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Tianjin 2010- Doing Business at the Next Frontier
Poziom:
Temat: Biznes
Good afternoon. Welcome to this session
on Doing Business at the Next Frontier.
I know people are still walking
in after lunch but I propose we get started
since we have a fairly tight schedule
and a lot of interesting panelists.
My name is Tarun Khanna
and my task is to moderate this panel.
I am quickly going to say a couple
of words about the questions
that the panel will address,
the broad contours of the questions
that we are concerned with, and give you
a quick sense of who’s on the panel,
I'm sure you’ve read the bios
and are aware that we have a good spectrum
of experience represented here,
and simply we’ve all agreed
on an order that we’re going to go in.
I’ll introduce the panelists
in the order that we agreed
and we hope to then open it up
to the room for a discussion of some sorts.
None of us will be making any speeches.
we will simply be very,
very succinct.
The idea is to – we had a struggle
in terms of deciding
what constituted our frontier market
and what was an emerging market
and decided that we weren’t quite sure,
other than to say that at least
as witnessed by things like
the Morgan Stanley indexes
and the Financial Times,
the various lists of countries,
it appears that frontier markets
are generally further behind
in its usual development and at some point
they seem to graduate to
what people think of as emerging markets.
China, India, and Brazil are regarded
as emerging markets and then
at some point they graduated into the so
called developed nirvana of some sort.
That seems to be the progression.
And one of the things that we could
explore, if the panel is amenable,
is the differences between frontier
and emerging markets,
what causes that institutional
development to occur.
As it turns out we have successful
business people and entrepreneurs,
some from the frontier markets
and some global corporations represented
in the panel, and we have
some policy makers
and policy makers turned politicians,
and we have a banker sitting here.
My role is, as an academic
at Harvard for the last 20 years
and an investor in several
emerging markets myself,
so I will try to round out the experiences
and try to fill in the gaps
if I do see any but I doubt
to have any gaps
because the experience is pretty
comprehensive.
What I propose is we start with Don Lam.
Don has been running a very interesting
business in Vietnam
for the last 16 years I think,
building up investment… house of sorts
and he’ll give us the
entrepreneur perspective.
Elizabeth from Visa will go next;
Erik from Nalco with his energy conservation
and waste business will go next;
Simeon, who I’ve known for many years when
he had an academic policy guise
and is now a politician
and statesman in Bulgaria,
will speak of some of the policy challenges,
particularly the small frontier market,
emerging market; and Mr. Zhu Hongjie
is the Vice President
of the Export-Import Bank of China
and our host so I requested him to go last.
So without further adieu,
I’ll invite Don to take three minutes, Don.
Thank you.
Thanks for that.
As intro, we managed
about $2 billion in Vietnam
and we’ve been doing business
with them for over 16 years
and so we do experience
a lot of this frontier…
We just made our first investment
in Cambodia recently,
so another frontier market.
So to me, I think frontier market
is really characterized
by really high growth rate
but also a lot of volatility.
For example in Vietnam in 2006,
our stock market was up 145%,
that’s the best performing market
in the world in 2006.
And then in 2008, the market went back
down 66% so that’s the sort of volatility
that you can see but, really,
overall I believe the frontier market
is where some of the best opportunities
are in terms of from
an investment perspective
where you can achieve
really high growth rate
but you do expect volatility.
And then I think for an investor
who is looking
at potentially diversifying essentially
from the linking between the frontier market
and developed economy, this is where
you can play in. Thank you.
I should start by explaining
what Visa is because
I think there's a lot of misunderstanding.
We are a global payments network.
We’re not a credit card company.
We don’t issue cards, lend money.
We basically move money,
about US$5 trillion of it per year
across our network and electronification
of payments is a key to economic growth.
Moody’s did a study and said from
2003 to 2008 the electronification
of payments added US$1.1 trillion
to global GDP
and that’s roughly a 50-basis
point increase in global GDP
and obviously the frontier
markets are key to that.
And what we found is that the hallmark
is innovation at a very accelerated pace
and you have to know
what your business
is but you have to be very open
to how to do it in different ways.
For example, our business
in Pakistan is the government
delivering benefits to people displaced
by conflict or catastrophe
on a Visa prepaid card,
that’s how they get their benefits.
Mobile, as a channel for financial
services, is critical in frontier markets.
These markets are places
where you have a billion people
who have a mobile device
but they don’t have a bank account
and they're never
going to have a plastic card,
they will use their mobile phone
for payments.
So as we look at these markets,
it’s critical to enter them
with a sense of innovation,
to be open to setting standards
and interoperability, and to partnering
with the government
where possible to align your agenda.
Could you give an example of where this
has gone back to the developed world?
Absolutely,
thank you for asking that.
So really, the frontier markets that
Visa operates in 170 countries,
our biggest countries are the obvious ones:
United States, Canada, Australia.
All of the innovation around mobile
payments happens in frontier markets.
That then comes back to places
like the United States
that inform how do you really turn
a mobile device into a payment device.
Thank you.
With Nalco,
we are an industrial water treatment
and energy services company,
energy services related to water treatment,
$4 billion global company with about
$1 billion in sales
in the BRIC-Plus countries,
BRIC plus the frontier markets,
and because the industrial growth,
the oil and gas related industry growth
and water challenges of the frontier
markets and the BRIC markets,
we’re growing about 30% per
year in these markets.
We’ve been there a long time.
We’ve learned a lot of lessons.
And I would say that three key lessons
that we’ve learned is one,
is make sure that you go
into these frontier markets
making a strategic commitment
to go through the good
and the bad times because going in
and out is not going to work; secondly,
make sure that you put your talented
entrepreneurial people
that can be successful there and hire very
good local people in and get good partners;
and then third, build the right
relationships with not only customers
but also government officials
and people that you need,
partners that you'll need,
to be successful.
Now let me give you two quick examples
of where we’ve learned lessons
the hard way and adapted.
One is in West Africa where
we went into a huge oil project
with a global super major oil company.
We were their partner.
We won the business.
They gave us the business.
We put lots of project people
on it for several years.
We were ready to start the business.
And the local oil company decided
that some other supplier
ought to come in and get the business.
Well, we hadn’t built the right
relationships with that national oil company
which we subsequently fixed
but that was a very hard lesson to learn,
that those relationships are really
critical with the government
and the local government companies.
Second example was I think we’re all
challenged by corruption
or bribery issues
in some of these countries.
We had a situation in Southeast Asia
where we had a very good piece of business.
Our rep came back and said
that the customer was asking
for a bribe or else they were going
to take the business away from us.
We said of course we won't do
that so we lost the business.
But the lesson there was we were
working with very low level people
at the customer site
which was fine but we weren’t working
with the higher level people,
explaining the value that we were bringing,
and worked through any issues like that.
So there are challenges like that
but they can be addressed
by understanding the markets and
dealing with the markets in the right way.
And what is this high level corruption?
Then it’s probably a company
that you don’t want to work with
but there are plenty of companies
in these markets, plenty of customers,
plenty of opportunities, of very sound
principled companies to realize the growth.
You can keep your global standards
but still realize very aggressive growth
in these frontier markets.
That’s our conclusion,
that’s our commitment,
and I think we’ve learned how to do that.
Great. Thank, Erik.
Simeon.
-Thank you.
One of the main distinctions
between an emerging market
and a frontier market
which we have discussed
is the level of institutional development.
But I think if you take that
as a given then another,
perhaps less discussed,
distinction is just market size.
In other words,
I would argue that if two countries
have roughly the same institutions
but one of them has a much larger market,
then it could be considered
an emerging market simply
because it can attract more investors
that can use this market.
So I think part of the success
of countries like Brazil,
like India, like China, like Russia is not
so much that they suddenly
have acquired much better institutions
but simply because their larger
investors want to be there.
So then the question is what if you're
a small country like Bulgaria,
what do you do about it?
You're not going
to acquire the large market size.
It turns out that even
among smaller markets,
smaller countries,
there is further distinction
and it is how you
enable the large markets
and can you be
an entry way in to that market.
Well Bulgaria, luckily, since 2007
a member of the European Union,
one of the smallest countries
in the European Union,
but because of its many links
to some of the former socialist countries
including countries like India
and China in recent years,
months in fact after the financial crisis,
it’s flickering away,
it has become an empty way
for large Chinese investments.
For example,
that originally set up shop in Bulgaria
and then from there hope,
they say, the investors say
and to the whole European Union
market because those of you
who invest in Europe know once
you get a license in any of
the European Union countries you can
operate throughout the European Union.
So in other words there is kind
of a niche market
for smaller countries to compete
for being the entry point
of a large market nearer them,
in Bulgaria’s case,
the European Union.
How do you get that?
Well, come historical links,
as I mentioned, but also,
in the case of Bulgaria,
I found two other things to be important.
One of them is the level of taxation,
corporate taxation, that is,
if you have slow corporate taxes overall,
I mean not just profit tax
but VAT and so on,
then that tends to attract
a lot more investors and in the year
and a half that we’ve
been in government,
we’ve gone from being the 7th among
the 27 countries of the EU,
the country with the 7th lowest tax burden,
currently we’re the 2nd
so in other words we’ve managed
to surpass five other countries
due to the increased taxes
so that’s one thing.
And the other thing that matters
a lot to investors
is the level of development
of infrastructure,
just pure physical infrastructure:
road, electricity, water work,
these kind of things that in developed
markets more or less taken as a given.
But in most emerging frontier markets
this is still where comparative advantage
and these are the two areas:
low burden of taxation
and infrastructure development
that the current Bulgarian government
is trying to develop over our competitors.
Thank you, Simeon.
China Import-Export Bank,
turning to the business remarks on markets.
It’s very hard to change
between the different types
of developing countries and so on.
Now how do you subdivide between these
different countries and is it really useful?
Some emerging markets
are relatively small sized
in liquidity but at the same time, funded.
If you're in such
and such frontier market,
you can reap much high returns
but with high risks.
Our bank’s viewpoint is that several
of these countries are well worthy efforts.
There are many business
opportunities there.
China Ex-Im Bank,
when it decides whether or not
to go into these countries
to do business there.
First of all, it looks at the level of effect
against social development,
the quality of life there,
and the level of debt
as well as the political and legal
environment in these countries
and the local customs,
the sort of cultural differences
with China that might exist.
These are some of our criteria
on deciding in depth whether or not
to go into such
and such frontier market.
Now on the projects level,
first of all,
we try to build a long term relationship
with the government in question,
try to reach a consensus on a specific
goal that you want to achieve there.
Many countries want to achieve
modernization, industrialization,
wants to build green economy
and modern service industry.
Many countries
are moving towards this end.
Therefore, in doing business,
we should… those countries.
In this way,
we can achieve a win-win situation.
In doing business
for newly emerging economies,
we should contribute to the sustainable
economic social development of that country.
So in this point we are interested.
Another point is that
for newly emerging economies,
there are many problems
or issues to be handled.
However, while Chinese companies
are investing… we need
to learn international best practice
and the international norms…
wants to be in a country or we get
an engineering contract
in a country where our companies need
to perform social responsibilities
of the… citizenship.
We need to protect the environment better
and try to make contributions
to the local community.
In this way we can have better
business from the frontier market.
Thank you.
-Thank you very much.
Thank you for all those perspectives
and thank you.
Addressed to anybody in the panel
who would care to pick it up:
How does one build support in the societies
for some of these institutional development?
And that’s a question
that we could address from the standpoint
of individual investors,
either local or multinational.
Coming in, you're trying to do something
for the good of society
in the course of undertaking
some commercial activity.
How do you build support?
Or form the standpoint of policy makers,
how do you get the person on the street
to see that this is a desirable way to go.
We were talking earlier amongst ourselves
about the issue of water scarcity
around the world with several
in the panel and had to deal
within different circumstances.
The issue of pricing
water would be an example,
how do you convince politicians
to price water?
It’s an extremely difficult and tricky
and emotional issue in many levels.
So anybody care to pick up on that?
I think in regards to water,
it’s a combination of pricing water
and reinforcing or enforcing
the regulatory standards.
Many countries will have regulatory
standards for both the quality of water
and the use of water
but won't enforce them
and I think to the discussion
we had earlier,
I think key to that
is the government having the data.
The government has the data
and understands the issue,
then they can deal with it.
It’s not just a political issue,
it becomes reality
and something that you can discuss,
what are the right approaches,
plus if the governments understand
that there are technologies
and best practices
to deal with water shortages,
for example that an industry
can use to use less water
that are also economically viable,
that help companies not only use less water,
be more energy efficient
in their water cooling
and heating process
but also do in a way that reduce costs,
doesn’t increase cost, then the combination
of environmental sustainability
and economic sustainability
and that’s the real sweet spot.
I found, let’s say economist turn
politician recently
I found that people care a lot about
and society cares about job creation.
So if you say he’s a very large investor
who can create 2000 jobs in a country,
a small country like Bulgaria,
please tell us what you are looking.
An dif they say we need better roads
so that we can get
without breaking our goods and so on,
we need more taxes
and so you simply ask the investors
and at least in countries
of Eastern Europe I find that society
actually is excited about foreign investment,
vis-à-vis pro-investor confidence
and interest in that
and you just listen
to what the investors
and society actually gets excited
about these, these 400,000 2000 jobs.
And you as a government
can sort of have your priorities.
So for example coming from many years
in global bank before,
I always thought that investors care a lot
about the quality of the justice systems
and they do actually but most foreign
investors write contracts
in such a way that they can arbitrate them
in either London or Hong Kong
or New York or Paris so actually that’s
an important decision
but that’s not one of the first three
or four that come up.
The first three or four that come up,
at least in the case of Bulgaria,
mentioned infrastructure, low taxes,
the way into the European Union market
so I think people would want
foreign investors
to say what they want and that works.
I just want to touch on living
institutions as you said earlier.
I think my experience that one of the
biggest mistake that allow
the investor or company
who I do business in frontier market
is I think very short term because
they're looking at selling something
to the market and then once done,
it’s gone, and you just take a step back.
The beauty of the frontier market
is that they don’t see
that many foreign investors sometimes
and so if you do that right
in the first few year
and build up a relationship
and do the first few transactions
correctly, the opportunity is there.
And especially in the frontier market
when you start with a low base
so the growth is very high
so you can enjoy the growth with it.
For example, in Vietnam,
I have a business partner
who came into Vietnam in the early 1990,
did a couple of deals, and just leave.
And again, it’s very difficult
to re-establish themselves.
But once they worked with us,
we tried to explain to them that
“Look, you need to do small but consistent,
being there, and build a relationship.”
And now their profitability is one
of the highest growth rates from Vietnam
and any other market they have
anywhere else in the world.
And I think we’re all saying different
shades of the same thing
which is have great government relations
and I think one of the challenges
is to make sure that if we
have an economic interest,
and in our case a financial institution
wants to offer products to its consumers,
you have to understand how that serves
the government need so we talk
about job creation in our business,
it would certainly be financial literacy,
it would be transparency of the economy.
And if you can build both of those needs
and manage both of those constituencies,
I think that it does help you build
a sustainable long term presence
in the frontier market.
Has anybody ever encountered instances
when there’s a conflict of this?
When you feel that the right thing should
be done but you're not able
to get government support or you're
not able to communicate to the end user
of the service that indeed
this is worthwhile?
And what do you do in those circumstances?
Everything that you said sounds so great.
A lot of patience
and education I think.
There's a lot of time
when we – I’ll give you an example.
We will building a golf course
in Central Vietnam.
And I said “Golf course?
What’s the benefit to Vietnam?
Why would a golf course
be beneficial to Vietnam?”
It takes time to explain that if you want
to do a resort development, high class,
city tourists coming in, they do play golf
and golf course is part
and parcel of resort development,
tourism, and so on and so forth.
So on a first cut,
you explain that to the authorities,
they wouldn’t understand, what’s that
benefit to Vietnam, for example.
The other benefit I see is that once
the golf course being built,
you’ve got a number of investors
all around that area
because you have a lot of Korean
and Japanese coming in and say
“Well, the first thing I'm going to do,
looking for a place to invest
is I need to see a golf course
around that area first.”
So that’s part and parcel of attracting
foreign investment also
but that again takes time
to explain to the policy maker.
Sometimes you just need the cautionary tale
and then I think that’s such
an unpopular thing to say
but we have what was a frontier market,
marked to build this on ATM switch because
we didn’t want any
of these foreign countries
and it was a two year painful,
multiple failure process and so sometimes
you just have to experience the alternative.
It occurs to me that, at least
the two of you, Elizabeth and Erik,
are involved in different kinds
of infrastructure development.
Yours is sort of more
of the hard infrastructure,
yours is the soft infrastructure,
so we have a nice pairing in some sense.
And both of you I think emphasized
the importance of building bridges
to the public sector prior
to engaging the investment process,
presumably some sort of literacy program.
Literacy sounds as though
you tell the government what to do,
that’s not what I mean.
What I mean is co-education in some sense
and perhaps exposed difference
adjudication of some sort.
Is that a fair cut position?
And I think to tie in a couple
of these points,
a number of frontier markets,
we’ve gone in with what we thought
was great technology,
great capability from the United States
that we wanted to bring
and had challenges
and what we found out was
what we really need to do
is get strong local people because you’ve
got to have the capability on the ground
and the governments really
aren’t going to be open to you
unless you have strong local people
to support not only the job creation
but also the capability
to service your customer right.
I think that’s been
a big learning process.
You’ve got to build up the local capability
as soon as you can to be successful
with your customers
but also connecting to the government
and really getting the right positioning.
Sir, I can confirm that governments
do care a lot about jobs
in the first place
but also about building some capacity
that later can grab not only
that company but the industry
and later on the government.
So when we review foreign investors,
we think “Okay, these people are going
to bring this type of technology”
but later on it’s going
to be used in the government as well.
Some of these people are going to move
to government jobs in a few years
so you do care about this capability,
capacity.
I do think that it’s important
and people even in the largest
international investors forget sometimes to
talk to different layers of the government.
The governments do want to listen, do
want to listen exactly what the issues are.
One needs to be careful to tell the right
story and the truthful story.
I recently had a case
where a European investor was entering
the market and basically saying
“Well, you're offering us this
but a neighboring country
is offering us that.”
And somehow perhaps thinking that
because we’re competitors for the project,
you do not know what's happening
in the neighboring countries.
Finance Ministers also talked
to each other so I can easily call
the country’s Minister
and he said “Nothing like that,
basically this is what we’re offering.”
And that sort of investor immediately
loses some credibility with us.
In that case I simply told them
“Look, you're talking of this
but here is what it is,
so if you would want to restart,
that’ll be great; if you want sort of risk
this sort of roundabout conversation,
we can do that too but let me tell you,
we know what's on the other side.”
I think you need to be truthful
and just say this is what you would like,
most of the time the governments
would actually deliver it
because it’s in their interest.
-Mr. Zhu Hongjie.
China’s reform
and development experience
also made a very clear answer
to this question.
China is introducing foreign capital
and the Chinese government
is making investments
outside of the country.
At the beginning of reform…
period with these bottlenecks,
one is energy shortage;
the second is transportation issues.
So infrastructure construction plays
a key role in economic development.
China Export and Import Bank
supported a lot of overseas investment.
Based on the policies of the frontier
countries, we are making investment.
We’re also being aligned with the goals
and objectives of the frontier markets.
We want to support infrastructure projects
in those frontier markets
so as to enable them to have
a very good infrastructure
for future economic investment
and to attract more foreign investment.
Thank you.
I was struck by you earlier comment
when you talked about the criteria
that your bank uses
in going to other countries
and you had a whole long list including,
I noted, how different the practices
there are from China
as well as the social temperature if you
will, the social conditions in the country.
And I think it bears some recollection
that it’s not just the state
of the financial market that matters
in going in and developing,
those investors that might be something
that we’d all be focused on
but also the broader institutional
environment, so thank you for that.
I suggest we open – the floor is open
for comments and questions.
If you would raise your hand,
I think there are some mikes.
And if you would identify yourself,
there’s a lady in the middle right here.
Raise your hand higher please
so they can see you.
Thank you.
Just a brief identification
and then you can address the question
to whoever you wish.
Hello, my name is Maria…
and I'm from Agility which is one of
the only global logistics companies
that actually comes from outside
of Western Europe or the United States.
The company is based in Kuwait.
This conversation has been very,
very interesting in that it’s really focused
on what it takes
to play in frontier markets.
My question is the reverse:
what can frontier markets
and companies from frontier markets bring
to regional and global growth?
Thank you.
So what can companies from frontier
markets bring to the rest of the world?
So I'm going to call Elizabeth because
of the idea of innovation in some sense.
Do you want to maybe try to take
a stab of that?
Sure, certainly in our business,
it’s innovation generally
so companies in particular
who have particular technologies,
again I’ll go back to mobile
because that’s a prime example,
but because people in frontier markets have
figured out how to do things
with what they have available,
which as we’ve been discussing
is scarcity of capital,
scarcity of resources,
it very often turns out to be that there
are very cost-effective technology
and product solutions that can developed
in these frontier markets
and then we can then add global standards
and global scales Erik discussed
and bring those back
into developed markets.
Anyone else care to comment
on what can companies
from the frontier markets
take to the rest of the world?
I think just to maybe elaborate
a bit on what was just said,
I found, again in my 15 months
in Bulgaria in politics
that some of the investors
that come to Bulgaria
are actually from like markets so
emerging markets that are still frontier,
and precisely as Elizabeth said it’s
because they have had similar situations
with development sometimes.
For example, they bring technologies
that can work if electricity
goes out from time to time.
Now in Bulgaria, fortunately, that doesn’t
happen anymore but you never know,
it did happen in the past years
and it’s very important
for some industries
that they have constant supply.
For example, if you're a surgeon,
you really want to have the supply.
So recently we had a large successful
investor come into the Bulgarian market
that operates hospitals but essentially
the innovation which came from
an Asian market actually was –
an emerging Asian market –
was to have such backup technology that
whatever happens to electricity grid,
it continues operating.
In some of the more developed markets,
maybe that doesn’t strike them,
that electricity may go out.
It’s a simple example
but it points to this innovation in times
of not so developed infrastructure
institutions and so on.
I think one of the nice things is that
when you reflect on that question,
there are so many examples
of specialized expertise buckets that have
popped up in different parts of the world.
Just hitting off the top of my head,
you look at biofuels
which has a problem coming out of
Brazil with the natural endowments
and the policy experiments that
have unfolded over 30 years in Brazil,
those countries are taking it
to the rest of the world.
You look at the water conservation
in the Middle East,
different parts, particularly in Israel,
very, very interesting.
You look at miniaturization of pediatric
heart surgery in Southern India.
You would not think of Southern India
as being the place
where the best pediatric heart surgery’s
unfolding but the reason
it’s unfolding there is that Indians,
unfortunately for me,
tend to have heart disease
and there are a lot of Indians
so you’ve got a lot of people with heart
disease and somebody has practiced
and practiced and practiced and become,
if you will, the Henry Ford of heart
surgeons sitting in southern India.
So there's a host of environmental,
accidental policy experiments
and contingencies that have unfolded
and if we just keep our eyes open,
we can tap into all sorts of expertise.
So thank you for that question.
The gentleman behind there.
I'm from financial websites.
I have a question for you.
For China there is a great regional
divide between western countries
and the eastern countries.
For the western part of the country,
it can be considered a frontier market
while coastal regions can be developed,
can be considered as developed regions.
So how can we balance
the regional economic development
and how can we cooperate with other
countries to develop western part of China?
For frontier markets, I think this
is developed among different countries.
Just as you mentioned
that regional gap between the western
and eastern part of China, yes,
there is such a gap.
China’s government,
the Central Government,
decided adopting to the policy
of western development and rejuvenating
the wide northeastern industrial base
just to narrow the regional gaps.
However, we cannot divide
the regions into frontier regions.
In China, per capita GDP is 3700,
western areas 1000, eastern areas 5000,
but we should not
divide the country to two parts.
This is a national domestic issue
but not an international issue.
I don’t know if anybody else wants
to comment on the broader question,
maybe not so much about China but the idea
that there are pockets in any country.
I can take my own country of India,
there are certainly parts
of India that do extremely well
and there are parts that are extremely poor
and in really bad shape.
And the question is,
I suppose if a can reframe the question,
the question might be is it the job of
the state to somehow reallocate resources
to compensate for inadequacies
or are there roles
that other people
can play in that process over time.
Can I just take that?
I think – that’s why there needs
to be a partnership between the state
and also the private company sectors.
I think the states always play a role
in terms of providing incentives
for company as you go there.
If you provide tax holiday
and then certain other policy,
then the company that’s beneficial
for themselves, they will go there.
And I think it’s always
that’s the best way
rather than heavily interfering
with that particular region.
I think the best is to set the policy
and let the private sector take over.
To provide investments to entrepreneurs
to go inside?
Okay.
Questions from the floor?
I’ve spent 20 years teaching in Harvard
and I don’t think I’ve ever stared
at 150 people
with nobody having anything to say.
We now have seven hands.
There's one in the back.
Thank you very much, John Manners-Bell
from Transport Intelligence.
I’d like to return to return
to this question which was raised
a little bit earlier on corruption.
Frontier markets, I think most of us
will admit that corruption
can be endemic from the government down.
So how can a multinational
with very different standards
of behavior actually work
and be present in the markets
without adopting
the local business practices?
Is it a case that you just avoid that
market completely or do you try
and bring your own values
and pressures to bear?
I would go back to some
of the things that I said.
First of all, I don’t think
you can compromise
on your company’s standards
around the world.
I think you have to have one standard
and have that same standard
everywhere in the world.
But at the same time,
I just fundamentally believe
that in these frontier markets
there is corruption,
there’s corruption everywhere in the world,
but you can maintain those standards.
And if you're bringing value,
if you’ve got local talent
that’s got the right capability
to bring value near customers,
you can find ways to do it
without being corrupt,
without bowing to the corruption,
and still realize growth opportunities.
I believe that we train our people,
we talk to them
the day they join our company
and talk to them about the standards
and make sure that’s very clear.
We make it very easy for people
to report if they’ve got
a concern about anybody
in our company
or somebody out in the market place
or with the governments
and then we try to help them
address any issues.
But I fundamentally believe
that the world –
in the long run companies
have to be abiding
by some international global corruption
standard in order to be successful
and we’ll make that happen over time
and you just have to keep your standards.
You know, I would just add,
I mean Erik’s absolutely right,
there are a handful of places either
because of corruption
or just extreme political instability
that would just be difficult
to operate in but Erik’s right,
you must keep your standards
and sometimes there
can be a combination,
whether it is hiring local talent
or partnering, for example,
with a local technology provider,
another multinational company,
for example something
that we did in Africa,
brought in a global bank,
we’re obviously a global company,
but the technology provider
for the payment center structure
was a local company which actually
gave us access to an intelligence
about the market and it was a market
that had a pretty corrupt government
but we managed to see our way through
and still stick to the standards
to which we had to adhere actually.
And if I may add,
again tell you a story
and you tell it not only
to the government or the public.
If a company comes to
a country like Bulgaria and says
“We’re going to create 500 or 1000 jobs.”
These jobs are going to be in this region.
They're going to develop in such
and such ways.
Other contracting firms
are going to benefit from it.
When you have democracy,
when you have elections,
it’s very difficult
even if you face somewhere,
some government officials that ask
for bribes and so on,
the rest of them would want to do
these projects simply because
they're going to be elected on such
projects for providing jobs and so on.
So you should be public and truthful
about what you're bringing to the country
and it actually works.
Can we just go back for a second
to the criteria that you used.
Implicitly this is addressed more
to the multinationals
in terms of –though I suppose
it applies to everybody
who’s expanding beyond their borders
but I'm just talking about
expanding through Thailand
and Cambodia and so on.
How do you decide where you do business?
Corruption is one feature.
It would apply to the Chinese
and to Africa also.
What are some of the criteria
that are tougher in line
for you other than obviously the size
of the market you're investing in?
Well the number one criteria for us is
what is the opportunity to start to look at
and then once you decide that the
opportunity fits our capabilities
and is worth going after, then what's
the best way to go after the opportunity
and does it make sense and does the country
meet the criteria that you can
do business successfully
and in a global standard way.
And for us, a lot of the world
fits that criteria,
there are a few markets that don’t.
If you do business in an open,
transparent way and work with
the government and companies
that want to be successful over time.
Thank you. Talking about developing
and frontier markets,
the major challenge
is often weak rule of law
and the prevalence sometimes
of corruption.
And if you don’t take certain actions,
you're threatened with loss
of the opportunity or the project.
And if it’s a truly promising project,
you're sometimes threatened with loss
of it if you don’t take some actions.
But we are against Chinese companies
acting illegally in order to do deals.
We have a blacklisting system
and if we find such occurrence,
the company will be added to the blacklist
and we will no longer do business with them.
It’s encouraging to hear the blacklist that
rules in our consideration in the future.
The other mechanism
that I’ve run into
with local and multinational companies
is making public any approaches to them.
I'm just making it known
to the widespread media
of the existence of an attempt
in an attempt to somehow
even out the playing field
over long periods of time.
And again, it’s a principle that somehow
it’s the best disinfectant
that seems to come through
in many of these ideas.
The gentleman back here.
Hi, Rodney Caine,
I'm a professor of chemical engineering.
In the criteria for investing
in a frontier market,
if I had heard the interpretation correctly,
one of the criteria was level of debt.
I was wondering, given the current –
given how sensitive the issue is currently,
if you could elaborate on that a bit.
Sovereign debt, consumer debt, is there
a certain level that elicits concern.
Mainly sovereign debt,
levels of sovereign debt,
and also the rate of solvency
of the country concerned
because if we support projects
taking place in that country,
we look at how to improve
the prospects of sustainable development.
If we, on the other hand,
…debt can repay,
that certainly is called social instability
and so we’re less willing.
Some Chinese companies are willing
to take stakes in American companies
but they get turned back
by the US authorities.
That actually raises
another very interesting question.
I stood on the boards
of many large US companies
and it’s interesting to see,
and I don’t know how many of you
share this feeling, that the amount
of protectionist rumblings
that have popped up recently frequently
on all sides, in the developed world
and the developing world,
to me has been a little bit alarming,
that’s what Mr. Zhu Hongjie
is referring to.
In any case, thank you for the
clarifications of sovereign –
there was a question back here.
Very often in most countries,
emerging countries,
you need a local sponsor.
Doesn’t that add to the complexity,
lead to corruption,
and increases the cost of
doing business in those countries?
Can you tell us the reasons for it
and maybe how to choose
or deal with the issue
of the local sponsor?
Do you have a particular country
in mind that you're referring to?
Well most frontier countries,
I believe,
do require that,
Middle East for instance.
You are very right.
You should look
for local partners wherever you go.
it will make things go much more
smoothly for your investment.
And it’s a growing trend I think.
I guess the question is really
in some cases,
you need to start debating whether
the local funding
of a government-owned
entity or a private company.
That also makes
a difference in that frontier market.
The question about a local partner
is always brought up especially
in Southeast Asia where I work.
But definitely
a lot of the companies do go
and look for a local partner.
The question’s always between
a government-owned company
and private company.
And I think as people
start to find out,
they do tend to go
with private companies more often,
it simply is just reducing
one level of bureaucracy, I guess.
In some countries, as was mentioned,
in many industries it’s actually required
to have a local partner although I think
this requirement for this regulation
is going away in many countries,
for example in the European Union
and Germany in Eastern Europe, it’s
actually prohibited to have such regulations.
In other words,
you can invest without a local partner.
I found, however, that often it’s wise,
as it was already mentioned,
to have a local partner simply because
the level of consulting services
in many of the emerging markets
is not so high yet
so local partners can actually tell you
about many things,
how to follow regulation,
which level of government officials
to work with,
and so on that you don’t know otherwise.
It’s not really how to deal
with corrupt government officials,
it’s simply to have enough market
intelligence that otherwise you do not have.
And even in countries…
consulting services but still,
maybe because we are just establishing
offices and so on,
is good I think often to have
a local partner simply because
we know how the market operates
and it operates legally,
not how to avoid regulation
but how to deal with it
so you don’t have problems
down the road.
And I agree with everything
that’s been said,
I think local partners can be extremely
valuable in frontier countries.
The only thing I would add is that spend
the time upfront
with the potential partners to make sure
that whoever you go with
is somebody that – the relationship’s going
to last, that you have similar values.
The times that we’ve made mistakes
was because we moved too fast
to get a partner and didn’t make sure
that we did our diligence well
and get to the right partner
for the long term.
Just to flash out the question,
if I may for a second,
I think his question was why do you see
the emphasis on this when you do.
And very often there's
a capacity-building aspect to this also,
which is that the local country
is basically saying we want you
to help develop our local base
and effectively you will be
transferring some technology
to the local partner.
Now my view is that you
look at this in the long term
and say that that’s part of the function
of the investor is capitalizing
the local opportunity but also
helping develop local human capital
and in that sense maybe it’s
not such a bad thing.
Though I agree with the spirit
of the question that very often
it makes it more difficult
and perhaps that comes back
to Erik’s comment that
you should be careful in deciding
who you do business
with in the first instance.
It’s a bit more complex I think than always
being a panacea to somebody’s problems.
It seems to that part of choosing
the right partner is they're going
to allow you to expand your own company’s
capabilities over time in that market.
You don’t rely on them forever as a sales
agent, you build the full capability.
That’s great. Way back there,
there's a gentleman there.
My name is…
We’ve been investing in Russia,
I'm not sure it’s a frontier market,
for many years and then 17 years
we were able to do business
without paying bribes or without
having met enough…
so I think many of the perception
about frontier market’s simply wrong.
There are no ice bears
in the street of Moscow
and generally people are quite
welcoming just like Beijing
and Tianjin are very nice,
I think that’s one thing.
But as far as shining the light,
I think that’s what works very well.
The German Business Association signed
a commitment that we would not pay bribes
and not do this little business…
but on to my question
which is really
to the Ex-I'm Export representative,
what is the strategy you have
with Russia now?
Be it G8, G20 or be the frontier market,
we all know about the big pipeline
that you're building from Siberia to China,
but there are many,
many other areas and I heard from
the Chinese in Beijing
that the Russians look tough
but they have a good heart
and therefore the Chinese
like working with them.
I was wondering what your plans
are in this direction. Thank you.
Well if we talk about Russia,
Russia’s certainly
an important neighbor of ours
and a strategic partner of China.
We have that
strategic partnership in place.
We have strong complementarity
of the two economies
as well between China and Russia
and so they're very good prospects
for the relationship
between the two of us.
If we look at trade further,
if we compare
that to the complementarities
of our economies,
there's still not enough trade
between the two,
it’s only about U$50 billion
and growing very slowly.
It’s not in line with the strategic
partnerships that we have
and that we have to develop.
I'm sure the two governments
will be taking action to resolve
this lack of symmetry if you like.
Thank you.
But it’s encouraging to hear
the positive experience in Russia,
so thank you for sharing that.
We have time for maybe one
more question,
a couple more.
There's one over here, I’ll take this.
…for Russian business magazine,
Expert.
I just wanted to ask
if any of our guests here
have an experience
in investing both in China
and any Asian frontier markets
and compares the attitudes
that investors are facing in China
and frontier markets
and how this attitude is actually
evolving there. Thank you.
Investments in China compared
to investments in other places,
how do attitudes vary?
The attitudes of people in China
versus other frontier markets.
I think China wants to aggressively
develop the industry and oil and gas
and there are water challenges
so for us the opportunity involves
the general industry of water treatment
and oil and gas water issues
has been very positive
and very welcoming.
In the last two and a half years,
we doubled the number
of employees we have in China.
We now have close to a thousand.
We’ve built a manufacturing facility,
we’ve installed
a technology center in Shanghai,
and are investing very aggressively
with good returns
and very excited about the future.
We’ve had a great experience in China
and I would say that the rest of Asia
is also growing very rapidly.
It’s very interesting to me to come from
the United States
where there's a lot of concern
about the economy and the double dip
and what's happening and as soon as
you hit the ground in China
or two weeks ago I was in India,
all you hear about is growth
and all these tremendous growth
opportunities so I think
it’s a very exciting place
for global companies to be investing
and to be positioning for growth not
only today but for many years to come.
Thank you.
I'm conscious of the time.
I was tempted to ask the question from
the RND Center but I think I’ll refrain.
Let me take the opportunity
to thank the panelists.
I think what you’ve heard
was a wide spectrum
of experiences from local
and multinational businesses,
policy makers, and entrepreneurs
on the challenges of adapting
the existing institutional environment
as well as continue to work
to upgrading it in the future
so that all frontier markets
become developed markets.
Thank you very much.
