Universal Consensus

Understanding Global Generational Shifts

dhummel — Tue, 19 Feb 2013 15:48:04 +0000

By Andreas Fried, VP, Product Development & Senior Advisor of Universal Consensus

This blog aims to clarify how U.S. generational differences influence the U.S. workplace and if these patterns are translatable to other countries across the globe.

Background: Generational Shifts Impacting the U.S. Workplace

There is little doubt generational shifts impact the workplace. When baby boomers and Gen Y are collaborating in the workplace – there is a significant risk of friction because of the generational divide. There are plenty of studies highlighting the differences in attitudes between different generations. SHRM’s extensive Generational Differences Survey Report is one of the more comprehensive studies. Most researchers acknowledge that each generation shares certain thoughts, values, and behaviors because of the shared events and environments that formed their lives.[i] I think we can all recognize, based on our own experience that your generation differs from your parents’ and grandparents’.

Traditionals (1922-1943): Were strongly formed by the 1930s depression and the Second World War. They are more regimented, conservative, emphasizing of frugalness, preferring of formality, and base decisions on what has worked in the past. They are loyal and hardworking.

Baby Boomers (1943-1963): Boomers were influenced by the Vietnam War, the civil rights riots, the Kennedy assassination, Watergate, Woodstock, and the freewheeling 60s. They put emphasis on work but many have grown up questioning authorities. Boomers are widely associated with privilege, as many grew up in a time of widespread government subsidies in post-war housing and education, and increasing affluence.

Generation X (1964-1980): grew up in a time of early technology shift, financial, familial, and societal insecurity. They are generally seen as independent, resilient, and adaptable. Work-life balance is becoming more central than among previous generations.

Generation Y (1980-2000): Grew up in a more child-centric period and received a great deal of attention. They have been heavily influenced by technology shifts. Gen Y has grown up in a connected world with technology at their fingertips. They value genuine social responsibility and meaningful work.[ii]

Do U.S. Generational Differences Exist Globally?

So, do U.S. generational differences exist globally? If we limit ourselves to looking at this from a business environment context, then we can see some distinct patterns emerge. In essence, while similar generational divides exist among countries in western world, in emerging economies, Gen Y is the only generation with some common features across borders. This does not mean that Baby Boomers in the U.S. and Europe are the same or that Gen-Y in Germany and Brazil have much in common – but there are some common patterns.

To better understand this we need to look at the years that have influenced generations in other major cultures:

In China, it is estimated that 36 million died due to starvation during the Great Chinese Famine in the early 1960s. During the Chinese Cultural Revolution which lasted a decade and ended 1976, China’s education system was brought to a virtual halt. One can imagine the impact these two events have had on the formations of the generations that grew up during these troubled times.

In Russia and former Soviet republics for example, generations which grew up prior to the fall of communism share few similarities with their Western counterparts. In Japan, employees entering work life in the latter half of the 1980s through Japan’s economic bust in the early 1990s is known as the “Bubble Generation”. The bubble-generation was an untroubled and spend-thrifty generation – quite different from its American Gen X peers.

This pattern of pre-Gen Y’s global divergence repeats itself in non-Western countries. Although there is a slow convergence among Gen Ys, most of the change is occurring at a “visible” level; technology usage, fashion, popular culture etc. Values and behavior will change more gradually. Most of the generational merging is also happening at the top of the social pyramid – among people most exposed to technology and cross-cultural influence.

However, great examples of continued differences are the differences between Chinese Gen Y and their Western peers. Chinese Gen Ys are often referred to as “little emperors”. They were born under the one-child policy of the ruling communist party. In a country with limited social safety nets and where children often care for the elderly, a single child may have to support two parents and four grandparents. This is a huge burden and differs substantially from Western Gen Ys who are much more carefree and unconcerned and if anything more worried about their own pension than about their parents’ pension.

Glocalization: Global Product Localization Strategy

dhummel — Tue, 21 Aug 2012 17:16:06 +0000

By: Andreas Fried, Director of Business Development & Senior Advisor

What is glocalization? Glocalization is the concept of developing a product or service strategy that takes the benefits of a global product platform and integrates it with the advantages of product localization.

Just 10 years ago, it was widely believed that the future of global business lay in ever increasing levels of standardization of products and processes. Business-schools taught future leaders to ‘globalize the international strategy and assess the speed of internationalization’. Countries neighboring each other were presumed to assimilate each other’s cultures (Europe treated as a single culture). Companies would develop a global concept that fit a global customer-base which was converging, becoming homogeneous.

Even though this strategy has economic advantages and has worked for some companies – it often backfires or hampers growth potential in many markets. Today, many companies are learning that it pays to have a global product platform to reduce costs married with a local customization of the products and processes to appeal to a cultural demographic. Globalized but localized – glocalized. Global business is moving towards what has been called “mass customization”. New technology will aid in the development, with new production process such as additive manufacturing which will make mass customization truly economically viable.

Getting the feel for glocalization is now seen as an efficient approach to build brand image and a way to generate long-term brand loyalty. As global competition grows fiercer, it’s not enough to have a product that is at 75% of its full potential due to unsuccessful glocalization. KFC is a great example of successful glocalization. While KFC retain its core Kentucky fried chicken concept as a global product platform – in China, it has successfully localized its product portfolio (i.e., its menu). Warren Lui, one of the members of KFC’s management team in China outlines the importance of cultural knowledge and product localization in his book KFC in China: Secret Recipe for Success. Liu states that you need an understanding of China and the Chinese cultural context “so deep that it is intuitive,” to understand the Chinese peoples’ “mixed feelings, of love and hate about the West, to understand Chinese history, language, the influence of Confucianism, Buddhism and Taoism, this is especially important if you are in the consumer goods industry.” KFC’s menu contains many items tailored to the Chinese consumer palate and it has paid off – the number of KFCs in China has grown to over 3,000, in 650 cities, with one new restaurant opened a day. KFC has even penetrated smaller cities in the interior of China.

The ROI of successful glocalization is significant. In KFC’s case – their Chinese operations now contribute a significant portion of their revenue, around 20%.

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5 Tips for Doing Business with Germans

dhummel — Sun, 01 Jul 2012 21:51:13 +0000

By Dirk Hinze, the Director of Universal Consensus’ Germany Practice

Meeting with a German? Just set foot into Germany? While visually different, you could feel when in Berlin or Munich just like in New York City, Paris or in London. The people are friendly, especially once a contact has been established. A friendly “Entschuldigung” (excuse me) along with a little small talk where you are from and why you are here usually is all you need to get the foot into the door. If you want to open the door wide – be prepared for some important cultural differences.

Here are a few insights on how to get onto the fast track to reach your goals while dealing with Germans:

Be formal: Germans address each other – even after many years of acquaintance or working with each other – as Mister X and Miss Y, Herr Kaiser and Frau Mayer. Moving to a more casual first name basis will most likely not happen with older Germans.
Listen till the end of the sentence: Germans are used to listen to efficient exchange of information and every word counts. They often place important information just at the end of a long phrase. And don’t be surprised if your German counterpart, while speaking English, puts as much information into a long winding sentence there as well.
Be prepared for frankness: Sometimes, Germans come across as arrogant, when in fact they are just particularly pragmatic and direct in order to avoid ambiguity or to speak with self-perceived objectivity. Your counterpart might just respond to your “How are you?” salutation, with a sincere and detailed answer to how his day has been so far.
Start a meeting with the agenda in mind: If you don’t start with the agenda in mind your German counterpart will be more than irritated. Most likely you have established an agenda beforehand and your German partner has thoroughly prepared for this meeting and brought his best specialists to answer to detailed questions related to the points on the agenda. You better prepare too and focus on the issues at hand while avoiding small talk in meetings. Once a decision has been reached – and that might take some time as you go methodically through all the eventualities and implications – execution of that decision may be swift and efficient.
Formal dress still dominates: Although in some tech and creative sectors more casual dress is now becoming acceptable, formal dress is often expressed differently in Germany than in other countries, as it does not necessarily translate to a blue or gray business suit and tie. In Germany, it could just be a suit jacket or a blazer, shirt, tie and pants.

If you have questions or are unsure, it would be best to ask your German counterpart, about the particular culture in his company. Your questions will be welcome and it shows that you are trying to adapt to your business partners’ culture.

What is your experience in dealing with Germans? Discuss in our LinkedIn group.

3 Tips for Cross-Cultural Meetings

dhummel — Mon, 25 Jun 2012 22:08:49 +0000

By Andreas Fried, Director at Universal Consensus

We have all experienced bad meetings. In Western countries this may mean lack of punctuality or urgency, redundant discussions that go on and on, or conversation domination. But when meeting attendees are from different countries, it gets more complex. What is bad meeting behavior in one country is not necessarily bad in another.

The ground rule is: make no assumptions except the assumption that cross-cultural difference will impact the meeting. The differences are so vast that it is important to have a framework for understanding cross-cultural meeting behaviors. Let’s use the BMIA™ framework to look at three distinct factors:

Time: The perception of time is vastly different in different cultures on many levels. Most non-Western countries will not see time as a precious resource that needs to be managed. Instead, time is an indefinite resource that flows from an infinite past into the immeasurable future. Immediate needs rather than detailed plans will decide what gets done.

Level of hierarchy and formality: In the U.S. hierarchy and acquiescence have a bad ring, but it is the cornerstone of meeting behavior in Korea and Japan. What Westerners see as submission is seen as respect (for seniority/rank/experience) in East Asia.

Also be observant of formality. Americans are often viewed as being at the extreme end of informality on the formality spectrum. Americans are viewed as quite direct, as opposed to indirect Asians at the other side of the spectrum. But the Dutch and Danish are often perceived as so blunt and frank that this is sometimes off-putting even to the Americans.

Non-verbal cues; eye contact, space proximity, and use of silence: In some regions, such as Arabic countries, intense eye contact is seen as a way of showing interest. Intermittent eye contact may be construed as untrustworthiness. On the opposite spectrum, in continuous eye contact may be viewed as disrespectful and should be avoided when engaging with a more senior Asian counterpart. But the rules for use of eye contact are shifting. The younger generation in China use eye contact in a manner very similar to the U.S. The purpose of a cross cultural framework, such as the BMIA™, is to be observant of the aspects of engaging that differ from culture to culture and to be able to adapt accordingly. You can adjust your behavior based on your counterpart’s behavior. If you have a local translator present you may ask the translator for advice.

Space proximity works as a subconscious reflex. Latin Americans may come across as close talkers to Americans and North Europeans who will want to increase the personal space proximity compared with Americans. This may sound like a perfunctory aspect of interaction, but it has the power to make both sides very uncomfortable thereby reducing the odds of a favorable business outcome.

Lastly, be aware of the use of silence. This aspect of meeting behavior can drive Americans crazy. We have a hard time coping with silence. In many cultures silence is not supposed to be filled at all costs and your international counterpart will most likely have much more patience than you do. Although it may not be a formal negotiation, meetings often are about negotiating in some form. If you don’t value patience and the use of silence you’re likely to make unnecessary concessions or “spill the beans” in discussions with your international counterpart.

Please contact us at +1 (760) 579-7610, email at andreas@universalconsensus.com or connect at http://www.linkedin.com/in/andreasfried to learn more. View our 3 minute impact movie at www.universalconsensus.com

3 Key Trends in China

dhummel — Mon, 18 Jun 2012 20:23:06 +0000

Andreas Fried, Director of Business Development, Universal Consensus

Aditya Chinnareddy, Associate Director of Business Development, Universal Consensus

The fortune of the world is increasingly governed by development in China. In 2010 China overtook the U.S. in areas such as manufacturing output, energy consumption, car sales, and patent granted to residents. For most Americans, it’s very difficult to comprehend, let alone accept, how close China is to actually overtake the U.S. as the world’s leading economy. GDP in China is estimated to overtake the U.S. by 2018.

Given the increased importance of the Chinese economy, staying on top of these trends is now of paramount importance. Let’s look closely at three key trends:

Demographics

One of the single most crucial long-term issues which frame the opportunity in China is its age structure. The “one-child policy” enacted in 1979 is finally catching up with China’s population growth. Although it has put a firm stop to impending over-population, it will create a huge age imbalance in the coming decades. People above the age of 60 now represent 13.3% of the total population, up from 10.3% in 2000 (see chart). In the same period, those under the age of 14 declined from 23% to 17%. Combine this with a bias in favor of male offspring that has left China with 32 million more boys under the age of 20 than girls, this demographic shift will create an insufficient labor pool, driving up the minimum wage, and creating an inordinate burden on the younger generation to support the older one.

While political strategy and economic policy is relatively easy to manipulate and quick to implement, the demographic structure of a country is obviously more difficult to shift and will run its course no matter what short-term changes are made to correct it.

This change will also put stress on the Chinese healthcare system, and in fact, this shift in the demographics creates one of the most substantial business opportunities in China over the coming decades. China, being a society with a strong culture of filial piety, is even less prepared than other countries to handle an aging population. What is referred to as the 1+6 rule stipulates that a one-child policy worker will have to support 6 people (2 parents and 4 grandparents). This is obviously a mammoth task and it puts an extreme pressure on people to succeed, spawning a highly competitive society.

Increasing Cost and Disposable Income

Another key trend is increasing production costs. Demographic trends play a large role in increasing costs. A survey released last month by the Boston Consulting Group relating to 106 large U.S. manufacturers, found that 37% of U.S. companies are actively considering bringing production back to the U.S. from China. 70% said sourcing in China is more costly than it looks on paper.

Some forecasts even estimate that outsourcing to China will be as costly as producing domestically in 2015 (including freight, exchange costs etc.). Although that estimate is open to debate, the reality is that costs are rapidly increasing. China now has the highest total labor cost in emerging Asia. A high inflation rate of 6.5% compounded with the 1+6 rule is pushing wages and costs higher. The wage increase is currently 30% on an annual basis. China’s currency is also slowly appreciating against the dollar, but this appreciation is likely to level out in the coming years.

While an aging population may have a detrimental impact on the Chinese economy, the fact that disposable income is rising is a very positive sign that China will continue its path of prosperity at least with regard to spending. As we will see in our case studies, Chinese consumers love fashionable items that increase status – sometimes referred to as “face consumption” – and this trend presents specific opportunities for consumption of luxury products, inbound tourism, U.S. university enrollment of Chinese students, and overall consumption. In the coming decade, China’s percentage of the world luxury goods market consumption will rise from today’s 7% to almost 20%. Total luxury consumption sales in China are already at $30 billion.

Many Western Companies Still Fail

Even though most multinational companies speak of the growth opportunities in China, only a few are currently profitable. Chinese consumers, like most consumers, can be fickle. There are few guarantees that a business model that worked in the U.S. will work in China. As a matter of fact, many major American companies have failed in their China expansion.

A classic example is Best Buy, the American electronics retailer. Best Buy closed its nine branded stores in China in 2011, after five years presence in China. The Best Buy business model is to purchase all of its products directly from suppliers and price them independently. They also hire their own staff and sales team and utilize a non-commission based compensation plan in order to avoid biased promotions that will disturb customer decisions – a very acceptable model here in the states and certainly one that has the best interest of the consumer in mind.

The Chinese business model for electronics is that they lease separate parts of a store to retailers of distinct brands and earn profits from the so-called “entrance fee” and take a portion of every retailer’s sales profits.

Best Buy’s decision not to glocalize and adapt its business model to Chinese circumstances led to the following mistakes:

Their model required self-purchased property and sales staff leading to a significant cost rise, resulting in price disadvantage.
The added value such as friendlier shopping environment, better services, and the ability to try products before purchasing were not valued vis-à-vis the price.
The suppliers viewed them as erecting a “wall” between suppliers and the customer, rather than a “bridge” thereby creating both guanxi and face problems for Best Buy
The name for the company “Best Buy” in China is “baisimai” – which means “to buy after thinking 100 times”, not exactly the perfect choice for a society where the consumer behavior is driven by trusted advice from a known source and therefore shouldn’t require much thought.

And to top it off, Best Buy missed the entire point and identified price as the only purchasing-parameter of importance among Chinese customers.

Best Buy is just one example; others with a similar fate include Home Depot, Disney, Mattel, and Groupon. The common denominator among these and other failures have been lack of glocalization and failure to understand Chinese consumers and markets. Companies which have been successful, such as KFC and McDonalds, have instead made numerous adjustments to cater to Chinese customer and local market sentiments.

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Doing Business in Brazil: Four Things to Know

dhummel — Thu, 31 May 2012 13:14:50 +0000

This is a guest blog by our Strategic Alliance Partner High Street Partners, Inc. HSP is a one-stop shop for international business setup needs.

If you’re considering international expansion to Brazil for your business, you’re in good company. With the world’s sixth-largest economy and a GDP expanding in the face of global economic troubles, the Latin American powerhouse is in the crosshairs some major international companies.

While Brazil is popular with investors, it is not a country that makes life easy for foreign companies. A longstanding culture of protectionism, slowly being addressed by recent legislation, still provides advantages to local businesses. Additionally, complex tax laws and compliance requirements can baffle even the most seasoned finance professionals.

The potential benefits, however, usually outweigh the risks – provided that you have the information you need to navigate this tricky business environment. Here are some key things to keep in mind when considering a move to Brazil:

Research your tax options. Brazil has a notoriously complex tax system, including two different collection options for businesses: Actual (or Real) Profit is when a company is taxed based on actual profit earned, and Presumed Profit, where taxes are collected based on the gross revenue a company expects to make. Do your homework and determine which method will minimize your company’s tax burden.

Keep complete records. Along with Brazil’s multiple forms of income tax come extensive paperwork requirements and other recordkeeping regulations. Though new rules have lightened the load by allowing electronic filing, it is still essential for businesses to keep proper, detailed records to avoid any issues with tax authorities.

Avoid using contractors. By opting to use contractors instead of establishing a subsidiary in Brazil, you put your business at a disadvantage to those companies with a permanent presence. Brazilian law favors businesses with entities on the ground; operating through contractors can put you at risk. For example, if you import a product through a contractor into Brazil, your business loses ownership rights to that product. Consider setting up an entity to avoid any such concerns.

Choose an entity type that makes sense. When you set up an entity in Brazil, you have the choice between establishing a limitada or an S/A. Study the difference between these two structures to decide what makes the most sense for your business. On a high level, the difference comes down to trading flexibility and ease of implementation (limitada) for more complex operations and limited liability (S/A).

Talk to us or our Strategic Alliance Partner High Street Partners (HSP) if you consider or are doing business in Brazil. Also read our feasibility study of doing business with Petrobras.

You can follow HSP’s twitter feed @HSP_Inc

Case Study – International Compensation Management

dhummel — Tue, 15 May 2012 15:10:46 +0000

A Universal Consensus Case Study of International Talent Retention at a Multinational Accounting Firm in Austria

Introduction

Due to the social democratic nature of Austrian culture, employees are much less motivated by financial incentives than in more capitalist countries such as the United States. As such, alternative methods need to be utilized in order to change employee behavior.

Historically, there are two proven ways to motivate employees in such circumstances: non-financial incentives and leveraging social status. Austrians generally emphasize family life and believe in “working to live” rather than “living to work.” As such, incentives that allow employees to spend more time with their families and improve their life/work balance are the most effective way to provide motivation.

In addition to explicit incentive systems, Austrians are frequently intrinsically motivated by social status. By creating a social hierarchy that can be climbed through accomplishing specified goals and objectives, cultural change can be adopted over time.

Establishing better external relationships with customers can be accomplished by focusing on leveraging an understanding of Austrian culture. Traditionally, sellers who engage in hard selling practices are seen as desperate; as such, it is important to educate potential customer on the client’s services outside of ‘cold call’ sessions in order to drive demand. Moreover, because customer interest is more likely to generate new business than modified selling practices in this atmosphere, it is imperative that the client delivers a clear and consistent message about product offerings to consumers.

Problem Description

The client is exploring avenues for generating increased sales revenue. They have identified the social democratic country culture as an inhibitor to sales both internally and externally. Internally, employees are not motivated to produce sales because they generally lack the confidence to leave their comfort zones, model those who are successful, and seek constant and never-ending improvement. Austrians try to fulfill goals to the best of their ability but never try to exceed them. Externally, employees are not proactive in building business relationships; the Austrian business culture is transactional. It is customarily to simply react to current need; indeed, professionals identify themselves as technicians instead of salespeople.

Strategy One: Non-Financial Incentives

Research has shown that non-financial incentives can have equal effect on employee motivation when compared with standard financial incentive systems. In a society that does not allow for significant income disparity, non-financial incentives can play a key role in motivating employees to sell.

Non-financial incentives for employees include:

Reserved preferred parking spaces
Increasingly flexible work hours (e.g. late start)
Additional vacation hours
Reduced work hours on Fridays
Free meals or gym membership
Access to a company vehicle
Tickets to popular events

The specifics of these incentives can be tailored to fit the available incentive budget. In addition, management should query the employees to determine other areas of interest for future incentives.

Strategy Two: Public Recognition

In order to emphasize the desired corporate culture, recognition for high-performing employees should be public; moreover, attendance for public recognition events should be mandatory for all employees. By providing such recognition, a social structure can be established that intrinsically motivates employees to perform and thus gain status.

Public recognition can be combined with non-financial incentives in order to establish a focused strategy for motivating employees to perform to their utmost.

Since the societal nature of Austrians promotes herding of people, there is a danger of social rejection if an employee is seen as different from the group. Hence, the employee must be perceived as being rewarded for contributing to the collective good.

Strategy Three: Teambuilding

When establishing culture change, it is critical that employees be comfortable with management so that they have confidence in the path forward and are not afraid to raise new ideas and objections, which can often be incredibly helpful to the process. It also increases the likelihood that employees will “buy in” to the new culture.

In order to conquer the gap between both multi-national backgrounds and between management and employees, teambuilding events that mix cultures and job functions should be established. The type of events can be tailored to the employees’ interests (e.g. lunches, company retreats, sporting events, or other activities).

Cross-functional collaboration between various service departments is essential for client to implement core mission value and transition from a service based company to a solutions based company.

Managers and employees must be educated on the various offering in other departments. Cross-functional team projects and activities will ensure that employees get to know their counterparts in other departments and understand the benefits of solutions based offerings.

Strategy Four: Building External Relationships

Building external relationships is an extremely difficult endeavor; however, ensuring emphasis on key areas can increase the likelihood of success. The client should focus on the following areas:

Ensure consistency and clarity in Marketing Communications (answer the “what” and “why” for consumers)
Participate in nontraditional advertising events (e.g. community events with employee participation)
Emphasize to employees the power of building relationships through networks and connections (much preferred to ‘cold calling’ in Austrian culture)

Tribalism in Austria has historic roots. Austrians have always had to look after their own. This attitude is evident in their policies on welfare. If a foreign company does not have an effective conditioning program for new employees they revert to tribalism to preserve their identity. The employee would take risks on building an external network if it benefits the entity he associates with his group/tribe. The key here is identifying the entity be it his department, team or self and reward the entity. There are many ways to identify the entity.

Leverage existing business partners to establish new relationships
Identify key goals (e.g. arranging meetings with potential new customers) and align non-financial and public recognition incentives with them in order to increase employee motivation in building new relationships
Work with employees to identify specific disconnects in external perceptions and internal product offerings, then utilize this information to focus marketing activities
Further educate consumers through seminars, conferences, and other awareness events
Approach customers on a level playing field and be straight forward and transparent

The Austrians respect transparency, honesty and openness. The customer believes that U.S. companies tend to push unnecessary services at premium rates. The client has to make sure that the customer has a clear idea about the services offered, rates charged and benefits gained. Avoid overselling and using American approaches to pitching to customer. Using references from past successful Austrian clients may be advantageous.

Finally, the culture drives people to be perfect. The Austrian will give 100% effort to meet the goal but he will never exceed it. The concept of delivering more than expected is not understood. Hence, the goals set should reflect this characteristic. Hard to reach goals may impact the morale of the employees by discouraging them and putting them on the defensive. A mistake is considered as a fault and not an opportunity to learn. For people who are afraid to make mistakes, their managers need to set their goals by defining specific actions and desired behavior. The effective way to change culture is not to change how people think, but instead to start by changing how people behave. If necessary, managers need to provide training to change their behavior. In Austrian culture, as people try to meet the goals, you can change their behavior by showing what they do and setting achievable goals. The culture will change as a result.

Prepared By: Aditya Chinnareddy, Deputy Director of Business Development at Universal Consensus, with Chris Mortham, and Yoriko Sakamoto

Egypt’s Economy; Fifteen Months after the Revolution

dhummel — Thu, 10 May 2012 03:32:50 +0000

What it will take to sell post-Mubarak Egypt to foreign investors in view of serious problems facing Egypt’s economy these days?

The questions on everybody’s mind these days are: How is the economy situation in Egypt? Is Egypt on the brink of bankruptcy or it awaits a bright future? Moreover, what it will take to sell post-Mubarak Egypt to foreign investors in view of problems facing Egypt’s economy these days?

Some optimistic experts and analysts go as far as to include Egypt in the second wave of emerging countries to achieve high growth rates, maybe even adding an E to the BRIC!

Yet, numbers do not lie. Finance numbers given by the government last month draw a negative picture of the economy, after real GDP rate reached 7 percent three years ago; it recorded 1.8 percent in 2011. The IMF has estimated Egypt’s gross domestic product growth will pick up only slightly in 2012, to 1.8 percent after 1.2 percent last year and 5.1 percent in 2010. Some economists think the recovery could be much faster, however. HSBC expects GDP to grow 2.7 percent in the current fiscal year to June, accelerating to 3.9 percent next year.

Egypt also lost its half hard currency reserve after it reached US$36 billion in Dec 2010; it is now only US$15 billion, enough for three months! Account balance recorded deficit of US$9.8 billion.

Private investments decreased to reach around US$ 5 billion during first quarter (2010/2011) compared to US$ 6 billion for the same period of 2009/2011 at rate of decrease of 20 percent. Foreign debts increased by 3.9 percent reaching US$34.9 million. Current account balance recorded -US$9.8 billion. Gross Government Debt (% of GDP): 74.21 %. Net FDI recorded for the first time a negative US$65 million during Jan- June 2011. Frequent protests resulted in fleeing of investors & tourists due to instability and violence.

Tourism sector a 9% of GDP recorded the worst number at -5.9% when compared to 2009/2010. The already weak job market is worsening by low GDP rates due to the economic and political climate. Unemployment expected to reach 3 million against 2.7million last year.

To summarize, numerous serious problems are facing Egyptian economy; high rates of unemployment and inflation, a growing national debt and shrinking tourism revenues and most importantly is the threat of fleeing foreign investment. The Egyptian economy heavily relies on foreign investment, with almost US$7 billion in annual inflows.

On the other side, some important numbers are painting a positive picture to the Egyptian economy; according to a study made by Dr. Heba Nasar, professor of Economy, some sectors did well during 2010/2011, for example, exports kept its upward direction and rose for the first time to approximately US$22 billion in 2011, an increase of 18.5 percent compared to 2010 levels with an increase of US$3.3 billion.

Imports recorded 8.1 percent rise when compared with -3.2 percent last year. Suez canal revenues recorded a growth of 11.7 percent of achieved an 11.5% of real GDP. IT sector recorded 6.7% of GDP. Consumer spending which represent 4.7% of GDP recorded considerable growth as private and public consumption rose 5 percent and 38 percent respectively.

Other important numbers also appear as in general revenues which rose by 16.9 percent to mark US$ 27.7 billion, Salary tax rose by 14.4 percent to mark US$ 1.24 billion in the second half of 2011. This increase contributed to income tax revenues to increase generally by 9 percent, indicating increase in work force salaries in both public and private sectors, it also indicates a strong labor force as there has not been large scale layoffs.

Some major Egyptian companies have been performing much better than analysts predicted. Ezz Steel, the country’s biggest steel maker, reported its third-quarter net profit jumped to US$21million because of strong demand for its products.

Commercial International Bank, Egypt’s biggest privately owned bank by assets, saw its consolidated net profit fall 20 percent last year because of higher provisions against loan losses — not a disastrous drop during an economic slump.

Dr. Waleed Helal, president of the Chemicals and fertilizers Exports council, gives other promising numbers and points out that 6 of the top 20 Egypt exports markets of are changing. For Egyptian exports; South Africa is ranked number 5 at about US$ 1billion, exports to Turkey rose to US$ 7 billion, doubling 2010 exports figures and exports to china is steadily growing .

Egypt Real estate market gets ready to boom with political stability

The outlook for real estate firms, a motor of the economy in the past decade, has brightened since a court ruling late last year ended a dispute over state land bought by Talaat Mustafa Group that had cast doubt over projects across the sector.

A leading property developer, SODIC, says it plans to step up investment this year and the Ministry of Housing is trying to kick-start activity by selling 8,000 plots of land around Cairo to Egyptians living abroad. “We are already seeing some evidence of increased activity in Cairo’s real estate market” said Ayman Sami, head of consultants Jones Lang LaSalle’s Egypt office, he added: “Continued certainty is a basic requirement for the economy to fully rebound.

Recent report published by Drake and Scull International, states that despite the current conditions and the consequence that is inflected on the real estate market there are some positive signs. CEO, Mr. Khadoun Altabri expects long term promising opportunities reaching out to all sector segments as population continue to increase at its normal rate of 2 percent yearly. He added that in view of low percentage of mortgages 0.4% of GDP, source of buying houses still are remains personal savings and selling of existing assets. He expects increased mortgage financing operations by banks during the coming periods on 8 percent average. It is also expected lending will stabilize by mortgage finance companies. It is also expected that the rate of real estate lending will stabilize at its normal rate of 7 percent. Larger growth in retail real estate and offices during coming years is also expected.

With this optimistic view of the real estate sector the report notice that real estate financing is currently very low as it did not reach US$ 850 million in the last five years despite the fact that the total value of the market is estimated to be around US$6 billion a year. The reports confirm that the real estate sector will remain among the most active sectors in Egypt. Egypt need no less than 760,000 residential units produced but has reach only 200 000 units (excluding commercial, touristic and industrial needs).

A Coldwell Banker report claims the market has recovered by 40 percent which is a good percentage; real estate prices will witness an increase in the next few months and will witness considerable improvement.

FDI expert says Egypt has great potential in IT and Tourism sectors

According to Dave Robinson, an FDI expert and the CEO for the Middle East, Turkey and Africa with Hill & Knowlton, a global communications consulting firm “There are many compelling opportunities in Egypt, some of which are related to geography, logistics, a large work force (skilled and unskilled), fairly cheap or cost-effective labor compared to many other countries and some particular industries where Egypt has significant experience. The IT industry is one of them. Egypt has got an increasing level of skill in programming, technology, and infrastructure. It’s becoming a hub for that in a very competitive global market place”.

“….Tourism will remain strong. The uprising made people concerned about travel to Egypt for personal safety and so on and so forth, but that is diminishing quickly, and hopefully as the economy restores itself to a position of stability and growth, there will be further investment in the tourism sector. Egypt has fantastic natural and historical assets, whether it is diving in Sharm el-Sheikh or spending the time on the coast in Alexandria or the history of the ruins and museums of Cairo. I am sure that will come back quickly”.

To conclude; Events in Egypt since January 2011, and the transition to democracy, have had a negative impact on the economy. Economists forecast that overall growth for FY 2011 will be around 3% rather than the 5.7% which had been expected.

According to Dave Robinson, “The important thing in any crisis situation is not to overreact or under react. The situation is clearly significant and I think truth is always the best solution in any economic crisis situation. The reality is that Egypt is a large economy; it has a very large work force. Also, there are very good, compelling investment opportunities in Egypt. There are also clearly some infrastructure problems and some policy problems in terms of capturing those opportunities and working on them”.

He added: “You need to significantly improve understanding of the realities of the economy in Egypt in the world. What many people internationally have been left with is, I think, the images on TV screens of Tahreer Square of demonstrations, the closed stock exchange, the country under military rule and so on and so forth because of the comparative lack of communication of the reality. I am here in Cairo, we are doing business, we are meeting clients, we are talking to media, and we are doing active business for clients. There is an economy functioning, people buying and selling goods and this reality needs to be communicated. Is it as good as it was six months ago or a year ago? Probably not! There are some things that have been affected by the revolution – the regime change and those things are going to take a little bit of time to stabilize – but the efforts to stabilize those things, identify where those problems are and communicating that will give people the confidence that things are being done”.

Conclusion

To summarize; economical growth and high GDP rates are tied to security, stability, trust of government economical and political policies, changing bankruptcy and exit policies and the end the political vacuum after the election of a president next June. The transition government has placed a real emphasis on the need to accelerate economic reform alongside democratic developments and improve further the climate in Egypt for international investment.

Analysts are predicting a period of economic uncertainty for the next 6-9 months with a return to higher growth depending on stability and a return to civilian government. For international companies going to invest in Egypt, now is a time for assessing, performing due diligence, and looking closely at market developments in relation to a particular sector.

Mohamed Buhaisi

Cairo, Egypt

Mohamed Buhaisi is the Founder & Managing Director of Buhaisi Consulting International, LLC (www.bpc-egypt.com). Buhaisi Consulting International, based in Egypt and with presence in the MENA-region is a Strategic Alliance Partner of Universal Consensus.

Personal Space in China

dhummel — Tue, 06 Mar 2012 03:09:29 +0000

Personal Space is all about how close someone is in proximity to you. Are they making direct eye contact with you? Which way are they facing when they are talking to you: side by side, directly facing? What is the degree of contact with that person; are they touching your arm or shoulder? And how loud or soft is the volume of their voice?

The Concept of Personal Space in CHinese CUlture

Personal space in China is different therefore the level of discomfort is different too. You might find that if you take a step back, they will take a step closer to you. The Chinese population is the first thing that most people notice when they come to China. The population density in China has a great effect on what personal space means to people here. In China, living space is close. Sometimes entire generations of families will be living together, eating, sleeping, working, and playing all in the same one room. These type of living conditions are not exclusive to China, but also other Asian countries like Thailand, Vietnam, Laos, and various tribal regions. Through the years, as these close family communities migrated from field to city, the closeness of community togetherness and habits also moved to the cities. Perhaps differences in the concept of personal space also has to do with China’s communist and socialist influence. Socialist history often revolves around a culture where space, work, basic functions of living and belongings are shared. The socialist concepts based on the collective versus individual also have an influence on this topic. In Asia there’s a much more collective and often family approach to doing thing, while in the US, there is a highly promoted individualistic culture. Down time, alone time, and in your own space/place in the US is respected and expected.

Difference in China And America

In America, our personal boundaries are large. In terms of distance, our idea of personal space roughly encompasses a radius of approximately 2.4 feet. When people step into our space, we notice and start to feel uncomfortable unless it’s someone that we’ve invited into our space like a close friend. We are very aware of things that go on near us. Chinese people grow up in small houses, and study in crowded rooms. Their dorm rooms have 6-8 people in a space that usually fits 1-2 Americans. To an American, this is a completely different world. There is not the same priority that Americans place on having our own space in between self and stranger. Walking down the street, sitting on the bus, you are shoulder to shoulder with mass groups of people. In summary, Chinese people are more comfortable with up-close and personal interaction. Cultural practice changes take a long time to adjust to. This is the feeling of uneasiness that people from the suburbs feel when they walk into the crowded streets of the city, and coming to China multiplies this feeling tenfold. It’s incredibly interesting to see the differences in behavior that stems from simple proximity.

Are you engaged in or planning to do business in China? Universal Consensus will help you to succeed there and our Strategic Alliance Member at High Street Partners will help you get there. View this webinar for further insight into how to successfully do business in China.

By Jessica Chang, Universal Consensus

The Chinese Communist Party

dhummel — Tue, 07 Feb 2012 17:01:24 +0000

The Chinese Communist Party (CCP) has a huge influence on world politics, but it still relatively unknown. 80% of listed Chinese companies are State Owned Enterprises (SOEs). The rise of State Capitalism is a hot topic, extensively covered in the latest issue of The Economist and a crucial talking-point at the upcoming World Economic Forum in Davos. The Chinese Communist Party is at the heart of this development. Doing business in China, knowledge of the political system and the role of the Chinese Communist Party are imperative.

With more than 80 million members, the Chinese Communist Party is the largest party in the world. Simultaneously, the Chinese Communist Party holds absolute power, including power over the judiciary, the armed forces and intelligence apparatus, and State Owned Enterprises (SOEs). For Westerns doing business in China the Chinese Communist Party is largely invisible. While power is centralized at the top it is decentralized at local level; there is no total control; but if something is in the party’s interest it will most likely be implemented.

Chinese Democracy

“All power in the People’s Republic of China belongs to the people,” the People’s Republic of China constitution proudly proclaims. But Chinese democracy is defined (by a Party whitepaper) as, “Democratic government is the Chinese Communist Party governing on behalf of the people.” Only 5-10% of people applying are accepted into Party ranks, consequently, being accepted is seen as a status mark similar to an Ivy League education in the U.S. There are no direct benefits of membership – you pay a monthly fee (salary deduction) and have to submit two patriotic essays annually. The most ambitious, well-connected, and educated will be accepted. This has been a conscious CCP strategy to target the best and brightest. The Chinese Communist Party has transformed itself from a mass organization for workers mobilization to a “technocratic leadership corps”, according to Professor Jeremy Paltiel of Carleton University in Ottawa, a CCP expert.

The propaganda starts at an early age. The Party’s youth organization (7-14 year olds) outlines in their official mission statement, that their goal is to promote “indoctrination of children by cultivating [positive] feelings of the Party and the socialist motherland.” In the most comprehensive survey to date, when Mainland Chinese where asked how democratic their current system was, Chinese gave it 7.22 on a 10-degree scale – third in Asia and well ahead of Japan and South Korea. It is important to recognize that Chinese don’t necessarily strive for a Western governance model with a multiparty system – but rather freedom of information, improved rule of law and greater accountability for local officials.

Cultural Influence

In a collectivist culture like the Chinese, the one party system has worked remarkably well. Other influential cultural threads are the Chinese endurance and resilience as well as the society’s long-term orientation. Today, it is hard to see an alternative to the Chinese Communist Party. Mostly because so many of the most able people are now party members – more than one in ten of the urbanized (665 million) population is now a party member – there is no viable leadership alternative.

Not having to directly placate special interest groups or changing policy directions after an election has served the Chinese economy well. But while pressing issues may be addressed quickly there is a problem when SOEs need Party guidance in strategic issues. Although all Chinese SEOs have direct communication lines to top-level Party officials the decision process can be protracted, especially as decisions are made through somewhat lengthy internal consensus-building. Also, there has generally been a problem for Chinese SOEs to execute more complex financial maneuvers as the financial aptitude is lagging. But this is rapidly changing. One of the greatest assets of Chinese SOEs have been access to State owned bank funding. These banks are also directly or indirectly influenced by the Chinese Communist Party.

The Chinese Communist Party has cultivated an international non-intervention perception, but the Party is omnipresent. Officials’ loyalty is foremost to the Chinese Communist Party and keeping the current system in place, secondly to the State and the people. Hu Jintao is primarily Chairman of the Chinese Communist Party (and Chairman of the Central Military Commission – just as important) and secondarily President of the PRC.

Five-Year Plan

China’s biggest dirty little secret is its 5-year plans. This is a fairly detailed insight into the Chinese Communist Party’s plans for the country. In a bureaucratic communist country where Party and State is almost one and the same, one thing is shore; plans are going to get implemented. The current 5-year plan was enacted in 2011. The plan outlines a range of sustainability- and equality-oriented policies growing out of the (socialist) “scientific development concept.” More specifically the plan will address these issues:

Counter rising inequality and create an environment for more sustainable growth by prioritizing more equitable wealth distribution with increased domestic consumption, and improved social infrastructure and social safety nets
Rebalance its economy, shifting emphasis from investment toward consumption and from urban and coastal growth toward rural and inland development – initially by developing small cities and greenfield districts to absorb coastal migration
Enhance environmental protection, accelerate the process of opening and reform, and emphasize Hong Kong’s role as a center of international finance

The plan also outlines seven priority sectors:

New energy
Energy conservation and environmental protection
Biotech
New materials – rare earths and semiconductors
New IT
High-end equipment – telecom and aerospace
Clean energy vehicles

Richard McGregor published the highly acclaimed The Party: the Secret World of China’s Communist Rulers in 2010 which is a great insight into how the party works. McGregor makes the acute observation that the Chinese Communist Party works very much like the Vatican, with arcane election procedures and absolute power. Moreover, the Chinese Communist Party largely functions on a Leninist-inspired structure.

Doing Business in China

Foreigners should be very conscious with which information they share. Locally engaged staff in China will be expected to deliver intelligence on your operations to the authorities if your business is perceived to be sensitive to Beijing’s broad definition of ‘national security’ – the Chinese intelligence community could pressure any ethnic Chinese (for example using travel privileges as leverage), even expats, to provide them with information. Finally, one should remember that two thirds of Chinese businesses (as percentage of GDP) are not owned by the State. This means that when engaging with small to mid-size companies, the Chinese Communist Party exercises no direct influence over your counterpart.

To keep up with recent development and get the best insight from leading experts, you should get involved with us and our partner SWENASIA. SWENASIA is a Swenson Advisors initiative; a network of expert firms that can give you a true competitive advantage when you leverage our knowledge to move ahead of the curve; taking advantage of opportunities in China while staying clear of common pitfalls. Universal Consensus is an international business development firm and a SWENASIA Strategic Partner.

By Andreas Fried and Jessica Chang, Universal Consensus