AmCham biz.hk Jan/Feb 2016 by The American Chamber of Commerce in Hong Kong

Jan/Feb 2016

ENGAGEMENT & IMPLEMENTATION WALTER DIAS

2016 AMCHAM CHAIRMAN

SPECIAL SUPPLEMENT: MARKETING, ADVERTISING & COMMUNICATION SERVICES

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Saturday, April 16, 2016 6:45pm - 1:00am Grand Ballroom Grand Hyaƕ Hong Kong You are warmly invited to join us as VIP guests and sponsors for C

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January/February 2016

Contents

Vol 48 No 1-2

Publisher

Richard R Vuylsteke

Editor-in-Chief Kenny Lau

COVER STORY

Walter Dias, Managing Director (Greater China & Korea) of United Airlines and 2016 AmCham Chairman, outlines an action-oriented plan in his inaugural address, focusing on creating value for members and being a thought-leader in an advocacy agenda with the US, Hong Kong and Mainland China

Managing Editor Leon Lee

Assistant Advertising Sales Manager Tom Chan

AMCHAM NEWS AND VIEWS 04 AmCham Leadership 2016 Board of Governors and Chairs of Chamber Committees

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, 2016 Library of Congress: LC 98-645652 Single copy price HK$50 Annual subscription HK$600/US$90

07 New Business Contacts 64 executives recently join AmCham’s business network

56 Mark Your Calendar

COVER STORY 08 Engagement & Implementation Walter Dias, Managing Director (Greater China & Korea) of United Airlines and 2016 AmCham Chairman, outlines an action-oriented plan in his inaugural address, focusing on creating value for members and being a thought-leader in an advocacy agenda with the US, Hong Kong and Mainland China

BUSINESS OUTLOOK

14 AmCham 2015 Annual Business Survey: Market Volatility and Challenges The business environment in 2015 was extremely challenging across all sectors and industries in Hong Kong and companies are much less bullish about the regional and global economy in the coming year, according to AmCham’s annual year-end survey

FINANCE & ECONOMICS

22 Is China’s Circuit Breaker To Blame? The circuit breaker – designed as a “trading curb” to calm fears of a market collapse – was heavily criticized for exacerbating market volatility after it was triggered for the first time on January 4 and again on January 6

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14 BUSINESS OUTLOOK The business environment in 2015 was extremely challenging across all sectors and industries in Hong Kong and companies are much less bullish about the regional and global economy in the coming year, according to AmCham’s annual year-end survey

30 HUMAN RESOURCES Business executives, professionals and thought leaders gather at the AmCham annual conference for an in-depth discussion on the importance for companies to embrace innovation, sharing ideas and methods on implementation

TRADE & INVESTMENT

26 20 Years of WTO, What’s Next? Appointed one of the four deputy director generals of the World Trade Organization in 2013, Karl Brauner talks about the extensive efforts to facilitate trade on a global level for growth and development

HUMAN RESOURCES 30 24TH AmCham Human Resources Conference Business executives, professionals and thought leaders gather at the AmCham annual conference for an in-depth discussion on the importance for companies to embrace innovation, sharing ideas and methods on implementation

32 Keynote Addresses: Innovation Comes from Everyone From a four-pronged framework to “super practices,” Allen Ma, CEO of Hong Kong Science & Technology Parks Corp, and Alison Eyring, CEO of Organization Solutions, share their approaches to enhancing innovation in companies

34 Panel Discussion: People Power

COMMUNICATIONS President of FleishmanHillard Asia Pacific Lynne Anne Davis discusses how two of the world’s biggest megatrends – the advent of the Internet and the rise of Asia – have dramatically changed the face of the public relations industry in the region

38 Luncheon Speakers: Times Are Changing A younger generation, including millennials, is leading the charge in innovation. Lisa Johnson of Crown World Mobility and Sean Ferguson of HKUST Business School reveal how their behaviors are changing the traditional practices of companies and educational institutes

ADVERTISING, MARKETING & COMMUNICATIONS 42 Relevance, Reinvention and Reputation Lynne Anne Davis, President of FleishmanHillard Asia Pacific, discusses how two of the world’s biggest megatrends – the advent of the Internet and the rise of Asia – have dramatically changed the face of the public relations industry in the region

46 Managing Online Reputation Drawing from 20 years of experience, author and former co-chair of AmCham’s Communications & Marketing Committee Charlie Pownall presents an abstraction of the management of brand and reputation in the digital age in his new book, Managing Online Reputation: How to Protect Your Company’s Reputation in Social Media

A well-represented panel of experts from various fields take to the stage to reveal best practices in managing innovation and people – two important keys in the journey of driving innovation in companies and organization alike

36 Breakout Sessions: Culture and People are Key Tony O’Driscoll, Regional Managing Director at Duke Corporate Education, and Shaurav Sen, an advisor leader for CEB, discuss strategies to generate innovative outcomes, from setting the right dynamic at firms to effective talent practices

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Chamber Officers BOARD OF GOVERNORS Chairman

Diana David Financial Times (HK) Ltd

Anna-Marie Slot Ashurst

Vice Chairman

Sean Ferguson Hong Kong University of Science & Technology

Catherine Simmons Citi

Walter Dias United Airlines Inc Steve Lackey BNY Mellon

Treasurer

Sara Yang Bosco Emerson Electric Asia-Pacific

Governors

Robert Grieves Hamilton Advisors Ltd Matthew Hosford Banco Santander, SA – HK Branch

Donald Austin Austin Pacific Ltd

Clara Ingen-Housz Linklaters

Evan Auyang The Kowloon Motor Bus Co (1933) Ltd

Michael Klibaner BlackRock

Owen Belman Aon Hong Kong Ltd

John (Jack) E Lange Paul, Weiss, Rifkind, Wharton & Garrison

Elaine Cheung VF Asia Pacific Sourcing

Simon Ogus DSG Asia Ltd

Sean Chiao AECOM Asia Co Ltd

Seth Peterson Heidrick & Struggles Hong Kong Ltd

Eric Szweda Troutman Sanders Solicitors Alan Turley FedEx Express Jennifer Van Dale Eversheds LLP Patrick Wu American Appraisal China Ltd Lennard Yong MetLife Hong Kong

Ex-Officio Governor

Peter Levesque Modern Terminals Limited

President

Richard R Vuylsteke The American Chamber of Commerce in HK

CHAMBER COMMITTEES Apparel & Footwear Mark Green PVH Far East Ltd

Ball Sara Yang Bosco Emerson Electric Asia-Pacific Diana David Financial Times (HK) Ltd

China Business Devin Ehrig Barron Asia Ltd Lili Zheng Deloitte Touche Tohmatsu

Communications & Marketing Oliver Rust ORC International

Corporate Social Responsibility

Financial Services

Real Estate

Steven Chan State Street Bank & Trust Co

Edward Farrelly CBRE Robert Johnston CBRE

Food & Beverage Veronica Sze Wyeth (Hong Kong) Holding Co Ltd

Hospitality & Tourism Mark Kemper KPMG

Human Resources Peter Liu AsiaNet Consultants (HK) Ltd

Information & Communication Technology Rex Engelking PCCW Limited

Insurance & Healthcare

SelectUSA Terrance Philips Citi Lili Zheng Deloitte Touche Tohmatsu

Senior Financial Forum Philip Cheng FedEx Express

Senior HR Forum Bianca Wong Jebsen & Co Ltd

Taxation

Education

Rebecca Harrison AIG Insurance Hong Kong Ltd Hanif Kanji Sinophi Healthcare Partners Ltd

Virginia Wilson The Child Development Centre

Intellectual Property

Barrett Bingley The Economist Group

Pat-Nie Woo KPMG

Rick Truscott CLP Power Hong Kong Ltd

Gabriela Kennedy Mayer Brown JSM Jenny Wong Time Warner Inc

Entrepreneurs/SME

Law

Energy

Ivan Strunin Deloitte Touche Tohmatsu

Trade & Investment

Transportation & Logistics Gavin Dow Modern Terminals Limited

Cynthia Chow KPMG Laurie Goldberg AmeriCraft Imports Limited

Chiann Bao HK International Arbitration Centre Jessica Bartlett Freshfields Bruckhaus Deringer

Environment

Pharmaceutical

Young Professionals

Joyce Wong Eli Lilly Asia, Inc

Michael Harrington Mintz Group

Jim C Taylor CLP Power Hong Kong Ltd

Women of Influence Jennifer Parks White & Case

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www.amcham.org.hk

AMCHAM Means Business

Members Directory

Over 500 pages in three major sections, including a complete guide to chamber services, corporate sponsors and AmCham Charitable Foundation. This directory lists about 1,400 members from about 700 companies and organizations. ISBN 978-962-7422-33-4

LC 98-645651 NON-MEMBER PRICE Local Delivery HK$1500 Overseas Delivery US$195 Shipping costs: Local HK$45 (per copy) US/International US$50 (per copy)

MEMBER PRICE HK$800 US$104

AmCham Member Name: Title: Company: Address: Tel: Fax: Email: Website: copy(ies) of Members Directory Total: HK$/US$ (postage inclusive) payable to The American Chamber of Commerce in Hong Kong check# Bank: Charge to AMEX (US$) Diners (HK$) Visa (HK$) Master Card (HK$) Cardholder's Name: Card# Expiry Date: Issuing Bank: Signature: (Not valid unless signed) The American Chamber of Commerce in Hong Kong 1904 Bank of America Tower, 12 Harcourt Road, Hong Kong. Tel: (852) 2530 6900 Fax: (852) 3753 1208 Email: hchung@amcham.org.hk

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New

Business Contacts The following people are new AmCham members: ACE Insurance Limited MumTaz Ali Chief Financial Officer, Greater China

Deloitte Touche Tohmatsu Joe Logudic Asia Pacific GES Leader

AD MediLink Limited Amelie Dionne-Charest Managing Director

Edelman Public Relations Worldwide (HK) Adrian Warr Senior Director

Barron Asia Limited Amit Chatterjee Partner Devin Ehrig Partner Garry Hunt Partner Bird & Bird Victor Tse Senior Managing Associate BNY Mellon Rebecca Lentchner Head of Government Relations APAC Brookfield Global Relocation Services Lisa Foote Vice President - Client Services Clifford Chance Alex Lloyd Foreign Legal Consultant (Maryland, USA) Colliers International (HK) Limited Chris Currie Senior Director, Agency Services Donny Tse Senior Manager, Corporate Solutions Piers Steward Tenant Representation, Office Services Covestro (Hong Kong) Limited Noemi Li Delivery.com Linda Wang Head of Sales and Business Development Iris Van Kerckhove Account Manager Ken Yim Account Manager Dell Computer Corporation Biga Luk General Manager & Managing Director Dell Hong Kong & Macau Eric Lau Head of Global and Public Segment, APJ Sophie Guerin Diversity & Inclusion Lead, Asia Pacific & Japan

Freudenberg & Vilene International Ltd Edmond Ng ISCR Director Walter Colgan Regional Sales Director, South Asia FTI Consulting (Hong Kong) Limited Cara O'Brien Senior Managing Director, Strategic Communications Grace Michallet Senior Director, Forensic Accounting and Advisory Services Gibson, Dunn & Crutcher Sebastien Evrard Partner Robert Pe Partner Global Payments Asia-Pacific Ltd Kate Hu Regional Director, Strategy and Marketing Hamilton Advisors Limited Vicki Chan Account Executive Hasbro Far East Ltd Michael Moriarty Senior Vice President, Finance & Operation Hongkong International Theme Parks Ltd Mariam Im Vice President & Chief Financial Officer Samuel Lau Vice President, Operations Hysan Development Company Limited Maggie Cheung Legal Counsel and Company Secretary Incheon Port Authority Yeo Jin Kang Managing Director

ISI-Dentsu of Hong Kong, Ltd Frankie Ming Sales Director Robert Cheung Business Solutions Manager Aries Yip Sales Manager

KPMG Erica Chan Senior Tax Manager

LinkedIn Eric Yee Head of Talent Solutions, Hong Kong & Taiwan

Merchant House International Ltd Loretta Lee Chairman Maxwell Bleakie Marketing Director Peggy Liu

New World Development Company Limited Jay Liu Senior Manager, Strategic Alliances Alex Lee Manager, Market Development William Martin Nicklaus Academy Director

Office Depot Asia Holding Ltd C.K. Ho Managing Director - GSO Asia Operations

ORC International Oliver Rust Managing Director - Asia Pacific

Ruder Finn Asia Ltd Charles Lankester Senior Vice President, Reputation Management, Asia Pacific

Sino-Singapore Guangzhou Knowledge City Investment and Development Co. Ltd Pai Chee Nee Senior Vice President Michael Wang Industry Development Manager William Leung Industry Development Executive

State Street Bank & Trust Co Annabelle Zhang Chief Administrative Officer of APAC FLOD Office

Team Building Asia (Hong Kong) Ltd Stuart Harris Co-Founder, Managing Director David Simpson Co-Founder, Training Director Francis Tam Sales Manager

Towers Watson Hong Kong Ltd Cheong Im Consultant

United Overseas Bank Limited Ophelia Lam Executive Director

Procter & Gamble HK Ltd Michael Yates Vice President

United Technologies Corporation Eric Chu Executive General Manager, Carrier Hong Kong Limited Thomas Cheng Director, Service, Otis Hong Kong and Macau Ken Chiu Finance Director, UTC Climate, Controls & Security, Hong Kong, Macau, Taiwan and Guam

Rowland Institute for Advancement Limited Daniel Harris Founder/ President

VF Asia Pacific Sourcing S. a r. l. Martin Duff Vice President

PricewaterhouseCoopers Ltd Craig Borengasser Manager

View our other members at: www.amcham.org.hk/memberlist

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COVER STORY

Walter Dias

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Engagement & Implementation Walter Dias, Managing Director (Greater China & Korea) of United Airlines and 2016 AmCham Chairman, outlines in his inaugural address an action-oriented plan focused on creating value for Chamber members and being a thought-leader in an advocacy agenda with the US, Hong Kong and Mainland China, particularly cities in the Pearl River Delta region, as well as with other selected countries in the region in the form of meetings and business delegations

By Kenny Lau

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Photos: Silver Image

wo years ago, the Board of Governors initiated an important strategic planning process to determine AmCham’s future role in Hong Kong – what it could be and should be – by the year 2020. It was a careful consideration of where Hong Kong is heading and what Chamber members expect over the coming five years, and it resulted in a road map for long-term success in providing high-quality services and further strengthening our role as a thought-leader in Hong Kong’s continued development as Asia’s world city. “Last year, under the inspiring leadership of my predecessor, Peter Levesque, we implemented the first of our five-year Strategic Plan, which focused on building an even stronger operational foundation, Board structure, and management team,” said Walter Dias, Managing Director (Greater China & Korea) of United Airlines and 2016 AmCham Chairman, in his inaugural address. “At nearly every Board meeting last year, we took substantial time to step back from our day-to-day concerns to discuss how to keep the chamber – and Hong Kong – ‘cutting-edge competitive,’” says Dias, who served two terms as AmCham Vice Chairman in 2014 and 2015. Business integration in the Pearl River Delta, Hong Kong’s super-connector role between China and the rest of Asia, the challenges ahead for Hong Kong’s financial, transportation & logistics, real estate, and education sectors, potential opportunities in “smart city” development, and the importance of “one country, two systems” to the continuing viability of Hong Kong are among the topics. “Last year, we didn’t stop with discussions. We acted. We tested new programs. We adjusted office staffing. We involved our leadership with the overall membership in more closed-door events. And much more,” he points out. “In short, we have laid the foundation for our 2016 focus on ‘engagement and implementation.’ We will be building on a firm foundation.”

“So the second year of our plan is action-oriented,” he adds. “We will have increased focus on creating value for our members and being a thought-leader in our advocacy with the US, Hong Kong and Mainland China, especially cities in the Pearl River Delta region, and with other selected countries in the region as required by our members and committees in the form of meetings and business delegations.”

The foundation A top priority during the year is to strengthen AmCham’s core operations to provide additional value to members through better network management and communications, with substantial investment into timely upgrades in IT capabilities, Dias outlines. “We now have webcasts of selected events available on our website and YouTube; our website and monthly magazine are more mobile phone-friendly; we introduced and refined our social media platforms; and we have tried to reduce email overload…by targeting member interests better, by shifting some announcements to social media, and by installing a system whereby members can select categories of their interest.” Dias also notes of moving communications, including content of AmCham publications and directories, toward electronic distribution so that people are “able to do much more from their mobile phones – to easily read event announcements, register for events, and to pay online.”

Chamber programs Another priority is the continued development of targeted programs, with the initial launch of “invitation-only” roundtable discussions as a sub-category of AmCham events. Roughly 60 roundtables were hosted last year, including a substantial portion of advocacy-focused discussions, and members have been enthusiastic about the tone and content of these smaller, select-group interactions.

And there were much more in China-related programs: business delegation trips to China meeting with top executives of benchmark Chinese companies; building institutional relationships with Chinese partner organizations in Hong Kong and China in support of AmCham members’ exposure to investment and other business development; and closed-door briefings with US and PRC officials on US-China relations.

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“Last year we met with officials from 16 different provinces and 10 key cities in China for business development discussions,” Dias notes. “And we expect further refinements to our program variety this year, especially as China’s broad reform and restructuring agenda will require close monitoring.”

Advocacy In advocacy, in addition to a

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substantially expanded number of roundtables with Hong Kong government officials, AmCham has greatly boosted its written submissions, following extensive research and drafting done by various committees in conjunction with the Board and the Strategic Group. These submissions were addressed to the Legislative Council, Environment Bureau, Transport & Housing Bureau, Food and Health Bureau, Education Bureau and the

Competition Commission. AmCham also submitted a 100-paragraph list of recommendations to Hong Kong Chief Executive CY Leung for his Policy Address based upon detailed input from Chamber committees. “Advocacy has been especially close to my heart, and part of advocacy is finding out the facts,” Dias says. “As Vice Chairman, I chaired our Government Relations Group, which coordinates meetings with top-level government officials.”

“This year we will continue to emphasize Hong Kong-China relations, regional and global trade, and Hong Kong’s competitiveness.”

China business Specifically, AmCham will continue to organize Doorknock delegations to Beijing, Shanghai, cities in the Pearl River Delta, and other locations as determined by members, Dias says. “We especially need to engage our members who have operations in Shenzhen and other PRD cities to ensure that we are providing relevant information and support for their business integration across the border.” Part of this, he notes, will track the near-future impact of increased road and rail connections between Hong Kong and the PRD. “We will continue soft advocacy meetings with PRD-based officials on how to balance cooperation and competition between

cities. We call this ‘co-opetition’ – and getting this right will be an important dimension of Hong Kong’s competitiveness in the region and globally.” “As always, we will be seeking improved market access and fair competition for business development in China and we will continue our efforts to link our members in the services sector with Chinese companies seeking to go global.” Dias also previews a larger focus on the changes under way in China. These include China’s 13th Five-Year Plan (2016-2020), its shift from a manufacturing to a service-based economy, its rollout of the Asian Infrastructure Investment Bank (AIIB) and One-BeltOne-Road project, its “national champion” policy for China companies and SOE reform, as well as the impact of the anti-corruption movement, RMB internationalization, financial sector reform, healthcare development and progress in environmental protection.

“Altogether, these changes suggest a sweeping sea change in China comparable to the opening up under Deng Xiao-ping,” he says. “We will all have to stay especially well informed and alert. AmCham will help us do that.

The United States In addition to the China agenda, AmCham will continue to lobby the US administration and Congress on the passage of the Trans-Pacific Partnership (TPP) which aims to establish a global trade framework with high standards vital to the US economy and workforce in the long run, as passage of the TPP will be an important indication of US engagement with Asia Pacific. “We’ll continue to follow and brief government interlocutors on US-China bilateral relations,” Dias says. “We’ll track closely the development of the

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US-China Bilateral Investment Treaty (BIT) negotiation, share our observations on trends of Chinese outbound investments, and promote the SelectUSA Summit in Washington DC in June later this year.” “Because of the US elections this year, we will be more low-key on our US tax reform advocacy, realizing that no one will be listening,” he adds. “We’ll come back to this next year with more enthusiasm and vigor, I’m sure.”

Hong Kong As in previous years, AmCham’s advocacy topics with the Hong Kong government are indicative of the continuing interest and effort in driving change deemed important to the city’s competitiveness. In doing so, AmCham reviews government priorities to strategize how best to muster business support for those areas recognized as truly useful and productive for business, while Chamber committees are instrumental in raising new issues for engagement. In financial services, as member companies have played a strong role in helping Hong Kong take a leading role in major developments in China and across Asia Pacific, “we’ll continue to work with the Financial Services Development Council, Financial Services and the Treasury Bureau, HK Monetary Authority, and Securities and Futures Commission,” says Dias. “Our goal is to help develop innovative financial products for the Stock Connect, a potential Bond Connect, and the Mutual Recognition of Funds.” On education, “our long-standing emphasis on the shortage of international school spaces has gained solid government response as new schools have opened up and others will relatively soon, taking a lot of pressure off admissions constraints, especially at the primary level,” he emphasizes. “We thank the government for its productive responses.” “We’ll keep monitoring the situation as we expect more international schools will be needed in Kowloon and the New Territories, especially as

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more expatriate families settle in those areas,” he adds. Labor issues have come to the fore, especially over the last year or so, Dias notes. There are already shortages in many sectors, including mid- and entry-level services as well as specialized white collar areas. “For that we’re looking to strategize with relevant government departments to attract, train, and maintain local talent and to facilitate talent recruitment from overseas – both are essential for Hong Kong’s international flavor,” he says. More specifically, there is an urgent need for an updated labor law based on international best practices corresponding to Hong Kong’s current and future demand, and for an educational emphasis on the importance of cultivating a global mindset among students, language capabilities (both English and Mandarin), opportunities for vocational training and jobs, and visas for potential overseas and Mainland students and interns for international and cross-border cultural exchange. The environmental front continues to be a focus area in which better planning for ground transportation efficiency, which could substantially alleviate traffic congestion, transportation cost and roadside pollution, is long overdue, Dias stresses. And AmCham will make practical recommendations on maximizing the use of road- and rail-based mass public transport and containing the growth of private cars. “As in past years, we will advocate a cleaner fuel mix, encourage conservation, and urge capitalizing on the green and healthy harbor-side recreation and business services,” he adds. The transportation and logistics sector remains a major pillar industry as it contributes the largest portion of Hong Kong’s GDP, Dias highlights. “As elaborated by my predecessor, the government simply cannot take a backseat in addressing the eroding competitiveness of the local port which supports the livelihood of many Hong Kong residents.” “On aviation, we welcome the Chief Executive’s plan to strengthen Hong Kong’s role as a major regional

aviation hub,” he says. “The Hong Kong International Airport is a very important infrastructure asset, and the Third-Runway System will create the necessary capacity to capture projected growth in air traffic of passengers and cargo trans-shipment in competition with nearby airports.”

Prospects “Our strategy for addressing each of our priorities is greatly assisted by five strategic groups of senior executives with extensive experience in the sectors,” Dias explains. “This institutional structure, which draws as well from the Board and Committees of the Chamber, has been invaluable in adding professionalism and best practice content to all of our advocacy.” “It is an honor and privilege to be in the company of so many friends and colleagues as I take over the rather daunting responsibilities of serving as AmCham Chairman in 2016,” he says. “I am delighted to have the opportunity to help lead this dynamic and influential international business organization to another plateau of excellence in its 47th year.” “I say ‘help lead’ because after serving two years as Vice Chairman, I know that AmCham is blessed with a team of strong leaders. We have an extraordinarily strong Board of 25 senior executives, and more than 60 committee chairs and vice chairs. We have a deep bench, and I look forward to drawing upon all of them as we begin another active year.” “As we step into this brand new year, AmCham will remain steadfast in its commitment to engage and work with all key stakeholders as we implement our ambitious five-year plan to create a better Chamber and a better Hong Kong,” Dias continues. “As always, we look forward to constructive interaction throughout the year with the Hong Kong SAR Government, the Legislative Council, the US Consulate General, the vibrant international business community, and Hong Kong’s entrepreneurs and community leaders.”

BUSINESS OUTLOOK

2015/2016 Annual Business Survey: Market Volatility and Challenges By Kenny Lau

he business environment in 2015 was extremely challenging for all sectors and industries in Hong Kong, and companies are much less bullish about the regional and global economy in the coming 12 months, according to AmCham’s annual year-end business outlook survey conducted in the last quarter of the year among 700 member companies of the Chamber (with a response rate of roughly 20 percent). Describing a number of key issues and challenges facing the business community of Hong Kong in the survey, business leaders and senior executives of multinational corporations as well as smalland medium-sized enterprises across an array of industries have generally pointed to a downward trend of business sentiments, although short of a bearish market or a significant contraction in the local economy. Some are “expecting to continue to grow,” but are also aware of the fact that “it will not be an easy road ahead.” The overall assessment of Hong Kong’s business environment of the past 12 months is that it was “not great, but not unstable.” However, a drop in market confidence should never be taken lightly as it creates a squeeze in liquidity of capital, which in turn leads to a shortage of investable funds in a given market. When there is an outflow of capital, an anemic market will surely follow – a reason for AmCham’s continued emphasis on Hong Kong’s competitiveness. Hong Kong is currently facing very strong external headwinds: a severe slowdown in the Chinese economy after a market crash in mid-2015, followed by a wild swing of the country’s currency, Renminbi or Yuan, and a hike of interest rates by the US Federal Reserve. The high cost of real estate in the local marketplace has essentially driven up the cost of doing business – and of nearly all aspects of living – in the city. Although significant risks continue to overshadow the global economy, particularly those of China in recent months, companies are confident about Hong Kong’s role as an international financial and business center, thanks to the rule of law and an efficient tax system. A fair and open market is the backbone of Hong Kong’s renowned status in global trade and investment. Combined with a world-class transportation system, Hong Kong is well-equipped to move forward on the world stage. As a gateway into and out of China, Hong Kong is a vital link connecting Chinese companies going global and international firms renowned for high-standard professional services in the legal, tax, accounting and finance fields. As Chinese enterprises continue to go abroad seeking investment opportunities overseas, Hong Kong is the preferred place where multinational services firms are sought for their experience and expertise in transaction of international business deals. The mission of fostering commerce should remain unchanged despite market uncertainty. AmCham has played a critical role in advocacy and served as a bridge between the governments of Hong Kong, Mainland China and the US in the past year. In the coming 12 months, it will continue to represent members for their best interest in meetings with senior Hong Kong government officials, continue to work with US officials in Hong Kong and in Washington, DC, and continue to engage Chinese ministries and departments in a dialogue for the promotion of international trade.

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BUSINESS SENTIMENT Market sentiment shifts downward: a lot less bullish but not yet bearish In assessing Hong Kong’s business environment of 2015, survey respondents have indicated worsening market conditions, with only two percent saying it was “very good” for business, a significant drop when compared to five percent just a year ago. About two-fifths of respondents (38 percent) said it was “good,” a decline of more than 10 percent from 2014, while another two-fifths (40 percent) saw business “unchanged,” an increase by six percentage points from last year. One-fifth (20 percent), as opposed to 12 percent in the previous year, said it was “unstable or getting worse.”

The outlook of Hong Kong’s business environment in the coming 12 months is also gloomy. Only two percent and 24 percent of survey respondents said they expect a “very good” and “good” year, respectively, in 2016. Last year, nearly 50 percent of those surveyed had such a level of enthusiasm about the economy. Interestingly, exactly half of all respondents (50 percent) forecast an “unchanged” business environment, signaling a sense of cautious optimism. The percentage of those who anticipated an “unstable” or “worsening” market rose from 16 percent in late 2014 to 24 percent in late 2015.

Please indicate your/your company's overall assessment of Hong Kong's business environment in the past 12 months:

How do you/your company consider the outlook of the business environment in Hong Kong in the coming 12 months?

Unstable/ Getting worse 20%

Unchanged 40%

Very good 2%

Good 38%

Unstable/ Getting worse 24%

Unchanged 50%

Very good 2%

Good 24%

Hong Kong’s role as a center of international business remains intact Although significant risks continue to overshadow the global economy, particularly those of China, companies in Hong Kong – MNCs and SMEs alike – remain relatively confident about Hong Kong’s role as a center for commerce. Regarding their business plans, one-third (33 percent) of survey respondents said they will “expand” their current operations in Hong Kong over the next three years; close to two-thirds (59 percent) said they will conduct “business as usual,” while the remaining (eight percent) will be “gradually reducing” their businesses in Hong Kong.

For multinational companies with their regional headquarters in Hong Kong, there is a predisposition to keep them in the city over the next three years, although less so than in previous years due to the rise of emerging markets in China and across Southeast Asia. Despite a trend of corporate consolidations as well as mergers and acquisitions, an overwhelming number of respondents (74 percent) said they intend to keep their regional headquarters here; while more than one-fifth (22 percent) were “not sure” whether theirs will remain, only a small minority (four percent) said “no” to the question.

What are your company's plans in Hong Kong over the next three years?

If your HK office is the regional headquarters, will it remain so over the next three years?

Gradually Reducing 8% Expand Business 33%

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Business as Usual 59%

Not Sure 22%

Yes 74%

No 4%

BUSINESS INFRASTRUCTURE Hong Kong is structurally sound; however, challenges become more pertinent On the assessment of Hong Kong’s competitiveness against those of other international cities in the region and other parts of the world, survey respondents have revealed a sense more or less the same as in previous years, while noting the city’s strengths such as low taxes as well as its weaknesses such as high costs of doing business. Others have also pointed out the rise of neighboring cities, including Shanghai and Singapore, as a threat to Hong Kong’s role and international status. Overall, a large majority of respondents believe Hong Kong is highly competitive or at least as good as any other cities across the globe. More than three percent regard the city as the “most competitive,” while 34 percent think it is “very competitive.” Over half (51 percent) say Hong Kong is on par with other international cities; those who see a “least competitive” city comprise 12 percent, an increase by six percentage points from last year. The number of respondents who deem Hong Kong “not competitive” dropped by two percent to reach one percent.

What is your assessment of Hong Kong's competitiveness vs. other international cities in the region & globally?

Not Competitive 1%

Most Competitive 3%

Least Competitive 12%

Very Competitive 33%

On Par With Other Intl Cities 51%

Core values and systems continue to provide a strong foundation The rule of law, a strong legal and regulatory system, a simple and efficient tax system, a well-established transportation system, and a fair and open market situated as a gateway into and out of China are strong attributes to Hong Kong’s continued success in playing a pivotal role as an international center of finance and commerce. However, Hong Kong is also plagued with the high cost of real estate, a shortage of international school places, and concerns about the political system. Satisﬁed (%)

Fair (%)

Transportation Links

58.76%

32.99%

7.22%

Not satisﬁed (%) 1.03%

Taxation

41.24%

48.45%

9.28%

1.03%

Anti-corruption

23.71%

53.61%

17.53%

5.15%

Legal & Regulatory System

20.62%

57.73%

17.53%

4.12%

Gateway from the rest of the World to China

18.75%

54.17%

22.92%

4.17%

Infrastructure

18.56%

59.79%

18.56%

3.09%

Gateway from China to the rest of the World

14.43%

61.86%

20.62%

3.09%

Intellectual Property Rights Protection

11.96%

56.52%

22.83%

8.70%

Fair competition/mkt access

11.58%

63.16%

20.00%

5.26%

Competitiveness of Executive Remuneration

11.34%

70.10%

15.46%

3.09%

Civil Service Eﬃciency

10.42%

41.67%

35.42%

12.50%

Mandarin Language Proﬁciency

5.38%

49.46%

34.41%

10.75%

Cost of doing business (i.e. wages, levies)

2.08%

50.00%

37.50%

10.42%

Availability of high quality personnel - Vocational

0.00%

40.63%

47.29%

11.46%

Availability of high quality personnel - White Collar

1.03%

51.55%

32.99%

14.43%

Eng Language Proﬁciency

5.21%

37.50%

34.38%

22.92%

Consultative Process for Govt Policies

1.06%

27.66%

43.62%

27.66%

Political System (Chief Executive & Secretaries)

0.00%

21.88%

42.71%

35.42%

Political System (Legco & District Councils)

1.03%

15.46%

44.33%

39.18%

Availability of Int'l School Spaces

1.04%

12.50%

41.67%

44.79%

Oﬃce Rent

1.03%

10.31%

30.93%

57.53%

Housing Cost

0.00%

6.19%

19.59%

74.23%

Very satisﬁed (%)

biz.hk 1-2 • 2016

BUSINESS VIABILITY Assessment of Hong Kong’s overall competitiveness compared to other international cities In the 2015 survey, member companies have pointed out a number of issues which have a direct impact on the city’s overall competitiveness, citing what has made Hong Kong an attractive place in which to do business and what has not in recent months and years.

Strengths: • Commercial environment • Ease of doing business • Employment opportunities • Freedom of exchange • Geographic location • Infrastructure • International awareness • Rule of law • Tax regime

Weaknesses: • Affordability of residential housing • Air quality/pollution • Availability of technical staff • Cost of doing business • Cost of office rentals • Development of innovation • Living environment • Political system/stability • Talent pool

Top concerns regarding Hong Kong’s business environment in 2016 • Overall cost of doing business • Cost of office/housing rentals • Shortage of talent/personnel • Regional & global economic development • Political situation/system of Hong Kong

• Leadership of government • Hong Kong’s competitiveness globally • Government policies on businesses • Local policies & relationships with China • Land supply/property market development

What are your/your company's top three concerns regarding doing business in Hong Kong in the coming 12 months? 35% 30% 25% 20% 15% 10% 5% 0%

biz.hk 1-2 • 2016

ADVOCACY & GOVERNMENT RELATIONS AmCham is the principal voice of the international business community in Hong Kong For an advocacy agenda, survey respondents are most interested in the focus on Hong Kong’s regional role in Asia Pacific, followed by Hong Kong’s “One Country, Two Systems” regarding political governance and the rule of law, in addition to HK-China trade and economic relations. No less important are education and human resources, covering school places, talent availability, recruitment, workplace diversity, training and retention. Other issues, such as those of the environment, financial services, transportation and logistics, and information technology, are more industry-specific. Please indicate your areas of interest for the HK Advocacy Agenda in meetings with government officials: (Choose one or more) Transportation and Logistics Tourism Intellectual Property Rights Information & Communications Technology Financial Services

22% 10% 11% 21% 25%

Education & Human Resources

47%

Environment

37%

HK’s development as a Smart City

37%

HK’s regional role in Asia Pacific

62%

HK-China trade and economic relations

44%

“One Country, Two Systems”

48%

In terms of the advocacy agenda with staff of the US Consulate General, visiting US government officials and Congressional delegates in Hong Kong and with key officials of US departments and agencies during the annual “Doorknock” trip to Washington DC, US-China bilateral relations are by far deemed the most critical issue on which AmCham can represent the business community and maintain a dialogue. Trade & investment initiatives such as the Trans-Pacific Partnership and SelectUSA are where numerous business opportunities will derive, hence a growing interest among member companies. Please indicate your areas of interest for the US Advocacy Agenda in meetings with staff of the US Consulate General, visiting government officials and congressional delegates: (Choose one or more) Taxation

46%

Trade & Investment

51%

Cybersecurity Regional Security US-China Relations

39% 27% 67%

biz.hk 1-2 • 2016

CHINA AFFAIRS “Gateway into China” & “Gateway out of China” Cities of Mainland China in which companies of survey respondents maintain a branch office(s) spread across the country. Shanghai, Beijing, Guangzhou, Shenzhen and Chengdu are where MNCs are most likely to have their corporate presence. Only about a quarter (24 percent) of companies in the survey indicate that they have no establishment of an office in China. In which city (or cities) of Mainland China does your company have branch office(s)? (Choose one or more) Beijing Chengdu Guangzhou Shanghai Shenzhen Xian Qingdao Xiamen Hangzhou Shenyang Nanjing Hefei Chongqing Wuhan Dongguan Tianjin Zhuhai More than 50 cities Most part of China None

57%

20% 35%

69% 32% 2% 4% 1% 4% 1% 1% 1% 4% 1% 1% 2% 1% 1% 1% 24%

Market access and fair competition in the developing markets of China are the two major areas of interest among survey respondents, while many find US-China relations equally significant to the growth prospect of their respective companies in the world’s second largest economy. Chinese enterprises going abroad seeking investment opportunities is another target area among companies in Hong Kong, particularly those engaged in professional services. Environmental protection and intellectual property rights are also viewed as issues for further discussion.

In terms of a target city for a prospective AmCham delegation, Beijing is number one, with nearly 70 percent of survey respondents showing a great interest in establishing closer ties in China’s capital city. Shenzhen comes in second, although far behind Beijing. Noteworthy is the fact that cities in western China are gradually gaining momentum as they continue to attract foreign investment in a largely untapped market. Surprisingly, little interest is shown for Shanghai, perhaps due to a saturated market where many companies are already established.

Please indicate your areas of interest for the China advocacy agenda: (Choose one or more)

To which city (or cities) in China would your company be interested in joining a delegation? (Choose one or more) Dalian

National Champion Policy Draft NGO Law China's National Security Review

Shanghai

9% 11% 19%

Chinese Companies Going Global US-China Relations Environmental Protection Intellectual Property Rights Fair Competition Market Access

biz.hk 1-2 • 2016

53% 37%

Fuzhou

8% 13%

Xian

13%

Chengdu 50%

Shenzhen 59%

11%

Chongqing Jinan & Qingdao

42%

Wuhan Tianjin

47%

Beijing

15% 19% 36% 70%

“One Belt, One Road” Initiative The “One Belt, One Road” initiative, also known as the Belt and Road initiative, is a plan by the Chinese government to create a cohesive economic zone covering southeast, central and west Asia, the Middle East, and extending to parts of Europe. Over a third (37 percent) of survey respondents believe it will have a positive impact on their businesses, while two-thirds (62 percent) think of it neutrally.

How will the Belt and Road Initiative impact your business? Negatively 1%

Positively 37% Neutrally 62%

Because the Belt and Road initiative aims to broaden trade and investment beyond international boundaries, there are many opportunities for professional services firms to “get in the game.” Nearly half (49 percent) of all respondents say their current business lines can add value to the on-going development, noting market intelligence, talent-related services, due diligence and legal expertise as areas for engagement. What are your strengths in markets covered by the Belt and Road Initiative? (Choose one or more) Telecommunications Incorporation service Tax planning Public relations Project financing Legal service Due diligence Talent service Market intelligence Current business

2% 2% 7% 9% 9% 16% 18% 22% 44% 49%

How would your company participate in the initiative? Advertising Inviting Chinese companies to invest Being an equity investor Establishing a joint venture

2% 6% 11% 16%

Providing professional services

80%

How can AmChamHK serve your company amidst the initiative? Delegations Match-making meetings

35% 29% 73%

Seminars Advocacy

43%

For firms in Hong Kong planning to participate in the Belt and Road initiative, a large majority (80 percent) will do so by offering their line of professional services. Others will consider establishing a joint venture with their Chinese counterparts, while a minority will tap into the market through equity investment, either by inviting Chinese enterprises to make an investment or becoming an equity investor in Chinese companies. Given Hong Kong’s tremendous experience in global trade and investment, it is not surprising that firms are taking a proactive approach of engagement in what is widely touted as one of the largest regional frameworks of economic cooperation.

biz.hk 1-2 • 2016

TAIM AmCham 210x285 Dec 2015.pdf 1 12/15/2015 10:51:18 AM

FINANCE & ECONOMICS

The circuit breaker in China – a “trading curb” designed to calm fears of a market collapse by affording a “cooling” period before trading of stocks is resumed – was heavily criticized for exacerbating market volatility after it was triggered for the first time on January 4 and again on January 6. The four days between introduction and suspension of the mechanism on January 8 are a reflection of the current state of investor confidence in the Chinese stock markets and China’s economy

By Kenny Lau

biz.hk 1-2 • 2016

ollowing a mid-summer Chinese stock market crash in 2015 when a total value of some 40 percent diminished at one point, an unfinished market correction in stock prices appeared to have forged right ahead, crossing over to the new year, despite China’s repeated attempts to alleviate pressure through purchases of domestic financial assets and to guard against an “unreasonable plunge” in share prices through a six-month ban on selling stocks of listed companies among major shareholders owning five percent or more. As the ban on selling shares in China’s multitrillion-dollar stock market from July ended earlier, a mechanism called market circuit breaker was introduced on New Year’s Day. The purpose was to put a halt to a sudden and drastic swing of stock prices in the Shanghai Stock Exchange, Shenzhen Stock Exchange, and China Financial Futures Exchange, thereby maintaining market stability in a way very similar to other leading stock markets worldwide. The circuit breaker in China – essentially a “trading curb” designed to calm fears of a market collapse by affording a “cooling” period before trading is resumed – would be activated for 15 minutes when the CSI 300 Index moved up or down by five percent or more, and for the remainder of the day if it fluctuated by seven percent or more. It was put in place to stoke investor confidence but only lasted several days before it was scrapped amid a panicky market in early January. The circuit breaker was heavily criticized for exacerbating market volatility after it was triggered for the first time in the afternoon on January 4 and again on January 6 less than 30 minutes after the Chinese stock markets opened. The CSI 300 Index was down 11.7 percent within the first four trading days of the year. And it was reported two weeks later that Chairman of the China Securities Regulatory Commission (CSRC) Xiao Gang had offered to resign – a report CSRC said was inaccurate.

Criticism & reality Critics have pointed to the “magnet effect” of the circuit breaker due to the aspect of a “deadline” before activation as a cause for investors to frantically unload their shares of company stocks, and many agree the expectation of calming market chaos using a circuit breaker appeared to have had the opposite effect this time. Other have also categorized the threshold of market fluctuation for activation of trading suspension to be comparatively low, given how the Chinese stock markets had dropped more than five percent on a single trading day some 30 times and more than seven percent nearly a dozen times throughout 2015. Perhaps the limits could have been set slightly higher; but doing so could have

biz.hk 1-2 • 2016

CSI 300 Index - Performance 5,000 4,000 3,000 2,000 1,000 0 2011

2012

2013

2014

2015

2016

Source: China Securities Index Co, Ltd

made no difference, while a high threshold would have defeated the purpose of a circuit breaker altogether. What’s clear and more important, in turn, is that it says a lot about investor confidence in the Chinese stock markets and China’s economy at the moment. “Any new circuit breaker, no matter how well crafted, will not work well in the troubled period that is immediately ahead,” Gordon G Chang, an expert on China, wrote in Forbes magazine. “The overriding reality is that Chinese stocks, despite the carnage in the markets [in early January] and last year, are still overvalued. The adjustment downward will therefore be especially difficult.” “And the overvaluation is not insubstantial,” Chang noted in his article. “The median Chinese stock listed on the Shanghai and Shenzhen exchanges is trading at over 60 times earnings. That is more than three times the median multiple of stocks on the New York Stock Exchange. In India, a country with far better growth prospects than China, the average multiple is under 25.” “The Chinese economy is trending downward fast, which means stocks prices should tend to fall quickly, even in the unlikely event that stocks can keep their current multiples,” he further said. “Moreover, money is gushing out of the country and the currency is falling fast, so the Chinese will be looking to unload Shanghai and Shenzhen stocks.”

Challenges & effects The implementation – and suspension just four days after the initial debut – of China’s circuit breaker, nonetheless, has highlighted concerns among investors over emerging risky “consequences” amid the market conditions following the introduction of the mechanism to the Chinese stock markets, reflecting a negative impact particularly on securities firms, according to an analysis by

Moody’s Investors Service on the decision by China’s regulators to scrap the circuit breaker. Firstly, by cutting off trading in the stock market, whether planned or not, it fuels “the threat of a sharp reduction in market liquidity,” analysts at Moody’s point out. “Once the circuit breaker is triggered, trading stops for all stocks, including blue-chips stocks, which are the most liquid, closing down a key channel that investors could use to dispose of their shares.” In other words, when liquidity – hard cash or otherwise – dries up, transactions come to a halt, bringing the market down to its knees. Secondly, it challenges “the risk controls of securities companies with respect to their margin loans and other stock-pledged financing,” meaning firms engaged in securities trading are vastly impeded in their ability and flexibility of “mitigating losses in a volatile market” when a circuit breaker is activated. It is a scenario in which firms become unable to offload collateral and securities purchased with margin loans in case borrowers fail to honor their obligations, Moody’s explains in the report. Furthermore, not only does it limit liquidity as the circuit breaker sets in, but it “threatens to drastically reduce market trading volume as well as the brokerage commissions of securities companies” as a result, Moody’s says. The trading volume of stocks in China on January 7 (one day before the circuit breaker was scrapped), for instance, was down to RMB 188 billion because of the shortened trading time, falling by more than 80 percent from the average daily volume of RMB 1.05 trillion in 2015. The current environment for securities companies in China remains challenging as it is for anyone trading in the stock market. The good news, as noted by Moody’s, is that “securities companies still maintain material collateral buffers even after the sharp market correction seen in

biz.hk 1-2 • 2016

CSI 300 Index - Top 10 Constituents (as of December 2015) Ticker

Name

Sector

Exchange

Free Float Adjusted Market Cap (CNY Bil)

Weight

601318

Ping An Insurance (Group) Company of China Ltd

Financials

Shanghai

390

3.97%

600016

China Minsheng Banking Corp Ltd

Financials

Shanghai

284.9

2.90%

601166

Industrial Bank

Financials

Shanghai

227.7

2.32%

000002

China Vanke Co Ltd

Financials

Shenzhen

189.6

1.93%

600036

China Merchants Bank Co Ltd

Financials

Shanghai

185.6

1.89%

600000

Shanghai Pudong Development Bank Co Ltd

Financials

Shanghai

170.4

1.73%

600030

CITIC Securities Co Ltd

Financials

Shanghai

152.3

1.55%

601328

Bank of Communications Co LTD

Financials

Shanghai

151.7

1.54%

600837

Haitong Securities Company Limited

Financials

Shanghai

128

1.30%

601288

Agricultural Bank of China Co Ltd

Financials

Shanghai

123.5

1.26%

Source: China Securities Index Co, Ltd

[those] four trading days.” The average margin maintenance ratio – market value of cash and securities in hold minus expenses – among Chinese securities firms remained high at 245 percent, with margin loans totaling RMB 1.12 trillion as of early January, indicating “the industry’s improved risk management and resilience.”

All-or-none? The question then becomes whether China’s circuit breaker was inherently flawed in design or whether it was just bad timing. There are proponents and opponents on both sides of the coin, arguing how, on the one hand, it prevented the market from sliding down further and, on the other, it prompted portfolio and fund managers to sell needlessly before it was deemed too late. Regardless of market sentiments, a more refined circuit breaker could potentially provide a safeguard in the long term. In fact, there are pre-existing rules governing trading on individual stocks. And these rules are more specific than the “all-or-nothing” approach prescribed in the circuit breaker, including the “limit-up limit-down” scheme preventing a stock from being traded 10 percent above or below its previous closing price, as well as the “T+1” rule which bans selling of shares bought on the same day. The circuit breaker, in retrospect, might have been counter-intuitive but it could be updated to complement existing rules to become far more effective. Circuit breakers in stock markets worldwide have had a relatively short history, and they vary in each market. The idea was first contemplated in response to the market crash of October 1987, with the Dow Jones Industrial Average (DJIA) falling 508 points, or over 22 percent, in a single day. And, in October 1989, a circuit breaker was implemented in the New York Stock Exchange “to reduce volatility and promote investor confidence.”

biz.hk 1-2 • 2016

The first circuit breaker in the US was initially based on movement of actual DJIA points, but it switched to the current percentage-based system in 1997. The US Securities and Exchange Commission in May 2012 approved the “Limit-Up Limit-Down” mechanism to “prevent trades in individual securities from occurring outside of a specified price band…triggered by large, sudden price moves in an individual stock.” The mechanism calls for a gradual halt rather than an abrupt stop. The price band is set at a percentage level above and below the average price of a given stock in the preceding five-minute trading period. Price bands are five percent, 10 percent, 20 percent, or the lesser of $.15 or 75 percent, and they double during the opening and closing hours of the trading day. A five-minute trading suspension is activated if the price of a stock doesn’t move back within the price bands within 15 seconds. Market-wide circuit breakers are also in place in the US “for coordinated cross-market trading halts if a severe market price decline reaches levels that may exhaust market liquidity…as measured by a single-day decrease in the S&P 500 Index.” The thresholds are seven percent (Level 1), 13 percent (Level 2), and 20 percent (Level 3) – all set by the markets at point levels that are calculated daily based on the closing price of the S&P 500 Index of the previous day. If a market decline reaches Level 1 or Level 2 before 3:25 pm, a 15-minute pause kicks in, while the market-wide circuit breakers will not be triggered at or after 3:25 pm. A market decline at Level 3 at any time during the day will halt market-wide trading for the rest of the day. A halt in trading amid high market volatility can make a difference because “investors are given time to assimilate incoming information and the ability to make informed choices,” especially when trading occurs so quickly and colossally in a world more automated than ever.

TRADE & INVESTMENT

Years

of WTO, What’s Next? Appointed one of the four deputy director generals of the World Trade Organization in 2013, Karl Brauner, formerly Director General for external economic policy in the German Federal Ministry of Economics and Germany’s representative in the Trade Policy Committee of the European Union, talks about the extensive efforts to facilitate trade on a global level for growth and development

By Channy Lee

ince it was founded in 1995, the World Trade Organization (WTO) has shown extensive efforts to facilitate further trade on the global level, extend benefits of trade as a tool for growth and development, and promote multilateralism. 2015 was a year of commemoration for the international organization’s efforts in the past 20 years. One of the events marking WTO’s 20th year anniversary was the 10th Ministerial Conference held on December 15-18, 2015 in Nairobi, Kenya. Four days of intensive negotiations resulted in multilateral agreements commensurate with the significance of what became the first Ministerial Conference in Africa, another stretch of moving forward from the Doha Development Agenda. “I must say I had not expected that we would have success in Nairobi because when we were preparing for the conference, there was so much antagonism among the members that I actually thought multilateralism as a whole is in danger,” Karl Brauner, Deputy Director General of WTO, reflects in a recent discussion at AmCham. “And I was very pleased when we had a positive outcome in Paris [at the United Nations Climate Change Conference],” Brauner says, highlighting two decades’ worth of work by the organization and what lies ahead. “Before, we had positive outcomes from the sustainable development goals for the United Nations in New York, and now we have the positive result of Nairobi, so there is still hope for multilateralism.”

A strategic role Brauner was appointed one of the four deputy director generals of the WTO in 2013. He previously served as Director General for external economic policy in the German Federal Ministry of Economics and as Germany’s representative in the Trade Policy Committee of the European Union.

biz.hk 1-2 • 2016

His role in the WTO Secretariat revolves around budget, finance, human resources, legal affairs and the dispute settlement system. However, he has long been closely involved in trade policies on the international level, taking part in all WTO ministerial conferences since 2001, including the one in Hong Kong in 2005. Despite being absorbed in internal matters of the organization, he now plays a much more active part in trade negotiations. The role – not bound by the identity of being a representative of any particular country – has allowed him to take part in institutional growth and to understand what he believes to be recipes of success in multilateral discussions. His observation is that successful negotiations in the last few years are often the results of stand-alone discussions on a deal itself for which involving parties can come to a compromise without overreaching to other issues. And Brauner applauds the efforts made by the WTO as well as its member states. “I’m definitely convinced that trade is going to be freer and that trade is going to be more efficient,” he says.

Milestones The Trade Facilitation Agreement, the first multilateral trade agreement under the WTO, was concluded at the 9th Ministerial Conference held in Bali in 2013. Once implemented, the agreement is expected to set forth a series of measures intended to move goods across borders expeditiously, while reducing total trade costs by more than 14 percent. Other achievements of equal economic importance include the Agreement on Government Procurement in 2014 and the expansion of product coverage detailed in the Information Technology Agreement in 2015. The “most significant outcome on agriculture,” as touted by WTO Director General Roberto Azevedo, is the recent elimination of export subsidies for farm products. On the organizational level, Brauner

biz.hk 1-2 • 2016

Karl Brauner

points out accessions of new member states and success of the dispute settlement system as milestones for the WTO. In addition to the founding members, there are now 34 members having acceded to the WTO since its establishment, while the organization’s dispute settlement system has grown past the receipt of its 500th case. Brauner has set out plans to make the dispute settlement system more efficient. The system has recently been overloaded beyond its capacity and has become a victim of its own success. It currently takes from 15 to 18 months for a single case to be resolved. Even with a growing influx of cases, he and his team seek to maintain the speed and quality of service. A believer in the bright prospect of free trade, Brauner is optimistic that international trade will continue to lift the quality of life for many. “It is global trade that gives consumers a much

wider choice; it is trade that helps to achieve the Millennium Development Goals and lift people out of poverty. It is only through these global exchanges that people can earn a decent life in dignity.”

The art of negotiation In a critical assessment of WTO’s 20 years of facilitating international trade, Brauner notes that antagonism between members is a challenge and one of the factors that have slowed down the process of producing results. The most apparent example is over the course of the Doha Development Round. Initiated in 2001, the Doha Development Round was launched with the ambition of allowing every member state involved to gain something of their interest. With its grand objective,

Growth in volume of world merchandise trade and real GDP, 2007-14 (annual percentage change) 15 Average export growth 1990-2014

0 Average GDP growth 1990-2014

–5

–10

–15 2007

2008

2009

2010

World trade volume (average exports and imports)

2011

2012

2013

2014

World real GDP at market exchange rates

Source: WTO Secretariat for trade and consensus estimates for real GDP at market exchange rates.

deals were safeguarded with the rule that nothing is agreed until everything is agreed. Although the rule was meant to strengthen negotiators, it essentially had the opposite effect of preventing any conclusion from being reached as negotiators took hostage of one issue for another, Brauner explains. After 14 years since its initiation, the WTO continues to strive to conclude the Doha Round of negotiations on trade liberalization. As antagonism between countries remain under the architecture of multilateral negotiations, and because the WTO is a member-driven organization, conflicts as such are precisely the reason that the future of WTO will be decided by members of the organization, Brauner points out. “I cannot tell you what is going to happen in Geneva because nobody knows,” he explains. “We are not in a position where we could say ‘Okay members, now you are back, and here’s your agenda. You should now look at this and that.’”

“I always say we are humble servants of the members,” he adds. “And our influence is that we privately tell them what they should be doing, and sometimes they listen and sometimes they don’t. We should look at the individual issues, and what issues we are looking at will be determined, hopefully, by you.”

Multilateralism The notion of multiple countries working cooperatively on a given issue has often been one linked to a lack of effectiveness and efficiency. Especially amid burgeoning “bilateralism” and “plurilateralism,” the future of multilateralism is questioned for its capacity for substantial achievements despite the presence of institutions like the UN and the WTO. But Brauner feels otherwise. “What is going to happen is, we’ll have so many bilateral and regional agreements that are paired with a variety of rules, particularly rules of origin; and when you look at the reality of production along value chains, you’ll find that it

becomes very complicated to rip the benefits afforded in these bilateral or regional agreements.” “Therefore, my prediction is that at one stage, they will all come back to the WTO, look at the best practices out of the bilateral and regional agreements, and multi-lateralize it.” In accordance with the auspicious view, there is precedent of ideas tested through bilateral trade agreements and brought to the multilateral system for discussion of widening the range of members. The opportunity of multi-lateralizing a deal surfaces once consensus is reached bilaterally and plurilaterally involving a much smaller group of parties. “I think we are in a transition period where these bilateral or regional trade agreements will give members an advantage, but eventually it will be multi-lateralized on the basis of the best practices,” Brauner believes. “So it may not be in our favor at this point in time, but this is only a transition period. When you’ve done this once, it’s easier to do it a second time.”

biz.hk 1-2 • 2016

HUMAN RESOURCES

biz.hk 1-2 • 2016

24th Annual AmCham Human Resources Conference

The Innovation Imperative: Igniting Advantage Through People and Culture Platinum Sponsors:

Gold Sponsor:

Digital Partner

biz.hk 1-2 â&#x20AC;˘ 2016

Bronze Sponsors:

Media Partner:

Allen Ma

KEYNOTE ADDRESSES:

Innovation Comes From Everyone By Nan-Hie In

usiness owners, human resources practitioners and other professionals gathered at AmCham’s 2015 Human Resources Conference to absorb insights from cutting-edge business experts, scholars and human resources leaders on the best practices and traits of the most forward-thinking companies worldwide. Innovation from a human resources perspective was the key focus this year. Allen Ma, CEO of Hong Kong Science and Technology Parks Corporation, began the day with his opening speech discussing the importance of innovation as well as his model for innovation. In the age of disruption, particularly those driven by technology, no organization is immune to transformation, and ill-prepared companies risk obsolescence. Others adapt and thrive by capitalizing on shifts in this new business environment. Companies must “innovate or die,” Ma says.

According to The Conference Board CEO Challenge 2015 survey where leaders in various economies identified their most critical challenges, innovation ranked seventh amongst those in Hong Kong. “That is very worrying; if you are one of those CEOs, you will be in trouble soon,” Ma cautions, calling on leaders to make innovation a higher priority. He highlights a four-pronged framework – recruit, engage, accelerate and procure – to enhance innovation in companies.

Recruit, engage, accelerate & procure Ma advises companies to harness innovative ideas from talent within and outside the company. Great talent is a key differentiator between companies at the forefront of disruption and non-innovative firms under siege from disruption. It underscores the importance and impact of human capital on business performance.

A benefit of recruiting talent for ideas in-house, or ‘intraprenuership,’ is that those ideas can reach the market quickly, thanks mostly to an existing internal infrastructure. In contrast, start-up entrepreneurs often have to seek external help and financing to roll out their product, which can take time and become a dreadfully long process. The origin of Sony’s popular PlayStation video game console, Ma cites, is a fine example of successful ‘intraprenuership.’ It is a story about a young Sony engineer playing Nintendo video games with his daughter and realizing the prospects for the Japanese firm. While most executives brushed off his idea at the time, one was receptive, and the rest is history. “The key was that one of the executives listened to this young guy’s idea,” Ma says, noting four golden rules in empowering staff to embrace entrepreneurship. Firstly, finding ideas internally and rewarding creativity help companies ‘crowd-source’ ideas from all talent available in their organization; secondly, setting an innovation culture by making top management more accessible and paying attention to young staff breeds entrepreneurship. Thirdly, rewarding failure is an essential part of the learning curve. “Failures are finger posts on the road to achievement; with every failure an organization is one step closer to success,” Ma explains, adding that errors offer valuable insights about what to do and what not to do while saving time and resources in future endeavors. Lastly, companies should consider IBM’s ethos that “even elephants can dance.” Employees of large corporations often bemoan that innovation is stifled at giant institutions – a belief Ma refutes because there are many stories about successful corporate turnarounds, including IBM in the 1990s led by CEO Lou Gerstner. “It’s about leadership and how the leader can rally support from the management team; it’s also about having an approach and strategy that is clearly communicated down to the working level, which makes a difference,” he says.

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By the same token, if companies cannot source innovative ideas from talent in-house, they need to recruit and engage outsiders instead, Ma says, highlighting competitions hosted by various companies in the US for which anyone offering the best solution to a problem are financially rewarded. A recent example is when General Electric launched a 3D printing challenge in 2013 for a redesign of a metal jet engine bracket that would reduce the weight by 30 percent. A solution concocted by Indonesian engineer M Arie Kurniawan was picked as the winner for a prize of US$7,000 in the competition which drew nearly 700 entrees from 56 countries. The growing numbers of start-ups can also be a source of innovation: a number of companies in Hong Kong offer start-up accelerator programs such as Swire Group’s Blue Print Program and Accenture’s FinTech Innovation Lab to help small businesses grow and to discover new talent in the arena. Corporations can often benefit by investing in early stage start-ups. “[Startups] come with creative ideas you have never thought about,” Ma says, adding that such knowledge sharing can lead to a new solution or insight. When no innovation merges despite repeated attempts, companies could consider buying solutions.

“Super practices” Elaborating on leadership behavior and their impact on innovation in the closing keynote address, Dr Alison Eyring, CEO of Organization Solutions, emphasized the role of human resources practitioners in driving business growth and innovation across industry sectors. Eyring says human resource practitioners can do so by engaging in communications with leaders, outlining five “super practices” leaders can exercise regularly to enhance business performance, and these are based on three decades of extensive studies on what drives individuals, teams and organizations. Firstly, leaders can drive innovation by helping staff understand what they need. “Be very clear on what innovation means

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to the business, why it matters, and ensure it is expected from employees,” Eyring says. And they need to talk about it regularly with everyone across the organization. “I encourage those on the leadership team to think about how much time on the agenda is spent on discussing innovation,” she adds. A shared vision with a visible commitment needs to be created to achieve a goal as a team. “Every leader within an organization, whether it’s a first-line supervisor or someone running a global business, has opportunities to pull together a team to solve extraordinary problems,” she says. An example is that of a cosmetic surgeon in the US who had the vision for a ground-breaking facial reconstruction surgery, Eyring cites. By recruiting a team of over 100 surgeons and spending much time on preparation, the doctor pulled together a team and successfully operated a facial transplant for a victim whose face was burned beyond recognition in a fire. “These people had never done this surgery and they worked overtime in practicing on cadavers,” she points out. “So, where are the safe places to practice so that your team can rehearse and be ready?” Thirdly, Eyring suggests that companies bring outsiders in – from customers to competitors – as they can yield invaluable insights. Many tech firms such as Microsoft, for example, have design centers or dedicated areas for customers to try out prototypes deriving from the latest technology, while a team of staff observe and obtain feedbacks from interaction of customers with the product. Another “super practice” is an obsession with excellence, Eyring says, recalling her experience with Ferrari a few years ago when she observed drivers and their teams engaged in constant monitoring of the performance, measuring the temperature of the engine and the number of tires burned using the latest computer technology. “After the race, they studied the data to think of ways to improve [performance],” she says, signifying the need to understand what drives your business performances and encouraging HR professionals to do the same by

Alison Eyring

thinking how they can create visibility to what matters and whether they should employ metrics to drive excellence. Lastly, a great work environment which makes your employees intrinsically motivated and their jobs interesting is conducive to nurturing ideas. Among the characteristics, autonomy and challenges on the job are the most important factors having an impact on innovation. This is especially evident in the services industry. “Being able to give staff autonomy to make decisions is important for creating a great experience – it also allows innovation at the point of interaction with the customer,” Eyring explains, noting how a housekeeper took the initiative to delight guests at a Disneyland resort by putting stuffed animals bought there in a special arrangement in their rooms. Business leaders are encouraged to empower staff with decision-making responsibilities as it helps employees grow and produce great work; and HR practitioners are encouraged to work with business leaders to engage in these “super practices. Although leaders often claim they do, employees sometimes have a different view. “One thing HR needs to do is help employees have a bigger voice – and we have to help leaders hear,” Eyring says.

PANEL DISCUSSION:

People Power By Leon Lee

well-presented panel of experts from various fields took the stage at the 2015 Human Resources Conference to share their views and experience on the latest innovations and thinking in HR practices and trends driving change. Each of the panelists agrees that people play the most important role in pushing innovation, and panel moderator Tony O’Driscoll, Regional Managing Director of Duke Corporation Education, calls people “the lifeblood of innovation.” With people and innovation, there are three areas to consider – “mindset,” “skillset” and “toolset.”

The right culture Mindset has to do with the culture and belief within an organization. While culture is a very important element in any company, it’s also the slowest thing to change when a company tries to become more open and innovative. When HR firm Mercer made the decision to establish innovation as a core value, it had taken several tries before finding one that worked. “The one thing that’s probably made a difference to us is recognizing that really disruptive innovation was going to happen inside our organization,” explains Kate Bravery, Global Solutions Leader, Talent Business at Mercer. “So rightly or wrongly, we made the choice to set up four innovation hubs three years ago, and they stimulated 40

different ideas. We’ve got six different products we’ve incubated that are now being commercialized as a result of that.” “By doing that, it forced us to get our tool kit around innovation right. We’ve been able to play and try things and fail – something we found really hard to do in a performance-driven organization,” she adds. “And we’ve been able to cycle people in and out so they get to feel a little differently. We got a taste of being in a start-up in a big firm. For us, that was the catalyst to change and that is beginning to influence back into our organization.” The complicated transition from wanting to innovate to actually making it happen was something that Goldman Sachs (Asia) had experienced as well. “Most of us think that innovation is important, but how to actually get that idea into practice is what a lot of HR professionals need to do, to shape the vision,” says Paul Choi, Head of Goldman Sachs University Asia and Executive Director of Human Capital Management. “One of our roles is to help the organization shape the vision from where we think we want to be to it actually happen. We tried many things but the one thing that I want to highlight is empowerment,” he says. In an effort to encourage younger staff to come up with new ideas that senior staff would find compelling, the company decided to set up a forum where they felt their voices would be heard, and ran a pilot program called the Next Gen Project in Japan, a country known for a conservative culture in terms of the relationship between junior staff and senior management. The company chose 20 young analysts and gave them the mandate to talk and come up with three recommendations to help the firm better embrace the younger generation. They were guided through research on millennial behavior within the company in Japan as well as globally, and were given the opportunity to present their ideas to the executive committee of the Japan office.

Members of the executive committee were told that they could ask questions, learn more about the recommendations and save them for future implementation but they could not say no to the ideas. In the end, that was not necessary as the committee really liked the recommendations from their younger staff. While some companies look internally to adjust their mindset, others would look elsewhere. Annie Qiao, Asia Pacific Learning & Development Leader at EY, says her firm has studied the features of the 21st-century companies and discovered that one key feature is they have a much more direct relationships with their customers and clients, like Uber. “In our organization, we focus a lot externally on our clients’ need rather than our strength or what we can do,” Qiao points out. “We need to know our strengths but we need to focus much more on our clients’ needs and collaboration and cross-business units. That’s the way we see innovation and ideas can come from naturally, from the clients’ needs.”

The right people As essential as it is to have the right culture and belief in a company, so are the skills and talents of the people within an organization. Simon Galpin, Director-General of Invest Hong Kong, uses Hong Kong’s recent boom in start-ups to highlight the importance of access to talents. In the last 10 months, the number of global start-ups in the city has grown by 46 percent, the amount of people employed by start-ups has risen by over 50 percent, and the number of seats at co-working spaces has increased by 60 percent. These numbers are showing that people are choosing different types of employment and career paths in Hong Kong. “It’s really fascinating to see how the big corporates recognize this opportunity,” says Galpin. “You do have DBS, AIA, Swire and Accenture wanting to get close to this tremendous pool of talent [through

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(From left): Tony O’Driscoll (moderator), Kate Bravery, Nellie Chan, Annie Qiao, Simon Galpin and Paul Choi

accelerators and incubators] – perhaps recognizing they can’t necessarily through their traditional employment practices recruit these people. But what they can do is to set up a mechanism where they can get access to them and I think that’s very encouraging.” Providing access to talent is one of the key roles of the professional networking site LinkedIn. According to Nellie Chan, Director of Marketing Solutions for South East Asia and North Asia, their mission is to create economic opportunities for the global workforce and connect professionals to make them more productive and successful. So far, they have over 400 million members on this site with roughly 700 million addressable audience. And, in the US, they have started working on something they call “the LinkedIn city.” Working with governments, schools and large organizations to

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identify talent gaps, they determine whether schools are producing skillsets required in the workforce and come up with ways to address a mismatch. “This is really a dream to help the global economy identify all the different types of resources and flow very freely,” says Chan. Goldman Sachs’s Choi adds that besides a diversity of talents, providing a diversity of experience to develop people is beneficial too. The company runs a program connecting mid- and senior-level leaders with non-profit organizations, and executives offer ideas and suggestions for improvement in these organizations. “That diversity of experience we try to create for our employees and leaders is actually quite important to unleashing innovations because if you only focus on the same job, same kinds of transactions every day, it’s hard for you

to jump out of your box and think creatively what else you can do,” Choi believes. Galpin believes interns can play a much bigger role. “I think we don’t make enough use of interns. We tend to bring them in and force them to do a nine-to-five job, and they learn how to work in a fairly rigid working environment but if you bring in interns from out of town and mix them up with local interns, you can learn more from the interns than they can learn from you.” Lastly, besides giving opportunities for innovation and change, companies also need to commit the time on execution and encourage senior management to embrace the idea, Chan highlights. “You have to give them additional time because it’s hard for them to execute all these things when they all want to make sure that they are also doing their current job well.”

progressive paths over time, from producing glass cookware in the 1980s to fiber optic cables in the 1990s, and then Gorilla Glass in the 2000s, a protective glass for touch screen devices such as iPhones. The vision is to form a ‘world of glass,’ where everyday life is incorporated with its cutting-edge glass technologies. “If you’re going to try to keep talent, they want to know there is a crystal clear vision of where we [as a company] are going,” he says, referring to the need of keeping employees informed of the corporate objectives.

Shaurav Sen

Engagement BREAKOUT SESSIONS:

Culture and People are Key

By Nan-Hie In

“I

n Silicon Valley there is a common euphemism: it takes six pivots before you actually land on the thing that works,” says Tony O’Driscoll, Regional Managing Director at Duke Corporate Education, in a breakout session on culture and conditions that stimulate and sustain innovation. Start-ups pivot on their business model, customers, capabilities, partnerships and technology, then by the sixth pivot the market magically adopts the concept, he claims. But before such success, how can one hold on during the first five pivots when things are looking bleak? He shares his five-pronged framework to increase the likelihood of driving an innovative culture at your company.

Path to innovation One should start with the company’s purpose. According to O’Driscoll, there has to be an emotional resonance with the aspiration of an organization that

everyone – employees, customers, partners and shareholders – can connect with. “People don’t buy what you do but why you do it,” he says. O’Driscoll cites Apple as an example. The popularity of the tech giant’s gadgets are not solely due to the elegance and simplicity of their design. Its products resonate deeply with customers, or what he calls a company “working from the inside out.” “You can see Steve Jobs saying, ‘Everything we do is about challenging the status quo and putting a dent in the universe – we think different,’” he says, adding that the firm’s products reflect such ethos. “At the back of their minds, people like the fact that they are doing things differently.” O’Driscoll encourages organizations to think about how to develop a clear and compelling direction around their collective aspiration to do something different that will have an impact over multiple horizons. A case in point is Corning, a glass manufacturer which took the core competencies of their product and charted

Networks inside and outside the organization are great places to generate transformative ideas. Technology giant IBM holds the Innovation Jam event to mine ideas from its internal network through 72-hour sessions. Ten teams with the best ideas each receive an award of US$10 million to develop those ideas, reveals O’Driscoll. Alternatively, companies can source ideas through the external network as Procter & Gamble did for Pringles chips. They came up with the idea to print images and text on potato chips – a process for which they needed external help to produce and eventually adopted the form provided by a French chemist who came up with printed ink on Pringles. “The company uncovered this insight and created a whole new category that created much money for them but they did not do it themselves,” O’Driscoll says. “Unless and until the organization viscerally and visibly comprehends in an emotive way whom they are serving, you can’t have breakthrough on things,” says O’Driscoll. He cites in an example of Ritz Carlton Hotel’s morning line-up routine in which every staff member has to share a story of how they blew away a customer. “That means you have to go out and wow customers, otherwise you won’t have a story to tell during this routine and risk looking stupid in front of your friends,” he says, highlighting the implementation of routines and practices to meet the needs of your stakeholders and to drive decisions for something different that will have an impact.

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As culture shapes innovative efforts, organizations are advised to watch out for a culture of “anti-innovation” including learned helplessness, which breeds an atmosphere of fear. O’Driscoll suggests correcting this dynamic by cultivating a setting of shared helpfulness. “Tim Brown, [an innovation expert and] author of Change by Design, said the more complex the problem, the more help you need. We need to figure out a culture where helpfulness is more imbedded,” he says. One idea is to reward helpful behavior. Another is to promote a strong sense of the company’s mission that everyone can connect with – which in turn cultivates a collective helpfulness because “purpose neutralizes fears.” Companies should create a comfortable environment where staff can take risks and experiment on promising ideas.

Talent recruitment Shaurav Sen, an advisor leader for Asia at CEB (a best practices insight firm), discussed in another breakout session of the HR Conference what corporate guardians of talent can directly and indirectly do to bring about innovative outcomes within their affiliated organizations. Sen shares his three-lever framework on innovation from an HR perspective. People shape innovation in firms, including HR practices such as recruitment, management and more. Organizational structure is another. “Highly segmented or multiple-level organizations tend to slow down design-making and reduce vitality,” he explains. He suggests a redesign roles and responsibilities to stimulate innovation. Another lever is the process and technology of firms – policies and tools that impact idea generation and collaboration. Citing CEB’s research, Sen says companies should leverage progressive HR strategies such as those of high-performing companies to overcome barriers for innovation. He also suggests companies to adopt recruitment strategies to better understand the mindset of potential hires by

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moving beyond hiring practices that only focus on a candidate’s cognitive and technical skills. According to Carol S Dweck, an academic at Stanford University and author of Mindset, there are two kinds of people in the world: those with a fixed mindset who believe in innate intelligence and those with a growth mindset who believe capabilities can be developed and grown. They respond to challenges differently. Fixed mindset people avoid or give up easily on challenges due to their determinist view of fixed capabilities, whereas growth mindset people persist on challenges as they believe they can overcome those challenges through continued learning. The growth mindset are also inspired by the process as a stepping stone to mastery, says Sen. “We need more people who feel inspired on a regular basis if you are serious about innovation,” he says.

Mindset Sen tells HR professionals to examine their current recruitment approach and assessment to see if their practices find clues about the mindset of applicants. One way is to assess potential hires’ learning style and observe how they respond to unfamiliar challenges. Another way to help spur innovation is to rethink the company’s reward strategy to remove people’s fear of failure. Tata Group, a large conglomerate based in India, realized employees were hesitant to try new ideas due to a fear of embarrassment if they failed. In turn, it introduced a ‘Dare to Try’ award for those who attempted yet failed on promising projects but learnt valuable lessons in the process. “You have to recognize there is much to be learnt from failures, and until we put failure almost as the same podium as successes, we are not going to get into that mindset challenge of risk avoidance,” he explains. The most effective leaders can pull together a team and initiate outcomes by empowering staff, Sen also believes. “Without making our employees feeling empowered, we are never going to be able

Tony O'Driscoll

to unleash their potential for innovation and out-of-the-box thinking.” And one of HR’s functions is to make leaders aware of their empowering and disempowering behaviors. An example of the latter is a hierarchical leader that dominates decision-making instead of delegating some of those responsibilities to staff. GSK’s approach to help leaders become cognizant to their behavioral impact on innovation is an example. The pharmaceutical company’s Leader Self-Awareness Diagnostic queries leaders’ management style, confidence building tactics and more – a process that prompts leaders to reflect on their habits that affect staff. “GSK’s diagnostic brings to the surface things that leaders do through simple self-assessment questions and then having a dialogue around it to show leaders how they can empower their teams,” Sen points out. HR can play a role in proactively guiding innovation productivity. Often there is a gap between the company’s mission and staff’s understanding of such vision and their implications. “You need innovation to have some kind of direction; if you leave employees to innovate on their own, they will go and do their own things,” Sen says. He suggests businesses to find ways to link employees’ efforts to the company’s purpose. And some firms have captured their mission statement on office art to help employees connect their efforts to the organization’s purpose.

Lisa Johnson

LUNCHEON SPEAKERS:

Times are Changing

By Leon Lee

hen it comes to innovation, it tends to be associated with the younger generation of leaders and employees. That’s not to say that the seasoned workforce are incapable of being innovative, but the younger staff are not as used to the old ways of doing things since they have not done it that way before. And their behaviors, whether it’s as an employee or consumer, are changing the ways companies do business.

The millennials Crown World Mobility helps move people of corporations and organizations all around the world. They work closely with companies from the selection of international assignees to repatriation as well as linking their mobility programs to diversity and talent initiatives. According to Lisa Johnson, Global Practice Leader, Consulting Services at Crown, with the rise of the millennials,

the company has to look for ways to be more creative. “In a study conducted with 4,000 millennials from all over the world, 80 percent of them said that they want an international experience. What does that mean? It means that we have to come up with low-cost and creative ways to move those millennials around because they’re not going to go on that expensive international assignment that costs between two and eight times their annual salary.” As the needs of their customers change, they too must adapt their traditional way of doing business. Rather than rejecting the disruptive innovations, they are acknowledging and embracing them to figure out how to remain successful in the changing market.

Disruptions in mobility Normally when people have to relocate to a new country for work, it involves packing and shipping lots of

boxes and furniture in a shipping container. However, a pattern emerging now is that companies are preferring furnished housing for their employees as younger staff members typically don’t own as much and there’s not a great need for them to ship too much. Another option is that companies are offering a lump sum of money for relocated staff to furnish their new home rather than ship anything. “We have a client that moves a lot of employees here to Hong Kong. They have a lot of young, creative employees so one of the things they do is they say, ‘You could either ship your household goods and furniture or we’ll give you US$5,000 when you arrive in Hong Kong. You can go shopping, fix up a cool flat you’re going to live in, and just have new things,’” says Johnson. “They’re really creative and a lot of them are taking that $5,000. That’s a big disrupter [because] we’ve always made a big part of our money on household good shipments.” If workers do decide to ship their things to a new location, they typically stay in temporary housing while waiting for their household goods and furniture to arrive. Crown could make these arrangements for them, but today many people are using Airbnb instead. With the app, they can pick and choose the neighborhood they want to live in and how the place is furnished, under a cheaper budget. Technology has also affected their customer service, another key area of Crown’s business. “Mobility is an industry that really values high-touch relationships with people who are going through an intense moment in their lives. Next to death and public speaking, [moving] is one of the most stressful events you could ever go through whether you are motivated or not,” Johnson says. In the past, Crown employees would help expatriates ease into the move via phone calls or voice mail. However, many of the assignees nowadays don’t want to deal with phone calls. They prefer to get information in a text or email. As phone calls and voice mails disappear, the business loses a form of connection with

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their customers and needs to find ways to provide the same type of care with future relocations.

An innovative education While some businesses are playing catch-up with innovations, it is a subject already on the minds of the younger generation even before they join the workforce. As corporations and businesses are looking for more people with more integrative and soft skills, educational institutes are evolving in what they offer to students in order to better prepare them. “We provide knowledge and intellect in the classroom, but a lot of times what we see with our students are sometimes not demonstrated,” says Sean Ferguson, Associate Dean of Master’s Programs and Director of MBA Programs at HKUST Business School. “So just teaching them finance, organizational behavior or marketing isn’t enough. There’s a bunch of other skills that need to be displayed.” He sees four main trends in higher education in creating students who can think a little bit differently and outside the box. The first is experiential learning which aims to integrate various courses and skills together, instead of teaching them as individual components. “This kind of integrative learning really drives a lot more innovation because people have to think about how finance relates to marketing, how it relates to the people decisions you make, how it relates to the strategy or the accounting that you have in various organizations,” Ferguson explains. Schools like Harvard and UCLA run field case studies where students are sent to companies all around the world, conduct field research and then bring that research back into the classroom to come up with real-life solutions that companies can use to fix their problems. It provides students with a practical understanding, and the results have been very positive. “Because the context in which they were evaluating things was different than everything they had seen before, it

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made for a much more robust learning experience.” Another trend that can be seen throughout business schools, at both the undergraduate and graduate levels, is the offering of relevant courses based on current marketplaces and situations locally and globally. “Every school focuses on providing fundamentals in their core curriculums but then when you get to the elective course, we have to be relevant for what’s going on there,” Ferguson says. “The core provides a foundation that helps you [with] all the tools you need to make decisions, and then when you get to the electives, it’s more about the applications, trends and specific topics.” At HKUST, an elective associated with financial technology has recently been launched as many of their graduates enter into the finance field. Ferguson sees the next trend of EQ (emotional quotient) to CQ (cultural quotient) particularly relevant for Asia. Besides the large market in China, there could be value coming from other places like Indonesia, Thailand, Malaysia, etc, all with their own unique culture and ways of doing things. While EQ is basically being aware of it, CQ is focused on understanding cultural sensitivities at the group level. At Nanyang University Business School in Singapore, it is incorporated into their MBA program as it highlights blind spots for students. The last trend is on entrepreneurial and innovative coursework, but not necessarily on starting your own company at home or with your friends. “What companies are looking for is not necessarily the entrepreneur, but the innovator and how they can apply it in the context of their organization. They want to harness and use it to help the company achieve their goal,” Ferguson explains. Last year, HKUST offered a course on intrapreneurship in China taught by an executive from a large MNC with experiences in creating and promoting innovation within the organization. The company had bought a Chinese company which was started by a scatterbrained entrepreneur. They wanted to keep the entrepreneurial element in the company

Sean Ferguson

so they had to come up with a framework to make the collaboration work.

Are you ready? While businesses understand the need to be creative and innovative, Johnson questions whether they are really ready for it. “Often, we say we are really interested in innovation and 93 percent of our leaders are saying they really value innovation and creativity, there’s a lot of times they still want you to color within the lines of that coloring book,” she says. “You can play, you can be creative but not too creative.” However, by the time they finally get around to fully accepting the innovative practice, it might already be too late. It might have become too normal and lost its cutting edge. The social media platform, Facebook, was started in 2004 in Harvard by several young men who wanted to meet girls. In six short years, it grew to be a cultural phenomenon, of which almost everyone, including parents and grandparents, would be enticed to be a part. But nowadays Johnson’s teenage son doesn’t even go near it. “We all have Facebook pages in our organizations. It’s just normal, it’s not cool for him. He likes Snapchat and other things but he’s certainly is not looking at Facebook. That’s old news, so I really ask, are you really open to innovation?”