber of Commerce & International Visitors Center hosted a dinner featuring Diplomat in Residence Brian Flora, who talked about foreign service careers with the US Department of State.  He’s been in the foreign service for 35 years & now recruits for them out of UIC.

The US DOS is hiring 700 people to send all over the world.  They enable you to learn languages & embrace cultures.  Housing when living abroad is free.  Student debt can be relieved.  You receive bonuses for working in hardship locations (90 of 273 places).  1 big benefit is all the training you receive before each posting.  Brian was witness to the revolution in Romania in 1988.

The application process is very competitive & long (8-10 months).  Click on http://careers.state.gov/ to see a short video of our current Secretary of State, (HR Clinton) & learn about the opportunities.  If you speak any of the superlanguages (in high demand) Arabic (Modern Standard, Egyptian, and Iraqi), Chinese (Mandarin), Dari, Farsi, Hindi, and Urdu, you get to move to the head of the line.   It’s still possible to take the multiple choice test in June.  40% now pass, a much higher % than in the past.  You have to choose between 5 different career paths:

  • political-advise the ambassador (everyone wants this 1, only 35% chance of moving on after the test)
  • public affairs-diplomacy (45% chance of continuing the post-test process)
  • economy-defends policy (even better chances)
  • management-of embassies throughout the world (“)
  • consular-visas, etc. (“)

If you pass the initial exam, you get to write 200-word essays justifying your selection & then oral exams.  Contact Brian if you make it to the oral evaluation.  For the 1st 2 postings, you’re a junior officer.  After 5 years, you’re tenured.

My take-the US government invests heavily in its people before sending them abroad, far more than any corporation will these days.  No organization of which I’m aware will prepare you more to deal with others in the world than good old Uncle Sam.  The tradeoff is it’s a governmental position, which means it’s your job to support the US government, regardless of who’s in office.  That can be a hard job sometimes.  It’s different from an ex-pat business position because working for the government is inherently political.  Another difference is you have to be comfortable with a bit more ambiguity because some of the results you are seeking are less measurable.  Since few American businesses are sending Americans abroad these days, this may be another way to get there.

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ascent of $ by harvard b-school prof

Wednesday 27 May, 2009

Niall Ferguson of Harvard gave a talk centered around his new book The Ascent of Money which was sponsored by the Chicago Council on Global Affairs.  Here’s what he had to say:

The descent of money hasn’t hit depression levels like the 1930’s yet-it may just be a slight depression of the same length.  The depression of 1873 may be a more similar paralell.

Why the descent/is this a failure of capitalism?  (it’s a good headline, but dangerous when simplistic narratives take over) Recent years have shown enormous imbalances, deficits, & errors in monetary policy.  Bank’s balance sheets showed 20% debt in the 1970’s.  Now debt is almost 100% of GDP.(?).  In Jan, 2008, only 12 banks had AAA ratings, but many more financial instruments did.  Did that make sense?  The balance sheet of the Fed is 2.2X what it was 1 year ago.  The US deficit is 12.9% of GDP, which is a symptom of a war without the war.

The US government forecasts growth of 3%, 4%, & 4 1/2% the next 3 fiscal years, but the fiscal stimulus has peaked already.  Banks are focused on raising capital & not making loans.  Foreclosures will accelerate from 2M/month to 6M/month in the next 10 months.  There are rising conflicts between fiscal & monetary policy.  The government can’t sell more bonds without interest rates going up.

The rest of the world has been dragged down with the US & even hurts them more.  Southeast Asian export economies are down 20%, which is a depression.  Eastern Europe is going through economic hell & western Europe is even worse off because their banks were even more highly leveraged.  China is bucking the trend with slower growth (for them), but their fiscal stimulus is working.

Godzilla (the banks) vs. King Kong (deflation) is the allegory of the day.  It’s the people who end up getting trampled.  Similar circumstances in the 1870’s resulted in populism, rejection of the status quo, anti-finance, anti-immigration, & anti-globalization trends.  China will buy much less US debt & Asian money will ascend.

Q&A:

India is a bright spot from a long-term perspective, encouraged by recent elections which did not result in potential party dispersion.

The end game is all about timing, when inflation returns, etc.  Expectations could be deflationary.  We need to watch asset as well as consumer prices.  Watching gold prices might not be as valuable as watching copper prices, which the Chinese covet.

Focusing more on accounting issues (guards of the guardians) pale compared to bigger mistakes by politicians influenced by campaign contributions from AIG, Freddy Mac, etc.  There is not necessarily universal truth to owning a home.

The Fed gets an A grade for reacting more responsively, creatively, & faster then ever.

There is a danger of pulling back too quickly as premature interest rate tightening in 1936 in the US & more recently in Japan have choked off recoveries.  Again, timing is key.

Brazil is closer to China as an agricultural exporter, etc. than Russia with “state monopoly capitalism.”

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US adopting global accounting standards?

Friday 22 May, 2009

I attended the International Issues Conference sponsored by the Illinois CPA Society.  Lou Longo of Plante Moran kick-started the day by introducing the complexities & means for going global.  Larry Harding of High Street Partners followed up by pointing out the issues in hiring for world-wide operations.

The meat of the day, for me at least, was spent with Marian Powers, an adjunct professor @ Kellogg & partner in the firm Needles & Powers, who discussed at length, IFRS, International Financial Reporting Standards.  IFRS originated years ago when the Brits started putting together a way for developing countries to do accounting.  Now the rest of the world (100 countries now & 150 by 2011) is gravitating toward IFRS, & therefore we probably will too. Foreign filers using IFRS no longer have to reconcile with Generally Accepted Accounting Standards (GAAP) for the SEC.  The advantage is, for firms with global operations, there will be efficiencies & cost savings with world-wide accounting standards.  Benefits should be higher quality standards, more comparability, & better transparency.  Each of these is open to question.  From a US perspective, more issues will be left to judgement, so there will be more interpretation.  There are already differences in cultural impact, i.e. Australians are unhappy about losing their “accounting sovereignty,” some countries are “naturally” more conservative & others more secretive in their accounting, & translation is an issue because IFRS is issued in English only up to this point.  The SEC has proposed a road map for implementation, but according to an AICPA poll, 50% of firms are actively preparing for IFRS, while 45% are waiting until it’s 100% certain they have to make preparations for it.

Differences between GAAP & IFRS include

  • while GAAP measures differences in measurement in revenues & expenses in the income statement, IFRS measures changes in assets & liabilities in fair value
  • business income=changes in assets & liabilities
  • concepts/approaches
  • details
  • industry specific guidance
  • scope
  • converged standards
  • revaluations
  • impairments
  • intangible assets R&D
  • revenue recognition
  • inventory
  • income statement format
  • other comprehensive income
  • consolidation

Some concerns about IFRS are:

  • no LIFO
  • undermines the US regulatory system?
  • convergence plans have been dropped
  • comparability a myth?
  • genesis for litigation?
  • it’s younger/principles vs. old/tested
  • won’t solve US reporting problems
  • >50% of Americans are in stock markets, while it’s far less in the rest of the world

Conversion can’t happen until

  • IASC stabilizes funding & international oversight
  • SEC ensures stability & independence
  • international monitoring group of securities regulators comes together
  • SEC has input into IASC trustees

Challenges will be

  • 2009 deadlines
  • GAAP/IFRS duality for a time
  • training CPA’s, analysts, investors
  • need to revamp the educational system
  • IT changes will require 18-24 months

resources to consult

My take-this is bigger than is being reported & will be a sea-change when it happens.  Companies converting their reporting to IFRS have resulted in changes from 9-530% changes in reported earnings.  Basically it’s US acquiescing to the rest of the world.  My concern is the US has the most transparent disclosure system in the world.  I don’t like that we’re moving to the lower standard of the rest of the world rather than the rest of the world rising to our standards.

David Zydek of KPMG hosted a session on Foreign National & Expatriate Taxation.  Since I lived & worked abroad for a couple of years, I had to deal with these issues, so it was helpful to get an update.

There were other concurrent sessions on world-wide corporate tax strategies, M&A trends, global supply chains, cross-border banking & finance issues, & transfer pricing.

Over lunch, we were schooled in learning “Global savvy,” by Nonnie Owens of At Ease, Inc. I’ll be blunt-these presentations on etiquette irk me.  They are offered in the guise of addressing cultural issues, but few deals have been lost over using the wrong fork @ a meal.  The real cultural issues are much deeper, such as not understanding business values & decision-making, etc.  By promoting these kinds of presentations, we emphasize the wrong issues in international business.  Learn about the history, economy, & language of a country before you do business there.  Be courteous & defer to your hosts & mirror what they do, & in most cases you’ll be fine.

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Indian consultant’s take on India

Wednesday 20 May, 2009

The Organization of Women in Trade (OWIT) sponsored this event BRIC OPPORTUNITIES AND CHALLENGES: A FOCUS ON INDIA.  Walter Viera is somewhat reknowned in India, so he has some valuable insights.  Here is his presentation Reflections on India BRICS 2009 & here are some of his observations:

India lost it’s economic might from 1700, when it controlled 24% of the world economy, to when it earned its independence, when it only accounted for 4.2% of world GDP.

India & China together comprise 1/3 of the world’s population.

While many assume China has 1 look & language, India is more complicated than what you see on the surface.  It is both a developing & mature market.  British discipline brought together 560 princely states.  Indians speak 30 languages with 300 dialects & worship 6 religions.  25% of their elected ministers face criminal charges, but  GDP growth is still ~7%.  Growth markets are

  • education-in consortia with Australia, New Zealand, & Singapore,
  • health care-there is no state insurance system,
  • tourism-medical tourism,
  • IT-yeah, duh, &
  • infrastructure-corruption is a problem & can be viewed as an indirect tax.

92% of all toys in India are made in China,  even festive elephants used during religious ceremonies.

The rural market is emerging quickly.  There are more millionaires in grade 3 towns than in top tier cities.  Items are simply sold in smaller lots (ex. 60% of all cigarettes are sold individually rather than in packs) to make them affordable to India’s poor.  Middle class households now outnumber low income households.

India is becoming the world’s R&D lab because it offers lots of cheap PhD’s.  GE employs 14,000 researchers there.

Indian companies are going on the offensive in M&A deals, for example Tata buying Jaguar.

There are still many risks in doing business in India:

  • $ loans have proven dangerous for Tata, Wockhardt, & Ranbaxy
  • the Satyam debacle indicated corporate governance is an issue, although the mess was resolved in speedy fashion
  • 380M Indians are still illiterate
  • clean water & sanitation are still problems
  • roads are still difficult to travel with highways only 2%  of all roads
  • since only 70% have access to care, health is an issue
  • the judiciary system is still far from expeditious.

Q&A offered:

  • the massive bureaucracies are breaking down by pro-industry ministers.  The RTI-Right to Information act has led to more transparency.
  • the FCPA-US Foreign Corrupt Practices Act leads Indians to no longer expect “facilitation” fees.  Wipro led the charge locally be refusing to play that game.
  • only the borders are affected by difficulties in Pakistan & Afghanistan, but it does divert $ from other pressing problems.
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korean wind power

Monday 18 May, 2009

I checked out this presentation by the Korean Trade Investment Promotion Agency KOREA – U.S. WIND POWER BUSINESS FORUM.  Jeff Anthony of the American Wind Energy Association made a presentation essentially to the Koreans on the status of wind as an energy source in the U.S.   The US government goal is to reach 20% renewable power sources by 2030.  Representatives from Hyundai & Hydrogen Power Co. from Korea also made presentations on what their companies are doing with wind power in Korea & world-wide.  Sunny Kim of the Chicago Korean Trade & Investment office made a presentation on Korea for the Americans in the audience.  Here are a few tidbits from their talks:

  • The US is the #1 investor in South Korea in terms of Foreign Direct Investment with $28.4B by 15,000 companies.
  • Korea is the #1 manufacturer of semiconductors.
  • Korea still depends on imports for energy.
  • As a basis of comparison, Denmark gets 14.6% of its power from wind.  Korea only gets 1.4% from wind.
  • 2.37% of its power comes from renewable sources, & 77% of that is from recycling waste.
  • Korea has built 12 wind farms/power plants since 1999 & their governmental policy sets a goal of 11% renewable power to be generated by the year 2030.
  • Other renewable goals are 2 1/2% by 2008 & 20% by 2050.
  • 228 wind turbines have been installed while 1630 are planned.

My take-The Koreans seem to be more realistic in their goals for renewable & wind energy.  While it’s great to set high goals, setting goals which are unreachable doesn’t make sense to me.  I think it better to set attainable goals & reach them with intermittent benchmarks rather than set high goals & then be disappointed when they’re not attained.

A few other tidpits from the WindPower show @ McCormick Place:

  • while I’m sure there’s a lot of technology which goes into wind turbines, etc. there were relatively few computer software companies exhibiting, less than 50 out of 1200+ exhibitors.
  • while the midwest was well-represented, no doubt due to its abundant wind resources, Chicago & Illinois were not, with only about 80 total exhibitors.   They were also old school companies, in that no more than a handful offered any apparent new technologies.
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israeli environmental research

Friday 15 May, 2009

I attended this lunch presentationFrom the Desert, Sun and Sea…for the World sponsored by American Associates, Ben-Gurion University of the Negev.

Avigad Vonshak, Director of BGU’s Jacob Blaustein Institutes for Desert Research (BIDR),  led off talking about algae in the desert.  1/2 of the US & all of Israel & Australia archaracterised as arid or dry, so desert locations are important.  Our current rate of desert utilization is unsustainable because we are taking out more than we are putting back.  Effects are far-reaching, in that sand storms in the Sahara have led to eye infections in the US.  Deserts differ in that Israel has stable dunes, while the Sinai Peninsula has shifting dunes.   Algae harvested from these deserts feeds biomass production in Mexico, California, China, & Thailand, which ends up in health food stores.

Dr. Nadav Shashsar,  head of the BGU Dolphin Reef Laboratory, was up next to talk about coral reefs, which are deteriorating at an accelerating rate due to human intervention.  He’s investigating building artificial reefs out of metal reinforced concrete with rough surfaces, which create new habitats.  The USAID-funded program created mutual interests-conservation & tourism.  These reefs grow slowly, to their growth needs to be enhanced, which they’ve accelerated up to 5X in Israel, the Phillipines, Singapore, Thailand, Tanzania, & Jordan.  They’ve experimented in the Red Sea, which is open to public divers.  This is even cultivating peace with Jordan.

David Faiman, chair of Solar Energy & Environmental Physics @ BGU’s BIDR, finished up by addressing solar energy.  In earlier generations of solar power products, much energy was lost & photovoltaic cells were expensive @ $1000 for a 4’x6′ panel & 80% of the cost.  At those rates it takes 1 year to save a barrel of oil.  Solar is a dilute form of energy, so by converting light into electricity & separating the collection from the conversion, they’ve made it much more affordable, generating electricity even cheaper than with fossil fuels.  They created the world’s largest solar disk 4’x4′ 200 ft2 of panels.  Here‘s a video which features Faiman’s work.

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Japanese corporate governance

Monday 11 May, 2009

The Japan America Society of Chicago sponsored this event Trends in Japanese Corporate Governance

Drew Edwards (DE) of Advisory Research opened by bringing up the issue that stakeholders (managers & owners) interests are not aligned in Japan because there is not really a Japanese model to incorporate them together.  Historically, pre-World War II, many Japanese owned more securities.  Post-World War II, banks became the providers of capital, so they determined governance.  The result is poor allocations of capital, reflected by poor ROE, which is determined by big pension plans.  Potential changes are deregulation, reduction of crossholdings, increase dividend payouts, more buybacks, hostile takeovers, more shareholder lawsuits, expectations of 8% ROE.

Doug Skinner (DS) of UChicago presented research on accounting in Japan.  Accounting & auditing are low quality, which creates opportunities for window dressing, called earnings management in the US.  The markets lost confidence in them after 2 financial institution collapses in the late 1990’s.  Adoption of western accounting rules (IFRS) has been proposed to make ASBJ more similar to America’s FASB (Financial Accounting Standards Board).  The results have not been as desired.  The problem has been there is not an accounting infrastructure to support the proposed changes.

Kouji Yamada (KY) of JCA Partners in Japan noted there are more CPA’s in Illinois than all of Japan.  There are only 3 accredited business schools in Japan, so it doesn’t look to improve.  There is less labor mobility & tenure is longer resulting in the structural subordination of employees.  The tradeoff is the long-term creditor behavior of the old guard vs. the new short-term equity approach.  The labor markets are changing.  43% of labor contracts are at-will, the highest % in the world.  In a deflationary economy, all are managing costs.  It creates opportunities to reinvest in the business, but that’s not happening.  Japan cannot survive another 15 years of deflation.  The banks are operationally excellent, but there are few companies that create value.  Executives are paid only 9-10X an average wage, so their incentives to change are not high.

Activist investor Mike Levin (ML) brought out that Japanese CEO’s are not paid to take risks, & thus are not good stewards of capital.  They take a creditor approach to make no mistakes.  An “old wise man” verifies the books.  There is a push for independent directors on boards, but with no labor mobility, there is a dearth of them.  A perception exists that if an executive servies on the board of another company, they are less committed to their own company.

Bob Hayward of Kirkland & Ellis noted that Japanese courts held up the use of a poison pill strategy & that the accounting changes together with few CPA’s leads to more restatements.  That could lead to more attacks on non-independent board members.

Q&A :

(DS) Japan has their own version of Sarbanes Oxley (J-SOX), but they need people with expertise to implement it.  The Japanese are still resisting IFRS because they have fundamental differences with western approaches.

To buy cheap & extract value (KY) take dividends out, reinvest in the industry to change industry structure & (ML) change the mindset so that management works for investors & then there will be many more options.

(DE) losing face can be a strategy to promote change or confront management in a private setting so as not to disclose dirty laundry.

My take-I went to b-school in the 80’s when the Japanese were lauded as the examples to follow-in the world.  That was followed by deflation since the 90’s, so that’s been debunked.  Japan is still the 2nd biggest economy in the world, so I’m surprised they haven’t been able to solve these problems.