September 2015
SPECIAL SUPPLEMENT: MOVING TO HONG KONG 2015
September 2015
Contents
Vol 47 No 9
Publisher
Richard R Vuylsteke
Editor-in-Chief Blessing Waung
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COVER STORY
Hong Kong’s position as a major financial center makes it well-placed to be an innovative hub for financial technology. Rapidly becoming an essential part of the city’s new business scenes, FinTech now provides innovative opportunities to catch up with Silicon Valley and London’s Silicon Roundabout.
Managing Editor Leon Lee
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) 3753 1206 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 Tel: (852) 3596 8466 Email: ray.chau@overa.com.hk Website: www.overacreative.com ©The American Chamber of Commerce in Hong Kong, 2015 Library of Congress: LC 98-645652 For comments, please send to biz.hk@amcham.org.hk Single copy price HK$50 Annual subscription HK$600/US$90
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AMCHAM NEWS AND VIEWS 04 Editorial Last month’s devaluation of the yuan by the People’s Bank of China has left a ripple effect across the globe, with markets convulsing in reaction to the currency’s weakening. Against the US dollar, the yuan has lost more than three percent in August alone, marking its sharpest decline in two decades. Pundits have vastly differing opinions on the long-term effects of the PBOC’s currency fixing, but what does it mean for Hong Kong?
06 New Business Contacts 23 executives joined AmCham's business network last month
07 New Member Spotlight Each month, biz.hk will highlight a recently joined member to our Chamber. This issue, we spoke to Lucia Tam, Program Director at BounceLimit, Asia’s first trampoline fitness studio.
44 Mark Your Calendar
COVER STORY 08 FinTech & Hong Kong: A Good Match? Hong Kong’s position as a major financial center makes it well-placed to be an innovative hub for financial technology. Rapidly becoming an essential part of the city’s new business scenes, Fintech now provides innovative opportunities to catch up with Silicon Valley and London’s Silicon Roundabout.
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14 CHINA CONFERENCE At AmCham’s annual China Conference, top business leaders, China policy makers and experts share their insights and strategies on navigating through the changes taking place in the country and how to work within its “New Normal”.
TRADE AND INVESTMENT An AmCham delegation of key international apparel sourcing companies recently gathered in Phnom Penh to discuss the recent retrenchment and expansion of apparel and footwear production in Cambodia.
CHINA CONFERENCE
14 Adapting To China’s Reality Check At AmCham’s annual China Conference, top business leaders, China policy makers and experts share their insights and strategies on navigating through the changes taking place in the country and how to work within its “New Normal”.
20 In China, A Surge in Services is a New Normal The services sector can play a big role in pushing China’s economy as it becomes more consumer-driven. A panel of top business executives from foreign service firms in financial services, logistics and property discuss growth prospects and challenges ahead.
22 Innovating New Business Models in Chinese Markets Innovation is taking Chinese businesses to the next level as they work to keep up with the ever-changing demands of their customers. Leaders in advertising, mobile phones and technology share their insights and opinions on the latest trends.
CHINA BUSINESS 24 The Outlook for Multinationals in China’s “New Normal” Structural changes and strategies are now playing out in China as its “new normal” sets in. Hedrick & Struggle shares their survey data collected from over 100 executives, revealing the consequential opportunities and threats met by multinational firms with China operations.
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WOMEN OF INFLUENCE Despite past efforts to achieve gender diversity and equality, women continue to be underrepresented at most levels in the workforce. Mercer President and CEO Julio Portalatin shares insight and research to why changes would be beneficial socially as well as financially for businesses.
30 Understanding WFOEs in China Karen Cheung, senior business manager at Orangefield, shares with biz.hk the challenges and pitfalls of setting up wholly foreign-owned enterprises (WFOEs) in China.
TRADE & INVESTMENT 32 Cambodia Delegation An AmCham delegation of key international apparel sourcing companies recently gathered in Phnom Penh to discuss the recent retrenchment and expansion of apparel and footwear production in Cambodia.
36 The Rise of the Asian Real Estate Market While the majority of real estate investment still flows to Europe and North America, Asia Pacific is gaining its momentum and is expected to remain strong despite its own set of risks.
WOMEN OF INFLUENCE 40 Equality Benefits Everyone Despite past efforts to achieve gender diversity and equality, women continue to be underrepresented at most levels in the workforce. Mercer President and CEO Julio Portalatin shares insight and research to why changes would be beneficial socially as well as financially for businesses.
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Board of Governors Chairman
Peter Levesque
Vice Chairman
Walter Dias
Treasurer
Tom Burns
Executive Committee Evan Auyang, Sara Yang Bosco, Steve Lackey, Ryan Mai, Alan Turley, Richard Weisman Governors David Adelman, Donald Austin, Anne-Marie Balfe, Owen Belman, Diana David, Sean Ferguson, Robert Grieves, John (Jack) E Lange, Seth Peterson, Catherine Simmons, Eric Szweda, Colin Tam, Jennifer Van Dale, Frank Wong, Patrick Wu Ex-Officio Governor President
James Sun Richard R Vuylsteke
Chamber Committees AmCham Ball Apparel & Footwear China Business Communications & Marketing Education Energy Entrepreneurs/SME Environment Financial Services Food & Beverage Hospitality & Tourism Human Resources Information & Communications Technology Insurance & Healthcare
Ryan Mai Mark Green Michael Klibaner Lili Zheng Charlie Pownall Oliver Rust Virginia Wilson Rick Truscott Laurie Goldberg Jim Taylor Steven X Chan Veronica Sze Mark Kemper Shanthi Flynn Chris Meyrick Rex Engelking
Hanif Kanji Rebecca Harrison Intellectual Property Jenny Wong Gabriela Kennedy Law Clara Ingen-Housz Pharmaceutical Joyce Wong Real Estate Robert Johnston Edward Farrelly Senior Financial Forum Philip Cheng Senior HR Forum Bianca Wong Taxation Ivan Strunin Trade & Investment Barrett Bingley Transportation & Logistics Gavin Dow Women of Influence Anna-Marie C Slot Jennifer Parks Young Professionals Michael Harrington
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biz.hk Editorial
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ast month’s devaluation of the yuan by the People’s Bank of China has left a ripple effect across the globe, with markets convulsing in reaction to the currency’s weakening. Against the US dollar, the yuan lost more than three percent in August, marking its sharpest decline in two decades. Pundits have vastly differing opinions on the long-term effects of the PBOC’s decision, but what does it mean for Hong Kong? For now, the bumpy stock market in the Mainland was the most visible result, with lingering fears from investors. The volatility of the Chinese market as well as the devaluation present business opportunities for Hong Kong, though, as the financial services industry stands to benefit from mainland Chinese looking to move their cash. A maximum of US$50,000 is the annual limit for transferring foreign currency. One of the cited factors in the yuan’s devaluation is the question of exports, with a view that China is looking to boost sagging exports with a devaluation that will prompt export growth. With this in mind, this would benefit Hong Kong because of the exports coming through the city. Another ponderance is whether the Hong Kong dollar will depeg from the US dollar, an ongoing conversation since its setup in 1983, but that seems highly unlikely in the near term. It is
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CONTEXTUALIZING THE DEVALUED YUAN yet far too early for the Hong Kong dollar to peg itself to the yuan, which has generally been reiterated by bankers, analysts and experts in the region, as the yuan is not yet freely convertible. As the yuan is not yet included in the International Monetary Fund’s Special Drawing Rights basket, and the devaluation does not necessarily impact China’s push to secure its status as a reserve currency, it has yet to have a direct implication upon the HKD. To keep the money market stable, the Hong Kong Monetary Authority (HKMA) have spent trillions from the Exchange Fund to defend the peg. They have also bought US$1.2 billion, to maintain the stability of the HKD. Hong Kong is now caught in the tide of dual currency changes, with US monetary policy potentially tightening and the Chinese economy’s slowdown and regulatory moves. The real estate sector in Hong Kong will likely be the one to feel the depreciation most
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keenly, as the foreign exchange debt is high. Another trend to watch is the impact the devalued currency has on retail rents in Hong Kong, with constant pressure from global brands to reduce rent as a more accurate reflection of mainland spending patterns. Mainland visitors spending in the retail sector accounted for 38 percent of last year’s total sales, but sales figures this year may decline, with weaker currencies in other tourist destinations such as Europe and Japan. The long-term implications of the past month’s movements remain to be seen, but for now, as the mainland’s top cross-border creditor, the HKMA will have to continue to defend the peg by selling and buying currency to keep it within its upper limit. More interventions are likely to come, but it remains to be seen whether the US Federal Reserve will raise interest rates this month. For now, it is merely a “wait and see” game.
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New
Business Contacts The following people are new AmCham members: AIG Insurance Hong Kong Limited Stephen Parsons Deputy Chief Executive Officer
Amber Road (Hong Kong) Limited
Charles Schwab HK Ltd
Willie So Legal Director, Asia Pacific Region
Philip Pan Asia Editor, The New York Times
Chevron Companies (Greater China) Ltd
Henry Ho Business Development Manager
Eric Wong Area Transportation & Operations Manager HK/Taiwan
American Express
Chubb Group of Insurance Companies
Stephen Pendergast Vice President & General Manager, Hong Kong & Taiwan, Global Corporate Payments Nicholas Wu Senior Manager, Business Development
International New York Times
Aaron Yip Greater China Regional Manager & HK Branch Manager
KPMG
Atul Subbiah Partner
Sandler Training Hong Kong Joseph Palumbo Managing Director
Dow Jones & Co Bank of America NA
Jonathan Wright Managing Director APAC and Group Publisher
Heather McCann Associate General Counsel & Director
Starr International Insurance (Asia) Ltd
Simon Lam Senior Vice President / Chief Operating Officer
Dun & Bradstreet (HK) Ltd BASF East Asia Regional Headquarters Ltd Andreas Meier Vice President, Corporate Affairs Asia Pacific
Danny Wong Managing Director / Country Head, Hong Kong / Head of Global Customer Solutions, Asia
Emerson Electric Asia-Pacific Blueprint Software Systems Inc. Paul Kidman Managing Director Asia
Carter's Global Sourcing Ltd Annie Kwong Senior Director, Global Sourcing
Hakan Erdamar President, Asia & Middle East, Emerson Climate Technologies
Horizon Global Hong Kong Holdings Limited Elaine Leang Finance Controller
United Fame International Limited Henry Cheung Director Joemy Tam Director Wilson Wu Director
UPS
Steven Wong Managing Director, UPS Hong Kong and Macau
View our other members at: www.amcham.org.hk/memberlist
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New Member Spotlight
Lucia Tam Occupation: Program Director at BounceLimit Industry: Fitness Member since: July 2015
Why did you join AmCham Hong Kong? I joined AmCham so I can meet new people and spread the news about rebounding and how it can be beneficial to health and fitness. There are so many people that don’t know how to take care of their body and run themselves down with stress, work and everyday life. It’s stressful in Hong Kong and I think most of it comes from people bringing onto themselves without knowing it.
fitness. When I came seven years ago, there wasn’t that many. My parents never really enjoyed exercising and don’t know how to. I want to really start educating people on the right way to prevent aches and pains and not have to live with it.
How is business so far? Business is great, but of course being the first year, it’s still tough. Ups and downs, errors and decisions but all in all it’s coming along very well and it’s growing.
Besides exercising, what do you usually do for fun? I like to read, stay home, sleep and play with my four dogs.
What are some of the challenges in being Asia’s first trampoline fitness studio? One challenge is getting the word out about how beneficial rebounding is. NASA has claimed it to be the best exercise for mankind. It’s a new concept in Asia and with something being “new” there are people that are skeptical. We genuinely believe that our method and system have a very positive effect on one’s body. Why did you choose to open the studio in Hong Kong? I chose Hong Kong because people here are getting more and more into
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What are usually people’s first reactions when they hear about exercising on a mini-trampoline? That is fun and its looks easy. It is fun but it’s not easy. It challenges your body.
What are you currently reading? I just finished re-reading The Joy Luck Club and now I’m reading The Brain and Autism. What's your favorite thing about Hong Kong? The convenience. What’s the best advice you’ve ever received? I have received much advice, some I listen to and some I learn from experience. The most recent one that helped me with my business is learning ways to communicate better and to listen. I sometimes catch myself caught up in the whole pace of Hong Kong, and I fail to listen properly.
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COVER STORY
FinTech has become the topic du jour of both the financial and technology worlds, threatening to bring changes to traditional banking. As a long-standing financial center, how will this affect Hong Kong? Leon Lee takes a deep look at the industry in the city right now and its potential impact
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n the last year or so, the term ‘FinTech’ has become more and more commonly seen and heard in financial and technology discussions as well as in the media. The term, short for financial technology, has become a popular buzzword that has many excited about its potential for the rebounding financial sector. The hype is certainly warranted as last year, global investment in FinTech jumped more than 200 percent, totalling US$12.2 billion. Eighty percent of that was in the United States, while Asia saw just over six percent. London and New York are leading the charge as FinTech leaders accounting for 90 percent of FinTech investment and revenues. But Asia, with Hong Kong leading the charge, is poised to put its name in the burgeoning industry.
FinTech defined To begin, it’s important to define what FinTech is. The most basic definition is the application of technology within the financial industry. Online payment, crowdsourcing and peer-to-peer lending are just some considered under the broad FinTech umbrella. Janos Barberis, founder of the local FinTech-monitoring organization FinTech HK, has narrowed it down to five specifications – financing, operations and risk management, payments, customer interface and data monetisation and security – reflecting the core areas of finance. While the growing interest and attention in FinTech is newfound, according to Barberis, it has been in existence for some time. “E-banking started in the 1980s in the US; Nasdaq in the 90s - the first fully electronic stock exchange; the creation of SWIFT for international electronic payments. The point to be made is what we’re currently witnessing when it comes to financial technology is a new era of financial technology.” “Financial technology before 2007 was really driven by financial institutions
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Janos Barberis, FinTech HK
themselves. After 2007, we were into what I call FinTech 2.0 where the products and services are delivered by start-ups directly to the public.” This new wave of FinTech has already been showing up in our everyday lives. Online and mobile payment platforms like Paypal, Alipay and Apple Pay, China’s first online-only bank, Tencent’s WeBank, crowdsourcing platforms like Kickstarter and Hong Kong’s contactless payment system, the Octopus card, are just a few wellknown examples. However, FinTech goes beyond commercial and retail applications. There are those who focus on the institutional businesses and wholesale markets such as fixed income market solutions network company, Algomi. “The more niche, but potentially more relevant for businesses companies are more specialized. They’re really focused on solving some very specific problems,” Jesper BruunOlsen, Head of Asia-Pacific, explains. “When you look at the investment bank and asset management sectors who are managing billions of dollars, it’s different to solve immediate problems there. They might not be getting as much attention in the media but it’s providing real benefits to that niche sector and the monetary impact is probably bigger because these companies are managing tens of billions of dollars.”
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James McKeogh, KPMG China
FinTech in Hong Kong today When asked about the current FinTech environment in Hong Kong, KPMG China’s FinTech Partner James McKeogh summed it up with three words: buoyant, vibrant and increasing. “The investment that’s going on from the corporate community in FinTech, the support coming from the government and the establishing of a variety of accelerators and incubators is the perfect storm for creating an extremely healthy and vibrant FinTech market.” He sees growth through every aspect of the community from retail solutions to commercial and corporate
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banking as well as in the investment banking and trading sectors. In the start-up community, the number of new companies in the city has increased about 10 percent from last year to about 50. According to the Start Me Up HK website, there are currently 13 accelerators and incubators in the city drawing plenty of interest from both local and foreign companies. The most recent DBS Accelerator chose the 10 participating start-ups out of 140 applications from 34 countries. The Hong Kong Government has been doing its part in ushering the emerging sector. “There is clear government support for FinTech within Hong Kong. And they’re actually show-ing it by the creation of the specialist startup visa for working in Hong Kong,” McKeogh explains. “If you got an existing accelerator and corporate here that is interested in promoting and sup-porting somebody’s developable work in Hong Kong, they can actually provide the oversight and sign-off in order to have them come in and get a work visa.”
FinTech + start-up It makes sense for the Hong Kong Government to support FinTech. As with most technology companies, FinTech ones start as hungry start-ups with innovative solutions and thinking. “The FinTech sector, you can call it as a subset of the start-up ecosystem in general. And the Hong Kong Government has really been pushing for the start-up ecosystem to emerge for the last few years. I think now what’s happening is that they found a
perfect match. It’s start-up and also financial. It’s a match made in heaven for Hong Kong. It hits two major points, it hits the start-up and it hits the financial center strength of Hong Kong,” FinTech HK’s Barberis says. Besides playing to its strength as an existing financial center, Hong Kong’s relatively low cost for starting a business, the ease of its regulatory environment and proximity to China and other big Asian cities are reasons that the number of start-ups in the city is rapidly increasing. It’s those very reasons amongst others that Thomas J. DeLuca started AMP Credit Technologies (formerly known as Advanced Merchants Payments) in Hong Kong in May 2009. He came to the city in a previous entrepreneurial venture whose first Asian clients were banks in Hong Kong before eventually making way into the Chinese market and rest of the region. He is looking to repeat the same success with his loan-lending platform which serves banks that he will enjoy easy access to in Hong Kong. “It depends on the market you’re in and what you’re trying to achieve. We’re looking at a very technologysavvy market [in Hong Kong], a lot of upper middle-class, growing economy, people like technology and gadgets. It’s certainly a great sector to launch products and test markets,” DeLuca explains. In December 2014, AMP was selected to participate in Accenture’s first APAC FinTech Innovation Lab at Cyberport. Since then, they have raised US$5 million dollars in institutional financing and the company has recently expanded to the UK. Another FinTech start-up that took advantage of Hong Kong’s ease of starting a company and its great environment to test products is crowdfunding company Investable. “There is a mindset [here] that’s slightly different. There’s just more openness to looking at different ways [of doing things]. Hong Kong is built on efficiency and connection and technology just suits that,” says Jennifer Carver, founder of Investable.
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“The FinTech sector, you can call it as a subset of the start-up ecosystem in general. And the Hong Kong Government has really been pushing for the start-up ecosystem to emerge...” When Carver started the company in mid-2014, it was Asia’s first equity crowdfunding platform. The UK and US had them but not in Asia. Besides being the founder of Investable, she is also the CIO of investment incubator Nest where she saw the need for a local crowdfunding platform. “[Nest] spend a lot of time investing in companies, helping them with their marketing, legal, financial structuring and accounting needs. But often times, they need more money than we have. We’ll invest a small amount but we only invest our own proprietary capital which is limited. We’re always trying to find co-investors for these companies so we thought if we had an equity crowdfunding platform, it would automate that process to an extent.” Carver believes there is a huge market of investors in Hong Kong, looking for different ways to do interesting things with their money besides putting them in property and stocks. Investable carefully selects the companies they make available on the platform and due to SFC guidelines, they can only put companies that Nest has invested in. Since they are not a traditional securities department, they are forbidden to advertising to professional investors, hindering the growth of the company. However, they have been spending time with regulators and the Hong Kong Government to come up with solutions to the changing market. A group of equity crowdfunders and
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peer-to-peer lenders have recently formed the Hong Kong Internet Finance Council. “We’ve pulled ourselves together because [the Government] pulled us in, at one stage, to ask us our opinions on what the government should do to help crowdfunding. Through InvestHK, they reached out to us which was really refreshing. The Financial Services and the Treasury Bureau (FSTB) has been working with us just to help understand what they need to do to help make things better for us,” says Carver.
Overseas interest as well Overseas FinTech companies have recognized Hong Kong’s potential and its favorable geographic location as well. Algomi, which started in London three years ago, opened its Hong Kong office earlier this year after opening offices in the United States in 2014. “Asia absolutely is a place you need to be, there’s no question about it. At the end of the day, if you’re running a serious business, you need to be in Asia. And of course, Hong Kong is extremely well-positioned to be that place,” says Bruun-Olsen. He illustrated this point with the example of a three-legged stool that’s missing a leg after having offices in the US and London. For Algomi, it was essential that they established a presence in Hong Kong as they needed to be close to their clients which are mostly investment banks with offices here.
Jennifer Carver, Investable & Nest
But besides the banks in the city, the potential of China is always an added bonus. KPMG’s McKeogh says Hong Kong is the “gateway to 20 percent of the world’s population in a single market.” According to FinTech HK’s Barberis, it’s because of China that it can lead Hong Kong to become Asia’s leading FinTech center “Just by its border, you have China which has one of the biggest world market opportunities when it comes
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Jesper Bruun-Olsen, Algomi
to financial services. They have to totally reform their financial market and they will use technology to do this.”
Is it disruption, revolution or evolution?
One common notion of FinTech is that it will cause disruption to traditional banking and compete against it. This is true with some
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FinTech companies but not all. And in some ways, it is not necessarily a bad thing. Big banks have become too rigid and bureaucratic to meet the changing needs of their customers. “If we look at it from a threat perspective, should banks be worried? Absolutely. Because [the FinTech companies] are going to be providing the same services that they do but they’re going to be doing it cheaper and leaner,” says KPMG’s McKeogh. Investable’s Carver believes it is about time that this happens to the financial services as other areas have already been disrupted such as in media and communications with Twitter and Whatsapp. But many people, like McKeogh, believes it’s more about evolution. “[Banks] need to embrace it. FinTech isn’t about competition or disruption. It’s about developing new solutions to meet the demands of today’s customers,” says McKeogh. Algomi’s Bruun-Olsen speaks similarly. “Within the institutional wholesale segment, I think disruption is more about evolution. The financial market isn’t broken but as the world develops, there are new problems that appear and therefore [necessarily] to work with the existing structure to make that better, safer and solve the problems that have now appeared which didn’t exist before. That is not disruption, that is a partnership.” Algomi’s network help investment banks identify the enormous amounts
of bonds available to be traded to potential clients and intelligently link sellers to buyers without taking on the risk themselves. AMP also works with banks as they provide an alternative lending platform for banks to provide loans to small businesses who don’t meet the requirements of the existing ones. DeLuca absolutely sees more banks working together with FinTech companies in the future. From his 20-plus years’ experience in the payments business, he has been through previous talks of banks being pushed out and have learned that they eventually come around and survive. “Financial technology helps you move much quicker than banks can react. But eventually those technology which are truly innovative and have the ability to move the needle, banks will come around to bring that in house … The banks will eventually get into the business lines of these disruptors and eventually look to buy the technology.” In Hong Kong, banks have already begun to recognize this with their participation in the various incubators. They are looking for ways to incorporate solutions into their current models and FinTech companies are looking to work with them as well. “That’s what’s been interesting with doing these accelerator programs,” Investable’s Carver explains. “You have the start-ups who want banks as clients because they want access to their client base or they have technology that banks can use but they don’t know how to approach a bank. We are that bridge in between so we can help corporations realize that we can bring in some best of class start-ups that will help your business.” It’s a win-win situation as banks get new solutions for a relatively cheap price, rather than spending all their resources and time on developing their own.
The future Although Hong Kong has been steadily increasing its FinTech activities,
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it still has some ways to go with putting together a regulatory system to deal with issues like the ones Investable and other crowdfunding companies currently face. FinTech HK’s Barberis suggested that it can look towards London as an example. Before the UK government stepped in with the desire to make London the FinTech capital of the world, much of the activity was driven by the private sector, resulting in what he says as “a very nice organized chaos”. For those who fear that FinTech might be another dot.com bubble in the making, KPMG’s McKeogh refutes this by pointing out the amount of the investments made and that one of the first questions that people are asking now is how they’re going to be making money out of this. Investable’s Carver is also very confident that it is no bubble. “Technology is part of our infrastructure now. It wasn’t back then, it was something new and interesting. Things got a little carried away and the companies that got really highly-priced weren’t necessarily generating that much value or revenue. Now you look at guys like Alipay, they’re generating a lot of money. They’re real businesses.” In five years’ time, McKeogh believes that some of the start-ups starting now will start to become part of our everyday lives. He sees the FinTech industry continuing to grow in Hong Kong and hopes that we’ll see our first unicorn. But besides the obvious financial gains, there might also be a social gain with the growth of the FinTech industry in the city.
“The Hong Kong people, especially the young generation, it needs a new industry where it can work. The financial sector is downsizing and if you are able to get a job, you’re very likely to get a boring backend office job and you’re really fighting against the odds with your growth prospect,” Barberis says. “Hong Kong needs to steer its economy towards something new. The great thing about financial technology is it’s not a radical change. It is just leveraging on the city’s historical position.” As for Hong Kong’s potential as a FinTech center, KPMG’s McKeogh strongly emphasized that it already is one. “It’s already recognized as one of the leading financial centers in the world and is a key hub in Asia especially with its connectivity with China. When you then add to that the exponential growth from the start-up community over the past three years with the rapid increase from two incubators to more than 50, that sort of combination has put Hong Kong firmly on the map.” “Admittedly it’s no Silicon Valley, but I don’t think anything will ever be a Silicon Valley because it’s a very unique environment. But certainly they are very competitive areas and development hubs in their own rights.
Thomas J. DeLuca, AMP Credit Technologies
I think you see that from the activities which is going on with what Accenture, the DBS accelator, AIA and their health and insurance accelerator in Hong Kong, they are prime examples that this really is a location to be reckoned with.”
“FinTech isn’t about competition or disruption. It’s about developing new solutions to meet the demands of today’s customers”
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CHINA CONFERENCE
ADAPTING TO CHINA’S REALITY CHECK Amid deepening concerns about China’s woes, top business leaders, China policy watchers, and other experts gathered on September 1st at AmCham’s annual China Conference themed Managing the “New Normal” – to exchange ideas and strategies about how best to navigate through these new realities. Many industry experts remain optimistic about the Mainland’s growth potential and business opportunities despite the tectonic shifts the nation is undergoing
By Nan-Hie In
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Photos: Silver Image
Christopher Johnson, CSIS
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A
fter three decades of tremendous growth, the world’s second largest economy has become such an omnipotent economic force that many companies, locally and internationally, have orientated their business models around China to take advantage of the momentum. But such levels of growth cannot be sustained forever. While many observers have anticipated a slowdown, few could have foreseen the dramatic turn to pessimism in recent months in light of China’s stock market routs, currency devaluation, and other discouraging events that have intensified concerns about China's woes. Goldman Sachs, for example, recently lowered its China GDP estimates for the next three years to 6.4 percent, 6.1 percent and 5.8 percent respectively, figures that are below the government’s forecast at seven percent for 2015. Christopher Johnson, the keynote speaker at China Conference 2015, framed this new reality specifically: “There is the new normal [China’s leader] Xi Jinping has described of slower and more balanced growth, but I think this sets off a whole range of “new normals” which are coming out.” Johnson, who is senior adviser and Freeman Chair in China studies at the Center for Strategic and International Studies (CSIS), defined several of these “normals.” First, the difficulties China is experiencing politically and economically amount to increased pressure on the leadership, which results to increased jockeying and infighting. “The atmosphere resembles what we saw in the 1980s, the last time we saw big wrenching change inside the system,” he says. “Expect further turbulence in the country’s leadership, which will be spilled out in editorials or other commentary shared publically.”
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Johnson says to expect a strengthening role of the Communist Party, with its increasing involvement in just about everything in China, as evidenced recently from Beijing’s heavy-handed measures to stem the free fall of the Chinese bourses. This is a significant shift in Xi Jinping’s reliance on the nation’s formal institutions of governance, including the State Council side, Johnson says. In the past, decisions flowed through a distinct organizational order. “Xi Jinping feels that the former era was full of hyper consultation but no action, but he considers himself a man of action.” This practice has stirred up confusion and uncoordinated actions between organizations, which leads to another new normal in China – mixed policy messages. “This makes it difficult for the markets, as you try to understand where the government is going,” Johnson says.
New strategies A pressing concern among many businesses is how best to adjust their growth models amid China’s new reality. Three top business leaders – Victor Fung, John Rice, and Honson To – addressed these concerns in the conference’s opening panel. Fung, Group Chairman of the Fung Group, is particularly drawn to the nation’s shift towards a consumer-driven economy. Since the Deng Xiaoping era when China opened up to the rest of the world, the nation became a popular base for low-cost production of consumer goods amid complex global supply chains. The Mainland’s growth strategy was driven by global consumption, especially in OECD countries. According to Fung, at the height of this wave up until 2008, around 83 percent of global consumption was from these countries.
However, major shifts have occurred recently as consumption increasingly comes from non-OECD developing nations. “The biggest question facing global firms is to find out where this consumption is going and to take advantage of it.” Fung suggests paying close attention to China’s One Belt, One Road (OBOR) initiative, which revives the Silk Road trade routes by land and sea and treads together many developing
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(From left) Victor Fung, John Rice, Honson To and moderator Tara Joseph
markets. “If you want access to this new consumption, the OBOR, especially the Maritime Silk Route Economic Belt, is going to capture that,” he says. John Rice, Vice Chairman of General Electric, concurs. “In the last 20 to 30 years, we have seen an evolution in China where we have gone from showing up to sell, to showing up to make [goods] and to sell, to showing up to make [goods] and to
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John Rice, General Electric
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Victor Fung, Fung Group
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sell and also find partners,” he says. This pattern is in sync with the OBOR project, where much interest is focused on the Chinese government's collaboration with multinational companies for successful operations outside of China. “They're not just looking for partnerships and joint-ventures that allow a company like ours to do more in China, they are examining closely the value that we can help create with our Chinese partners that comes from businesses conducted someplace else,” he says. “The creation of the Asia Infrastructure Investment Bank (AIIB) fits hand in glove with OBOR strategy and the world, and we all see infrastructure investment that needs to take place in non-OECD countries,” says Rice. For instance, he forecasts particular growth in consumption in healthcare and clean water. Fung emphasizes that innovation will be a key driver of new business models in the Mainland. “China is in the forefront of the revolution in terms of new technology as it is morphing not only from bricks-and-mortar alone but to bricks-and-clicks.” Fung says this shift is inevitable, yet no one can exactly define what that model will be. Expect much experimentation in China as these new models arise. These shifts are related as well to more proactive consumers emerging in China – they are more knowledgeable, sophisticated, and also have deeper pockets, Fung says. “The sweet spot of consumers in most Western economies are always in the 45 to 55 years age bracket, but for China I think they are at least 10 years younger,” he says. These consumers will become an important driver in China’s future growth as urbanization sweeps across the nation amid a growing middle class. A recent report this year by the Pew Research Center showed that China’s middle class has ballooned to 203 million in the 10 years since 2001.
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The rise of entrepreneurism As China shifts away from its low cost labor strategy and export-driven economy, Honson To, Chairman, KPMG China, sees the rise of entrepreneurism in the Mainland as another growth engine. He has observed significant shift compared to 20 years ago. “The quality of discussions I've had recently, especially with privately owned companies, included a quality of strategic foresight by CEOs and chairmen that certainly does not pale in comparison to [the conversations I’ve had] at established international companies,” he says. Some of these business mavericks knowledgeably discussed their six- to seven-year investment plans or meticulously detailed strategies to capture market share. Although such a competitive and entrepreneurial spirit is evident across China, To says, not enough attention is being paid to this scene. “In the past 30 years, the focus has mostly been on watching what the government is going to do and this is still important, but there is a force now rising from these entrepreneurs that must be watched carefully too,” he says. Foreign firms based in China should watch out for such competition. However, this new strategy is not without risks as China has yet to foster an encouraging ecosystem for incubating and funding young, private enterprises. “There is no doubt that entrepreneurs in China have not had the easiest time in the past five to seven years, even though the government has indicated that the market is about to play a more exciting role for entrepreneurs,” says To. He cites the example of bank lending in China where existing policies still favor SOEs. He suggests that despite such
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Honson To, KPMG China
obstacles this new generation of business mavericks will manage to persevere, citing the success stories of Tencent, Baidu, and Alibaba. The optimism aired by these business leaders indicate that they are not swayed by the doomsayers about China’s outlook, as China is still performing better than many of the other economies. “People forget that with reform there is the tough stuff, and that much bad stuff comes before you get the good stuff,” says Rice. “I think the Chinese government saw the anti-corruption drive, SOE reforms,
and environmental policies as all affecting its GDP.” The nation is trying to balance all these elements. Fung adds that nowadays Chinese citizens increasingly demand “noneconomic assets” such as social equality and improvements to the environment, which have contributed to China’s current reality. “I find it striking that the leadership has started saying how China has entered an era where it is willing to accept a slower growth rate to accomplish these nonquantitative assets – that is the future.”
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from FedEx and Jones Lang LaSalle (JLL) shared their insights on the growth prospects and challenges in their respective industries.
Logistics hurdles
(From left) Alastair Hughes, Stephen Lackey, Karen Reddington and moderator Thomas Gorman
IN CHINA, A SURGE IN SERVICES IS A NEW NORMAL By Nan-Hie In
A
s China moves towards a consumer-driven economy, the services sector has attracted much attention as the economic driver of the nation’s future. Amid this shift, will there be expanding roles for foreign service providers in China? Stephen Lackey, chairman of Asia Pacific, BNY Mellon, says there are two realities international firms are facing. All service providers want to be in China, as the GDP of the nation will eventually surpass the US to become the world’s largest economy, says Lackey. On the other hand, there are limits to expansion of foreign companies in the territory. “Speaking from a financial services industry perspective, all of us have enjoyed growth in China but none of us are actually growing on a relative basis compared to our domestic competition,” he says.
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For example, the size of foreign bank balance sheets in China have not grown anywhere near as what the domestic banks have generated, he says. It is unclear if Xi Jinping’s “China dream” was conceived with foreign service providers as part of that dream, adds Lackey. Nonetheless, the Asia chairman of the financial services giant remains optimistic about the mainland despite its recent economic woes. “People make the mistake of taking one single brush stroke across China when it is a mosaic, and pieces of that mosaic are growing very differently,” he says. Services will become a larger piece of that picture as the sector will continue to grow at a good rate. Speaking at AmCham’s China Conference earlier this month on a panel about opportunities for foreign service firms, Lackey as well as business leaders
China’s shift to services has had an immediate impact on couriers, according to Karen Reddington, president of Asia Pacific of FedEx. This is reflected in the volume of parcels moving across the country, which has been growing in recent years. According to the China’s State Post Bureau (SPB), around 14 billion packages were delivered in 2014, a 52 percent increase from the previous year. These figures are expected to grow in the coming years. E-commerce is the key driver behind this trend as the increase in sales from online shoppers has boosted demand for parcel deliveries. Reddington points out that according to the SPB, 64 percent of all packages that moved through the nation's postal system in 2014 were related to e-commerce. “The e-commerce transformation is also driven by the technological transformation in China, which is bringing business production closer to consumption,” she says, adding that the likes of Alibaba indicate that China is ahead of this trend. Yet despite such profound changes, the logistics sector is marred by “old normal” processes that are imposing inefficiencies and costs to deliveries such as some high tariffs and customs clearance processes. For example, the threshold value for packages to get exempted from duties and taxes is very low. “It is around US$50 to $60 in China, whereas in Australia it is US$1,000, so that already creates a lot of barriers and costs for small companies,” explains Reddington. Cross-border systems also interrupt the flow of deliveries. For example, there is no single window for customs,
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clearance and immigration. “For the development of the ‘New Normal’ in China, you have to focus on developing some of the old normals and making sure regulations keep apace and that we are not still in a pre-Internet age when we look at these factors of change,” she says.
A more domestic property market For the property sector, growth continues. Alastair Hughes, JLL’s CEO for Asia Pacific, elaborates: “In terms of overall growth we are still experiencing it, and underneath the banner of growth there’s been a slightly different demand for space but it still remains positive.” First, domestic clients are on the rise. “Five years ago, 80 percent of our revenue came from multinational corporations in China or foreign investors and developers building and selling things in China,” he says. Now Chinese clients account for 50 percent of the company’s revenue. Part of this shift is from JLL helping local firms make the client’s properties more efficient by putting the spaces up for best use. “Around two years ago when we went to a Chinese company to help them growth efficiently, they often gave a blank look because at that time it was all about growth, while efficiency was secondary,” he says. Nowadays domestic clients are eager to realize efficient growth for their spaces. As China moves to a consumeroriented economy, JLL has observed a huge demand for space from serviceorientated companies. This is evident in the Shanghai market. “The average net take up of office space in Shanghai over the last three or four years was 10 billion square feet per annum; compare that to Hong Kong where the figure is one or two [billion square feet],” explains Hughes. Despite these opportunities, the market is not without drawbacks. For
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Hughes, the not-so-easily-tradable Chinese property market is a pressing concern. In 2014, the company’s overall property trades in the UK amounted to $100 billion. The equivalent figure was generated in China, which perplexes Hughes as the mainland market dwarfs the size of the UK. He attributes this discrepancy to transparency and liquidity factors. In the UK for example, particularly London, the market is “beautifully liquid.” He explains: “[Properties] have been bought and sold 100 times, therefore it is a well-trodden path that can be done in two weeks.” In contrast, the process is more complicated in China, where one needs to find out the property’s proprietor and its value, plus the new owner’s property rights is not always guaranteed. Hughes prescribes changes in the territory’s economic policies to bring more transparency and openness to the market.
Challenges facing the financial market China’s recent turbulence has not impacted BNY Mellon’s growth model on China. “Our business model was built for the long-term and it remains very bullish on China; we see the slowdown in China as a natural outgrowth of any large economy over time as the growth rate has to come down,” explains Lackey. “Every economy goes through cycles and we think there is still opportunity for significant growth in China.” At BNY Mellon, a focal point of interest is in China’s rising importance in the global markets. “Even though we’ve seen the recent decline in the equity markets, currency devaluation, and the recent slowdown in the overall economy, there is no doubt that China is going to play an increasing role in the economy globally,” he says. Lackey cites the significant outflows of investments leaving China - which is
almost equivalent to the US$120 billion foreign investment to the nation - as an indication of this trend. It also explains the need for this international service provider to be in China to not only serve its Chinese clients but to find greater opportunities for them globally. On the industry’s challenges, one major issue is the high scrutiny companies are under by regulators. Recently, BNY Mellon received multiple information requests from different regulators with responses expected in very tight time frames. “Some of it reflects our highly regulated market, but some of it reflects the time we are now in China where regulators for any industry feel under the gun and they are trying to insure that they are on top, even if they have been asking things that were requested a week ago just to see if there is any change.” Another concern is the mixed messages from the government which is making it difficult for companies to make decisions in the market. On the one hand, China’s financial markets are opening up; the arrival of the Shanghai-Hong Kong Stock Connect is an example. On the other hand, Beijing’s tendency to intervene in the markets has sapped investors’ confidence, as the public witnessed recently with China’s over-handed response to stem the crashes of its domestic bourses. The senior official from BNY Mellon says the equity markets should operate on their own. “The government made a wise decision on its policy to devalue the currency and to open the band in which the renminbi trades; conversely, the government made a mistake to actively intervene in the equity markets,” he says. The latter actions encourage investors in these markets to make moves not based on fundamentals but on the government’s investments. “That is not the way equity markets are designed.”
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(From left) Tom Doctoroff, Steve Monaghan, Joy Tan, Xiang Wang and moderator John Dawson
INNOVATING NEW BUSINESS MODELS IN CHINESE MARKETS By Blessing Waung
I
n McKinsey Asia Chairman Gordon Orr’s keynote speech, he boldly announced that technology would be the “key game changer” in the near term for Chinese companies, in order to maximize efficiency and to provide functional excellence for companies to succeed at their current breakneck pace.
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Before he took the stage, key opinion leaders in the Chinese innovation arena converged to discuss trends and key takeaways confirming this, from sectors such as the piping hot mobile phone enterprises, to the advertising and digital realm, to group innovation. All the experts agreed: China is creating its own streamlined and uniquely efficient way of doing business, tailor-made for the unwieldy and increasingly savvy customer base.
“When we talk about Chinese insight, we do think there is something that characterizes the commercial landscape,” says Tom Doctoroff, Asia Pacific CEO of JWT. “The master insight and tension into the heart of Confucian societies that is both very ambitious and very regimented.” “This results in polarized impulses, projection of identity and status on one end, and an equally trenchant need to protect oneself from uncertainty. This tension characterizes what we’re seeing in the new models or the innovative platforms of doing business. My thesis is that when we think of the future of innovation, we cannot divorce it from the more primeval, instinctual cultural impulses that do exist across China’s landscape.” According to Doctoroff, from a Chinese consumer’s perspective, the Internet is a blank canvas of safe self-expression and self-exploration, and relative to the West, much more emotional and relatively less functional. In China, 10,000 virtual enterprises are opened every day, he says. That is representative of the project of ambition phenomenon he alluded to, where Chinese consumers are free to use Weibo and WeChat applications to engage in virtual communities. Relative to people in America, more people are spending time blogging, on social media and instant messaging, says Doctoroff. He also cites a Morton’s study which points out that 75 percent of Chinese versus 20 percent of Ameri-
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biz.hk 9 • 2015
cans post product reviews every week. Their emotional attachment is very deep on the Internet, he says. Self-protection is also happening, the advertising executive also points out. Whereas only eight percent of Americans seek advice of online opinion leaders, 23 percent of Chinese do so before they make decisions about what products and brands to buy. From a business model perspective, e-commerce has undeniably exploded in China. In order for it to succeed, though, protective imperatives were resolved in terms of delivery, return policy and virtual transactions. eBay, for example, failed “miserably” in China in its bidding and auction model because it did not have the correct protective measures in place. Steve Monaghan, Regional Director and Head of Edge (Group Innovation) at AIA, concurred with Doctoroff’s point in his experience working for different innovation teams such as Compaq and Dell. “When you look at Chinese innovation, it’s often looked as being a copy market. I just disagree immensely,” Monaghan says. “I would go around Asia copying my little heart out, because there were things happening on the ground here that you wouldn’t see elsewhere in the world.” Innovation in Silicon Valley is successful because it is in the middle of a demand market, Monaghan reiterates. The demand now is shifting, and there in turn is a massive innovation shift. In China, Monaghan cites the example of Alibaba, which is one of the
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biz.hk 9 • 2015
most famous success stories in an innovative Chinese business model. For example, the Alipay model was initially illegal. However, Jack Ma said at a Credit Suisse event that without it, commerce was just a dream. Therefore, he broke the law and changed the value chains that defined business models. In 2013, the average life span of a company was ten years. Volatility and agility is indeed the “New Normal”. In order to stay relevant, companies must be quick to adapt to customer needs, and according to Monaghan, it is not happening faster anywhere in the world than China. Huawei Technologies Co. Ltd is one such example of a Chinese company innovating at a breakneck pace, trying to keep up with the consumer base that is ever-evolving. Joy Tan, President of Global Media and Communications at Huawei, says that she sees three key technologies that will drive the transformation of business as we know it: mobile wireless, the cloud, and big data. While most countries are currently deploying 4G, Chinese consumers are already accustomed to it, and Tan says their research for 5G is “way ahead” of that of others. “Can you imagine what your life will be like in a 5G world?” Tan asks. “An eight GB movie will take one or two seconds to download. You’ll have virtual reality on your mobile phone. All those things that could not be realized before …
it will change all the traditional industries.” Xiaomi is another brand that has burst onto the global scene, with its affordable yet high-quality smartphone devices. Xiang Wang, the company’s Senior Vice President, says that Xiaomi is much more than just a smartphone manufacturer, with millions of devices that are shipped out monthly. “We hope to make the best product in the pricing segment we are in,” Wang says. “We focus on user experience, so the first thing we want to make is the best product. When you buy a made-in-China product, we hope consumers will think high-quality, high-performance product first.” “We treat customers as a friend,” Wang says. “ There is a very traditional Chinese saying, we treat our customers as God. No, we are not doing that. We try to treat our customers as a friend. Why a friend? Because God is too senior. We want equal communication.” One of the company’s trademark innovations is taking fan feedback and incorporating them into weekly software updates. Xiaomi’s MIUI operating system was only created in its original iteration in two languages, Simple and Traditional Chinese, and English. The other 30 languages now available were developed or designed by fans. Put simply, the business model is this: Xiaomi listens, and then it delivers. “We work with our fans,” Wang says.
Airline Partner
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CHINA BUSINESS
The Outlook for Multinationals in China’s “New Normal” For the third year, Heidrick & Struggles surveyed over 100 multinational executives with responsibility over China operations to learn how the evolving market is performing, and how it impacts business
By Seth Peterson
W
hile countless international companies have looked to their China operations to lead the way in growth opportunities, the business environment in the world’s second largest economy has become increasingly challenging across different sectors. Following nearly two decades of double-digit growth, the high growth days are over and the Chinese government has set a lower target of seven percent.
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The “New Normal” This is the “New Normal” spelled out by China’s President Xi Jinping, designed to strike a balance among social, environmental and economic objectives. The combination of slower economic growth, anti-corruption government policy and various other reforms create both opportunities and threats to the operating environment for foreign companies in China. Meanwhile, the People’s Bank of
China (PBOC) surprised the market in August by cutting the daily renminbi (RMB) reference rate. A weaker currency could help boost exports, but the absolute impact on Chinese trade balance and growth is likely to be inconsequential over the long-term. China has entered a period in which more consolidation and restructuring is likely, where companies must expand beyond the traditional tier one and two cities for growth, and invest in development of products specifically for the local
biz.hk 9 • 2015
Photo: Thinkstock
market. At the same time, Chinese companies are increasing their overseas investment into technologies and market access. Another emphasis of the “New Normal” is that the economy is to be driven by innovation instead of input and investment. As the business community adjusts to the new environment, the Chinese economy faces a number of challenges including the continuing weakness in global demand for its exports, falling business investment as a result of the rebalancing strategies,
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sectors with excess capacity and a softening of the real estate market. In addition, a significant change in consumer behavior patterns is taking place brought about by the rapid development and disruption caused by the digital technology.
Still growing As part of an ongoing effort to better understand China’s business environment, Heidrick & Struggles surveyed more than 110 multinational
executives responsible for China operations, with 60 percent of them having a workforce between 1,000 to 5,000 employees. Feedback suggests that most companies remain optimistic and expect to see good profitability, but also anticipate the rate of business growth will continue to slow down. Key takeaways include the following: • Companies are mostly in China for the China market. • There is no other China option in Asia, though manufacturers continue to evaluate and in many cases invest
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Chart 1
in additional manufacturing in countries such as Thailand, Vietnam and the Philippines. • Chinese companies have become more formidable and are going global, partly through government-supported campaigns such as the One Belt, One Road initiative, a massive effort to expand linkages from China across Asia to Europe to promote development in inland China, and perhaps partly aimed at absorbing excess Chinese manufacturing capacity. • The Free Trade-zone areas such as Beijing-Tianjin-Hebei, JiangsuZhejiang-Shanghai, and Guangdong represent “hub” growth opportunities. • Foreign companies indicate they will continue to invest and increase their capacity, albeit at a slightly slower pace than last year. In terms of headcount, companies overall indicate they are going to stay on track with their recruitment objectives, although at a slightly lower pace compared to 2014. • A concern for 90 percent of respondents is “fierce” competition, with 92 percent reporting that market conditions have become “increasingly challenging”. • Leaders provide different points of view as they interpret the impact of the New Normal on their business activities: 82 percent of respondents believe that the “New Normal” situation creates fresh opportunities. Principally, opportunities are anticipated through expected growth in consumer and service markets, increased emphasis on innovation, greater urbanization and a more leveled playing field strengthened by the government’s ongoing anti-corruption drive. • Though perhaps at a slower pace, generally sales growth continues: 83 percent of respondents confirmed they had recorded an increase in sales during 2014, and 75 percent expect their sales to continue increasing (Chart 1). So far this year, 50 percent said their profitability had grown, while 60 percent are expecting to increase their manufacturing and operating capacity. Compared to last year when organizations were asked the same question, 83 percent of respondents said they expected an increase in manufacturing and operating
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Did your sales increase or decrease in China in 2014?
2.67%
1.33%
4% 1.33%
Decreased by more than 10% Decreased by 5 - 10%
8%
Decreased by less than 5%
12%
41.33%
No change Increased by less than 5% Increased by 5 - 10%
29.33%
Increased by more than 10% Do not know
Are you expecting your sales to increase or decrease in China in 2015?
1.33%
5.33%
5.33% 4.01%
Decreased by more than 10% Decreased by 5 - 10% Decreased by less than 5%
8.00% 38.67% 16.00%
No change Increased by less than 5% Increased by 5 - 10%
21.33%
Increased by more than 10% Do not know
biz.hk 9 • 2015
Chart 2
Compared to previous years, is your company expanding or reducing its capacity in China?
2.67%
5.33%
30.67%
4.00% 1.33%
24.00%
24.00%
8.00%
Reducing by m ore than 10% Reducing by 5 - 10% Reducing by less than 5% No change Increasing by less than 5% Increasing by 5 - 10% Increasing by m ore than 10% Do not know
Chart 3
Do you expect an increase or decrease in headcount?
2% 8% 14%
27%
3% 7% 12%
27%
Decrease of more than 20% Decrease of less than 10% Increase of less than 10% Increase of more than 20% Decrease of 10 - 20% No change An increase of 10 - 20% Do not know
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capacity. (Chart 2) Furthermore, organizations with a well-established presence in China report seeing their long-term strategies paying off. This is despite higher salaries and a more competitive sales environment, factors which are being mitigated by higher efficiency and more productivity.
Moving up the supply chain Despite the slowing rate of growth in China, most business leaders view it as a long-term growth market that will continue to play an important role in their overall global strategies. Upgrading manufacturing facilities to produce higher margin products and opening innovation centers to focus on R&D activities are another trend. While in the face of slowing growth and rising labor costs, some companies have had ‘freezes’ on additional headcount, more than half – 55 percent of respondents – expect to increase their headcount during 2015. This figure compares to 79 percent of respondents indicating they had planned to increase their headcount in 2014 (Chart 3). To move up the supply chain, 48 percent of respondents have established R&D centers in China. For those enterprises without R&D centers, 25 percent report they will soon establish an R&D facility or will consider setting up an R&D facility in the future. It is not only foreign firms that are investing in R&D facilities. To promote manufacturing and national competitiveness, in early March, the Chinese government unveiled a “Made in China 2025” strategy intended to drive innovation, digital technologies and manufacturing up the value chain.
Operating in a competitive environment While China remains a key priority for the business leaders surveyed, the vast majority, 93 percent of respondents (91 percent in 2014) still find that business operating conditions are more challenging than in previous years, with 88 percent
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Chart 5
(slightly less than 2014’s 92 percent) (Chart 5) singling out rising competition as the main challenge. Other contributing factors include the increase in labor costs and in spite of the recent surprise devaluation of the Renminbi, the increase in indirect and direct impact on the cost of sourcing. Further pressure is being generated by domestic Chinese companies that have raised the quality of their manufacturing and started to operate in domestic and global market sectors with competitive pricing. Domestic companies are also seemingly able to benefit from the immature capital market where they are able to establish practices without government intervention or benefit from government support. Adding pressure are regulations that favor domestic businesses ahead of multinational companies. A prime example is Alibaba, which has been instructed to focus on working with Chinese companies instead of foreign enterprises. At a time when the Chinese government is focusing on providing incentives to promote domestic consumption and building a more holistic economy, over 50 percent of respondents still see MNCs as their major competitors, while 33 percent view Chinese privately operated enterprises (POEs) as a source of competition for top talent.
Localizing headcount With the growing pool of high caliber local talent, the localization of expatriates holds a high position on the agenda of leaders interviewed in the survey. However, over 50 percent of respondents, slightly less than 2014’s 55 percent, indicated they had no immediate plans to change the number of expatriates they currently have on payroll. (Chart 6) The main reason cited for maintaining expatriate headcount is to further strengthen their Chinese business activities. For instance, expatriates are needed to continue grooming local talent to move up into more senior level roles. Meanwhile, expatriates also play an important role in the APAC headquarters leadership team role with 15 percent of respondents (17 percent in 2014) expressing they intend to increase their expatriate headcount. Mainly these involve enterprises that intend to expand R&D activities or
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Is market competition getting more or less intense than in previous years?
7.00%
2.00%
5.00%
91.00%
92.00%
In 2014 survey More
3.00%
In 2015 survey Less
Don’t know / Can’t say
Are market conditions getting more or less intense than in previous years?
1.33%
9.33%
4.00%
89.33%
93.33%
In 2014 survey More
2.67%
In 2015 survey Less
Don’t know / Can’t say
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Chart 6
Do you expect an increase or decrease in the number of expatriates and/or non-local Chinese employees?
build on their international customer base. To achieve their objectives they need a good balance of international and domestic employees.
Talent implications Decrease of m ore than 20% Decrease of less than 10% Increase of less than 10% Increase of m ore than 20% Decrease of 10 - 20% No change
1.00% 4.72% 2.83% 10.38% 9.43%
9.43% 11.32% 50.00%
Increase of 10 - 20% Do not know
Chart 7
In your opinion, will the following aspects of China’s “New Normal” be beneficial or disadvantageous to your strategic goals and business targets there? Disadvantageous Neutral to our China goals to our China goals
Advantageous to our China goals
Financing costs
30%
54%
16%
Expected growth in consumer markets
12%
20%
68%
Expected growth in service market
4%
34%
62%
Increased infrastructure spending including projects outside China related to “One Belt, One Road”
8%
52%
40%
Environmental concerns
11%
39%
50%
Slower GDP growth
72%
19%
9%
Aging population
31%
37%
32%
Urbanizing population
3%
19%
78%
RMB internationalization/ convertibility
12%
44%
42%
Competition for talent with Chinese enterprises
70%
20%
10%
Innovation
16%
26%
58%
Policies favoring domestic enterprises
86%
5%
9%
There is consensus among multinationals that now more than ever they need leaders that can manage in more challenging circumstances. Part of the New Normal means companies and their leaders will need to get used to heightened competition, greater complexity and uncertainty, requiring them to think and act more quickly. While business leaders surveyed expect the “New Normal” environment will lead to increased competition for talent with Chinese domestic enterprises, they also believe that measures designed to steady economic growth could reduce the level of job-hopping, especially among key talent. This, they say, would lead to a healthier landscape to develop talent pipelines.
China still core Taking the overall business opportunities into account, the majority of business leaders are in agreement that China will continue to be core to their APAC regional strategies, and Chinese operations will continue to play a pivotal role in companies’ overall global strategies. In many companies this means China reports globally independently from the rest of Asia with APAC headquarters no longer located within Mainland China, but rather in cities such as Hong Kong or Singapore. Seth Peterson is a Partner in the Industrial Practice in Heidrick & Struggles’ Hong Kong office, serving manufacturing businesses in the region across the C-Suite and main functions. He earned an MBA from Washington University’s Olin School of Business in St. Louis and a Bachelor’s degree in Chinese Studies and International Relations from Grinnell College, Iowa. He studied Chinese in Taiwan as well. He serves on the board of the American Chamber of Commerce in Hong Kong and co-chairs the board of the non-profit AFS Intercultural Exchanges in Hong Kong.
Sources: Heidrick & Struggles
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CHINA BUSINESS
biz.hk: What are some of the first things people should know about setting up a WFOE? Cheung: The process of setting one up is quite time-consuming. And unlike setting up companies in other places around the world, when you set up a Chinese entity, you need to put a registered capital. That means a deposit into a bank account in China. So, if you say you need to have 100 dollars, you need to come up with that cash and actually put it into China. The time frame and bureaucracy [need to be considered] because setting up in China is still quite bureaucratic in terms of the documentation and the paperwork that you need to submit. At some certain bureau level you still need to submit them physically so someone needs to run there and bring the paper, versus where in Hong Kong you can submit electronically.
Understanding WFOEs in China By Leon Lee
A
s the Chinese economy continues to grow and evolve, there are plenty of business opportunities for both local and foreign companies. One way for foreign companies to enter the Chinese market is through setting up a wholly foreignowned enterprise (WFOE). First established in 1986, a WFOE is a limited liability company that can earn profits and issue local invoices in renminbi which is useful as invoices are used to obtain tax deductions in China. Compared to a joint venture, a
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WFOE has more freedom, can better protect its intellectual properties and can even hire local staff directly rather than through employment agencies. While there are certainly advantages to setting up a WFOE, the process can be quite complicated for those unfamiliar with the Chinese business environment. biz.hk spoke to Karen Cheung, a senior business manager at Orangefield with more than nine years of experience in corporate services targeting China market entry, on the process and challenges that might come along the way.
biz.hk: About the registered capital, is it true that locally-obtained renminbi cannot be used? Cheung: So let’s say I am McDonald’s USA and then I go into China to set up McDonald’s China. The registered capital I bring into China must be foreign. Meaning, I can bring in renminbi, but it needs special approval. Usually, McDonald’s USA must bring in foreign currency because of course, I am an American company. They will ask questions if I bring in renminbi, such as, “Where did you get renminbi in America?” Another thing is as McDonald’s USA, I can’t possibly raise funds in China and then use that as a registered capital and put it into a Chinese company because usually for the registered capital, it must be from the mother company. So if I am a Finnish company set up in China, then I need to bring in funds from Finland. So if you talk about locally-obtained renminbi, if you raise funds and put into registered capital, what I understood from practice is that it’s not allowed as the company is supposed to be foreign invested. But let’s say the renminbi is actually earned profit from China, let’s say McDonald’s China
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earned and then paid its due tax, then you are free to use that money to open more McDonald’s as you wish. biz.hk: What about the zero registered capital rule? How does that affect the setup of a WFOE? Cheung: As of March 1, 2014, the Chinese company law has changed. Before, when you set up a company, every type of company has a range of registered capital required. But after the company law change, you can start a company up in China with as little as one renminbi. What the Chinese government is trying to do is they want to encourage more people to start a business and make China a more innovative environment. What it is officially called is that the minimum registered capital rule has been abolished. Before the Chinese government said that if you want to set up a factory, you need to have a hundred thousand US dollars for registered capital but now there is no minimum. But there is one point you have to be very careful about. Even though they say that you don’t need to have any registered capital, in practice you cannot set up a factory with one renminbi. So, from the application process the industrial commercial bureau may not approve your application. biz.hk: Another thing that needs special attention to when setting up a WFOE is the business scope. Can you please elaborate more on that? Cheung: For the business scope, what we do is that we need to put it as wide as possible. Let’s say I am McDonald’s USA, of course I am going to do restaurant business, right? In my business scope I need to put everything that is relevant to restaurant services so I will put catering food, provision of food and etc. Because what happens if I only put that McDonald’s would sell French fries but not make ice cream and then five years later I want to make ice cream? We won’t be able to make ice cream because it was not included in the business scope. So, it’s never one
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sentence. You have to pick and choose very closely and carefully what you want to include. Usually when you plan your business scope, you need to plan what you are going to do for the next five years. It needs to be as wide as possible but still relevant to the business you are doing. So you can’t say in McDonald’s China, I am going to make ice cream, provide food service and manufacture t-shirts in there. It will be rejected. You can change and increase the business scope but actually it is a lot of paperwork. When you amend the business scope, you have to update all the licenses of the Chinese company, it’s a lot of work and a lot of time. biz.hk: Are there any differences in procedures or regulations in setting up a WFOE in different parts of China? Cheung: So basically the national regulation and procedure in setting up a WFOE in China are more or less the same. They are dictated by the administrative regulation that sets out certain rules and what you need to do. However if you go to a smaller city, or like maybe a village area, in practice, they might be a little different. Maybe in, let’s say, Shanxi, they will ask you to do an extra step and to run to the tax bureau two times instead of once. But on the overall scheme of things, they are more or less the same. biz.hk: Is it possible for a company to set up a WFOE themselves without help from a service provider? Cheung: You can do it if you actually understand Chinese law, you can read Chinese, and you know which bureau in China to run around because it is a very lengthy process. Each time you set up a company, you have to run to maybe six different departments. Also, each city and bureau requires different documents and different types of writing. So it’s not really impossible, it’s very possible if you have the time, resource and knowledge. But there are a lot of misconceptions with service providers. Usually a lot of service providers say that they can set up a WFOE, but in reality they stop when the business license is ready.
Karen Cheung, Orangefield
When you have your business license ready in China, it only gives you a legal entity. But a lot of service providers who actually do not have China offices, they don’t do anything after they get the business license. After the business license, you [still] need to open the bank account, register for the tax account and get the customs license. Without doing those, what we call post-business license registration, their company is useless. biz.hk: Closing a WFOE isn’t any much easier, right? Cheung: Yes, that’s very true, because closing up a WFOE will require a complete tax clearance. When you liquidate a company in China, let it be a wholly foreign owned enterprise or domestic company, the Chinese government are very strict in that sense, because they want to make sure that however long you have existed in China, you have all the tax cleared up very well and nicely and they try to get every bit of that before you get out of China. The process is actually quite lengthy and they actually will check everything. It’s quite complicated and difficult.
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TRADE AND INVESTMENT
CAMBODIA DELEGATION In August, AmCham’s Apparel & Footwear (A&F) committee scheduled a packed day of fact-finding meetings and briefings in Phnom Penh to see if the investment climate was improving, same-same, or worsening. Editor-in-Chief Blessing Waung asks Richard Vuylsteke about the trip
What was the purpose of this delegation?
This trip was principally intended as a fact-finding mission to learn more about Cambodia and its strategy to support the apparel and footwear sector over the next five years. The trip was especially timely because of intense debates now underway on revisions to the trade union law and refinement of the process to set minimum wages for the A&F sector.
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These discussions are also timely because of the potential impact on Cambodia’s competitiveness after the ongoing TPP (Trans-Pacific Partnership) negotiations are completed, and from increased competition from neighbor Vietnam after its recent trade agreement with the European Union. For several years, major American, European, and Asia brand owners have been diversifying their apparel and footwear production outside China. The global brands aren’t closing down all their sourcing in China, but there is significant retrenchment and a concomitant
expansion of factory production in both Southeast and South Asia. Africa is also on the A&F sector map. Some of these countries have decades of experience already, while others like Cambodia have been ramping up relatively recently. On the union topic, there is concern that the law will permit a large number of unions in each factory, which could make management-union negotiations – and union-to-union interactions – even more complex than they already are. Details are still being hammered out, but if 10 people are sufficient to
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degree of transparency, fairness, clarity, and predictability are all being vigorously debated by Cambodia’s government, NGOs, unions, business organizations, and the media. The results of deliberations on both topics will have major impact on investment decisions. Key US and international apparel sourcing companies (see delegation list sidebar) and brands account for approximately 70 percent of Cambodia’s exports, so the presence of our group’s companies in Phnom Penh demonstrated the importance of these upcoming decisions.
form a union in a factory of, say, 4,000 workers, the complications are obvious. This is one option actually being discussed. Another looks at various minimum percentage levels of workers in a factory to form a union, which has a bit more flexibility for large and small factories. A new process of reviewing the minimum wage was introduced last year, but is still being refined. During our visit we sensed some discord on both the process and the expected results. Suffice it to say that the appropriate
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What messages did the delegation deliver? Our talking points fell into three categories – industry support, labor relations, and worker safety. And, by the way, these have also been core categories on our previous A&F delegation trips, so were not unique to Cambodia. After a couple of meetings we added a fourth message. By industry support, we wanted to ensure our interlocutors that apparel and footwear brands considered expanded Cambodia investment to be a genuine possibility. That said, Cambodia isn’t the
only game in town, and a successful TPP could make life difficult because Cambodia is not included. But even with a TPP in place, Cambodia still has an attractive list of advantages that it could maximize along with other regulatory changes to build confidence in “Brand Cambodia”. Strengths include having many business incentives already in place, good investment protections, and a young population eager to learn (70 percent are under 30). Labor relations looks like it will be a sticky point now and going forward. Our group emphasized that their companies were supportive of the freedom of association and believed in the fundamental right of workers to form unions. Our request was for the processes to be simple, clear, transparent, and not out of sync with global best practices. There is worry that multiple small unions in the same facility could significantly complicate business operations, making increased investment less likely. We also said that industry would welcome regularly scheduled wage reviews based on transparent, clearly defined metrics. Worker safety is of paramount importance. We encouraged common
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Mark Green, Chairman, Apparel & Footwear Committee
safety codes, annual inspections leading to licenses, fire equipment properly installed, structural safety standards rigorously enforced, and ongoing training in fire, electrical, and maintenance of safety systems. Our fourth point was to encourage the Cambodian Government to include a long-term strategy for the apparel and footwear sector in its current “Industrial Development Plan 2015-2025,” which is currently lacking despite the great importance of the industry to the economy.
H.E. Sok Chenda Sophea, Minister attached to the Prime Minister and Secretary General of the Council for the Development of Cambodia.
Who did you meet? We had outstanding access, greatly facilitated by AmCham Cambodia leaders who have excellent contacts with the government. We benefited from lots of heavy lifting from Chairman Brett Sciaroni and his deputy Boranin (Nin) Rath, and Executive Director Ron Marvin. Brett has more than 20 years in the country and his personal contacts made a genuine difference. We were able to meet H.E. Sok An, Deputy Prime Minister and Minister in charge of the Office of the Council of Ministers; H.E. Sun Chanthol, Senior Minister, Minister of Commerce and Vice Chairman of Council for the Development of Cambodia; and H.E. Sok Chenda Sophea, Minister attached to the Prime Minister and Secretary
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General of the Council for the Development of Cambodia. We also met with US Ambassador to Cambodia William Todd and his country team. Our non-government meetings included representatives from the AmCham Cambodia Board, CAMFEBA (Cambodian Federation of Employers and Business Associations), and ILO/Better Factories Cambodia.
What follow-up actions are expected? The committee is considering another visit before the end of this year. We didn’t meet with some NGOs and
other business organizations, including GMAC (Garment Manufacturers Association of Cambodia), and plan to do so. The ILO is a major player and we could benefit from a deeper dive conversation than we had this time. Importantly, H.E. Sun Chantol offered to pull together a government roundtable, inviting various ministries and NGOs to discuss the longterm future of the apparel and footwear sector. We will work with the Minister over coming weeks to see what can be set up. We are presumably all after greater accountability, responsibility, and transparency. Getting a cross-section of stakeholders in the same room should facilitate useful dialogue.
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DELEGATION LIST Names
Title
Company
*Richard Vuylsteke *Mark Green
President Executive Vice President, Global Supply Chain VP and Managing Director of Asia Sourcing Chief Operating Officer, LF Sourcing Group Regional Senior Director – Southeast Asia Senior Director Field Operation, Social & Environmental Affairs (SEA) Asia Pacific Senior Director, Global Sourcing Regional Compliance Director Apparel Business Operations Manager Hub Leader Head of Corporate Social Responsibility Senior Vice President Senior Vice President, Womenswear, Asia Sourcing Vice President Member Senior Director, Responsible Sourcing Vice President, Global Responsible Sourcing Director, Government Relations & Public Affairs
AmCham Hong Kong PVH Far East
*Colin Browne *Robert Sinclair Jocelyn Tran Harry Nurmansyah Annie Kwong Connie Wong Victor Ng Wayne Milano Ben Eavis Amanda Symonds Evita Chan Raymond Wai-Man Cheng Sally Peng Ninh Trinh Sean Cady Ming-Lai Cheung
VF Corporation Li & Fung Group Walmart Global Sourcing Adidas Sourcing Limited Carter’s Global Sourcing Kiabi Group New Balance International PVH Far East PVH Far East Ralph Lauren Asia Pacific Ralph Lauren Asia Pacific Ralph Lauren Asia Pacific Sandler Travis Rosenberg Target Sourcing Services VF Corporation AmCham Hong Kong
(*) AmCham HK Cambodia Delegation Spokespersons
What was the A&F Committee’s role? Most members of AmCham’s A&F committee have regional and global responsibility for sourcing, compliance, logistics, and strategic planning on long-term sourcing solutions. Many of them are on the road two to three weeks a month, sometimes more, to meet with governments and regulators,
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as well as meet with suppliers around the world. An AmCham delegation provides an organizational umbrella that allows different brands to meet with government officials as a group and speak with one voice. This is essential and effective to secure high-level appointments and to tell a sector story, not just express an individual company’s concerns. These companies are of course competitors, but they can also cooperate
constructively on important issues that affect them all. AmCham facilitates what we call “coopetition” – cooperation among competitors. The Chamber also handles planning logistics for the group and sets up the meetings. Our A&F delegates to Cambodia arrived late Sunday, August, 9 had seven back-to-back appointments on Monday, and then most left that night. Typical Hong Kong style!
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TRADE & INVESTMENT
The Rise of the Asian Real Estate Market
The growing number of global institutions and investors entering the Asian real estate market has changed investment strategies and trends in the region. However the rewards it can offer aren’t without its own special set of risks
By Tsering Namgyal
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nternational investors are increasingly flowing into Asia as they seek higher yield, and the real estate sector has been a beneficiary of this trend. Investors in unlisted Asian real estate have raised US$4 billion already this year, according to CBRE Asia Pacific, on top of the US$14 billion raised in 2014. The momentum to invest in Asia is expected to remain strong as in the second quarter of this year, China overtook Japan as the largest real estate market in terms of transaction volume. However, the recent volatility in the Chinese markets has added some uncertainty to the larger investment landscape, analysts say.
Real estate investing 101 For the uninitiated, there are two main ways investors invest in real estate. One is by gaining exposure to them in the listed market, known as REITS (Real Estate Investment Trusts), and the other is through investing in non-listed real estate vehicles. The latter, which usually takes the form of real estate funds, adopt four main strategies: core, core plus, valueadded, and opportunistic. Core strategies are generally lower risk and lower return while value-added and opportunistic are seen as higher risk and require high-degree of enhancement. Investments into the funds are generally done on a 10-year horizon and investors include some of the world’s largest institutional investors, from pension funds to sovereign wealth funds as well as high net worth individuals who are increasingly moving into Asia. Generally, core funds generate single-digit returns of less than 10 percent while opportunistic funds can provide investors with up to 15 to 25 percent return, analysts say. So far, most funds have been investing into the two most popular and mature markets of Asia – Australia and Japan, though that is gradually changing.
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Photo: Thinkstock
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“In Asia Pacific, Japan, China and Australia are the largest investment markets with South Korea, Singapore, Hong Kong and India also of interest to cross border investors,” says Megan Walters, head of research, Asia Pacific Capital Markets at JLL.
A move into core strategies
Megan Walters, JLL
While opportunistic funds have been dominant over the past few years, especially following the global financial crisis, investors are now moving into core investment strategies for a variety of reasons. “Traditionally, opportunistic funds have been popular in Asia. However, we are starting to see increasing formation and popularity of core open-ended funds – a sign of increasing market maturity and transparency in Asia Pacific,” says JLL’s Walters. CBRE’s Asia head of research Henry Chin also says that over the past 18-month period he has observed a marked trend towards lower-risk and return strategies. “There were more and more core and value-added funds being raised,” says Chin. “[It is] a huge change we have observed since the global financial crisis – there has been an increasing diversification into core.” According to CBRE Asia Pacific Investor Survey, which covers nearly 300 investors across this region, the percentage of investors who want to invest in core has increased from 29 percent in 2014 to 43 percent in 2015.
Focus on Asia
Henry Chin, CBRE
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The roughly US$4 billion in funds raised so far this year include funds by companies such as Pramerica, Baring Private Equity Asia, JP Morgan Asset Management, CLSA Capital Partners, amongst others. Besides the big global names, another new trend is a growing number of Asia-focused specialist funds that are adopting single-sector and singlecountry strategies. “They are not going to raise a billion
dollars, but they will raise $300 to $400 million and will continue to be very successful,” says CBRE’s Chin. For instance, Singapore-based SC Capital said in June that it has raised US$400 millon Asia-focused fund. This is the first time the private equity firm has raised a core plus fund. Often Asiabased firms use their expertise in Asia, connections and superior local knowledge as their marketing tool. The flip side of this move into core strategies by investors, however, is a shortage of what analysts believe is a supply in core assets. This is because most investors have been piling their investments into the two favorite markets of Japan and Australia, where core assets have tended to dominate the market. “The core space is looking a bit crowded,” says Terence Tang, managing director for Colliers International in Singapore. Meanwhile, investors are also getting slightly more aggressive in terms of their risk appetite for real estate in Asia, not least because of rising interest rates and a slight improvement in rental in residential markets. This means a newfound interest, especially amongst some US-based investors that are also looking at riskier strategies. “US investors are finally back in the game for Asia,” says Tang, who is currently working on several opportunistic deals for US-based clients. Since “the yields are being compressed” in more mature markets, some investors, such as hedge funds, real estate funds and high net worth individuals, are beginning to look at opportunities in emerging Asian markets, which include Vietnam, Myanmar and India, Tang says. Peter Churchouse, who runs real estate fund management company Portwood Capital, also believes that some investors in Hong Kong are willing to take on more risk now in certain sectors especially with the fall in vacancy rates in the office market and the uptick in rentals in the upper end of the residential market. However, he remains slightly skeptical about the level of return promised by many real estate funds in Asia, particularly given
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that low interest rates have driven prices up and rental yields lower in many markets. Real estate investment in Asian countries brings a range of risks that don’t exist to any great extent in many developed markets. While emerging Asian markets might present many opportunities, Churchouse believes it would be ill-advised not to consider these risks. He points out the challenges in land acquisition and lack of clarity in terms of ownership rights as particularly worth pondering before taking the plunge into these markets. Tax regimes are often very different and can be less than transparent. He asks if investors are rather willing to be content with a seven to eight percent stable return over a 10-year period investing in core strategies, or choose to invest in opportunistic deals that might offer a double-digit return but might involve greater risks such as regulatory, tax and political, amongst others. JLL’s Walter agrees and points out that other areas that risk can come from include development, leasing and financing. “By definition opportunistic funds carry more risk as a trade off for greater return as compared to core funds.”
Improving transparency Indeed, the lack of transparency in Asia has always been a concern for investors, says Alan Dalgleish, the CEO of ANREV (The Association for Investors in Non-listed Real Estate Vehicles), a non-profit organization aimed at promoting the interests of real estate investors in Asia. ANREV’s mandate is to promote investments into unlisted real estate vehicles with the top priority being in improving transparency and facilitating better governance. The organization, a sister of the Netherlands-based INREV (The European Association for Investors in Non-listed Real Estate Vehicles), has nearly 300 members, a majority of which are global investors, pension funds as well as other service providers such as real estate agents.
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ANREV tracks about US$90 billion in assets and develops benchmark indices for investors. This in turn help investors create better reporting standards so as to facilitate better communication between investors and managers. According to Dalgleish, ANREV’s suite of indices allow investors to measure their performance against benchmarks, something investors could not previously do. He believes that not all investors are familiar with the Asian real estate landscape as it pertains to how they could invest across the Asian region and in what ways they could increase their return while minimizing risk.
China takes over as top market
Alan Dalgleish, ANREV
Indeed, better knowledge of the markets and better regulation would pave way for more mature markets especially in countries such as China, which is moving from owner-occupied towards a landlord and tenant system, according to JLL. That combined with the currency effects has pushed China to the top of the league in terms of real estate transaction, overtaking Japan in the second quarter this year. In specific quarters, China recorded greater transaction volumes bigger than that of Japan. “Currency has an effect – the yen depreciated against the USD whereas at the half year mark the Yuan was relatively stable,” says Walters. Analysts, however, believe that the recent volatility in the China markets, including the Asian currency markets, might affect investor sentiment in the real estate industry going forward. Tsering Namgyal has been a writer specializing in business and finance for roughly two decades. A graduate of the University of Iowa and University of Minnesota, his articles have appeared in Asia Asset Management Review, Fund Strategy, IPE Real Estate, the South China Morning Post, amongst others. Terence Tang, Colliers International
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WOMEN OF INFLUENCE
Equality Benefits Everyone Mercer President and CEO Julio Portalatin says companies need to rethink their diversity policies so that working women – and bottom lines – can thrive
By Georgia McCafferty
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s the father of a daughter, and now a grandparent of a granddaughter, fostering female diversity in the workplace is an issue that’s been close to the heart of Julio Portalatin, president and CEO of Mercer, for a long time. But as he told the audience at a recent AmCham event, the reason business leaders need to start rethinking their policies to attract and ensure women thrive in the workplace is financial, not emotional. “One of the most significant factors limiting the growth potential of countries around the world is the fundamental participation and engagement of women in the workforce,” Portalatin says. “What it is is a business imperative. Yes [fostering female diversity] is the right thing to do, it’s a nice thing to do, but the reality is that it’s an imperative thing to do and in our world many things really do survive because they become business imperatives.”
Equal returns The IMF and the World Bank, among many others, have demonstrated the substantial economic gains that can be made when more women participate in the workforce. As Portalatin notes, it was this financial proof that helped spur Japanese Prime Minister Shinzo Abe to adopt womenomics and make increasing female workforce participation one of Japan’s present top three economic growth pillars. Yet despite the proven economic incentives from gender diversity, and the progress that has
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already been made, Portalatin reveals a 2014 report by Mercer found that organizations are a long way off from reaping gender equality’s financial rewards. According to the report, which surveyed 164 leading firms across 28 countries, women are still underrepresented at all levels of the global workforce, and they hold less than a quarter of senior management roles globally. More importantly, the report also found that conventional diversity policies are insufficient to create gender equality in the next decade. Portalatin says what is required to address the lack of female representation in business is a total rethink of female diversity policies and programs. Support for this change needs to come from the employers, who Portalatin believes, have a very unique role to play as the change drivers and business leaders, who need to make a true commitment to change. “This really is a call to action to do something just that much more than what you have already done. It is really time to act differently,” Portalatin says. “And the reason for that is because it’s absolutely true that as women thrive, societies thrive, economies thrive, and ultimately businesses thrive also.”
The foundations Portalatin points out that although Mercer’s research had highlighted the issues women faced, the report was about action not just data. “The research that we undertook was not just to add another voice to all of the different data
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that’s been done around the world that points to diversity improving business results or diversity improving engagement or improving turnover – all those things that have been documented time and time again already.” “The research was really about getting a perspective about some of the best practices around the globe that we can share as action items for change.” When looking for these empirical results, Mercer started with three fundamental building blocks that are key to the foundation of any effective strategy to increase female participation to guide its survey: health, financial well-being, and talent management. “If you do one of those really well, you are missing two-thirds. You must hit all three of these elements in order to have a successful diversity policy,” he explains.
Diversity drivers To understand how organizations can best build an effective, long-lasting policy to increase female diversity, the Mercer study examined the programs and approaches the 164 companies surveyed had already undertaken and used a statistical analysis to uncover the links between action and positive outcomes. They found that traditional diversity policies like mentorship and sponsorship programs solve part of the problem, but are not sufficient on their own. Furthermore, they often stymie progress in addressing more critical issues that hold back women from the workforce – like pay inequality – and have resulted in slower levels of improvement. Starting from this baseline assessment, the report then identified five key drivers of gender diversity that businesses can use to increase their progress and completely rethink their approach to gender diversity.
1. Broad, holistic enterprise focus Firstly, the report found that any approach to support female talent needs to be broad, holistic and implemented across an entire organization for the change to be sustainable. It needs to focus on total future impact for it to accelerate any gender diversity, not just immediate results, and it needs to breed confidence within an organization. As Portalatin explained it, the report’s analysis linked this confidence with results. “You all know that if you think you are successful, you’re likely to do more,” he added.
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2. Engaged senior leadership Secondly, leadership needs to be actively engaged in promoting and managing diversity, in a way that gets them passionate about the issue. “When senior leaders are actively involved and engaged we see better outcomes in both current representation and future trajectory,” Portalatin says. “For some executives it might take the hard data for them to see, in their own environments, that they can achieve desired results and how they can do it. For others it may need engaging them in conversation.”
3. Active and effective diversity program management The third issue Portalatin highlights is the need for active and effective management of talent programs. This means introducing and actively managing programs that promote pay equity, and ensure that women have equal representation in jobs both with and without profit and loss responsibility. The research shows this type of active management results in improved, longer-term increases in workplace gender equality than more passive programs like family leave and on-site gyms. That’s
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5. Equal but different skills Finally, the survey asked respondents to evaluate female and male managers against specific skills and experiences. The results showed that females bring unique abilities to the talent pool, excelling in team management and leadership, as well as being more flexible, more adaptable to change and better at teamwork and cooperation. Organizations that recognize, value and embrace the different strengths of women and men have better diversity results and are better positioned to succeed. “We are not saying that women should be channeled to roles that require such skills or focus on developing such skills,” Portalatin stresses. “What we are saying is that where women have such skills and want to use them then this can drive significant value for business results in companies.”
Change makers
Julio Portalatin
not to say they are not important, but they deliver slower improvements in representation when introduced alone, and can also encourage complacency among some companies. “Active management of policies and programs is required to avoid unintended career penalties or consequences,” he says. “Things of that nature are very important. Walking the talk and providing the resources, the training, installing annual processes to ensure success and driving real change.”
4. Non-traditional solutions The fourth area highlighted by Mercer’s research was the way in which innovative programs designed specifically with women’s unique needs in mind - especially in the areas of health programs and financial and retirement planning – provide more benefit to an organization and drive future diversity success. “General benefits are just that – general benefits. There are different needs for our female population, just as there are different needs for the male population,” explains Portalatin. “Segmenting to the need is an important aspect to meet those needs of the people that are important to you.”
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Portalatin says organizations and employers now need to take advantage of the immediate opportunity and design a gender strategy for their company based on their own workforce environment and analytics. Firms also need to align their talent strategy with their diversity strategy, and only implement new programs and benefits if they help attract and retain females in the workplace, not just because they look good. Finally, companies need to go beyond the typical and broaden their understanding of what it takes to support women, as well as collaborate with organizations outside of the company, like schools, NGOs and industry groups, to help support and enable the future supply of female talent. “The world will change around you, with or without you. So we have a choice, it’s a simple choice. Do you want to be part of that change, do you want to lead that change, or do you want to let change happen to you?” Portalatin asks. “I’d rather lead, and I hope you would rather do that as well.” Georgia McCafferty is a Hong Kong-based freelance journalist covering business and finance and current affairs. She writes for the Economist Intelligence Unit, CNN.com, Quartz.com and the Journalism and Media Studies Centre at the University of Hong Kong. Georgia has a Master of Commerce from the UNSW Australian School of Business and a Master of Journalism from the University of Hong Kong.
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MARK YOUR CALENDAR Sep HKSAR Government Series: Getting Ready for the
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Full Implementation of the Competition Ordinance The Honorable Anna Wu Hung-yuk, GBS, SBS, JP, Chairperson, Competition Commission AmCham HK has been following closely Competition Law developments in Hong Kong since well before the Competition Ordinance’s adoption in June 2012, and appreciates the efforts deployed by the Government, and now the Competition Commission, to bring the new regime to bear. We are pleased to welcome Ms. Anna Wu, Chairperson of the Competition Commission, to discuss the status of the coming into force of the Ordinance, the Commission’s enforcement priorities in the first year, and how companies can, at this crucial stage, consolidate their understanding of the Ordinance with a view to reach full compliance by the D-day. Anna Wu is a lawyer and a member of the Executive Council of Hong Kong. She is the current and founding chair of the Competition Commission. Ms. Wu is an Honorary Fellow of the University of Hong Kong and chairs the Academic Board for Postgraduate Certificate in Laws of the University of Hong Kong. She is also a member of the International Advisory Board of the Hong Kong International Arbitration Centre.
Sep Energy Transitions in Asia
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Justin Wu, Head of Asia-Pacific, Bloomberg New Energy Finance The Asia Pacific region is currently the center of global energy growth and in its transition to cleaner forms of electricity generation. This presentation will highlight the key trends in clean energy development in the region as well as the major trends which are driving this growth. Justin Wu is Head of Asia-Pacific at Bloomberg New Energy Finance (BNEF), the world’s leading provider of unique analysis, tools and data for decision makers driving change in the energy system. Justin is in charge of all BNEF business activities in the region, which includes leading a team of over 20 analysts across 10 locations, who are in charge of producing and communicating research and analysis on some of the fastest growing energy markets in the world. He is a specialist in Chinese energy and environmental policy, US-China clean energy trade issues and electricity markets.
Sep An Evening for Entrepreneurs
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Time: 12:00 – 01:45pm (Sandwiches and beverages included) Fee(s): Member: HK$300 Non-member: HK$450
Venue: The American Chamber of Commerce in HK 1904 Bank of America Tower 12 Harcourt Road Central, Hong Kong Time: 12:00 – 01:45pm (Sandwiches and beverages included) Fee(s): Member: HK$280 Non-member: HK$400
Venue: Swire Properties Ltd 16/F Cornwall House, Taikoo Place 979 King’s Road Quarry Bay, Hong Kong
Christopher Chau, Co-Founder, IvySpace.com Timothy Kau, Co-Founder, IvySpace.com Xania Wong, Founder & CEO, JOBDOH Hilary Szymujko, Head, blueprint Are you an entrepreneur looking for inspiration? Join us for a tour of blueprint, a new tech accelerator and co-working space by Swire Properties, followed by a panel discussion by some of its entrepreneurs led by Hilary Szymujko, Head of blueprint. blueprint is the one of the latest manifestations of Swire Properties’ originality in concept and design, and its long-term vision for creating communities. Two floors of Cornwall House, part of Swire’s Taikoo Place, have been dedicated to this goal of building a tech community by providing a place to work, learn and collaborate for tech startups. Startups who run their business from blueprint benefit from resources and infrastructure within one of the city’s premier business districts; at the same time tenant companies of Swire’s Taikoo Place benefit from the creative energy and innovative thinking of high-quality startups. One floor operates as a co-working space to facilitate the needs of 150 entrepreneurs and shared state-of the-art facilities to maintain affordability. This floor also doubles as a flexible events space designed to unite people around a shared interest in tech and serve as a platform for the exchange of inspiring ideas. On the floor above, ten exceptional B2B tech startups are introduced every six months to participate in blueprint’s esteemed accelerator program – which goes beyond a workspace to enable access to professional support, market testing opportunities to the Swire Group of companies and relationships with industry mentors. All free of charge and without giving up equity.
For information, see website: www.amcham.org.hk
Venue: The American Chamber of Commerce in HK 1904 Bank of America Tower 12 Harcourt Road Central, Hong Kong
Tel: (852) 2530 6900
Fax: (852) 2810 1289
Time: 6:30 - 8:30 pm (Drinks included) Fee(s): Member: HK$180 Non-member: HK$300
Email: byau@amcham.org.hk
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The American Chamber of Commerce in Hong Kong proudly presents the 12th Annual Women of InŇƵĞŶĐĞ ;WOI) Conference & Awards on Friday, November 6th at the Four Seasons Hotel Hong Kong.
PRESENTED BY
Join us for this renowned signature event and one of Hong Kong's most established women's conferences as we take a fresh, business-focused look at the future of the This year, we will focus on how the internet of things and technology will shape our future GOLD SPONSORS
In keeping with the successes of previous conferences, this year will feature a number of
Women of InŇƵĞŶĐĞ wards which will recognize; six high-achieving women, a man who has demonstrated support for the advancement of women and one outstanding company for women.
Friday, November 6, 2015 8:00am to 2:30pm Four Seasons Hotel Hong Kong
SILVER SPONSORS BRONZE SPONSORS
Speakers featured at the conference this year: Michelle Lam, CEO, Spoilt Ronald Lee, Managing Director, Goldman Sachs (Asia) LLC Emma Reynolds, Co-Founder & CEO, e3Reloaded More speakers to be announced Ben Way, CEO, Macquarie Group Asia
PROGRAM * Opening and Luncheon Keynote Addresses
* Three Concurrent BreakŽƵƚ ^ĞƐƐŝŽŶƐ ;ĞĂĐŚ ƐĞƐƐŝon is run twice): Panel 2: How media is addressing gender diversity Panel 3: The Future of Work
OFFICIAL NEWS MEDIA
Professional of the Year, Young Achiever of the Year (NEW), Entrepreneur of the Year, Master in Charity, Master of The Arts (NEW), Leading Woman on Boards, Champion for the Advancement of Women, and Best Company for Women
#AmChamHKWOI Sponsorship: Mary Simpson msimpson@amcham.org.hk (852) 2530-6922
www.amcham.org.hk/woi
Connect 多 Collaborate 多 Catalyse
APAC Innovation Summit 2015 Series
22-23 September 2015
Charles K. Kao Auditorium, Science Park www.apacinnosummit.net
Paul Friedli Schindler Ltd.
Brian Cotton
Winnie Ho
Energizing Kowloon East Office, Development Bureau, HKSAR
Frost & Sullivan
Alok Jain
The Kowloon Motor Bus Co. (1933) Ltd.
Albert Lam
Detroit Electric Holdings Ltd.
PROGRAMME Day 1
Main Conference
Day 2
Track Sessions covering topics in Smart Transportation System, Smart and Green Buildings, Energy Management and Low Impact Development
Register today!
AmCham members are entitled to a 50% discount.
Note: Information is subject to change without prior notice.
Smart cities mini-exhibition