biz.hk May 2012

Journal of The American Chamber of Commerce in Hong Kong

www.amcham.org.hk

May 2012

Pivot to Asia Hans Klemm, envoy for APEC COVER SPONSOR

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Contact: AmCham Publication Department Advertising Manager: Regina Leung Direct Line: 2530 6942 Email: rleung@amcham.org.hk

May 2012 Vol 44 No 05

Contents

Richard R Vuylsteke

Editor-in-Chief Daniel Kwan

Managing Editor Kenny Lau

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08

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COVER STORY

SINO-US RELATIONS

INTELLECTUAL PROPERTY

ENTREPRENEURS/SME

Senior US officials including Ambassador Hans Klemm (for APEC) have addressed the Chamber on a number of occasions in recent months, reiterating the messages of a renewed emphasis in Washington of the economic dimensions of foreign policy in regards to Asia Pacific

Renowned scholar and foreign policy expert Kenneth G Lieberthal of the Brookings Institution speaks of the US’ current state of economic and political affairs and how it affects relations between China and the US

Chief Negotiator for Intellectual Property Enforcement and Deputy Assistant Trade Representative Kira Alvarez reaffirms US commitment to promoting strong IP protection and effective enforcement in the world of global trade

The role of 300,000 local small- and mediumsized enterprises in the economic structure of Hong Kong and the common challenge of running a SME where owners are often confined within a small parameter of options

Publisher

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Advertising Sales Manager Regina Leung

biz.hk is a monthly magazine of news and views for management executives and members of the American Chamber of Commerce in Hong Kong.

Its contents are independent and do not necessarily reflect the views of officers, governors or members of the Chamber.

Advertising office 1904 Bank of America Tower, 12 Harcourt Rd, Central Hong Kong Tel: (852) 2530 6900 Fax: (852) 2537 1682 Email: amcham@amcham.org.hk Website: www.amcham.org.hk Printed by Ease Max Ltd 2A Sum Lung Industrial Building, 11 Sun Yip St, Chai Wan, Hong Kong (Green Production Overseas Group) Designed by Overa Creative Co Unit 1613 16/F, Workingbond Commercial Centre, 162 Prince Edward Road West, Kowloon ©The American Chamber of Commerce in Hong Kong, 2012 Library of Congress: LC 98-645652 For comments, please send to biz.hk@amcham.org.hk

AMCHAM NEWS AND VIEWS

INTELLECTUAL PROPERTY

04 Chairman’s Memo James Sun recaps on a resoundingly successful annual Ball, highlights recent opportunities to host senior US officials and scholars visiting Hong Kong at the Chamber, previews the launch of a SME Forum on May 30

16 IP Protection and Enforcement Vital to International Commerce Chief Negotiator for Intellectual Property Enforcement and Deputy Assistant Trade Representative Kira Alvarez reaffirms US commitment to promoting strong IP laws and effective enforcement

07 New Business Contacts

CHINA BUSINESS

32 executives joined AmCham’s business network last month

33 Mark Your Calendar

20 Simple Truism Holds Key to Future Reform Simon Ogus of DSG Asia in Hong Kong reviews a new book entitled Sustaining China’s Economic Growth After the Global Financial Crisis by veteran China economist Nicholas Lardy

COVER STORY

08 Pivot to Asia

Senior US officials address the Chamber on a number of occasions in recent months and reiterate the messages of a renewed emphasis in Washington of the economic dimensions of foreign policy in regards to Asia Pacific

ENTREPRENEURS/SME 22 Spreading Wings The role of small- and medium-sized enterprises in the economic structure of Hong Kong, where they are defined as companies with fewer than 100 and 50 employees in the manufacturing and non-manufacturing sectors, respectively

SINO-US RELATIONS

12 Can the US Walk and Chew Gum at the Same Time?

26 Growing Pains Leadership and management expert David Goldsmith talks about what it takes for a SME to turn an idea into a profitable business and to strategize for future growth and expansion

COMMUNICATIONS & MARKETING 28 Growing Business the Brand-Building Way Creating and maintaining a brand as a business asset are essential as potentials of every business rest firmly in the hearts and minds of customers and employees

SPORTS & ENTERTAINMENT 30 Watchmaker with a Big Heart Michael Kobold, founder of Kobold Watch Company and maker of collectible US-made mechanical wristwatches, tells of his journey to Mount Everest and why he risked his life to conquer the highest mountain on earth not once but three times

23 Amazing Journey of Success

Kenneth G Lieberthal of the Brookings Institution speaks of the US’ current state of economic and political affairs and how it affects relations between China and the US

The story of Elizabeth L Thomson, founder and president of 32-yearold boutique firm ICS Trust, and her perspective on Hong Kong as a place for SMEs to do business

Single copy price HK$50 Annual subscription HK$600/US$90

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5 • 2012

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COVER SPONSOR

Chairman’s Memo

Board of Governors Chairman James Sun Vice Chairman Richard Weisman Treasurer Peter Levesque Executive Committee Janet De Silva, Frank Lavin, Anita Leung Philip Leung, Belinda Lui, Alan Turley Governors Evan Auyang, Sara Yang Bosco, Brian Brenner, Tom Burns, Nicholas de Boursac, Walter Dias, Rob Glucksman, Toby Marion, Thomas Nelson, Andrea Richey, John Sigalos, Colin Tam, Elizabeth L Thomson, Frank Wong, Shengman Zhang Ex-Officio Governor President

Robert Chipman Richard R Vuylsteke

Chamber Committees AmCham Ball Apparel & Footwear Business Briefing China Business Communications & Marketing Corporate Responsibility Energy Entrepreneurs/SME Environment Financial Services

Kay Kutt Andre Leroy Donald Meyer Frank Wong Susan Reingold Benjamin Grubbs Robert Grieves

Dominic Yin Donald Austin Bradley Punu Catherine Simmons Brock Wilson Food & Beverage Veronica Sze Hospitality & Tourism Damien Lee Human Capital Janet De Silva Peter Liu Information & Communications Technology Rex Engelking Insurance & Healthcare Owen Belman Hanif Kanji Intellectual Property Gabriela Kennedy Amy Lee Law Clara Ingen-Housz Pharmaceutical Stephen Leung Real Estate Alan Seigrist Senior Financial Forum Alvin Miyasato Senior HR Forum Jacqueline Algar Sports & Entertainment Raymond Roessel Taxation Evan Blanco Trade & Investment Patrick Wu Transportation & Logistics Brian Miller Women of Influence Jennifer Van Dale Young Professionals Sherry Lin

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Dear Fellow Members: As business executives, we are used to setting targets, mapping out strategy, and evaluating ultimate achievements or setbacks. In cases of success, we congratulate ourselves, pat ourselves on the back and then raise the bar higher. If we fail, we make amends, change course and regroup, and set sails again.

May has come and in no time we’ll find the summer half over. Any chance to review your sales plan yet? What about your grand scheme of changing jobs?

May is probably too early for stock-taking but to pause and check scorecards is not a bad idea. That’s what we’re doing.

Our 2012 AmCham Annual Ball was a resounding success. We did very well indeed in our Silent Auction, raising money for worthy Hong Kong-based

charities. We’ll be providing a full accounting in a future issue of the magazine. As custodians of your donations, I can assure you that the Trustees of the AmCham Charitable Foundation will take great care in allocating your generous contributions to worthy causes. Special thanks here to our Trustees. (Immediate Past Chairman Rob Chipman chairs Foundation, and the 13 active trustees are all past chairmen of the Chamber.) In fact, vetting of the various awards and scholarships for 2012 has already begun. Stay tuned for upcoming reports about this year’s recipients and award programs. Meanwhile, please enjoy the photos in the accompanying Ball Souvenir Brochure. We’ll see you next year!

On a grander note, the past month has seen some real progress in bilateral relations between China and the US. The just concluded Strategic and Economic Dialogue (S&ED) in Beijing achieved more than what it set out to accomplish.

Considering the immense challenge confronting the two countries before the talks, the present outcome is testimony to the strength and maturity of our bilateral ties and the wisdom of the leadership of the two governments.

That brings us to this issue of biz.hk.

We are delighted that AmCham often has the opportunity to host senior US officials and scholars visiting Hong Kong. Apart from the opportunity to meet them in person, these visitors are great resources and significant channels for staying on top of policies and news in Washington and – frankly – often with global issues as well.

We were fortunate to be able to interview

biz.hk 5• 2012

five of the visitors who have come during the past two months. Their areas of expertise ranged from China-US relations to IPR protection. While you may for whatever reasons have missed the opportunity to join them in our breakfast or lunch meetings, you can still catch up through the magazine. I hope you will enjoy the stories.

Last but not the least: a short commercial.

Small and medium enterprises make up a significant portion of AmCham membership. Although they may be small, many of our SMEs are truly leaders in their fields. They have grown beyond the “start-up” stage and are ready to take on bigger challenges. We are launching the inaugural SME Forum on May 30 at the Richard Ivey School of Business to address some of the pressing issues faced by SMEs. In typical AmCham fashion, we promise that this will be another event that you will not want to miss.

May is a busy month. Our Chamber calendar is packed with events. So don’t miss the opportunities and register early.

In the meantime, enjoy the sunshine and summer fun.

James Sun Chairman

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New

Business Contacts

w w w. a m c h a m . o r g . h k

The following people are new AmCham members: Avery Dennison Hong Kong B V

Jardine Matheson Ltd

Procter & Gamble HK Ltd

Richard Evans VP Finance, Global Sourcing Regions & Supply Chain

David Walker Chief Executive Officer, Tradeport Hong Kong Ltd

Ajit Nayak General Manager

Bank of America NA

JPMorgan Chase Bank

Angelique Tan Director

Baxter Healthcare Ltd Joanna Yao Country Manager

Bureau Veritas Consumer Products Services

Over 500 pages in three major sections, including a complete guide to chamber services, corporate sponsors and AmCham Charitable Foundation. This directory lists nearly 1,900 members from over 700 companies and organizations.

ISBN 978-962-7422-03-7

LC 98-645651

Justin Leard Senior Director, Global Service Delivery Christopher Baird Director, Key Account Management/Marketing

Caesars Entertainment Corporation/ Caesars Asia Ltd Steven Tight President, International Development

Choy-Valentine and Company Achilles Choi Senior Consultant Felicia Choy Vice President Nickie Tran Senior Consultant

Dairy Farm Co Ltd, The Louis Ting Public Affairs Director, HK & Macau

Ernst & Young Florence Chan Partner, Regional Tax Leader Financial Services, Greater China

Gallup Steve Wang Senior Consultant

Timothy Lee Head of Treasury Services, Hong Kong

Leading Authorities, Inc Mark French President

Mattel East Asia Ltd Peter Broegger SVP & GM, Asia Pacific, Middle East & Africa

Merrill Lynch Chad Stasky Vice President, Wealth Management

Nardello & Co Ben Rowse Head of Asia Practice

New Connections Press Ltd Rebecca Lombardi Director of Communications

Ochre House Asia Pacific (HK) Limited Katherine Lim Delivery Manager

Pacific Petals Ada Au Founder

PepsiCo Inc

S.T.A.R.S. Foundation Johnny Chong Chairman

Savvis Mark Smith Managing Director, Asia

Sears Holdings Global Sourcing Ltd Jay Burdett Managing Director

SHL Group Ltd Stuart Hedley Managing Director

SWIFT Neil Stevens Head of Relationship Management, Asia Pacific Lisa O'Connor Initiative Director, Asia Pacific

The American Club Robert Sereci General Manager

Time Warner Inc Betty Zhang Policy Analyst, TimeWarmer Public Policy Asia Pacific

Wynn Macau Linda Switzer Director - Retail

Joy Xu Chief Human Resources Officer, PepsiCo International - Asia Pacific Region

View our other members at:

http://www.amcham.org.hk/index.php/AmChamMembers.html

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COVER STORY

stems from President Barack Obama’s 2010 National Export Initiative, an ambitious goal to double US exports by the end of 2014. The program has so far met its targets. Since then, other initiatives such as the Brand USA campaign to promote tourism to the US have also been rolled out.

Ambassador Klemm says what economic statecraft essentially means is that there is now a much closer structured working relationship among government agencies in support of US business interests abroad and building American jobs at home through expanding export markets.

“There is a widespread belief that US export sector – not only now but in the future – must play a vital role in creating economic growth in the US,” Klemm says. “So all of the tools available to the US must be deployed to support US export and that includes the Department of State.”

Pivot to

Asia

Senior US government officials continue to include Hong Kong in their Asia travel schedules. Recently, two of them addressed the Chamber and talked about their regional responsibilities, and US Consul General Stephen Young also spoke on the US’s goals in Asia. Daniel Kwan summarizes their messages in the following report

Travel card

Hans Klemm

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ver since AmCham Hong Kong was established 43 years ago, it has worked hand in glove with the US Consulate to support US business interests in the region. One mutual benefit of this close relationship comes when US officials visit Hong Kong.

The Consulate always urges these visitors to meet with AmCham for a briefing or speaking opportunity. It’s a win-win. The guests learn firsthand about business trends in Asia from expat executives, and Chamber members are updated on the latest news from Washington.

In the past month, three senior US

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officials addressed the Chamber and their messages all shared a common theme – a renewed emphasis in Washington of the economic dimensions of foreign policy and the US “pivot” to Asia.

Ambassador Hans Klemm, Senior Official for Asia-Pacific Economic Cooperation (APEC), visited Hong Kong in mid-April. Originally booked for February, Ambassador Klemm’s visit was postponed when his boss, Secretary of State Hillary Rodham Clinton, hosted the first ever Global Business Conference in Washington DC. Participants at the conference – AmCham executives and representatives from 110 countries –

heard a loud and clear message from Clinton that the State Department is strengthening its efforts to support American businesses abroad.

Ambassador Klemm, who also serves as economic advisor to Kurt Campbell, Assistant Secretary of State for East Asian and Pacific Affairs, brought that message to Hong Kong during his recent visit.

Apart from addressing the Chamber, Ambassador Klemm also met with his Hong Kong counterpart Maria Kwan and business representatives and experts to discuss trade liberalization and supply chain issues – two of APEC's top goals this year.

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Economic statecraft In an interview with biz.hk, the Ambassador explains that the economic statecraft policy outlined by Secretary Clinton was more a refocusing of priorities than a revolutionary change.

“The State Department has long been engaged in economic policies for the United States but Secretary Clinton and her senior leadership team saw that there was a need for the State Department to redouble its efforts in support of US commercial and business interest overseas,” he says.

The impetus of the shift in emphasis

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The APEC Business Travel Card is one example. Just before the APEC summit in Hawaii last November, President Obama signed the legislation that would allow the US to join the program and issue the travel cards to US citizens.

Although he doesn’t have a precise timeline of when the new travel cards will be available, Ambassador Klemm says it should not be far off. “Given the importance that the White House has placed on this, I anticipate that this will happen in a matter of months rather than years,” he says.

Although the APEC Business Travel Card is not an official travel document, it has been hailed by business people as a helpful tool in facilitating business travel in the Asia-Pacific region. (See box)

TPP negotiations Directly tied to the economic statecraft policy is the ongoing negotiation of the Trans-Pacific Partnership trade agreement. Negotiators are meeting in Dallas, Texas early this month for another round of discussions.

Klemm says that serious negotiations

are continuing on a wide range of issues because the nine countries involved – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the US – have agreed to strive for a “cutting edge trade agreement for the 21st century.”

“There are very serious discussions continuing around issues including not just intellectual property rights but also the roles of state-owned enterprises and the obligations they would have to undertake to ensure that there are fair and equal playing field for all participants,” he says.

The Ambassador is optimistic that the negotiations would meet its year-end target given the high-level support among the nine nations’ leadership.

He however denies rumors that the TPP is a scheme by the US to contain China and maintains that any countries can join when they are ready.

“I have to categorically deny that intent … When the initial negotiation or the concept of the expanded TPP was developed, it was seem as a means to reach the broad objective of APEC that is the establishment of a free trade area for the Asia-Pacific region,” Klemm points out.

“So it was seen as an open process that all members of APEC individually or together in clusters can join the TPP in the future, and that very much includes China as well as Hong Kong and Chinese Taipei,” he adds.

APEC Business Travel Card Launched in 1997 with just three participating APEC members, the APEC Business Travel Card scheme has now expanded to all 21 APEC economies. Enrollment now stands at more than 100,000, a nearly three-fold increase since March 2008. Research conducted by APEC’s Policy Support Unit confirms that ABTC holders experience significant time and cost savings when they travel to other APEC economies.

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Patricia Loui & Raymond Ellis

According to him, three countries – Mexico, Japan and Canada – have expressed interest in joining the TPP, but they have not yet entered into formal negotiations.

Ex-Im Bank Also visiting Hong Kong recently was Patricia Loui, Director and Member of the Board of Export-Import Bank of the US. The former president and CEO of OmniTrak Group in Honolulu is no stranger to APEC. In fact, she served on the Hawaii Host Committee for the APEC in Hawaii before she moved to Washington DC. Loui says there is great potential for US exporters in markets such as Vietnam, Indonesia, and India. Like export credit agencies from other countries, Loui says it is Ex-Im Bank’s mission to support American exporters and she has full confidence in their international competitiveness.

“We believe that if the playing field is level, American product quality, reliability, and economic life of the products is unsurpassed,” Loui says. “Our strategy from a competitive differential is to level the playing field so that the American manufactured products and services can speak for themselves.”

“Certainly in the area of services, the US is moving towards a service space economy. It is a critical advantage that we

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[Ex-Im Bank] can finance services from the US as well,” she adds.

According to her, the bank is looking to expand its portfolio in Vietnam after meeting with senior leaders in the country in February. Prime Minister Nguyen Tan Dung had assured Loui that sovereign guarantee would be available for projects in four areas namely power, infrastructure, healthcare and education.

She also sees a certain tie-in between Ex-Im Bank’s objectives and the focus of the TPP. Energy is one example. Loui says energy is one of the top constraints in Vietnam and the country faces considerable hurdles in the area if it is to qualify for the trade agreement.

Level playing field Since a critical issue confronting American exporters is the unlevel playing field in many of the markets in APEC region, it explains the strategic value of the TPP for American businesses and why the US has insisted on striving for a high entry standard in the negotiation.

Ambassador Klemm says: “This is a decision that is not imposed on the negotiations by the US. This was a decision undertaken collectively by all the countries that are currently negotiating.”

“The nine countries collectively decided to achieve a very high standard trade agreement for everybody,” he says.

“The US very much supports those ambitions and that’s exactly what we believe – not only the US – but all these countries should be striving for.”

Loui says the Ex-Im Bank is trying to raise its competitiveness by offering competitive terms and entering into projects at early stage.

“We face challenges from countries or what I would call the ‘Japan model,’ she says. “The Japan Model comes in very early, does the technical assistance assessment, and takes the project all the way to implementation and even operation. And now Korea and China are following a similar strategy.”

“Our exporters tend to sell specific products and so we would like to be able to facilitate a [buying] decision by assuring the foreign buyers that financing is available from the Ex-Im Bank on very competitive terms,” Loui says. “We think that can make the difference in the decision making of whether to buy American or non-American.”

In addition, the Ex-Im Bank can offer co-financing with other export credit agencies (ECA). Although it has an 85 percent US national content policy, co-financing allows the Ex-Im Bank to reach out to exporters that may have sourced part of the contents of their products from foreign suppliers.

Raymond Ellis, Vice-President & Manager of Global Business Development Division of Ex-Im Bank, explains the merit of co-financing: “The benefit is that you may have only one credit agreement for the project, but several different financiers involved. That helps us bridge the content issue in some cases.”

Loui acknowledges that unlike ECAs from other countries, the Ex-Im Bank has not yet established a significant presence in the China market. However, she says it is exploring new opportunities in China especially in areas such as healthcare.

“We are currently looking very hard at China. Over the last few years, there has been a perception that China is awash with capital and perhaps doesn’t need Ex-Im financing,” she says. “We are looking at the geographical segment as well as the industrial sectors where US

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products and services have competitive advantages.”

Re-authorization Ironically, although the Ex-Im Bank undeniably contributes immensely to create and support American jobs, the agency currently faces a hurdle after the US Senate voted down a re-authorization bill in March to renew the bank’s mandate for four years and increase its lending cap to US$140 billion.

Loui says she can’t comment on the ongoing negotiations on the Hill but expresses optimism that agreement would be reached before the May 31 deadline.

“Historically, Ex-Im funding and re-authorization has been a bipartisan issue. American businesses – both small and large – value and know the importance of the reliable and consistent source of financing for export,” she reckons. “I believe this argument will be heard and we will be able to move forward with the Congress on the re-authorization.”

Consul General Another speaker on the subject of US foreign policy was Hong Kong’s own US Consul General, Stephen Young.

In his speech entitled “America’s Renewed Commitment to Asia and What It Means for Hong Kong and Macau” and delivered at a Chamber luncheon, Young – among other things – points out that Hong Kong is considered a key player in Asia.

Secretary Clinton chose Hong Kong last July to deliver a major US policy address, and even Victoria Harbor was

featured as a graphic for her piece published in the Foreign Policy magazine.

These “underscore Hong Kong’s important position in the region and in US strategic planning,” Young says.

Young points out that the Consulate pays close attention to the issues of concern to American expatriates in Hong Kong, such as the currently hot issues of a double taxation agreement between Hong Kong and the US, and the ongoing concerns about implementation of the Foreign Account Tax Compliance Act, or FATCA. “While the [FATCA] law and its requirements are rather complex, I want to mention today that we have been listening to the concerns of Americans here in our Consular district related to FATCA,” the lead US envoy to Hong Kong says. “Working with the US Treasury and the Hong Kong Government, we are striving to minimize the burden which the law's reporting requirements place on individuals and financial institutions.”

On the topic of air quality – an issue dear to AmCham members’ heart – Ambassador Young says there is much the US can offer to help Hong Kong achieve its newly announced air quality standards.

According to him, the US has since 1990 succeeded in achieving a 41

Stephen Young

percent reduction in six major pollutants but at the same time realizing a 64 percent increase in GDP. The US experience, Young notes, shows that clean air and economic competitiveness are not mutually exclusive.

“We believe the US has a lot to offer in this regard, and will continue to foster collaboration between US and Hong Kong government agencies, academic institutions, NGOs, and green tech and service industries in order to help Hong Kong meet its air quality challenges,” he says.

“Working with the US Treasury and Hong Kong Government, we are striving to minimize the burden with which the law's reporting requirements place on individuals and financial institutions.”

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SINO-US RELATIONS

Can the US Walk and Chew Gum at the Same Time?

And how this impacts on US-China Relations Kenneth G. Lieberthal of the Brookings Institution is one of the most respected gurus on US-China relations today. Daniel Kwan spoke with Dr. Lieberthal in March, when he visited Hong Kong and spoke at an AmCham luncheon

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Kenneth G. Lieberthal

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hen rating agency S&P downgraded the US last August, financial markets around the world were spooked. Overnight, share prices tumbled and investors sought refuge for their investments in whatever safe havens they could find. The US, some feared, was deeply embroiled in domestic political struggles. The impasse in Washington to resolve US debt crisis seriously eroded investor confidence about the US ability to recover. The economic future of the country looked bleak with slow job growth, soaring budget deficits, and lackluster retail sales.

Doomsayers added to the chorus, proclaiming that the episode was just another leaf in history in the inevitable decline of the US. They were convinced that the US’s global influence was in the wane and that the war on terrorism had exhausted the world’s last remaining Superpower. Thus, they argued, China is rapidly becoming a clear and present competitor to the US.

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Walk and chew gum A key question for many people is: Can the US walk and chew gum at the same time?

Kenneth G. Lieberthal, a highly regarded Sinologist at the Brookings Institution in Washington DC, believes the answer to that question is clearly yes.

The US, he says, remains the world’s largest economy. It has the world’s best universities and innovation system, and its strongest military. Unlike China, the US has abundant resources and a much healthier demographic pyramid.

“If we can get our political act together, we’ve got the resources, talents, institutions and legal system – we have all the ingredients – for success,” he says.

“And the US government plays a much smaller role in US society. So the government generally finds it hard to screw things up,” he adds. “The question is whether we can get that piece in the puzzle working reasonably well. If we can, then frankly, I think we have a very good future. If we can’t, then we will pay a price for it and the price will be very stiff.”

Citing the November visit by President Barack Obama to Asia as an example, Lieberthal argues that no other countries can command the same clout as the US in global and regional affairs. “[President Obama] participated in a number of regional meetings, had two state visits, and in the course of 10 days held an array of activities – diplomatic, economic and military – that I don’t think any other countries could have duplicated,” he says.

“I can’t think of any other countries that could have elicited the responses that

he did on the array of issues on which he took the initiative. So I think, yes, the answer is we can walk and chew gum at the same time.”

“The big question about the US now is our national domestic politics, which are extremely polarized. We’ll have to look to the election in November to see whether that election clears the air; whether it gives a clear indication of how the American people want to move in one direction or another.”

You win, I win Interestingly, Lieberthal, who was a top aide to President Bill Clinton on foreign policy, believes that how successful the US is in putting its own house in order will have a profound effect on China – the country many critics say would rival the US in a decade or two.

Contrary to many doomsayers who see the relationship between China and the US as a zero-sum game, Lieberthal sees a strong interdependence between the two countries. Success or failure on either side could significantly change the odds of success in the other country.

While the US needs to clean up its economic mess and rise from the political paralysis on Capitol Hill in order to move forward, China faces an even more daunting task to rebalance its economy and carry out fundamental reforms of its political system.

“China’s problem is not about figuring out what to do but getting the political capacity to do it, because the new model will require changing incentives for local leaders and major changes in the financial system. It also requires dealing with a number of very deeply vested interests.”

“It’s simply unclear at this point whether the new leadership coming in will be able to tackle those issues on a sufficiently vigorous basis,” he says.

The key challenge leaders in both China and the US face is whether they can muster enough political will to tackle what needs to be done domestically.

“I would argue that the changes in the US need to make in its economy are not only vital for the US but also very good for China, and vice versa. A key issue here is to what extent each country will be able to undertake the reforms necessary for itself. To the extent it succeeds, the US-China relationship will be smoother.

To the extent it fails, the US-China relationship will have more friction.”

Lieberthal recently co-authored a new book, Bending History, Barack Obama’s Foreign Policy, with two of his colleagues at Brookings, Martin Indyk and Michael O’Hanlon. They disagree that recent initiatives such as the TransPacific Partnership represent steps by Washington to contain China.

Lieberthal points out that China has not been excluded, but rather Beijing has expressed no interest in joining the TPP discussions.

“Many of the principles that are being discussed as founding principles of the TPP are ones that currently don’t characterize the Chinese economy. They may feel that this isn’t what they want to engage in at this point,” he says.

“There is some concern in China that the US is taking this initiative to develop a new trade and investment platform in the Asia-Pacific region and this may become – I stress may become – a reality in the Asia-Pacific region. But I think it is wrong to think of it in terms of China being excluded from that platform.”

“Many of the principles that are being discussed as founding principles of the TPP are ones that currently don’t characterize the Chinese economy. They may feel that this isn’t what they want to engage in at this point.”

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Strategic distrust The concern over TPP has in some ways underscored a certain lack of trust among leadership from both sides.

Lieberthal recently co-authored a monograph with Peking University Professor Wang Jishi to examine the issue of distrust among the Chinese and US leadership.

Entitled Addressing US-China Strategic Distrust, the book, which is available for free download from the Brookings’s website, has stimulated considerable discussion among Sinologists.

According to Lieberthal, the book is intended for leaders in both countries and its objective is to facilitate greater understanding among the top leadership.

“Both Jishi and I share the view that top leaders are smart people. If they understand a situation, they can then be pretty effective at dealing with it and figuring out how to make a problem more resolvable or manageable.”

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“Our top leaders don’t really understand the way the other side is thinking.

We have a bunch of suggestions to help each side to understand not only what the other side thinks but also why they think it. Because if they do, good politicians can work with that and come up with better solutions. That’s the objective behind this book.”

Essential reading A prolific writer, Lieberthal has another new book called Managing the China Challenge: How to Achieve Corporate Success in the People’s Republic. Essential reading for any western executives interested in the China market, the new book provides a comprehensive yet in-depth look of the opaque and complicated Chinese political and government systems and offers practical advises on how to win in that marketplace.

According to Lieberthal, the Chinese system remains a mystery to most business leaders.

“Executives tend to look at the board

macro economic statistics and they also get to know the people who are the faces of the state to their company. But how do you understand the division of responsibility, the negotiation process internally in the Chinese system, the relationship from centre to provinces, cities, counties and townships?” he says.

“These things really baffle western executives and this new book aims to explain it systematically and then on the basis of that explanation to give recommendations on corporate strategy.”

One example is how local leaders are chosen and promoted. According to Lieberthal, generating GDP growth remains the single most important criteria for selecting leaders for promotion, despite calls in recent years to emphasize achievement in areas such as environmental protection. He says that whether the Chinese leadership can reform incentives will hold the key to how the Chinese system can transit to a more sustainable model of economic development.

“They are promoted for [generating] GDP growth, avoiding mass incidents, and for avoiding any major embarrassing incidents – something that might embarrass people in a higher level.”

“I have mentioned those latter two for an important reason – the people who get promoted tend to both know how to grow the economy, and manage the politics of a locality. They aren’t just technocrats. They are people who understand politics and economics. So you tend to get very talented people rising up the Chinese bureaucracy.”

“Fundamentally, the overwhelming incentive [for officials] remains to grow the GDP. That’s why I’ve said while they are very serious about transitioning their economy so that [the environment] is cleaner and the economy is restructured with more services, and less in exports and more in domestic consumption, they are really going to have to bite the bullet on the incentive to leaders on every level of the political system.”

“That’s going to be very hard because in changing those incentives you probably take money out of the hands of a number of very powerful people or at least take the opportunity to make a lot of money away from them. That’s not easy to do.”

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INTELLECTUAL PROPERTY

US-China

much of current technology is based on these new ideas. If new ideas aren’t protected, there will be much less incentives to create new ones.”

More importantly, IP protection is also an issue closely linked to international trade, she also says. That’s because “when IP protection is weak, counterfeit products can easily flood the marketplace and crowd out legitimate products. What we want is to create space for legitimate commerce to flourish.”

ACTA

US Ambassador Gary Locke addresses a roundtable discussion on intellectual property rights in Beijing in April 2012. IPR protection has been a top priority issue for Ambassador Locke and notable progress has been made between China and US in the past two years in areas such as enforcement.

Photo: Getty Images

IP Protection and Enforcement Vital to International Commerce

By Kenny Lau

T

rade is a critical pillar in the economic structure of any country, particularly in the current age of globalization.

It is the foundation on which to achieve economic prowess, higher standards of living, and ultimately prosperity. The benefits of global trade are so apparent and essential that US President Barack Obama announced in 2009 an initiative to double America’s exports over a period of five years.

Global trade, in many cases, is more than simply establishing a link among trading partners: It requires constant efforts by government agencies as well as those in the private sector through negotiation and coordination to facilitate a seamless flow of trade across borders.

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USTR The US, unsurprisingly, is the world’s largest exporter and importer of goods and services, given that it is the largest economy on the globe. The Office of the United States Trade Representative (USTR) plays an important role in the development of international trade as well as commodity and direct investment policies with other countries. Also, one of its core functions is to look after the protection and enforcement of intellectual property rights (IPR).

“The goal of international trade policy is to increase global trade flows of legitimate goods on a level playing field,” says Kira Alvarez, Chief Negotiator for Intellectual Property Enforcement and

Deputy Assistant US Trade Representative, in an interview with biz.hk.

“Intellectual property protection is important because it is the lifeblood of innovation and creativity,” she says. “It creates incentives for the further creation of innovation.”

“New technologies, new music, and new movies are only made possible when people know that they can be properly rewarded for their hard work,” she adds, noting USTR’s commitment to promoting strong intellectual property laws and effective enforcement with trading partners worldwide.

IP protection is particularly important today “because we have moved into a knowledge-based age,” Alvarez points out. “We are in an ‘idea’ economy and

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The Anti-Counterfeiting Trade Agreement (ACTA), signed in October 2011 among 11 countries, is a milestone in the fight against IP infringement on a global scale. The objective is to “foster increased leadership in the international fight against counterfeiting and piracy,” in support of a strengthened international standard for IPR enforcement.

The jurisdictions participating in the agreement include Australia, Canada, EU, Japan, Korea, Mexico, Morocco, New Zealand, Singapore, Switzerland, and the United States.

“It is a group of like-minded countries that represent over 50 percent of global trade and believe in IP protection and enforcement,” Alvarez says of the agreement. “The idea is to form a coalition of countries and to come up with standards and measures necessary to allow for effective IP rights enforcement on a global scale.”

The agreement calls for (1) enhanced international cooperation; (2) promotion of sound enforcement practices; and (3) a strengthened legal framework for IPR enforcement in the

Kira Alvarez

areas of criminal enforcement, enforcement at the border, civil and administrative actions, and distribution of copyrighted material on the Internet.

The ACTA, Alvarez notes, will be an important tool in combating global proliferation of commercial-scale counterfeiting and piracy because it provides a mechanism for countries to work together in a more collaborative manner to achieve the common goal of effective IPR enforcement.

“The key to IP protection is law enforcement and cooperation among countries,” she says. “In the future, our goal is to increase cooperation and communication between the law enforcement and other government agencies of different countries because this is a global issue.”

The United States and China together form a key paired-market for reciprocal trade: China is currently US’ second largest goods trading partner, with US$457 billion in total (exports and imports combined) goods trade during 2010. However, trade between the US and China is hardly without issues, one of which is intellectual property protection and enforcement.

“We have been engaging with China on issues such as their trademark and copyright laws,” Alvarez says. “What we are doing is encouraging them to step up their efforts in IP protection and enforcement.”

China remains on the “Priority Watch List” in the 2012 “Special 301” Report, an annual review of the global state of intellectual property rights protection and enforcement published by the USTR. “Significant concerns persist in light of continuing high levels of trademark counterfeiting and copyright privacy, including over the Internet, the persistence of notorious physical and online markets selling IPR infringing goods, the manufacture and availability of counterfeit pharmaceuticals, the lack of effective means to protect pharmaceutical test and other data against unfair commercial use, as well as disclosure, and the export of counterfeit goods of all sorts,” the report says.

“As we noted in last year’s (2011) report, China’s manufacturing capacity also extends to all phases of the production and global distribution of counterfeit goods,” it says. “This year we also

©

“When IP protection is weak, counterfeit products can easily flood the marketplace and crowd out legitimate products. What we want is to create space for legitimate commerce to flourish.”

- Kira Alvarez, Chief Negotiator for Intellectual Property Enforcement and Deputy Assistant US Trade Representative

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received lengthy submissions concerning the impact that counterfeiting was having on US agricultural industries including the fruit and vegetable industry and the wine industry.”

“Of particular concern was the submission of the Semiconductor Industry Association that warned of counterfeit semiconductors entering the supply chain, noting the risks of installing fake and shoddy semiconductor components in electronic equipment, including in equipment used for critical functions related to safety and security.”

“Increasingly, the use of online sales platforms and global express delivery services are facilitating international distribution of these counterfeit goods,” it also notes.

The good news is that “China made constructive commitments related to intellectual property generally, and software legalization specifically, during the December 2010 Joint Commission on Commerce and Trade (JCCT) meeting and during [Chinese] President Hu’s visit to Washington in January 2011,” the 2011 report says.

Property Enforcement Office, which is led by Vice Premier Wang Qishan and staffed by the Ministry of Commerce (MOFCOM) and its division on Market Order and Supervision. The office was established to provide a permanent mechanism under senior leadership for IPR enforcement and investigation.

“The United States looks forward to engaging with the office and working to ensure that the good progress made on these issues during the Special Campaign continues unabated,” the Report says.

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Ladies Market was dropped from the list in late 2011 as a result. “Is it a 100 percent clean? Probably not, but it is pretty clean. With piracy and counterfeiting, it is very hard to get to absolutely zero percent.”

“We laud the cooperation of Hong Kong Customs and their efforts to clean up the market. And we want other countries to take similar actions,” she says, adding Hong Kong’s Ladies Market is no longer included in the Notorious Markets List as a result.

One effective way to tackle the problem of piracy and counterfeiting is

ial 301

Repor

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Special campaign Additionally, Chinese Premier Wen Jiabao announced in October 2010 the launch of the “Program for Special Campaign on Combating IPR Infringement and Manufacture and Sales of Counterfeiting and Shoddy Commodities,” an effort to crack down on a broad range of intellectual property violations.

“We see this as a good sign and a good start,” Alvarez notes. “We did start seeing more focus in China on IP protection and enforcement actions such as raids and convictions.”

“The Special Campaign has achieved increased cooperation between the agencies in China,” Alvarez points out. “What we don’t want is for it to stop or it is back-to-business as usual once the campaign is over. We believe there needs to be sustained efforts.”

According to the 2012 Special 301 Report, the campaign has led to the creation of the National Intellectual

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Hong Kong Separately, Hong Kong’s Ladies Market, a popular shopping site in Mongkok, was named in February 2011 a market on USTR’s Notorious Markets List, which identifies markets, including those on the Internet, where pirated or counterfeit goods are reportedly available in a pervasive manner.

“We reviewed information from the public, IP right holders and governments, and found that someone had nominated the Ladies Market, which was put on the list because of the pervasiveness,” Alvarez says, stressing counterfeit products not only causes economic harm but also poses possible health and safety to consumers.

“Hong Kong Customs was keen on cleaning it up, and they did and took immediate action,” she adds, noting the

by allowing genuine and legitimate products to flourish in the marketplace, Alvarez stresses. “We see this as a flip side of the coin: When you don’t have legitimate products coming in, there is still going to be demand, and it will only fuel the demand for pirated goods.”

“It is not just about clamping down on piracy but you also have to increase market access for genuine products,” she adds. “Otherwise, it doesn’t matter how many campaigns you have because your consumers are going to want the product, whether legitimate or not.”

“That’s a message we have conveyed to the Chinese government,” she further says. “We live in a globalized economy where consumers still want to watch movies. But, if they can’t go to a movie theater and see them, they will buy pirated DVDs or download illegally because they have no other choice.”

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CHINA BUSINESS

Simple Truism Holds Key to Future Reform Veteran China economist Nicholas Lardy’s latest book on China is a timely reference as the world ponders where China – now the world’s second largest economy – is heading after the global financial crisis. Simon Ogus of DSG Asia agrees that this is an excellent guide for novices and old China hands alike Book:

Sustaining China’s Economic Growth After the Global Financial Crisis Nicholas R. Lardy, Anthony M. Solomon Senior Fellow at the Author: Peterson Institute for International Economics Reviewer: Simon Ogus, founder and CEO of DSGAsia Limited (http://www.dsgasia.com) – a Hong Kong-based independent consultancy which offers analysis of the economies and politics of Asia

T

he Chinese economy is “unsteady, imbalanced, uncoordinated, and unsustainable”. No, these are not the words of one of those ubiquitous China über-bears, but rather those of the country’s (soon to be departing) Premier Wen Jiabao.

In recent weeks Premier Wen has given a number of speeches calling for deeper political and financial reform lest the economy (and implicitly) Communist Party rule hit the buffers. With regards to the former, one probably should not be holding one’s breath, at least if the recent ruling that all lawyers must swear allegiance to the Chinese Communist Party is anything to go by. But can we be any more optimistic about the latter given that Wen’s time in office has largely been characterised by triumphs of statement over substance?

Nicholas R. Lardy of the Peterson Institute for International Economics clearly agrees with Premier Wen that further reform of price mechanisms and signals is an essential pre-requisite for

20

re-balancing the Chinese economy.

Moreover, Lardy, a highly-respected and always sober observer of PRC matters has form in identifying the big issues along the country’s three decade transition road. Notably in the mid-1990s, he provided some of the most comprehensive (and ultimately accurate) estimates of the true extent of China’s bad loan problem, and argued that a massive clean-up and restructuring of the banks was essential to keep the system on the rails. Under the political protection of President Jiang Zemin, Zhu Rongji who was then the premier duly delivered this and a range of other related reforms which – in the opinion of this observer at least – materially raised China’s potential growth rate over the subsequent decade.

Unfortunately, the Hu Jintao/Wen Jiabao leadership, though not without its achievements, has largely coasted on the back of these earlier reforms – shades of the Clinton and Blair inheritances from Reagan and Thatcher perhaps? It has therefore bequeathed its successors significantly greater policy challenges than

might have been faced otherwise. To be fair, the eruption and aftermath of the Global Financial Crisis has left the world in fire- fighting mode and arguably China has fire-fought more effectively than most.

Yet even before 2008, evidence of guojin mintui – the state advances, the private sector retreats – was becoming increasingly clear. And whether by design (in the face of Nicholas Lardy otherwise stated rhetoric), or whether by weakness in the face of vested interests, the Hu/Wen leadership appears to have done little to reverse the tide.

Lardy’s extremely plausible and well-argued thesis is that at least four major areas of policy push are required to rebalance the economy towards consumption and away from its over-reliance on investment and exports. He believes that significant progress has been made in the

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first of these, fiscal reform, at least in the area of rebuilding the country’s social safety net so as to somewhat reduce precautionary savings for outlays on healthcare and education. To this can be added quasi-fiscal promises of increased low-cost housing supply although the jury remains out at this juncture. Progress in tax reform has been less stellar though, and the need to wean the local governments off their reliance on land revenues – while ensuring they do not return to their arbitrary local tax levying ways – remains paramount.

Lardy’s three other major policy area recommendations focus on the reform of price signals, specifically input prices such as energy, water and land, and the external and internal prices of money a.k.a. the exchange rate and domestic interest rates.

There has been some progress in raising the cost of the first group to levels better reflecting opportunity costs but the continue-to-subsidise lobby remains vocal and entrenched (sound familiar?). As for the exchange rate, Lardy argues that the Renminbi remains considerably undervalued still. Your author is not so sure given the country’s steadily narrowing trade surplus, its rising labour costs and the decampment of increasing numbers of lower value-added exporters to even lower cost locations. (Where Lardy is on firmer exchange rate ground relates to the currency’s lack of volatility.)

The unfortunate reality for the US though is that such displaced production facilities are unlikely to be relocating to Alabama or Tennessee, but rather to third-party locations, resulting in an only marginally narrower American trade deficit. Indeed with the US dollar, land and property costs now cheap on almost any fundamental level, it is arguably the regulatory burden that is the main

External weakening and domestic tightening expected to weigh on near-term outlook Contribution to real growth (ppt) 14.2 14 9.2 12

Consumption

10.4

10

Investment

Net exports

9.2

8

8.2

8.6

2012

2013

6 4 2 0 -2 -4 2007

2008

2009

Source: NBS, CEIC and World Bank staff forecasts.

Note: Overall GDP growth numbers listed at top of bars.

impediment to a far more robust re-industrialisation of the US. But we digress. Returning to China, Lardy rightly identifies a still heavilycontrolled structure of interest rates as one of the economy’s greatest remaining distortions. Suppressed real deposit rates force consumers to save even more to maintain incomes from assets, and encourage serial over-investment in property. Again this should all be familiar to American readers with the large caveat that Chinese consumer debt-income ratios remain only a quarter of their US peers – for now at least….

Ultimately, the debate as to how to reform interest rate mechanisms, or indeed whether this is even desirable, comes down to a political economy question. Technocrats at the People’s Bank of China and the China Banking Regulatory Commission (CBRC) have long argued for more market-oriented interest rates. They have accordingly championed the development of marketdetermined offshore RMB capital

2010

2011

World Bank, China Quarterly Update

markets in Hong Kong as a “Trojan Horse” to wheel into the citadel of the domestic financial system. However, set against such visions are the myriad interests in the construction state that continue to benefit from largely unrestricted access to artificially low borrowing costs.

Towards the end of his excellent book, Lardy, the serious economist, armed with reams of statistics and academic references, touches lightly on such matters.

In essence though, the argument comes down to this simple truism. Marketdetermined interest rates are all about market allocation of credit; state-controlled interest rates are all about the political power to allocate credit and corrupt. There are many within the Chinese system who clearly recognise that the old system has started to outlive its usefulness. Nevertheless, as Japan, Korea and Taiwan have shown us, transitioning away from the ancient order is neither easy nor without its perils. And it will also be tenaciously resisted by those who currently benefit.

“Moreover, Lardy, a highly-respected and always sober observer of PRC matters has form in identifying the big issues along the country’s three decade transition road.”

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ENTREPRENEURS / SME

Amazing Journey of Success

Spreading Wings

Elizabeth L Thomson

By Kenny Lau

S

mall- and Medium-Sized Enterprises (SMEs) are an important part of the economy in Hong Kong, where they are defined as companies with fewer than 100 employees in the manufacturing sector and with fewer than 50 employees in the non-manufacturing sector.

According to Hong Kong’s Trade and Industry Department, there were about 300,000 SMEs locally as of December 2011. Together, these small companies represented over 98 percent of all business units and provided employment opportunities to a working population of over 1.2 million, or 48 percent of total employment in the private sector in Hong Kong.

As for industries, most SMEs in Hong Kong are in the import/export business and wholesale field as well as the retail trade. These sectors account for over 50 percent of the SMEs in Hong Kong and represent about half of the local SME-related employment.

However, as Hong Kong continues to move towards a service-based economy, sectors such as information technology, communications, finance, and other professional business services are increasingly finding their way into the SME arena.

Many of these small businesses were started, and are run, by non-local people who have come and settled in Hong Kong.

After all, it is the freest economy in the world and a place where entrepreneurs can spread their wings and thrive.

Regardless of business nature, SMEs including those in

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Hong Kong often find themselves facing a common challenge: That is, planning for the next step. It is an issue among SMEs because they are confined within a very small parameter of options. As Elizabeth L Thomson (founder and president of ICS Trust, a boutique commercial service provider in Hong Kong) says, being an entrepreneur can be a very lonely job, because “you basically only have yourself and it is very difficult to find a mentor.”

Finding support is and will never be easy, and there is sometimes very little support on which medium-sized companies can rely to make a jump into the next level. At a certain point, SMEs will come to the question of how they can grow their business by leveraging what’s around them, and it will be a thought-provoking process through which to think about a different business model.

The American Chamber of Commerce is sensitive to these situations and is therefore launching the inaugural AmCham SME Forum to help local and regional SMEs grow their companies to the next level. This event assembles experienced professionals who can provide practical solutions and tool to promote growth, along with business owners who have been or are currently faced with many of the same concerns and opportunities as you are.

The event will be held at the Richard Ivey School of Business (Phase I, Hong Kong Exhibition and Convention Centre) on May 30th from 1:30 to 6pm.

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I

t is a story of an amazing journey of entrepreneurship in Hong Kong, a place where thriving businesses are legendary. It is a unique story because it came at a time when expatriates were often here on an assignment for multinational corporations (MNCs) and when business opportunities with China were far less apparent at the level of small- and medium-sized enterprises (SMEs).

The journey started in 1980 when Elizabeth L Thomson, a Canadian, founded ICS Trust to provide private clients with highly personalized commercial services. “Back then, it was me and a part-time secretary on my dining room table on Braemer Hill Road,” she recalls. “We didn’t even have a fax machine at that stage and had only a telex machine.”

Today, it is company with a staff of 50, offering “tailor-made” integrated business solutions to corporations doing business in China and occupying two floors of office in St. John’s Building in

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Central. “The company is very different now, and it is a good example of what an entrepreneur can do in Hong Kong and how much room there is for entrepreneurship and growth here,” Thomson says.

“The support we get from our clients is really important. We feel very comfortable with the feedback we get from them,” she says. “They like the fact that we have an integrated service where they just come in here and we take care of all their needs about doing business in China from the Hong Kong gateway.”

I am responsible In a way, it was not a very calculated decision to become an entrepreneur, Thomson acknowledges. “I certainly did not think that 32 years later that I would have this or that I would still be in Hong Kong,” she says. “Everything felt like it was the next step and the right thing to do.”

“Back in 1980, I did not have much

of a strategy for growth and was looking at it much more from the point of view of doing the right thing for the client and being professionally responsible, much more so than building a business,” she adds. “I was certainly more of a sole practitioner than being a president of a company.”

But one thing remains unchanged: Determination and dedication as well as a strong sense of responsibility are very important to running a business, Thomson believes. “I set high goals for myself, especially that I am responsible towards my clients, because I want to make sure good things happen for the client,” she says.

Thomson had her first encounter with the real world of business in 1977, the year she arrived in Hong Kong to see parts of the world before going into practice as a lawyer, when she was hired here in Hong Kong to handle a bankruptcy case, a project for which she had to travel around the world a few times in a matter of months. But it wasn’t

23

until three years later that a business ordeal led her to be where she is today.

For three years, Thomson had worked as legal counsel in Hong Kong doing “very interesting work” for a small private banking group headquartered in Australia. But “things started going very wrong” at the bank in 1980, and it went bankrupt.

“I had a choice at that point to leave Hong Kong or to stay and try to help clients of the bank to have a claim in the bankruptcy,” she recalls. “It was the first time that my professional ethics as a lawyer had really been tested, and it ultimately pushed me into starting this business.”

“To be dedicated to the client is really the most important part of a business,” Thomson stresses. “When I hear some talk about how much capital they need, I really wonder why, because if you start with what you can afford and start building on the attention to the clients, new business opportunities will come in naturally.”

Hong Kong advantage Hong Kong is certainly a great place to do business, providing an environment for a constant free flow of trade, Thomson also points out. “When we

have a system like we do in Hong Kong, quite frankly I don’t think we need much from the government.”

“I am so grateful that I am in Hong Kong where I don’t have to rely on the government,” she says. “It makes it much more simple and straightforward to run and grow a business. That is a very good part of Hong Kong.”

The challenge of running a SME, though, is when an employee who goes out and starts a competing business.

“They will take all your know-how and ideas, and will try to steal you clients,” Thomson says of her experience.

“We’ve overcome that. It could have really defeated our spirit and knocked us down.”

“You haven’t been an entrepreneur in Hong Kong if it hasn’t happened to you,” she adds. “What kept us going was the fact that we did not want people to come in and destroy what we have built, and we certainly did not want to affect our clients who are building great businesses.”

In Thomson’s case, family was not a factor until she married her husband, who is a partner in the business. “After 1983, it did become a big factor because he was pursuing further study at a university in Canada, and I started traveling between here and Canada,” she notes.

“The business was definitely a serious endeavor as I had no other financial

“Instead of being wound up in a day-to-day routine, coming in at 9am and leaving at 8pm, you could think more about the near and longer terms and, more importantly, about what you want to do with this business and whether it is fulfilling your goals.”

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support. It certainly was not a sidebar to playing golf.”

A husband and wife can make a good team in a small business, Thomson concurs. “For instance, my husband has a banking/accounting/MBA background and I am on the legal side. So, it is kind of a perfect duel.”

“However, it is probably more secure if one person works for a MNC and the other as an entrepreneur,” she cautions.

“When things are really tough, you can certainly rely on family member more than you can rely on other people.”

Next level Finding support is particularly vital in the case of a SME, but there are not many resources in Hong Kong from which to get assistance. “I often say for an entrepreneur it is a very lonely job, and because you only basically have

yourself and it is very difficult to find a mentor,” Thomson says. “And there are not too many consulting firms around where SMEs could seek advice.”

“There is always stuff for start-ups, but there is very little support for smalland medium-sized companies to go to the next level,” she further points out.

“At a certain point you have to think about how small or how big you want your business to be and where you want to go. This is where you’ve got to start thinking about your business model.

“Usually, when you start a business, you have so much to do that you don’t have time to think, you just do it. But when you get to a certain level, it is when you start hiring more people and the risk becomes much bigger.”

One of the key things entrepreneurs should do more is strategizing and forecasting for growth, Thomson suggests.

“They need to have a session with themselves every six months to a year and go through a goal-setting exercise to see where they are now and where they want to be in a given time period.”

“And look around and find people who could help strategizing your business,” she adds. “Instead of being wound up in a day-to-day routine, coming in at 9am and leaving at 8pm, you could think more about the near and longer terms and, more importantly, about what you want to do with this business and whether it is fulfilling your goals.”

“From the experience of my own business, I saw that there wasn’t really a lot of help out there for SMEs,” Thomson says. “It led us to the idea of putting together a SME forum at AmCham, because strategizing and forecasting for growth is really something that entrepreneurs need more help with and should do more of.”

Growing Pains

David Goldsmith

S

mall and medium enterprises (SMEs) play an important economic role in countries around the world. These enterprises as a sector often create significant employment opportunities and GDP growth in an economy, and are drivers of innovation and competition in the marketplace.

Turning an idea into a profitable business, however, is always easier said than done, particularly at the level of a SME where the scale of all things is simply no match to those of larger corporations.

“Being a business owner is not easy,”

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says David Goldsmith, a renowned leadership and management expert and President of MetaMatrix Consulting Group LLC, who has consulted for numerous multinational companies as well as SMEs. “It has never been easy and will never be easy. There are no shortcuts.”

Size & resources The scale of a business, more often than not, dictates the level of resources available and how they are allocated. It remains a key challenge for many SMEs to find the right balance when budgeting

resources (in monetary and human resources terms) that could deliver the most “bang” for the dollar.

“One of the things that SMEs face is their belief that they are not a large organization and, therefore, do not have the time they need to be spending on their business,” Goldsmith observes.

“They tend to spend more of their time on execution and not so much time on planning.”

“The reality is that their taking time to plan, to look at their marketing strategies and to forecast where they will need to be going is even more important than it would be otherwise,” he says. “It is

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because they have fewer resources to be doing what they do twice or doing it incorrectly.”

“When they take the first step saying no, what they’ve done is put themselves in a poor position,” he adds. “Companies that do well, whether consciously or subconsciously, spend a lot of time strategizing so that they make the right decisions.”

Lack of resources is a common challenge among SMEs; but making the resources available to do things right through precise planning is a proposition much more effective in the longer term.

“When you’re doing your product design, do you put it out to market or do you check around with potential buyers to test the product to see if it will work?”

Goldsmith notes. “Most people are so interested in going to market first or capitalizing quickly on something that they forget to do the basics.”

“Even some large companies don’t do the testing or research you would think, because large companies in some cases are made up of small groups of people making decisions,” he adds.

“What you need is to do the homework to make sure that it is correct.”

“There are plenty of tactics that can be employed for large and small businesses alike,” he says, reiterating the importance of doing things right instead of falling in love with “your” own ideas in the marketing or product development phases. “Taking time to think can mean a huge difference in sales.”

ultimate solution, Goldsmith underscores.

“When they are interested in achieving something, they are willing to do anything it takes to get there,” he says. “Yet, if you want to grow your business over time, you will have to shift from brute force to making intelligent decisions, and those decisions require you to take a little of time to figure things out.”

It is a concept of economics that it is far more effective to spend more time right at the beginning “thinking something through” than rushing to execution and finding out that a product doesn’t work, Goldsmith notes. And there are tools available to help the process of decisionmaking.

“When you work on a car engine, having the right tool will always make the work easier and help you get a better return,” he says using car as an example.

“It’s not that you can’t get your car to work, you just might not get your car to work at an optimal level.

“People sometimes came back realizing how fast they were putting their ideas to launch and that if they had spent a little more time in certain activities, they would have gotten a higher return.”

While tools are important, a business education is not necessarily the answer, Goldsmith also points out. “If you look at many of the successful people in the world, many of them don’t have a business education but have done extremely well…Having an education doesn’t automatically give you the ability to know what to do in a business.”

The right tool

Making it work

Entrepreneurs often make things happen through brute force, and while it may work from time to time, it is not an

Starting up a business is one thing; making it work in a sustainable way is quite another. The question of expansion

or moving to other markets is one that businesses contemplate one way or another, and it is a question to which there is no simple answer because it is circumstantial, Goldsmith believes.

“You could have four people in your business and be overwhelmed, or you could end up having 60 people and feel the need to go for the next step,” he says.

“In any case, leaders should be moving their business forward, which requires the same set of principles: new product and service development, leveraging technology, forecasting, strategizing, and innovating.

“The thing is that you have to improve these skills so that you can move up, and at each step you have to learn a new skill, whether for opportunities overseas or right next door.”

Letting go One of the most difficult decisions of any SME owner is when to sell or walk away from a business, and there are a host of factors to consider. Business owners are also likely to be emotionally attached to something they have heartily worked to build.

“It might be time to sell your business when you don’t enjoy what you’re doing,” Goldsmith suggests. “When you don’t like what you are doing and can afford to get out, then you really should consider moving on, because life is just too short.”

“Too many people are in the rat race too long and don’t let go because they are unable to see what’s really going on,” he adds. “That’s sometimes where outside advisors could help.”

David Goldsmith is one of the panelists of the SME Forum – Editor’s note

“Most people are so interested in going to market first or capitalizing quickly on something that they forget to do the basics.”

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COMMUNICATIONS & MARKETING

This month Hong Kong based luxury hospitality group, Lanson Place, launches a new marketing campaign boldly shrugging off the usual images associated with serviced residences to bring attention to the brand's customer-focused heart.

Growing Business the Brand Building Way Today the potential of every business rests firmly in the hearts and minds of its customers and employees. There has never been a more important time to build a brand - especially if you are a company on the cusp of growth

By Katharine Schäfli

L

ove them or hate them, brands build business.

Home grown Asian brands are helping companies to move up the value chain and improve profits as they shift from low-profit manufacturing to higher margin services.

And for established and vertically integrated companies, it may be that the only way to grow is through service offerings so innovative that competing brands become irrelevant. The long-term viability of a business is inextricably linked to being relevant in customer’s minds, gaining an advantage by demonstrating a higherpurpose, a characteristic of successful companies.

Creating and maintaining a brand as a business asset is a long-term commitment: A journey that starts with an idea – a clear vision of the future positioning for the brand, or how you want to be perceived in your customer’s mind. And then the commitment to bring the brand’s idea to life; to keep it on vision and relevant through innovative thinking and bold demonstrations of its core values and customer-centric benefits. Building a brand is not for the faint hearted. It takes vision, vigor and commitment. Sometimes a brand gets our attention but is remembered for the wrong reasons.

Others simply never take off, possibly due to a lack of confidence or funding.

Customers are increasingly skilled at screening out the ‘sea-of-sameness’, electing to see only the messages they find truly enticing. So creating ideas that build

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Marc Hediger

a brand involves strategic insight and creative thinking.

For example, it may be that the hospitality industry is one of the most talked about brand categories in the world. It hosts some of the world’s best chiseled brands, sets the standard of customer-service and provides us with a rich source of examples to follow in today’s customer-centric market place.

This is a fast-paced industry: previously differentiating factors such as quality service and beautifully designed spaces are now the expected norm. Many of the best known brands are leveraging their strengths and expanding into new sectors including serviced apartment. As the number of market players explodes, guests have an increasingly dizzying number of options to choose from – and they are talking about their experiences – good and bad – online.

Like many challenger brands and companies on the cusp of growth, Lanson Place recognizes that raising brand awareness is essential for growth. The easy option would be to repeatedly blast out a message that will penetrate even the thickest skin. But if you want to use your marketing budget wisely, you want to say the right thing, to the right person at the right time with as little wastage as possible.

This contextual communication strategy is very powerful and can make use of the most innovative technology and social media platforms reaching potential customers just at the right time, to add value to their lives in ways they want.

The most memorable ideas stand out

in a category because they engage us, meaning they are both relevant and emotionally compelling so they connect with our hearts and our minds. But more than that, smart marketers integrate these big ideas into every experience we have of their service or product, creating a positive brand impression that sticks.

For Lanson Place this means an idea that represents the aspirations of guests and brings value to their lives everyday.

Marc Hediger, CEO of Lanson Place Hospitality Management and Katharine Schäfli, Managing Director of Creative Direct Ltd, talk about developing the brand campaign. Schafli is also a vicechair of AmCham’s Communications and Marketing Committee.

How did you go about creating a relevant brand image?

MH: In the coming years the ‘homeaway-from-home’ business will continue to grow, especially in China where there is increasing demand from executives working away from home on short-term projects. We looked for an angle that reflected our core brand values and could connect with our customers and guests as our business expands. We understand how our guests feel when they are choosing where they live since it has a very real influence on how they live – especially in China where we are expanding most rapidly. Being in the right location, having the right products, price and quality service are vital to bringing the brand image to life.

KS: Creating a brand image is a holistic process and it starts with collecting a deep understanding about who you are talking to. We first worked with the leadership team to develop the brand strategy and also looked at macro trends affecting the lives of customer groups. The advertising and website are important in creating an impression but are just the starting point.

We think about how the brand should project its image through employees, its locations and styling and of course

the mix of products and services it offers.

We’ve developed a proprietary process to help marketers define a unique strategic vision for their brand and prioritize implementation plans. I think this helped the team to get behind the idea and put the brand at the heart of the story since it’s genuinely customer-focused.

What role do employees play in the campaign?

MH: We have a philosophy of empowering our people to make a difference.

This is important in positioning the brand and motivating our colleagues. Creative Direct worked with our HR team to come up with an internal campaign which brings our brand values to life for every one of our colleagues.

Why ‘My Life, My Style’?

MH: Executives and their employers are focused on being productive at work from day one, without any distractions or worries about the home. This is where we play a crucial role for our guests and their employers: We give them the confidence of knowing that with a hassle-free home, they can focus on what’s most important to them - be it work or pleasure.

It is often the executive’s spouse who plays the biggest role in making the choice of serviced apartment. They come from around the world and may initially be concerned about settling into a

new environment away from friends, family and their own work colleagues.

They are often accomplished professionals and experienced travelers but sometimes find it hard to imagine themselves gainfully immersed into a local community. Our properties are a safe-haven from which our guests can explore to create personal adventures of their own.

How did you execute the brand idea?

KS: Because we wanted the campaign to reflect the genuine sense of community and lifestyle experienced at Lanson Place properties, the team agreed to approach their guests to feature in the campaign and they were all delighted to be involved.

These are simply portraits of guests captured in the moment of living their lives, their way - and hence the tag line ‘My Life, My Style’.

MH: The campaign is as much about our guests as ourselves. It takes on a minimalist approach and addresses guests with intelligence, helping to differentiate the brand in category clutter. This bold thinking is expressed across the campaign which has a distinctive tone, true to the understated elegance of the brand. The line ‘My Life, My Style’ is a reflection of our guests’ experiences as well as our core brand values - we are committed to making our guests’ lifestyles as individual, comfortable and productive as possible.

Eight business benefits of building a strong brand: 1. Clear brand vision across silos and along supply chain.

2. Potentially greater margin from higher prices.

3. Credibility customers trust.

4. Brand loyalty - Customer preference drives repeat business.

5. More flexibility when innovating, diversifying or expanding.

6. Healthier stock price and shareholder returns.

7. Greater price elasticity in challenging or troubled times.

8. Attractiveness to the best employees.

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SPORTS & ENTERTAINMENT

Watchmaker with a Big Heart

Unless you are a timepiece aficionado, you may not have heard of the Kobold Watch Company. But the US-made mechanical adventure wristwatches it manufactures are collectibles for sportsmen and businessmen. Its founder, Michael Kobold, who was in Hong Kong recently, talks to Nadine Bateman about why he risked his life to conquer Mt Everest – not once but three times

Sir Ranu

W

atchmaker Michael Kobold has described himself as an armchair explorer who is afraid of heights. He claims he couldn’t bring himself to look out of the windows of tall buildings when he lived in New York, even climbing up step ladders was a problem, and he would never attempt a “real” ladder, the kind you put against the side of a house. Why then embark on one of the most challenging and risky adventures known to man: ascending Everest, the world’s highest mountain?

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“I did it to raise money for the US Navy Seals fund,” explains the founder and CEO of the Kobold Watch Company, “it helps wounded veterans and the families of those that have died, such as by paying off their mortgages and putting their kids through college.

“It doesn’t take the grief away but at least they’ll know that if they go into battle to protect or rescue someone, they can take comfort from the fact their families will be provided for. That’s a huge competitive advantage over other special forces. I did it for that reason alone.”

Good company He may refute suggestions he’s a thrill-seeker, but 33-year-old Kobold is someone who appears to be attracted to the exciting and the interesting. For example, he is close friend with the man dubbed “a national hero”, British explorer Sir Ranulph ‘Ran’ Fiennes who he helped with research for a book about Holocaust survivors.

Another best friend is American television star James Gandolfini who Kobold met when the actor bought one of his watches and who he calls “a very

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5 • 2012

generous, big-hearted guy.” The latter was responsible for drawing Kobold’s attention to the plight of US Navy Seal veterans.

Kobold says: “Jim used to go to high school with the commanding officer of Seal Team 5 who sent him a letter telling him about a wounded veteran and asking if he knew anyone who could get him discount on a Kobold watch. I happened to be at Jim’s at the time.”

It was a coincidence that led to Kobold delivering the watch personally to the veteran and striking up a long association with the Seals which included

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5 • 2012

lph Fien

donating some of his company’s watches for auction. While attending a Seals fund-raising event he was challenged by the commanding officer to climb Everest.

To prepare for the expedition, he trained with the Seals at their base in Coronado, California – travelling back and forth from his home in Pittsburgh, Pennsylvania. “I had the privilege of having, not just one, but eight instructors by my side who pushed me. So I couldn’t mess about at all,” he says.

However, not only is Kobold scared of heights but he says he also has a

nes and

Michael

Kobold (

right)

tendency to faint during certain physical challenges. “I’m not sure if it’s low blood pressure, or what but the first few times I passed out the Navy Seals became very alarmed until they figured out the antidote was to feed me chocolate.”

The respect In total, Kobold went up Everest three times in three years from 2008 to 2010. The first time he got as far as Camp One where he visited Sir Ranulph. The two men first met when the veteran

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2012 June

Mark Your Calendar explorer gave a speech at Kobold’s school in Frankfurt and he was assigned the task of collecting him from the airport.

“We’ve known each other a long time and done a lot of things together.

Without Ran my company wouldn’t be alive today,” Kobold says. “He’s had a huge impact on our standing within the watch community: an implied respect that goes with what he’s done.

“So when he endorses our product – which he does free of charge – it’s the biggest compliment, just as it is when the Navy Seals decide to choose our watches,” he says.

The second and third expeditions were to raise money for the Seals: both times he reached the summit and on the second attempt he met his wife-to-be, Anita, an experienced climber, who joined the team on its third expedition.

Near death It was an adventure that nearly ended in tragedy. Says Kobold: “My wife decided she wanted to climb without oxygen. We got to Camp Three and Four okay without stopping, then by the time we got to Camp One, she had collapsed after experiencing a really violent cough which seriously affected the lining of her lungs – they actually came undone and got clogged in her airways that were swollen due to the intense cold (it was minus 40 degrees Fahrenheit at the top).”

Kobold says she was pronounced dead at one stage but revived by a local doctor who gave her adrenaline and steroid shots which eventually brought her back to life.

That wasn’t the only near-death experience on that expedition. Others included Kobold’s oxygen cylinder leaking, avalanches and an ice cliff “the size of a skyscraper” nearly falling on the team. Even when you’ve reached the summit, the danger’s not over.

Says Kobold: “I can assure you that it’s much harder coming down: from the summit to about Camp Two it’s very steep and there are many places you can fall several thousand meters to your death.

“Walking down and looking down is always more terrifying and, of course,

Jun Identifying Opportunities in Tax Efficient Supply

01

Chain Management

Kari Pahlman, Principal, Asia Pacific Leader, Global Transfer Pricing Services, KPMG Kimberley Webb, Senior Manager, Global Transfer Services, KPMG Transfer pricing issues involving corporate supply chains have become increasingly complex and controversial in recent years. This seminar will highlight developments in the Global and Pan-Asian Transfer Pricing Environment, including the actively developing Advance Pricing Arrangement (APA) programs; recent trends in the structuring of tax efficient supply chains; the role of alternative trading structures and various forms of intangibles in tax efficient supply chain management; and managing the risks and uncertainties in transfer pricing.

Kari Pahlman leads more than 500 KPMG transfer pricing professionals across the Asia Pacific region and has over twelve years of experience in tax and financial advisory in relation to international taxation, transfer pricing and valuations.

Kimberley Webb has over eight years experience in corporate and indirect taxes in the Asia Pacific Region. Based in Hong Kong, she specializes in transfer pricing, with a particular focus on tangible goods transactions and head office service charges.

Jun Hong Kong’s Airport Expansion

Michael Kobold

you’re tired because it takes a lot of energy to get up there. A lot of people just let their guard down and that can be fatal. By the time you get to Base Camp which is safe, that’s when you can celebrate but you’re usually too knackered.”

05

launched in Kathmandu – with a difference: That arm of the company is owned by the two Sherpas who lead Kobold and his team safely up and back down Everest.

Kobold says: “They told us they would

Kevin Poole, Deputy Director, Projects Department, HKIA Since its opening in 1998, Hong Kong International Airport (HKIA) has grown into one of the finest and busiest airports in the world with more than 100 airlines flying to about 160 destinations worldwide, including 40 cities in the Mainland. In 2011, HKIA set new traffic records by managing 54 million passenger trips and more than 330,000 flight movements. HKIA also retained its busiest cargo airport title by moving 3.9 million tonnes of cargo in 2011.

In December 2011 the airport broke ground on the HK$10.2 billion Midfield Development project and in February 2012 unveiled the HK$2.2 billion Western Apron development. In March, Government announced approval, in-principle, that the Airport Authority should adopt the three-runway system as the future development option for its next stage of planning.

Ir Kevin Poole has over thirty years of experience in the building and civil engineering field, with an emphasis on major infrastructure and transportation projects.

For over fifteen years, he has been part of the Client organization with the project management team at Hong Kong International Airport. As Deputy Director (Projects) he is directly responsible for the planning, design, procurement implementation and project management of all capital works projects undertaken by the Airport Authority.

Jun Companies and Women:

07 Kobold says that while he embraced the adventure, he’s not about to repeat it.

“I realized that you can have just as good a time at Base Camp. Anyway, it’s not an option at the moment as we have a 10-month-old daughter, Victoria: that’s a whole new adventure.”

The Himalaya Last

month,

Kobold

Watches

never be climbing if they had alternative ways to make money, so we trained them in watch-making for a year in America [where] they lived with us and now they will make watches in Kathmandu.

“The first models will be called The Himalaya which has a dial made from a piece of rock we collected from about 20 yards below the summit of Everest.”

A Lucrative Leadership Partnership

Karen Otazo, Managing Director, Global Leadership Network In this interactive presentation Dr Karen Otazo will address the five success factors for women leaders and their companies.

• Finding a leadership voice • Re-visioning politics by engaging effectively •Clarifying where they can go in their careers • Staying balanced to see the big picture •Taking on leadership building assignments Dr Karen Otazo is an incisive and no-holds-barred situation analyst and advisor to C-Suite executives globally as well as a prominent commentator, public speaker and author. For 25 years, she has counseled senior executives across the United States, Asia (India, China, Hong Kong, Indonesia, Singapore, and Japan) and Europe at firms including Booz Allen Hamilton, Chase, Colgate-Palmolive, Credit Suisse First Boston, The Economist Group, General Electric, Goldman Sachs, Lehman Brothers, Marks & Spencer, Motorola, Nomura, PepsiCo, Time, and Vodafone among others.

Dr Otazo is the author of two highly successful business books: The Truth About Managing Your Career and The Truth About Being a Leader, both of which have been published in more than 10 languages.

For information, see website: www.amcham.org.hk

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biz.hk

5 • 2012

Tel: (852) 2530 6900

Fax: (852) 2810 1289

Venue: AmCham Office 1904 Bank of America Tower 12 Harcourt Road, Central

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Fee(s): Member Fee: HK$250 Non Member Fee: HK$350

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Fee(s): Member Fee: HK$250 Non Member Fee: HK$350

Venue: AmCham Office 1904 Bank of America Tower 12 Harcourt Road, Central Time: 8:00am-9:30am Fee(s): Member Fee: HK$150 Non Member Fee: HK$250

Email: kalau@amcham.org.hk

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