Business Beyond the Reef

PricewaterhouseCoopers has published its 2009 Global Economic Crime Survey, based on reports from more than 3,000 corporate executives in 54 countries.  The Survey is being widely reported, and considerable detail, including country-by-country reports, is available on the PWC website.  My objective is to highlight which countries have the most, and least, business fraud – from the perspective of each country’s own executives.  This gives you an idea of how, say, Russian or Singaporean executives view fraud in their own countries – based on their own reporting to PricewaterhouseCoopers.

2009 Global Economic Crime Survey

Let’s begin with the bad news.  Russia is the worst, with 71% of Russian respondents reporting economic crimes.  They are followed by South Africa (62% reporting fraud), Kenya (57%), Canada (56%!), Mexico (51%), Ukraine (45%), United Kingdom (43%), New Zealand (42%) and Australia (40%).  Some surprising numbers, especially for Canada.  Do executives in these countries share the same definition of fraud?  I suspect that Canadian executives are using a higher standard than might be prevalent in the Ukraine.  And one wonders at the absence of the obvious suspects, such as Nigeria, Indonesia, Pakistan and China.  Did PWC simply not receive sufficient responses from these countries?

On the plus side, Japanese respondents see themselves as the least subject to corporate fraud (10%).  Next best are Hong Kong (13%), Turkey and the Netherlands (tied at 15%), Romania (16%), Finland and Switzerland (even at 17%), Indonesia (ah, here they are: only 18%), India and Singapore (also 18%), Sweden and Italy (19%).  Again, I think we are dealing with different subjective standards of what constitutes fraud and economic crime.  Is there really less fraud in Romania than in Singapore?  Lee Kuan Yew will not be pleased!

Things you might find interesting, but I haven’t had the time or inclination to blog about:

• A friend tells me about a novel use he has for Forbes‘ recent list of “The World’s Most Powerful People”.  He teaches English in China (I have been encouraging him to blog about it) and is using the Forbes list as a starting point for English conversations with his students.  He asks questions like whether or not Indonesia’s Yudhoyono or Singapore’s Lee Kuan Yew should have been included.  Should Italy’s Berlusconi be ranked so high?  He notes that out of the 67 names on the list, five are Chinese and one is a Hong Konger.  Thought provoking stuff and bound to get a conversation started.  Try it out at a dinner party.
• Some lines of business seem like piracy, and the South China Morning Post (subscription necessary) found another one Monday.  The rampant piracy off Somalia has spawned a sub-industry of insurance companies, lawyers and negotiators worth perhaps $320 million a year.  Most practitioners are based in London, but it is a global business.  Despite pleas by the United States that ransoms should never be paid, ransoms are paid in almost every case.  Of course, U.S. policy was formulated to cope with individual kidnappings, not theft of multi-million dollar vessels and their crews.  Might make a difference.
• Looking for a new line of business?  Here’s one that is challenging, takes you to an exotic place and is perhaps remunerative.  How about running a hospital or a utility in Iraq?  The U.S. Government is apparently getting worried that Iraq will be unable to maintain or even operate many of the development projects that the American taxpayer has funded as part of Iraq’s reconstruction.  Take a look at “U.S. Fears Iraqis Will Not Keep Up Rebuilt Projects” in the November 20 New York Times.  With $53 billion spent in Iraq since 2003, there have to be some opportunities here for entrepreneurs.  Of course, one has to be a risk taker.
• Are you tired of hearing pundits on financial issues telling you that “This time it’s different”?  I have discovered the antidote.  Refer them to an April 2008 study done by Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University.  Both also work with the National Bureau of Economic Research.  Their paper, titled “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises” makes a convincing argument that nothing we are seeing in this recession is anything out of the ordinary.  You can skim the 59 pages, but the paper covers crises going back eight centuries  in 66 countries – not the usual short-term analysis.  Reinhart and Rogoff have gathered data from England’s defaults in the Middle Ages to Spain’s 13 defaults after 1500, to the latest headline crises.  The prose gets a big thick, but great fun if you are into economic and financial history on a global scale.
• Adam Smith never thought that his theory of comparative advantage would lead to this.  According to Hong Kong multimillionaire Leung Moon-Lam, who has plans to build a biblical theme park in China, China is now the world’s biggest printer of Bibles.  One expects that most are exported.

Hoist One For Malaysia

I’m fascinated with difficult marketing problems and how companies have solved them.  So I had to read the November 24 New York Times article “Brewers Tread Carefully To Raise Sales In Malaysia.”  I love beer and worked three years in Singapore, so I have experience with finding a brew in the country next door.

Malaysia has 28 million people, but at least 60% of them are Muslim and thus forbidden from drinking beer or other alcoholic beverages, by law as well as religion.  Surely, this is a daunting assignment for a beer salesman.  The reporter interviewed Charles Ireland (appropriate name), managing director of Guinness Anchor in Malaysia.  Mr. Ireland described how at a recent concert to celebrate Guinness’ 250th birthday, headlining Blacked Eyed Peas to pack them in, he couldn’t display the Guinness name anywhere.  Ireland says he targets Malaysian Indians and Chinese in his marketing, but it doesn’t help that Malaysia has the second highest alcohol tax in the world (trailing Norway).

Soren Holm Jensen, managing director of Carlsberg Malaysia, says he avoids advertising that shows people drinking in a social setting, concentrating just on how great his beer is.  Advertising for beer is confined to print media and in movie theaters.

With alcoholic beverages legal for only 35-40% of the population, it is no surprise that Malaysia’s consumption is among the lowest per capita in S.E. Asia – about five liters/person annually.   Compare that to Thailand’s 31.6 liters/person.  I won’t go into all the penalties for Muslims caught drinking beer (a woman was sentenced to be caned last July), but beer is usually available to non-Muslims in restaurants, bars and even supermarkets.

A friend in Malaysia reports a couple facets of the beer trade that the Times didn’t pick up.  Seems that when the breweries pay their taxes, they are required to fill out the forms using a special ink – an ink that has only a sole source at an exorbitant price.  Who is getting the rake-off from that?

I said above that beer is usually available, but that no longer holds in Selangor state (around Kuala Lumpur) where the state government has forced 7-Eleven stores to stop selling brews.  This is said to be a move to prevent Muslims from buying beer – and to protect Muslim employees from having to handle the forbidden product (even if they don’t drink it).  Will restaurants soon be required to hire all non-Muslim staff if they wish to offer wine to their non-Muslim patrons?

Despite all this, Malaysian beer still tastes pretty good.

Coming to Hawaii

I was overjoyed at President Obama’s announcement that the 2011 APEC Summit would be in Hawaii, his home state – and have been doing a lot of thinking about ways in which Hawaii can take advantage of having APEC here (other than the obvious publicity of being the host – and filling 20,000 hotel rooms).  I really want to suss out how to use APEC to encourage more Hawaii companies to go international.  Too many of our small companies think that “exporting” means selling in California!  If any of you have ideas, please share them with me.

While thinking about APEC, I happened on a promising new website the APEC secretariat has put together about trade in environmental goods and services (EGS, they call the sector).  Any of you in EGS or related businesses should take a look at egs.apec.org.  The site functions as a portal to environmental laws and regulations of all the APEC member states, has considerable market research and makes available official reports that would be otherwise very difficult to find.

The EGS site is still being developed and has much room for improvement.  The project information is a bit thin and general, but I suppose that depends on what the APEC governments are giving the secretariat.  And I wasn’t able to use the APEC tariff database.  Don’t know if that is a temporary glitch, or a bigger problem.

The most disappointing part of the site is the EGS business directory, very sparsely populated.  It contains only about three dozen environmental companies, mostly from Australia, though some come from Singapore, Canada and China.  Surely APEC’s 21 members can muster a few more firms in this industry!  Of course, this is also an opportunity: get your company listed before everybody else does it.  It’s a good site and you don’t know which decision makers are going to see it.  Time for action.

Unless something catches my wandering eye, I may not post for a day or so.  Thursday is Thanksgiving Day in America, a good time to relax with family and friends, and to ponder all sorts of things we should be thankful for.  Besides, good wine and turkey on the grill make me sleepy.

The glimmering is faint, but do I spy signs of a trade policy in the Obama Administration?  The President actually called for increasing U.S. exports to Asia in his radio address last week!  I hadn’t realized that this White House knew that trade involves more than imports.  (Some in the Administration do know – and even know that profit is not necessarily a dirty word – for instance, Secretary of Commerce Gary Locke.)  It will be interesting to see if the radio address was more than rhetoric, but it is a start.

I am not one of those who argue that this Administration hasn’t had a trade policy, but the outlines have been faint and skewed.  So far, the Obama Administration has stopped Mexican truckers at the border and has made headlines for imposing penalties on Chinese tires.  The Congress hasn’t helped with its insistence on “Buy America” clauses in the stimulus package and continuing bleats to punish China for currency manipulation.  And the budget for the U.S. Commercial Service, my former employer and the country’s top export promotion agency, is still plummeting.  One would have reason to believe that America’s trade policy is being dictated by certain labor unions, if one were in a cynical frame of mind.

Exports Are Good

Don’t get me wrong.  I like the guy, but Ron Kirk was not an inspiring choice to be America’s lead trade negotiator.  His background in trade is, shall we say, limited.  He was mayor of Dallas and worked as an energy lobbyist before being tapped for the USTR job.  Ambassador Kirk spoke to a conference I recently attended in Washington, the annual national conference of District Export Councils.  DECs are advisory committees to the Federal Government about how to conduct export promotion and trade policy, so it’s a knowledgeable bunch, mostly private sector businesspeople.  Kirk’s speech was entertaining and witty, but he said … nothing.  He said it well, but information content was near zero, telling a room full of believers that exports are good.  And there was no opportunity for questions, sometimes a sign that his staff either expected hostile questions or that the boss wouldn’t be able to handle them.  One wonders, and hopes it was simply due to too tight a schedule.

Fellow attendee Johnson Choi, vice chair of the Hawaii Pacific Export Council, made the photo.

I am less than excited.  One of the ballyhooed announcements that came out of President Obama’s trip to Asia was that the United States would take a look at joining the negotiations of the Trans-Pacific Strategic Economic Partnership Agreement (mercifully, the world seems to have shortened this to TPP).  Three years of talks to establish the TPP were completed in 2005, when Singapore, Brunei, New Zealand and Chile signed up.  It is not an inconsequential agreement.  Customs duties among the four members will be largely eliminated by 2017, and there are binding environment and labor agreements as part of the deal (I don’t know the details of these).

There are three prime reasons my heart did not begin to pound when President Obama said that the United States would think about signing on.

1. We seem to have forgotten that this is old news.  Negotiations for the United States to join the TPP were first announced on September 22, 2008.  But that was under the Bush Administration, so it obviously doesn’t count.  How silly of me!  Time for a memory wipe.
2. Obama didn’t say that the United States would join TPP.  He only said we would think about it.  I think about a lot of things.  That’s exciting.
3. The United States already has free trade agreements in force with Singapore (which doesn’t charge duties anyway) and Chile, and has little trade with Brunei.  Perhaps the TPP could resolve all those bitter trade problems with New Zealand.  We must guarantee our sources of chardonnay.

Preserving Sources?

Actually, I suspect that TPP is a good framework to work within, but the outpouring of enthusiasm by trade organizations is a bit premature.  This is going to take a long, long time, and the inclusion of more countries in the mix will  likely complicate things.  Australia, Vietnam and Peru have announced that they want to negotiate to join TPP.  Australia and Peru shouldn’t pose insurmountable issues, since the United States already has FTAs with them, too.  But it is going to be a long tough slog to convince the Congress that free trade with Vietnam is a good thing.  I’d love to see it, but … it’s hard to get excited.

Things you might find interesting, but I haven’t had the time or inclination to blog about:

• Do you ever wonder about China’s always positive economic statistics? I have long thought they are too good to be true, so I generally ignore them in thinking about business plans for China.  My suspicions appear to be well-placed, but don’t take my word for it.  Take a look at Gordon Chang’s October 23 column in Forbes.  Don’t know why I missed it at the time, but it is still a timely read.
• I posted early in November about the WTO case brought against China for restricting exports of important raw materials.  The case was brought by the European Union, the United States and Mexico after bilateral talks with China broke down.  The first step in a WTO case, after bilaterals, is to request that a panel of experts be established to review the charges, counter-charges and facts of the case.  Last Thursday, China vetoed establishment of such a panel, as it has the right to do under WTO procedures.  That won’t delay things for long as the complainants can ask again and the request can only be vetoed once.  The next opportunity to ask for a panel comes at a meeting in Geneva on December 21.
• The WTO did set up a panel Thursday to look at a complaint by the United States about a European Union ban on imports of American poultry.  The EU says that U.S. poultry treated with an antimicrobial chlorine rinse is unsafe.  Washington says that the EU action is protectionist and unscientific.  A second panel was created to address Canadian and Mexican complaints against U.S. country of origin labeling rules for meat.  This is all normal stuff and sure beats trade wars.
• The National Foreign Trade Council called last Tuesday for Congress to streamline the various preferential programs the United States uses to help developing countries.  Let’s see, we have the Generalized System of Preferences, the Caribbean Basin Initiative, special programs for Africa – and probably others I don’t know about.  They all seem to run for different periods, expire at different times, and Congress never acts on them until the last possible second.  (GSP is due to expire the end of next month.)  Streamlining and combining seems to make sense.  Nothing kills business more than uncertainty, and uncertainty is what we’ve got.

I have been reluctant to post about President Obama’s trip to Asia because I haven’t seen much of a concrete nature on trade issues.  The President and the heads of state he met with all seem to be playing nicey-nice on trade, but as Gertrude Stein famously said about Oakland, “There’s no there there.”  Maybe I’m just in a sour mood.

U.S.-Korea FTA

Finally, in Seoul, we may see the glimmerings of something solid, though I have my doubts.  President Obama and South Korea’s President Lee Myung-bak said on Thursday that a free trade agreement “could” be reached between the two countries.  That’s confusing.  Agreement on an FTA was reached 2 1/2 years ago, but the FTA is still waiting to be ratified.  It sounds like Obama and Lee may have decided to re-open the existing agreement to mollify U.S. auto exporters and Korean farmers, but I haven’t seen a clear statement of this.  Any re-opening will delay the FTA for months, perhaps years.

President Lee made the point that Korea’s new FTA with the European Union will bring in more competition for American exporters, but time will tell if President Obama was listening.  In view of the Korea-EU agreement, wouldn’t it make sense to implement the Korea-U.S. FTA and agree to tinker with it after the overall agreement is in place?

Mr. Obama did say that he will “challenge” the U.S. Congress to display more sophistication on trade issues, something on which I wish him the best of luck.

The U.S.-Korea FTA could have huge positive impact for U.S. exporters and jobs (see The Kim Chee Gets Deeper).  Pity our politicians can’t see it.

Budapest Police: No Wonder They Don't Move!

Ah, Hungary …   Bull’s Blood, the Gellert baths, hussars, bribery, paprika, St. Stephen, corruption, the Austro-Hungarian Empire, Chain Bridge, crime, Haydn …  It’s time to clean up your act, guys!

In an extraordinary undertaking, the Budapest embassies of nine major trading partners have jointly issued a press release condemning corruption in Hungary.  Extraordinary in at least two ways: countries don’t work together like this, and embassies never want to embarrass their host governments in public.  The level of corruption must be intolerable, or the embassies are working with a faction within Hungary that wishes to push an anti-corruption drive.  Or both.

The press release is titled “Joint Statement on Transparency“,  a euphemism.  Transparency is code for not being able to tell what is happening, with the implication that there is skulduggery behind the scenes.  I am not sure what deal was the action-forcing event, but it is clear from the press release that something underhanded has happened concerning major investments in transportation, utilities and broadcasting.  I know from experience and friends that there was considerable foul play in Hungary’s privatization of state-owned enterprises, and that the local mafia is strong.  The release makes the valid point that if things aren’t cleaned up, and quickly, investors will go elsewhere, putting Hungary’s already slow recovery in jeopardy.  The countries issuing the press release account for the majority of Hungary’s foreign direct investment: the United States, Belgium, France, Germany, Japan, Norway, Switzerland, the Netherlands and the United Kingdom.  Not to be ignored.

Old friend and colleague John Fogarasi felt compelled to lead an American Embassy effort for good corporate governance in Hungary more than a decade ago.  John has moved on, but it sounds like the campaign is getting into high gear again.

Even the longest-running shows have to end, and so it is with the longest-running trade dispute ever – the infamous Banana War.  Negotiators have been peeling away their differences and slipping towards a conclusion in fruitful talks in Brussels and Geneva.  (Sorry, but I can’t resist a pun.)

No More War?

The Banana War is actually a quite serious case that was brought to the WTO by Latin American nations in 1993.  The root cause was preferences established by the European Community to benefit former British and French colonies in Africa, the Caribbean and the Pacific (the ACP countries), which had the impact of excluding bananas from other producers.  Led by Ecuador and others, the Latin case got a boost when they were joined by the United States, wanting to help Dole and Chiquita get their bananas to European markets.  Word is out (see Times Online) that there is a draft agreement to end this spat, and that it is largely agreed between the EU and the Latins.  The United States is expected to come on board the banana boat later this week or early next week.

The draft agreement would not end the EU’s discrimination for the former colonies overnight, according to a copy leaked early this week, but would phase down the tariffs paid for Latin American bananas over the course of seven years.  The EU banana duty is currently €176/ton, which would eventually fall to €114/ton, substantially eroding (if not totally removing) the current preference for the ACP countries.  The EU is sweetening the pot for the Latins, too, by offering to reduce tariffs on other fruits.  The ACP countries would receive an extra €190 million in EU development aid.