Archive for May, 2011

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europe @ different speeds

Tuesday 31 May, 2011

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.

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chinese consul general on china & US

Friday 27 May, 2011

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.
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turkey & the middle east

Wednesday 25 May, 2011

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.
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lunching with the brazilian ambassador

Monday 23 May, 2011

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

Tuesday 17 May, 2011

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

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do your R&D in Austria

Thursday 12 May, 2011

ABA-Invest in Austria, the Office of Science & Technology (OST) at the Austrian Embassy, & Austrian consulate in Chicago hosted this event Start Your R&D Business in Austria featuring Markus Costabiei of tech 2 B incubator, Michael Moll of Entrance Entrepreneurship & Finance , and Alexander Krajete of Green Energy Think Tank. Here is the presentation AustrianR&D they made.  I’ll summarize what they said that’s not included in the presentation.

Hans Nagel of ABA opened by pointing out that German is the largest homogeneous language spoken in Europe by 100M people, of which Austria is included, while Vienna is so diverse that 25% of it’s population doesn’t speak German as their mother tongue.  Philipp Marxgut of OST indicated that Austria intends to increase it’s investment in R&D to 3.25% of GDP to become an innovation leader.

Michael Moll provided the details of funding sources in Austria, the government for grants & soft loans, & the Austrian Promotion Bank & Research Promotion Agency which offer grants & soft loans of up to €100K without any liabilities.

Alex Krajete was able to raise €400K to convert CO2 into natural gas.  He got the idea from Chemical Engineering News in 2007.  His concept mirrors the origins of life, starting with microbes, & organisms, etc.   He wrote a 10 page business plan which got him €100K in June, 2009.

Markus Costabiei discussed Austrian incubators & his in particular.  His program started in 2001 to support start-ups using a balanced scorecard model.  They’ve done 1000 projects which has resulted in 400 companies starting-up which have won 200 prizes.  Markus noted that while A.Krajete knew his technology well, he was lacking business knowledge, so they worked together to build this human capital to seek financial capital.  They now meet every 4 months to update & review the technology & business.

A couple of attendees were from Baxter Labs, which is big in Vienna.  Baxter acquired Immuno 15 years ago in Austria & it shifted the direction of the company.  They now have more than doubled the number of researchers from 500 to 1200 in Austria so that 80% of their R&D people are there.  Austria’s asset is it’s people & their talent, which leads to an excellent R&D environment.  The country offers premier living conditions which makes it easy to attract talent.  They also mentioned that any innovation involves risk, & that most scientists are lousy business people.

Q&A

  • The tech 2 B program gets 40 applications/year & ~9 are accepted, depending on budget availability.
  • Legal issues all come down to intellectual property, (IP), which is different from other kinds of law because entrepreneurship requires IP that is new.  You have to get the right patent, but finding capable lawyers can be difficult.  It took some time to find someone qualified in München.
  • Krajete originally thought his customers would be the power companies, but they were too focused on using their existing resources, so actual communities seem to be his clientele.  A major issue is enabling the long-term storage of energy.
  • A qualified project must do R&D in Austria.  Selection criteria should be discussed on a project-by-project basis.
  • Krajete’s business model depends on taxation & the pricing of energy per kilowatt hour.
  • The # of angel investors with € & experience is growing.
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europe’s freedom of services directive

Tuesday 10 May, 2011

The John Marshall Law School hosted another lunch & learn entitled CHANGES IN EU BUSINESS REGULATIONS: WHAT U.S. LAWYERS NEED TO KNOW which featured Fulbright Scholar Prof. Giovanni Coinu, Faculty of Law @ University of Cagliari in Italy.  The deeper topic was actually the EU’s “Freedom of Services” directive & it’s enforcement in Italy.

Article 26.2 of the Treaty of the EU (TEU) guarantees freedom of movement of services & article 61 ensures there is no discrimination based on nationality or residence, but the European Court of Justice’s (ECJ) jurisprudence on services has been inconsistent.  As the EU is becoming more market-oriented, the ECJ & EU laws now tend to put economic freedoms above social rights.  In 2008, the ECJ examined Poles who were working in Germany & earning less than 1/2 of what Germans earned there.   Rüffert v. Lower Saxony cited a local law which provided for public works to pay employees at least the minimum wage where the services are performed, but the ECJ ruled it was a violation of article 56 of the TEU.  Since services account for 2/3 of the EU’s GDP & employment, the pro’s of this are:

  • extends EU fundamental freedoms
  • benefits SME’s
  • better functioning services markets should enhance EU economic competitiveness

The cons are:

  • threat to worker’s rights & fair working conditions
  • unfair competition from countries with lower labor costs
  • no protection for local employers & workers

With enlargement of the EU, it’s population increased 27%, but GDP by only 4%, so the equilibrium changed & the wealthy became worried.  The “Polish Plumber” became a dangerous man to the west, as it was a sign the “Anglo-Saxon” economics were running rampant over the EU & competition between workers in different countries was resulting in a downward spiral in income levels & the west being overrun by immigrants from the east.  This contributed to the European constitution being voted down in 2005, so the EU adopted directives instead to bring national laws into line with each other, especially those pertaining to the single market.  The Services Directive defined a service & service provider:

Service:

self-employed activity

  • self-employed activity
  • of an economic nature
  • included regulated professions
  • with explicit exclusions

Service Provider:

  • individual who a a national of a member state (MS)
  • legal person established in a MS

A MS can grant authorization for freedom of establishment only if it’s non-discriminatory, justified by reason relating to the public interest, does not go beyond what’s necessary, unambiguous, objective, transparent, accessible, & made public in advance. Prohibitions from freedom of establishment include:

  • discrimination based on nationality
  • limiting establishment of SP to 1 MS
  • limiting the choice of SP between principal & 2nd-ary establishment
  • condition or reciprocity
  • economic tests
  • competing operators involvement in decisions of authorities
  • guarantees legal form for operators established in the same MS
  • registered or exercised activity for a period in the same MS

Regarding the freedom of movement of services, the ECJ concluded in 2003 (Schnitzer) that even temporary activities carried out over several years in another MS can be considered to be service provision.  Firms have the freedom to provide cross-border service without unjustified restrictions.  The SP will know that they will not be subject to the legislation of the receiving MS & may continue to use home-state law.

The EU has embarked upon a simplification program (similar to the US’ Paperwork Reduction Act) to reduce administrative costs & burdens on companies from existing regulations by 25% by 2012 which would increase the EU’s GDP by 1.4%/€150B.  This creates Points of Single Contact (PSC) as information points as a 1-stop shop for business that have been established in each MS across the EU that allow SP’s to complete their administrative formalities electronically or in-person.

Enforcement of the service directive is the most interesting part.  In Italy, enforcement of the PSC, which work in the back-office,  will be available April, 2011.  1 office will coordinate & subsistute all competent authorities for each procedure.  SP’s can immediately start their business & self-certify.  Within 30 days, the PSC will check all paperwork, ask for more info, ban the continuation of activity only if necessary.  PSC’s have been available in Sardinia since 2008 where they are more powerful than in the rest of Italy.  No permits are needed.  SP can apply online through certified e-mail.

The directive cannot find direct application for American citizens or 3rd country citizens, but could be a gateway to the EU internal services market.  It applies to enterprises legally established/registered in the EU irrespective of whether or not the owners are EU nationals or not.