Sustaining Growth

sustaining

GROWTH

™

Summer 2008

€4/£3

in association with

the essential guide to sustaining business growth

what credit

crunch?

business angels No need to pray

Inward Investment Report

Switzerland, Bulgaria & Turkey

plus markets

Private Equity for SMEs

+ conference management • fx trading • outsourcing • private banking

Contents

Contact us | editor@raellen.com | Summer 2008

banking and finance

FX Trading

16 European Investment Fund -

28

Extending the SME value chain

20 EU Finance Days for SMEs 23 Business Angels - The role of business 26 34

angels in sustaining European growth First Plus - The route to going public EFG - A Winning approach to private banking news

08 Growth Finance News

Editor’s Letter

markets

28 Mortar Bombs - UK Property market

C

stares into the abyss - by Paul Day

redit crunch? What credit crunch? With so much talk about the doom and gloom of the global downturn, it’s easy to ignore basic commercial instincts of enterprise and batten down the hatches until the storm is over. But if you need to finance the expansion of your business right now, is it really wise to wait?

30 FXPRO - Trade in Forex like a professional

There are, in fact, numerous financing options on offer, and Sustaining Growth takes a no-nonsense look at the options available: from Business Angels, to the European Investment Fund for supporting SMEs across the continent, to those new kids on the block in the world of private equity funds - Plus Markets.

60 Global Investment Environment: Is

and make money

32 MIG Investments - Tackling the technical issues of FX trading

inward investment

65 68

There are also pragmatic solutions for those who don’t want to touch the property markets at the moment, and we turn our attention to fluid currency markets and the world of FX trading.

70 Turkey - Mergers and Aquisitions - by Anthony Wilson of Deloitte

For when you have made your money, we highlight the benefits of possessing a Swiss bank account for private banking, and explore opportunities of inward investment in Switzerland and Turkey.

supply chain and logistics

54 Supply Chain - Efficient supply chain

Also in this issue, we explore the pros and cons of outsourcing and offshoring, we examine the current fashion for customs tariffs, have a taste of the Mediterranean charm of Maltese conference management, plus a splash of fun with the tax man and a prostitute…

58

sustaining

™

Summer 2008

`4/£3

in association with

the essential guide to sustaining business growth

what credit

conference management

no need to pray

way up - by Tony Carey

51 Malta - A smart choice for conferencing

34

leadership and strategy

42 Long distance leadership - Difficult

Print Design & Production Phillip Wentworth phillip.wentworth@ukonline.co.uk

crunch?

business angels

Editor Charles Vandeleur editor@raellen.com

inward investment report

switzerland, bulgaria & turkey

plus markets

private equity for smes

46

Website Design & Hosting www.d2media.co.uk

+ conference management • fx trading • outsourcing • private banking

36 Outsourcing and Offshoring - The pros and cons

general interest

14 Deloitte Fast 500 40 Air Charter - Private jets: giving you the

Publishing Director Julian Bonny Finance Director Andrew Lidstone accounts@raellen.com Published by Raellen Communications Ltd 145-157 St John Street, London EC1V 4PY United Kingdom Tel: +44 208 777 8355 Web: www.sustaininggrowth.eu

long distance conversations, essential to have, too easy to avoid - by Dr Richard C. Harris Marketing - The value of a professional strategy - by David Thorp OUTSOURCING

Advertising Sales James Stone Colin Gilmore-Smith Raphael Heymans sales@raellen.com

Cover: © Owen Price | istockphoto.com

All rights reserved. All material in Sustaining Growth is wholly copyrighted and reproduction without the written permission of the publisher is strictly forbidden. The views expressed in this publication are entirely those of the authors and do not necessarily represent those of Raellen Communications Ltd. The information in this publication is carefully researched and produced in good faith.

However, neither the publisher nor the editors accept responsibility for any errors.

leads to lower carbon emissions - by Gunes Gulin Bayav of Maersk Logistics Customs - A fashionable tax? -

by John Carling

48 MPI - Face-to-face conferencing is on the

Charles Vandeleur | Editor

GROWTH

it the end of the world as we know it? - by Alessandro Teixeira, President of WAIPA Invest in Switzerland - Your business location in Europe Bulgaria - Grants and incentives in Bulgaria - by Boris Stratev of Deloitte CE

44 52 74

ultimate edge and control - by David Saville E-Assessment - Using ICT to measure knowledge, understanding and skills - by Professor Cliff Beevers and Jeff M. Ross Fleet Management - Emissions: Are we being misled? - by Christophe Duprat of ALD Automative.

Business Fun - A wry look at business sustaininggrowth | 3

growthfinance news In Tunis, FEMIP undertakes to promote microfinance in the Mediterranean region © Trajancorbel | Dreamstime.com

THE FACILITY FOR EURO-MEDITERRANEAN Investment and Partnership (FEMIP) and Sanabel, the network of microfinance institutions in the Arab countries, recently held a conference in Tunis on the subject “Microfinance in the Mediterranean: what impact?”, which brought together nearly 400 participants to engage in debate with some thirty speakers from microcredit institutions, the banking sector, finance institutions, academia and civil society. The conference saw the unveiling of a study on the economic and social impact of microfinance in the Mediterranean designed to foster a better understanding of the outlook for microfinance in the region.

Some of the study’s conclusions In the Mediterranean region, although microfinance has a potential market of 40 million beneficiaries, only nine million are currently receiving support from the different operators in the sector. The study points to numerous indicators of the benefits of microfinance for its customers, especially in terms of the improvement of household incomes and the profits of micro-enterprises. It also highlights major untapped potential: for instance, microcredit remains the main product on offer, but customers should also be able to access other services such as micro-saving, insurance products or fund transfers. In this connection, and unlike in other parts of the world, the legal and regulatory framework in the Mediterranean still constitutes an obstacle to the sector’s growth and to the development of microfinance institutions that would be prepared to take deposits or consider converting to banks.

FEMIP’s microfinance business in the Mediterranean In its five years of activity in support of microfinance institutions in the Mediterranean, FEMIP has established itself as one of the region’s three main finance providers for this type of operation, having allocated a little over EUR 23 million since 2003. FEMIP’s goal is to assist the growth of microfinance institutions by helping them to develop appropriate governance structures and integrate into local financial markets so that they can raise

8 | sustaininggrowth

funds independently. It gives priority to small-scale ventures with very high value added. Its operations, which are financed by resources made available from the EU budget, take the form of local currency loans or equity injections and can be backed up by technical assistance, making for a comprehensive and highly appreciated package.

In December 2007, for example, a EUR 2 million loan was granted to Enda Inter-arabe, a Tunisia-based microfinance association, which should enable it to finance over 500 000 microcredits. Likewise, FEMIP signed two credit lines of EUR 10 million each in support of four Moroccan microfinance institutions (Al Amana, AMSSF/MC, Fondep and Zakoura), aimed at enabling them to place their development on a sound footing and thus build up their borrowing capacity on the local markets more quickly. Similar operations in Algeria, Egypt, Jordan and Syria are also being considered.

About FEMIP FEMIP’s remit is to promote the development of nine Mediterranean countries (Algeria, Egypt, Gaza/West Bank, Israel, Jordan, Lebanon, Morocco, Syria and Tunisia) by means of loans and equity participations. Its two priorities are supporting the private sector as the engine of sustainable growth and fostering an investment-friendly environment through the creation of efficient infrastructure and appropriate banking systems.

FEMIP is now the number one development partner of the Mediterranean countries, where it has invested more than EUR 7.4 billion since 2002, including EUR 1.4 billion in 2007.

Sanabel Sanabel, the microfinance network of the Arab countries, was founded in Tunisia in 2002 and has 58 members in 11 Arab countries.In May 2008 It held is fifth annual conference in Gammarth at which over 500 participants attended

EIF to launch a dedicated investment programme in Portugal EIF, together with the leading financial institutions of Portugal and the Portuguese State are jointly launching the Portugal Venture Capital Initiative (PVCi), a EUR 111.3m dedicated Fund of Funds and co-investment programme in Portugal. Closing took place on 11th April 2008 in Lisbon.

PVCi aims to serve as a catalyst for the development of the private equity (PE) industry in the country whilst achieving good returns for its investors. PVCi is to be advised by EIF. The purpose of this Fund of Funds is to support the development of the SME (small and medium-sized enterprises) sector in Portugal and to disseminate European best practice in the Portuguese PE/VC (venture capital) market. PVCi will also support Innovation and Technology, facilitate the establishment of local fund managers and develop the local PE/VC market. Furthermore, PVCi will aim to attract investment from regional and international players and help Portuguese Investors gain access to established European funds.

In addition to EIF, the Portuguese State (through the Ministry of Economy and Innovation and Ministry of Finance), Banco BPI, Banco Espirito Santo, Millennium bcp, Caixa Geral de Depositos, Barclays Bank PLC, Montepio, Banif Banco Santander Totta, and Gulbenkian Foundation are also investors. PVCi further strengthens EIF’s risk capital activities in Portugal, where it is currently reviewing several fund proposals and where it has recently invested in Explorer II, a generalist fund which focuses on mature, stable and growing industry sectors in Portugal.

EIF’s Director, Investments and Chairman of the Board of PVCi, John Holloway, said: “We are extremely proud of supporting and being advisor to this pioneering initiative in Portugal. We have first class local partners and are confident that PVCi will accelerate the growth of the SME sector which is key to the development of the Portuguese economy.”

Bulgaria: EIB supports smaller projects of SMEs and municipalities After initial cooperation in 2005,The European Investment Bank (EIB) is lending EUR 70 million for projects mounted by small and medium-sized enterprises (SMEs) and municipalities in Bulgaria in the sectors of energy, health, education and social housing infrastructure, as well as for innovative undertakings developing the knowledge-based society. The EIB funds will also support projects in the areas of industry and services, including tourism, and will be coupled with grants from the European Commission (EC) and the Kozloduy International Decommissioning Support Fund (KIDSF). The EIB is glad to announce the partnership with major players in the Bulgarian financial sector: Raiffeisenbank and Société Générale Expressbank.

EIB finance totalling EUR 50 million is being provided to Raiffeisenbank Bulgaria EAD and to Raiffeisen Leasing Bulgaria OOD and comprises: • EUR 26 million loan to Raiffeisenbank for financing public sector investments promoted by Bulgarian municipalities. This loan will be combined with grants under the EC-EIB Municipal Finance Facility (MFF) and grants under the KIDSFEIB Energy Efficiency Facility (KIDSF EEF). The MFF promotes municipal investments mostly concerning the building, upgrading and refurbishing of small municipal infrastructure and provides for grants of 7.5% of the EIB loan amount for the final beneficiaries. The purpose of the KIDSF EEF is to promote energy efficiency and renewable energy in the public sector with grants of up to 20% of the EIB loan; • EUR 10 million loan to Raiffeisenbank for financing SME projects – for the first time without the guarantee of the parent group in the country; • EUR 14 million loan to Raiffeisen Leasing Bulgaria for financing the leasing projects of SMEs. The current loan forms a continuation of the successful cooperation with Raiffeisenbank Bulgaria and is the third to be granted by the EIB to this financial institution. The previous two intermediated loans totalled EUR 30 million and were allocated to SME and municipal projects in the sectors of transport, manufacturing and tourism. Total jobs created exceeded 800.

The EIB is a strong partner of the Société Générale Group in the region, mainly in the Czech Republic, Croatia, Greece, Serbia and Romania, and now for the first time in Bulgaria. EIB finance totalling EUR 20 million is being provided to Société Générale Expressbank and to Sogelease Bulgaria OOD and comprises: • EUR 10 million for Société Générale Expressbank for loans in the fields of environmental protection, rational use of energy/energy savings, infrastructure (including health, education and social housing) and the development of a knowledge-based economy to be carried out by private or public promoters or in any sector of activity to be carried out by SMEs in Bulgaria. This loan will be combined with grants provided by the EC under the MFF; • EUR 10 million for Sogelease Bulgaria OOD for financing leasing projects. This loan will be blended with the EC SME Finance Facility whereby EU grants support lending to SMEs.

EIB visit to broaden activity in Brazil a high level delegation from the European Investment Bank (EIB) visited Brazil in May to discuss ways to broaden the Bank’s activity in this country. The EIB delegation met with Brazilian authorities at both federal and state level and with the national development Bank, BNDES, to identify and discuss new financing opportunities, with a particular focus on environmental sustainability and economic development.

“EIB projects in Brazil have traditionally supported foreign direct investment and the transfer of technology and know-how from the EU”, said Jean-Louis Biancarelli, Director General for lending operations outside Europe and head of the EIB delegation. “In line with our current mandate, we are willing to broaden this activity by supporting the transfer of EU expertise and leadership in key sectors such as telecommunications, industry and high-speed trains, as well as by contributing to global climate change mitigation efforts”, he added.

Brazil is the main Latin American beneficiary country of EIB loans for investment in productive activities and the largest recipient of EU foreign direct investment in the region. The EIB has so far extended 24 loans totalling EUR 1.4 billion, representing some 48% of its entire activity in Latin America. The diversified portfolio of EIB financing operations in Brazil directly supports private sector investment. Among the main investments supported are those of Vivo, Continental, Michelin, Pirelli, TIM, Telefónica, Itaú-BBA, Volkswagen, Mercedes and Veracel, as well as the Bolivia-Brazil gas pipeline.

Under its current mandate, covering the period 20072013, the EIB has been asked by the EU Council to lend up to EUR 2.8 billion in Latin America for financing operations supporting EU cooperation strategies and complementing other EU development and cooperation programmes and instruments in the region. An additional EUR 3.0 billion is available for financing energy security and sustainability projects in investment-grade countries, including those in Latin America, over the same period.

In Brazil, the EIB offers medium and long-term loans (no equity instruments at present). EIB loans are projectlinked, with the emphasis on financing the long-term components of an investment. Typical direct loans range between USD 50 million and USD 200 million. For smaller projects the EIB can lend indirectly through credit lines extended to local financial institutions or commercial banks for allocations between EUR 0.5 and EUR.

sustaininggrowth | 9

growthfinance news EIB Board of Governors’ meeting 2008 - EIB Group broadens its support for small businesses © Jostein Hauge | Dreamstime.com

The The EIB Group is broadening the way it supports small and medium-sized enterprises (SMEs), making its funding mechanisms simpler, more transparent and more targeted to the individual needs of small businesses across Europe and beyond.

More than 160,000 SMEs benefited from EIB Group support last year, be it through the EIB’s lines of credit or the venture capital and loan guarantees provided by the European Investment Fund (EIF).

After a major consultation exercise with its banking partners, public authorities and SMEs themselves, the EIB Group is updating this support to make it as accessible as possible, and to ensure that the benefits of EIB Group financing are passed on tangibly to the final borrower.

The SME sector accounts for 99 percent of all European enterprises, providing over 100 million jobs as well as being a key generator of innovation and entrepreneurial skills. As the EU’s policy-driven lending institution, the EIB is dovetailing its improvements with the new Small Business Act for Europe, which the European Commission is due to announce in the coming weeks, and which will include a chapter on how to improve SMEs’ access to finance. The main lines of the new EIB Group approach, presented today by President Philippe Maystadt at the annual meeting of the EIB’s Board of Governors involve broadening the kinds of financial support on offer while tailoring them more specifically to local conditions and particular companies’ needs.

The EIB’s long-established Global Loans – lines of credit provided to banks that pass the funding on to individual businesses – will be modernised to cut red tape for both the banks and the SME borrowers. In return, the EIB will require banks to make very clear to their customers that they are benefiting from EIB funding, and to pass the advantages of that funding on to the borrower, be they in terms of longer loan maturities, more flexible disbursements, different currencies or simply lower interest rates.

The EIB and EIF will reinforce their cooperation to ensure an integrated approach. New instruments will be developed in areas such as mezzanine finance, guarantees and microcredit, to simplify conditions and respond to SMEs’ needs at different stages of growth. They will target specific segments of the market that face the most difficulty in raising

finance, and develop ways of sharing with partner banks the risks of lending to small businesses.

The EIB will also broaden its support beyond the traditional focus on fixed assets to finance “intangible” aspects of a firm’s growth, such as research and development, building up distribution networks or ensuring that business continues after the current owners retire.

“It is clear that the market alone is unable to provide sufficient and appropriately priced finance for SMEs, in particular for high growth, innovative businesses,” said EIB President Philippe Maystadt. “The EIB Group will seek to address gaps in the market by broadening the scope of its financing.”

Further details of the new measures will be announced later this year.

The EIB made a total of EUR 5 billion available last year for medium- and long-term credit lines for SMEs, while the EIF provided EUR 1.4 billion in guarantees and EUR 521 million in venture capital funds.

To qualify as an SME, a company must be independent and have fewer than 250 employees.

The EIB Group’s SME consultation ran from June 2007 to January 2008 in all EU Member States. It is the first time the Bank has engaged in such a wide consultation process on its support for SMEs, a key objective of its mandate, and how it should shape this support in the future. Approaches were made to more than 100 respondents, ranging from banks and banking associations to SME associations, government bodies and the European Commission. Three quarters of those approached took part in the consultation, and the lively response underlines that SME finance remains a key topic in Europe.

Notes: 1. The EIB has a majority (66 percent) shareholding in the EIF, the specialist venture capital and loan guarantee arm of the EIB Group. The European Commission holds 25 percent and other European financing institutions 9 percent.

2. The Board of Governors is made up of the Finance Ministers of the EIB’s shareholders, the 27 Member States of the European Union.

sustaininggrowth | 11

growthfinance news Finland: EIB lends eur 50 million to Aktia Savings Bank for SME support

© Pontus Edenberg | Dreamstime.com

After initial cooperation in 2005, the European Investment Bank (EIB) and Aktia Savings Bank Plc (Aktia), headquartered in Helsinki, are joining forces to further support small and medium-sized enterprises (SMEs) and their investments in Finland. To this end, the EIB is making a EUR 50 million line of credit available, and Aktia will act as an intermediary between the EIB and the final customers, appraising each project according to EIB’s criteria ans passing on the advantageous borrowing terms in its individual loans to a large number of SMEs, operating in such sectors as the environmental protection, industry, trade and services, as well as energy.

Aktia has a broad experience with the Finnish SME sector and the funds under this new line of credit will be primarily targeted towards small SMEs (many with less than 50 employees) in productive sectors located throughout Finland. EIB involvement will generate positive effects for the SMEs in terms of both the availability of longer-term maturities and a reduction in the final interest rates to the benefiting SMEs. Lines of credit combine the advantages of the EIB’s first-rate access to world capital markets, where it raises most of the funds for its lending activity, with the local network and know-how of domestic partner banks.

EIB Vice-President, Eva SREJBER commented at the signature ceremony: “ SMEs is a local business: SMEs need direct access to financial partners, like Aktia, with high-quality local and sector information who are able to monitor changing demands closely and carry out appraisals of proposed projects”.

There are some 23 million SMEs in the European Union (EU), accounting for over 99% of all enterprises and contributing up to 80% of employment in some industrial sectors, such as textiles, construction or furniture. The EIB Group’s SME activity benefited more than 162 000 SMEs in 2007, with a specific focus on innovative SMEs with high growth potential, small

renewable energy schemes promoted by SMEs, and micro-enterprises.

EIB support was provided through lines of credit totalling some EUR 5 billion, granted to its intermediaries throughout the European Union.

The European Investment Bank Group, the banking group promoting European objectives and financing European projects, provides capital investment aimed at modernising the economies of the Member States and the countries close to the Union.

In 2007, the European Investment Bank lent a total of EUR 47.8 billion for projects promoting the European Union’s policy objectives. Finance for the then EU-27 Member States represented 87% of its activities and amounted to EUR 41.4 billion. To fund its activities, the EIB raised an aggregate amount of EUR 55 billion on the international capital markets through 236 bond issues in 23 currencies. Owned by the Member States, the EIB (with its AAA rating) is the world’s largest supranational issuer.

Since 2003 in Finland, the EIB has provided a total of EUR 675 million, through its regular financial partners, in support of SMEs throughout the country (in cooperation with Finnvera, Pohjola Bank and Aktia Savings Bank) as well as in support of small and medium-sized infrastructure projects carried out by smaller municipalities in sectors such as energy, infrastructure, urban renewal, the environment, health and education (in cooperation with Pohjola Bank) throughout the country (in cooperation with Finnvera, OKO Bank and Aktia Savings Bank) and small and medium-sized infrastructure projects carried out by smaller municipalities in sectors such as energy, infrastructure, urban renewal, the environment, health and education (in cooperation with OKO Bank).

In 2007, the EIB opened a regional Office in Helsinki, located at the headquarters of the Nordic Investment Bank (NIB), with a view to enhancing the Bank’s presence in the Baltic Sea region.

sustaininggrowth | 13

What is the Deloitte

Technology Fast 500?

W

hat is the Deloitte Technology Fast 500? The Deloitte Technology Fast 500 EMEA is one of Europe’s most objective rankings for the technology, media and telecommunications industries. It was created to recognize the effort and dedication of those 500 fastest-growing technology companies in Europe, the Middle East and Africa (EMEA) and includes all areas of technology: from Internet to biotechnology; from medical and scientific to computers. It includes both public and private companies.

Why did Deloitte establish a Technology Fast 500? The original program, the Deloitte Technology Fast 500 North America, was founded in 1995. The technology market in EMEA also is significant - in terms of size and growth - so, in 2001, Deloitte expanded the programme to Europe. The ranking of established and emerging high-growth companies in the region is a tribute to those that continue to thrive - even during times of economic slowdown. While the stock market may be more volatile and investors more cautious, it is companies such as these that will be key forces behind economic growth in Europe for years to come. Furthermore, since award winners likely will continue to grow at a rapid pace and be the source of future technological advances, this Deloitte program recognizes, rewards and raises the profile of the fastest-growing firms - not only in EMEA, but within a global context where technology chief executives operate.

How can a company apply for the Deloitte Technology Fast 500 and how are the winners determined? To qualify for the ranking, firms must be involved in proprietary technology that contributes significantly to their operating revenues, manufacture a technology product or be deeply involved in technology research and development.

The firm must also have: • Been in business at least five consecutive years.

• Had operating revenues of at least 50,000 euros in the first year of calculation and a minimum of 800,000 euros in the fifth year used for calculating the growth.

• Have its headquarters in Europe, the Middle East or Africa or have its shares listed on a European stock exchange.

Entrants may be either public or private. However, private companies must provide a nomination form that contains financial information, as well as supporting documentation, such as audited financial statements.

How does Deloitte determine the winners? The Deloitte Technology Fast 500 EMEA winners are based on five-year average percentage growth for each technology company. For example, for the 2007 ranking, companies are ranked on percentage of revenue growth between 2002 and 2006 . The 500 that meet the strict definition of “technology companies with the fastest-growth over five years” make the list.

What are the benefits from participating in the Deloitte Technology Fast 500?

A position in the Deloitte Technology Fast 500 EMEA ranking helps companies to create awareness, build credibility, attract business partners and increase employee pride. It also generates immense media coverage. Additional value comes from the fact that the pro-

14 | sustaininggrowth

gram is one of only a few that focuses on pure technology, media and telecommunications industry segments. Deloitte Technology Fast 500 EMEA winners are part of an elite global group, with the potential to network and create a community of companies that, in turn, can promote a platform of best practices.

Which countries and industries have the best track record amongst the Fast 500 since its inception? Looking at the results, excluding this years which have still be be announced, companies in Western Europe have always had the biggest representation in the ranking, and as you may have expected software companies have been always been the largest grouping of ranked companies.

Is the future for technology companies in EMEA a bright one, and where can improvements be made? The future continues to look good in EMEA with companies showing some fantastic growth rates over the last five years. The ability to find high quality personnel is a pivotal issue for the future of European companies. Given the strategic importance of talent, EMEA CEO’s prescribe “training and education” as the best way to stimulate growth in the tech sectors. Improvements can always be made in R&D processes, Intellectual property management and business strategy.

Based upon your experience, which factors contribute the most to a successful fast growth enterprise sustaining this growth? The Deloitte CEO survey indicates that there are one significant factor which has helped companies grow. It is “Organic growth based on new products and technologies” and it is cited as the biggest factor for growth; however the ability of companies to develop and enhance their products to meet changing client requirements’ is fundamental to their long term success.

Do you feel that Europe is moving towards a healthier business environment for fast growth enterprises with regards to cross border trade and expansion and are these fast growth enterprises taking full advantage of this? The majority of firms in our CEO survey of fast growing technology firms year on year have indicated that Europe, Middle East and Africa represents the best opportunity for significant growth over the next 5 years. This would tend to indicate that most believe themselves to be in a position to make the most of the European customer base.

© Youssouf Cader | Dreamstime.com

deloitte fast 500

Technology Fast500 EMEA 2008

www.fast500europe.com

european investment fund

EIF

EXTENDING THE SME VALUE CHAIN Small and medium-sized enterprises (SMEs) are a major source of jobs, entrepreneurial skills, innovation as well as economic and social cohesion in the European Union (EU). There are some 25 million SMEs in the EU, accounting for over 99% of all enterprises and contributing up to 80% of employment in some industrial sectors, such as textiles or construction.

16 | sustaininggrowth

© Pryzmat | Dreamstime.com

I

european investment fund n the EU, external finance for entrepreneurs is often insufficiently available. One reason is that financing innovative SMEs is considered by many finance providers as an unattractive activity, due to high transaction costs and low returns relative to the risk incurred, especially at the early-stage.

the development of venture business in the European Union.

EIF’s generally co-invests its own resources along side third party resources from its two main shareholders.

Since 2000 EIF has managed EIB’s resources dedicated to venture capital and small/mid caps which is a EUR 4bn evergreen mandate. The EIB’s mandate main objective is to support technology and industrial innovation throughout early stage, expansion and deThis is where EIF steps in. velopment capital, with an emphasis on innovative EU companies and generalist funds in the EU’s neighbouring countries. By end DeEIF: a brief overview cember 2007, amounts signed using EIB resources have reached Established in 1994 as part of the European Investment Bank (EIB) over EUR 3.5bn. group, the European Investment Fund (EIF) is a financial body which In addition to this, EIF has managed EU resources the MAP (Multiactivity is centred upon two areas: Venture Capital and Guarantees. annual Programme for Enterprise and Entrepreneurship) programme.

EIF supports SME finance for innovation, research and developFrom 2001 and up to 2006 EIF managed this budget line dedicated ment, entrepreneurship, growth, and job creation, in line with the to SME growth and development. By end December 2007 amounts strategy set by the Lisbon European Council in March 2000. signed under EU resources reached over EUR 0.3bn.

EIF’s venture capital instruments consist of equity investments in EIF also manages funds of funds investing its own resources along venture capital funds and business incubators that support small side public and private non shareholder investors. and medium sized enterprises. EIF takes participations in these On a mandate awarded by the German Federal Ministry of Ecofunds, usually through significant minority stakes. nomics and Technology (BMWi) in 2004, EIF manages the ERP (EuEIF’s guarantee instruments consist of providing guarantees to firopean Recovery Programme) Dachfonds, a EUR 500m facility (innancial institutions that cover credits to SMEs. EIF’s counterparts are cluding EUR 250m from EIF) for VC investments in tech companies banks, leasing companies, guarantee institutions located mainly in Germany. This was the first and mutual guarantee funds. These financial inmandate awarded to EIF by a non-shareholder EIF is a leading player in termediaries then provide financing to SMEs. which therefore places confidence and gives adthe VC market, not only EIF has a unique and specific shareholders ditional impetus to EIF’s activity. due to the scale and structure. It is owned by the EIB (66%) and the Neotec was co-sponsored by EIF and the Censcope of its European Union - through the European Comtre for the Development of Industrial Technology investments in the mission (EC) (25%) but is also the only EU or(CDTI: Centro para el Desarrollo Tecnológico ganisation that enables public and private finanIndustrial), a public business entity of the Spanhigh-tech early-stage, cial institutions (32 from 17 countries) to have a ish Ministry of Industry, Tourism and Commerce, technology transfer shareholding (9%). In October 2006, the Indusin 2005. Reaching EUR 183m, the programme and later-stage trial Development Bank of Turkey (TSKB) has behas brought together Spanish public and private segments, but also due come EIF’s first shareholder in Turkey, evidence sector investors to boost investment in Spanish to its catalytic role of EIF’s commitment to supporting the economic SMEs. NEOTEC leverages EIF resources to enin attracting private development in the region. sure a coordinated approach between EIF, nasector funding. tional public bodies and the private sector, and EIF Venture Capital activity furthermore, gives Spanish public and private While venture capital and other early stage financing are developing investors access to EIF’s know-how in fund-of-funds management. in Europe, they remain lower than in the US. Many economists sugIn 2006, EIF and Natixis Private Equity (NPE) jointly sponsored gest that one of the important reasons behind the American success Dahlia, a Pan-European fund-of-funds. Dahlia combines primary in the arena of knowledge economy is its vibrant capital markets, and secondary investments, building up on the respective strengths and especially its venture capital funds. The greatest benefit from of EIF and Natixis. The initial fund amount totalled EUR 300m. Comventure capital is that it redistributes risk away from the entrepreneur mitments to date have reached some EUR 83m. to the venture capital business, which diversifies the risks in its overall portfolio. Consequently this way of financing start-ups, in particular iVCi – dedicated investment programme in Turkey high-tech ones, may substantially affect the speed of development In December 2007, EIF, the Technology Foundation of Turkey (TTGV), of new technologies and thus with it, long term economic growth. the SME Development Organisation of Turkey (KOSGEB) and the To live up to this challenge, it is vital that European venture capital public Development Bank of Turkey (TKB) launched a dedicated fund is able to generate returns that can match the return figures of the of funds and co-investment programme in Turkey. Istanbul Venture US market. By achieving this, it will become an equally attractive and Capital Initiative, or “iVCi” as the programme is known, aims to serve self-sustainable asset class that can provide long-term and stable as a catalyst for the extension of the private equity industry in this funding to European technology and innovation. country notably in the early stages which is crucial to the developEIF is a leading player in the VC market, not only due to the scale ment of the Turkish economy. iVCi is to be advised by EIF. and scope of its investments in the high-tech early-stage, technolEIF is expecting to invite a small group of blue chip Turkish and ogy transfer and later-stage segments, but also due to its catalytic international investors to participate in this programme. role in attracting private sector funding.

The first closing of iVCi took place in Luxembourg on 13 November EIF’s investments also cover the main European markets represent2007 at EUR 150m. ed by the UK, France, Spain, Italy, Germany, Austria, the Benelux, Scandinavian countries and Eastern and Central Europe. EIF total Financing Tech Transfer Venture capital portfolio amounts to EUR 4.4bn at the end of 2007 Technology Transfer is the process by which the results of research and through its participation in 272 funds, EIF actively contributes to and development (R&D) are transformed into marketable products

sustaininggrowth | 17

european investment fund or services. This transformation can take place through a number of means, in particular collaboration between research organisations and industry, licensing and creation of start-up businesses.

To capitalise on European research as a means to promote economic development and a knowledge-based society, EIF’s Technology Transfer programme aims to support the needs of European research organisations.

Some examples of EIF’s technology transfer operations: • A UK-based venture fund with IP Group, which goal is to support spin-offs up to the point that they reach critical financial mass.

The fund invests at both seed and post-seed stages. It is not technology-specific but generally invests into life science, ICT, materials/physics and nanotechnology.

• EIF and the University of Leuven (Belgium) entered a partnership agreement to create a centre for drug design and discovery. This department will pursue drug development projects in close collaboration with academic research departments such as the Rega Institute for Medical Research. This initiative will, for example, help to fund Rega’s drug development to fight viral diseases.

difficulties in having access to financing due to the relatively higher risk they represent and the insufficient security they can provide.

The Micro-credit window encouraged financial institutions to become more involved in this area by offering loans of a smaller amount, to provide access to financing to a larger population of small companies for a wider variety of investments and to provide guarantees for riskier loans.

The scheme was in operation between 2002 and 2006; guarantee commitments approved and signed under the Micro Loan Window reached roughly EUR 200m, a considerable sum, considering micro-loans average amounts. In all micro-credit operations, “mentoring” (the regular follow-up of end users) is an essential feature. In this respect, specialised non-profit making organisations play a very important role that is complementary to the banking sector, which provides the financial resources (ADIE, ICO, Prince’s Trust, Fonds de Participation, DTA, and Firststep).

There is a consensus at European level on promoting microfinance as a means of social integration and a source of employment: this

EIF Guarantees activity EIF SME Guarantees total portfolio amounts to EUR 11.6bn.

EIF’s Guarantees activities are backed by its own funds and by European Commission funds. Under the mandate of the EC, EIF has in the past managed the implementation of the SME guarantee facility as part of the MAP programme, under which EIF provides guarantees and counter-guarantees to financial intermediaries for their portfolios of SME. The implementation of a similar EC mandate (CIP) has started the end of 2007.

By the end of December 2007, EIF had signed 190 Guarantees

The Micro-credit window encouraged financial institutions to become more involved in this area by offering loans of a smaller amount, to provide access to financing to a larger population of small companies for a wider variety of investments and to provide guarantees for riskier loans.

operations covering over 28 European countries. Out of these signatures, EUR 7.3bn were made using EU financial resources from which over 360.000 SMEs have benefited indirectly from enhanced access to finance.

is exemplified by the launch of a recent European initiative for the development of micro-credit in support of growth and employment.

The initiative purpose is to identify and overcome the main barriers impeding the development of micro-credit in the European Union.

SME loan guarantees activity EIF’s main product line under mandate of the EC consists of bilateral SME loan portfolio guarantees. They allow, for example, financial institutions, mutual funds or promotional banks to enhance SME lending through economic capital relief. Although these guarantees are provided to financial intermediaries, European SMEs can reap the benefits, as such portfolio guarantees contribute to developing the lending activity of the banking sector towards smaller companies.

This type of guarantee cover aims at very small SMEs. Microfinance Under EU MAP, the Micro-credit Guarantee facility supported entrepreneurs and micro-enterprises with up to 10 employees, guaranteeing micro-loans of up to and average of EUR 8,000-10,000. It was aimed at very small businesses just starting up which face particular

Credit Enhancement (Securitisation) activity EIF credit enhancement for securitisation, is meeting an important demand in the capital market. There is a growing attention on the scarce resource of equity capital for banks, driven by stronger focus on shareholder value, with decreasing margins in a weak and partly over-banked economic environment, changing regulatory framework and the current difficulty for banks of raising additional equity in the capital markets.

At the same time banks are making strong efforts to improve their risk management instruments and to adapt their business model; certain banks are moving away from their traditional lending activity, and in particular from SME lending. SME loan securitisation is therefore an important means allowing banks to keep on extending

18 | sustaininggrowth

european investment fund long-term financing to SMEs, and EIF plays a significant role by making these transactions happen as EIF can take both senior and mezzanine positions in this very specialised area of activity.

In 2007 EIF has entered into new credit enhancement exposures for more than EUR 1.3bn spread across a large number of deals and jurisdictions. EIF has supported both synthetic structures (directly as credit default swap counter-party for mezzanine or senior risk vis-à-vis originators in unfunded transactions or through guarantees on credit linked notes to investors in partially or fully funded transactions) and cash transactions (typically through bilateral guarantees on asset-backed bonds). Since EIF more often than not restricts it involvement as credit enhancer to the mezzanine risk segment, it manages to achieve a high leverage effect on the capital resources backing its guarantee activity. The credit enhancement activity started off as a typical product for SME loan and lease receivables portfolios but has over time come to cover also other asset classes, as for instance, venture loan financing and micro finance assets.

fund allocation for the period 2007-2013. The investment funds will be managed by an intermediary (which could be the EIF). Its purpose is to ease access to finance to start-ups, micro-enterprises and SMEs, with the help of a range of financial products adapted to the specific needs of the final beneficiaries (including equity-type or mezzanine investments). JEREMIE has been designed to allow for a more creative use of structural funds, turning away from subsidies towards structured products which will substantially increase the leverage of public grant money.

EIF could intervene in several ways: either as fund manager, or as a technical advisor to the fund. The EIB could contribute to the initiative by providing funding at attractive conditions, in the form of pre-financing of structural funds before these are received by the regions, or by partial funding of loans to the final beneficiaries, intermediated through the fund or selected financial partners.

During 2006 and 2007, the special JEREMIE task force created within the EIF conducted some 40 gap analyses, throughout the 27

One of the main challenges facing small innovative businesses in Europe is securing sufficient finance. This is especially true during the crucial start-up phase, but also at later stages of business development. Since its activities began, EIF has supported over 700,000 SMEs and has thus tremendously contributed to economic growth and development in Europe.

Member States. Memoranda of Understanding have already been signed with the Slovak Republic, Romania, Bulgaria; a letter of intent was signed with Portugal in 2006 and the first Jeremie funding agreement was signed with Greece in June 2007.

© Mark Huls | Dreamstime.com

Competitiveness and Innovation Framework Programme 2007-13 (CIP) CIP is the new mandate from the European Commission which is put in place as a successor programme to MAP. CIP is a EUR 1.1bn facility granted to EIF and which will be split between Venture Capital and Guarantees. It covers the period 2007- 2013.

Its objectives will remain comparable to those of MAP, namely to generate economic growth and create more jobs as well as boost productivity, competitiveness and innovation in the EU. It is anticipated that the CIP windows will have similarly high leverage effects as in MAP, optimising the use of European Union funds to support SME’s access to finance.

Joint European Resources for Micro to Medium Enterprises – JEREMIE JEREMIE is an initiative undertaken jointly by the European Commission and the EIB Group. Its aim is to give to the Member States the possibility to create investment funds by using part of their structural

To conclude One of the main challenges facing small innovative businesses in Europe is securing sufficient finance. This is especially true during the crucial start-up phase, but also at later stages of business development.

EIF steps up to these challenges. It offers substantial value added through a diverse array of targeted initiatives from the earliest stage of corporate development, with innovative commercialisation of ideas through tech transfer financing and on to later stages, with large scale funding for venture funds and credit guarantees.

EIF is however not just financing, it is also improving access to finance. The new JEREMIE programme which improves SME access to EU Structural Funds, is an important new area.

Adding value through innovative financial structures is a prominent feature of EIF’s support for SMEs. With EIF’s presence across the value chain of corporate development, from intellectual property to mid-stage SME funds, it has played a crucial role in diversifying the financial product offering.

EIF’s future investments in small and medium sized enterprises have the potential to further raise the bar, in terms of impact on corporate innovation and job creation. EIF aims to add value by combining the best of the market with best of public support.

This promises a significant contribution to the EU. Since its activities began, EIF has supported over 700,000 SMEs and has thus tremendously contributed to economic growth and development in Europe.

sustaininggrowth | 19

eu finance days

EU european commission launches

Š Saniphoto | Dreamstime.com

finance days

20 | sustaininggrowth

eu finance days

In order to help SMEs to access finance, the European Union has established a set of financial instruments with an overall budget of more than €1.1 billion. SMEs can access these instruments through national, regional or local financial institutions, including banks, microcredit organisations and venture capital funds. The European Investment Fund (EIF) implements the instruments for the Commission. To raise awareness, the European Commission is organising the “EU Finance Days for SMEs” in Member States’ capitals during 2008 and 2009.

T

here are more than 23 milCIP Financial Instruments lion SMEs in the European The Competitiveness and Innovation Union that provide almost Framework Programme (CIP, 2007-2013) 70% of total employment builds on the previous successes of the and represent 99% of all Growth & Employment Initiative (1998enterprises. These figures 2000) and the Multiannual programme for reflect the significant role small and medienterprise and entrepreneurship (MAP, um enterprises (SMEs) have in the EU27’s 2001- 2006). These two initiatives providsocial and economic fabric. ed over €744 million that benefited more In order to finance and stimulate innothan 360 000 SMEs. vation by SMEs, the European Union has The aim of the CIP financial instruments developed a wide range of measures in is to encourage banks and other finanrecent years. Access to finance is a key cial institutions to do more for SMEs. The issue, as 20% of SMEs still Launch event of the consider it to be a problem.

“EU Finance Days for Therefore, financial instruSMEs” held in Ljubljana ments have been an imunder the auspices of the Slovenian portant part of European presidency on programmes since 1998, 28 March including the current Competitiveness and Innovation Framework Programme (CIP, 2007-2013). The aim is to make financial systems more SME-friendly and facilitate the financing of start-ups, innovation and growth. results from previous programmes have Working in the same direction, the Combeen promising and the funds have theremission has proposed measures to boost fore been almost doubled for the period cross-border investments by venture cap2007-2013. The renewed CIP instruments, ital funds: the EIF particularly values funds with an overall budget of more than €1.1 that can invest in several Member States billion, should generate around €30 billion when it selects financial partners under of new finance for an estimated 475 000 the CIP. Venture capital funds, which are SMEs across the EU. vitally important for the financing of growing, innovative small companies, face The European Investment Fund (EIF) is problems in overcoming different national mandated by the Commission to impleregulations for cross-border fund-raising ment these instruments: and investment. Therefore, the European Commission advocates a broad partner• The “SME Guarantee Facility”: the EU ship with and between Member States to shares some of the risk of lending to work towards mutual recognition of the small firms, in return for a commitment current national frameworks for venture from financial institutions to increase capital funds. This approach has also lending to SMEs. During the last ten been recently supported by the Council years, the EU has provided guarantees of Ministers and the Commission will conto banks and other financial institutions tinue working with the Member States to to a value of €436 million, covering loan achieve this goal. portfolios totalling almost €28 billion.

• The “High Growth and Innovative SME Facility” (GIF): the EIF invests in venture capital funds which focus on highgrowth firms in their early or expansion stages. The EIF stake in such funds enables them to invest more in SMEs and to attract additional investors more easily.

EU Finance Days for SMEs The “EU Finance Day for SMEs” is an EU initiative with a three-fold aim: raising awareness about financial instruments, providing information about sources of debt and equity finance for SMEs in order to strengthen their investment readiness and sharing good practices with stakeholders.

Invitations to participate are sent by the Commission to local organisations representing SMEs, financial institutions and financial advisors, policymakers in national governments or regional authorities, chambers of commerce, local venture capital and business angels associations, business organisations, entrepreneurs, incubators, spin-offs, organisations and networks promoting innovation and other similar organisations.

During 2008 and 2009, an EU Finance Day will be organised in all the Member States’ capitals. The launch event was held in Ljubljana on 28 March, followed by a Warsaw event on 27 June. The next events are foreseen in Berlin and Stockholm in September and in Paris in October.

If you wish to know more about the calendar, the speakers and the presentations at “EU Finance Days for SMEs”, please visit:. http://www.sme-finance-day.eu/

sustaininggrowth | 21

business angels

the role of business angels in sustaining

european growth

Stimulating and supporting business angel investment in seed and early stage growth businesses is at the core of the Lisbon Agenda and the EU’s ambitious objectives for competitiveness and growth. Indeed, European and national policy makers have recognized that access to the right type of finance is one of the biggest issues facing SMEs in Europe today, which are the largest creators of jobs on the continent.

© Scott Maxwell | Dreamstime.com

B

usiness angels (BA) are private individuals who invest their own money and time and experience into unquoted companies. According to EBAN estimates, some 3 billion Euros are invested every year by 75.000 business angels across Europe. BA intervene at the very early stages of start-ups (the average amount invested in the first round is generally under 200.000€), identifying their potential for explosive growth based on their market and sector experience. One of the illustrations of the capacity of business angels to identify and fund promising new companies with an international growth potential is their involvement at the early stages of the now global company SKYPE. The role of business angel investors is crucial for SMEs as they can support entrepreneurs not only with finance, but also in strengthening the company’s capacity to manage and absorb growth. As venture capitalists retreat to the later stages, investing no less than 3 million Euros in companies in Europe, business angels have become essential in order to close the “equity gap”.

Capital Needs High Risk

IPO

Lower Risk

Formal Venture Capital Business Angels Friends, Family and Founders

Angels help fill the Equity Gap

Time Seed * Start-up * Early Growth * Sustained Growth

sustaininggrowth | 23

business angels

Business angels are now increasingly organized, either informally as angel groups or more formally via the membership to a business angel network. EBAN has identified around 300 of these business angel networks across Europe in 2008. There are many more angel groups, and angels operating on an individual basis. Some countries have seen their number of networks decrease in the last year as the informal venture capital market matured and networks merged to reach a critical mass of angels and quality deal flow. In some emerging markets, the number of networks has significantly increased in the last years. This is the case in Spain (except for the Barcelona region) or Portugal.

In recent years, business angel networks have gone far beyond their initial role as match-makers, selecting quality projects for their business angel members. Networks now provide capacity building services for their members and for entrepreneurs (Investor and Investment readiness); opportunities for syndication; participation in co-investment funds sometimes leveraging on public sector participation; opportunities for cross border investments; links with other financiers for follow-on rounds, etc.

EBAN, the European Business Angel Network, was established with the collaboration of the European Commission in 1999 by a group of pioneer BANs in Europe and EURADA (the European Association of Development Agencies). EBAN is a non-profit association representing the angel and early stage investment market, and acts as a think tank, working to shape EC policy in favour of the BAs, BANs and early stage venture capital market in Europe. EBAN has indeed recently opened its associated membership to early stage venture capital funds, in an effort to build an integrated representation of the early stage market. EBAN currently federates 80 member organizations representing around 250 of the 300 networks operating in Europe at the moment, and located in 22 countries.

Our objectives are to: • Help our members to identify and share best practice • Represent the angel investing sector and the early stage investment market at the European level • Carry out research on the angel market and produce facts and trends • Promote the role of business angel networks and support the emergence of professional structures across Europe • Support the internationalisation of the angel industry and movement The role of EBAN in recent years has been crucial in raising awareness near European policy makers of the importance of business

24 | sustaininggrowth

angels as key actors of the financial supply chain. It is for example actively participating at the moment in the EU’s Enterprise Finance Days, in order to promote the role of business angels. EBAN is actively supporting a number of policies which contribute to providing a favourable environment for business angels to operate in Europe. The most important incentive for business angels at the moment is fiscal incentives, in the form of capital gains and capital loss exemption.

The best practice in Europe is UK’s Enterprise Investment Scheme.

However, support to business angel network activities, participation of the public sector in angel led co-investment funds, securing exit routes for investors including by supporting the collaboration between angels and VCs, etc are other means to support a growth angel market when the public sector can play a role. It is essential for national and regional governments across Europe to support this business angel activity. Indeed, last year an estimated 26 billion dollars were invested by 250.000 angels in 50.000 ventures! The gap with the US is also a reality when it comes to our capacity to find innovative new companies.

Overall, the trend is certainly positive, as only 50 business angels networks operated in 1999 when EBAN was created, with the majority of them operating in the UK. In most European countries, business angels have now been integrated as an integral actor of the financial supply chain, even if important efforts remain to be done to support their role.

In fact, through their gathering in angel groups and angel networks, the angel market has gradually professionalized, becoming a true asset class on the side of venture capital. Business angels now increasingly adopt a portfolio strategy in order to diversify their risk. They invest less, but in more deals. They are also careful to keep some money to follow-on their investment, when entrepreneurs need further funds, in order to prevent being diluted in the upcoming rounds and supporting the entrepreneur appropriately.

Some of the trends that EBAN is following at the moment are: • The emergence of some sector specific networks, including in “hot areas” such as sustainable development or clean technologies, but also in the creative industry; • The increasing interest of women in angel investing, and the development of tailor made capacity building programmes and networks for women; • The development of angel funds and co-investment funds involving public money, in order to leverage the involvement of angels in later rounds, and until the company is ready for venture capital financing.

Will the credit crunch affect business angel activity? It seems that it will not, on the contrary. As experienced investors, business angels will certainly be attracted to invest when the market is low, in order to hope for better exits in the next 3 to 5 years. Business angel investing is often referred to as “patient capital” and no doubt that this expression will also hold for the current investment climate

eban

EBAN’s next event “Winter University” will take place in Luxembourg on October 31st, and will be hosted by european business angel network Luxembourg Business Angels.

For further information about EBAN, visit www.eban.org For information on the Ready for Equity! Project on investment and investor readiness, visit www.readyforequity.ey and www.eban.org/ready_for_equity.php For information on cross border investing for early stage investors, visit www.earlystageinvestors.org

private equity

Going Public

Plus The route to

Major changes in European equity capital markets have taken place and there are more markets for small and medium sized companies to choose from than ever before. Companies need to know what their options are when looking for to raise capital and grow their business. PLUS Markets Group provides competition and choice in these markets, right at the heart of the City of London.

LUS Markets Group plc (PLUS) is a new small and mid-cap stock exchange in the UK. It was recently granted Recognised Investment Exchange (RIE) status by the Financial Services Authority, opening up the market to a wider pool of investors and supporting equity fundraising for companies on PLUS. It offers a full range of services for companies, funds or market professionals seeking access to London’s vibrant and liquid capital markets.

PLUS has expanded its offerings to cover some 7,500 equities, including all UK listed equities, liquid European equities and unlisted equities quoted on the AIM and PLUS markets.

The secondary market trading platform is based on a quote-driven model, the most efficient and effective system for trading shares in small and mid-cap companies. Market markers commit their own capital to the market, playing a key role in providing both price formation and liquidity. Over 50 brokers and 8 market makers are active on PLUS. Transaction data and current bid-offer information is shown electronically and distributed to the market via leading data vendors.

PLUS is committed to providing investors with a market dedicated to offering quality investment opportunities. Investors are assured that PLUS is a select listing destination offering the best investment value due to stringent regulatory control and a particular focus on investor protection that has played a strong role in the company’s business model.

PLUS competes directly with traditional exchanges with its offering of both listing and trading market services. Companies can access PLUS by having their shares traded on the PLUS quote-driven trading platform while listed or quoted elsewhere, or by being quoted on the PLUS primary market.

There are two options for companies wishing to enter the PLUS markets: the PLUS-listed and PLUS-quoted markets.

PLUS-listed is a primary market for established companies and the largest funds, who are seeking a full UKLA listing and a presence on an EU regulated market.

26 | sustaininggrowth

The PLUS-quoted market is dedicated to the needs of growing companies seeking access to a public market for the first time, whether to raise capital or enhance the profile of their business.

PLUS-quoted welcomes ambitious, well-managed small and mid-cap companies from the UK or overseas. The entry criteria are clear and transparent, and companies are supported throughout by the PLUS team of experienced market professionals. Because PLUS is an RIE, companies can raise capital to fund their growth from a wide range of institutional and private investors – and those investors benefit from a range of tax advantages designed to encourage the growth of smaller companies. Growing PLUS-quoted companies may also elect to step up to the PLUS-listed market should they so wish, with no need to access other markets.

Floating on a public market Two of the most frequently named benefits of coming to a public market are the ability to raise equity finance and raise a company profile. PLUS has proven to be a successful source of equity finance for growing companies, and offers profile in a dedicated smaller companies marketplace. Most importantly, the success of a public market is measured on the ability for existing issuers to be able to tap into the pool of capital and raise further funds to finance their growth.

private equity

Key benefits of PLUS: • Ability to raise funds from a deep capital pool of institutional and private investors. Tap into the world’s deepest pool of liquidity and the home of specialist small and mid-cap investors.

• Increases a company’s ability to punch above its weight and enhances a company’s profile, improving visibility and impact, in particular with potential new customers who may become aware of the company for the first time.

• Greater access to UK retail investors who drive liquidity via the leading broker dealer members of PLUS. • Robust but less onerous due diligence process; clear and straightforward admissions process where the PLUS Regulation team works with the company’s advisers during floatation.

• Focus on investor protection through high regulatory standards but with a straightforward approach leaving the company to grow the business.

• Cost effective access to the public markets offering better value to companies and investors.

• Tax benefits for investors including capital gains tax and inheritance tax reliefs, eligibility for venture capital trusts and enterprise investment schemes. As a result of the Chancellor’s increasing restriction on qualifying criteria for these schemes many investors, including VCT funds, are investing in the kind of companies that would typically come to PLUS. PLUS-quoted securities are also eligible for inclusion in self-invested pension plans (SIPPs).

CASE STUDIES - PLUS QUOTED COMPANIES ANS Group ANS is a technology infrastructure specialist, which provides hardware, software and 24/7 managed services to UK Enterprise businesses. The Group operates within both the public and privates sectors, offering a suite of solutions.

Key facts: • Floated on PLUS in 2000 • Raised £1.5 million at admission • Market capitalisation at admission £6 million • Current market capitalisation £14.8 million © Nsilcock | Dreamstime.com

A PLUS quotation can: • provide the wider market with the confidence that a company has gone through a rigorous scrutiny process.

• provide an independent valuation for the business, allowing traded companies to use shares as an acquisition currency.

• help existing shareholders to realise the value of their investment by providing a trading facility in the company’s shares; and • support employee share schemes and share option schemes to incentivise, retain and motivate employees and to attract new employees.

Why PLUS? PLUS offers profile, liquidity, an audience receptive to growth and an environment where management can devote as much energy as possible to doing what their shareholders want them to do – to run the business. The PLUS team are experts in understanding the needs of companies, their advisers and their investors.

PLUS is a disclosure-based market which is dedicated to the needs of small and medium sized companies especially when it comes to regulation. There is a clear and straightforward admission process which means that there are no specific eligibility criteria, but companies are required to satisfy certain standards.

Growth 2000 • Acquisition of Applied Micro Systems (UK) Ltd 2005 • Acquisition of Medfile Ltd 2006 • Acquisition of Business Integrated Operating Systems 2007 • Floated subsidiary Smart Identity following £750k fundraising.

2007 • Reported increase in turnover of 46% and in operating profit of 91% AH Medical Properties AH Medical Properties plc is a property investment company whose principle activity is the purchase, development and management of property primarily allied to the provision of medical facilities delivering NHS led primary care. The company has a growing portfolio of medical centres, doctors’ surgeries and on-site pharmacies mainly let to doctors and primary care trusts.

Key facts: • Admitted to PLUS in January 2007 • Market capitalisation at admission £10.1m • Current Market capitalisation £18.36 Growth • February and March 2007 raised £13 million in 2 tranches. Investors included institutions such as Guiness Peat, Schroders, Artemis • Secured additional funding during 2007 and reduced ongoing cost of debt through a refinancing.

• In the 6 months to October 2007 the company reported revenue up 107% and NAV per share up 5%. The company paid its maiden interim dividend.

PLUS Markets Group plc Standon House, 21 Mansell Street, London E1 8AA Tel: +44 (0) 20 7553 2039 • Fax: +44 (0) 20 7553 2004 www.plusmarketsgroup.com

sustaininggrowth | 27

fx trading

As the UK property market stares into the abyss, the British Pound may remain out of favour for a considerable period.

MORTAR

BOMBS

A

n Englishman’s home is his castle, so they say and, as an island nation, the ability to get one’s foot on the ‘housing ladder’ has long been seen as a social imperative in the UK. A quick peek down the High Street of most commuter towns in the south-east of England last spring – and the rest of the country no doubt – would have yielded an array of estate agents seemingly far in excess of what should have been necessary for the housing stock to which they covered. Newspapers and television alike were awash with tips on property investment; where to buy; what to buy; location, location, location.

Old enough to remember the dot com bubble bursting but not, seemingly, able to remember how it felt to be a homeowner between 1989 and 1996, the UK population, seduced by a cocktail of rising prices and easy credit, took on increasing amounts of leverage in terms of their own residential property and the new personal pension plan know as the ‘Buy-to-Let’ market.

April 2007 and everything looked rosy. Credit spreads were at historic lows, the security of the AAA rated monoline insurers across the pond instilled confidence for lender and borrower alike and even the likelihood that the Bank of England would have to nip a 3% CPI number in the bud by putting base rates a little higher than the then 5.25% level was not seen as a major problem to the stability of the housing market.

‘House prices can’t fall, there’s a supply shortage’ I was told by a number of multiple property owners. ‘Rates can go to 6%, but they were at 15% in 1989’ they informed me.

I would envisage that an April 2007 edition of the Oxford English Dictionary did not contain the word ‘Subprime’. That may have changed by 2009.

Subprime as a term has morphed from purely being a loan in the US that doesn’t meet Fannie Mae or Freddie Mac guidelines to being a buzzword for the entire fracturing of the global credit markets. ‘Subprime’ is used wrongly by the world’s press to encapsulate a multi-trillion dollar market of SIV, MBS, CDO and other repackaged debt which had been recklessly and scandalously overpriced by credit risk managers across the globe. I urge you to read The Black Swan by Nassim Nicholas Taleb – surely one of the most pertinent and well timed book releases in financial history.

The first cracks in the credit markets appeared around that time

28 | sustaininggrowth

– April 2007. Bear Stearns warned of losses in two of its investment vehicles involved in the collateralized debt market and further shocks and ‘writedowns’ quickly followed in August and November 2007 with the scale of the problem forcing global central banks to inject unprecedented amounts of liquidity into the banking system to help it limp feebly into the new year. As of Mid-May 2008, according to Bloomberg, a total of $329.2b had been written down as losses due to the credit crisis. The impact has been widespread with the US dollar falling around 15% in the 16 months following the start of 2007 and job losses in the financial sector approaching 40,000 by some estimates.

As a currency trader and analyst who employs a predominantly technical methodology to trading the markets, the fracturing of the credit markets has helped me formulate a definitive investment viewpoint for the next 18 months or so. Timing, as they say in comedic circles, is crucial, but my underlying modus operandi is now to sell the British Pound on a broad basis when my indicators suggest I should. When the same indicators suggest the Pound should be bought, I am happy to stand aside from the market and await a fresh selling opportunity.

Why should the credit market affect the Pound more so than, say, the Japanese Yen or Euro?

Firstly, the death of the ‘carry trade’. The carry trade is, in essence, borrowing in a low yield environment and investing in a high yield environment. In part a product of the unprecedented liquidity injections undertaken by the Greenspan Fed and the Eddie George MPC, the carry trade saw a huge outperformance from 2001 to 2007 of the higher yielding currencies (British Pound, Aussie Dollar, Kiwi Dollar, Euro etc) against the lower yielding Japanese Yen. The fracturing of the credit market has led to both a reduction in risk appetite and a narrowing of target interest rates between the UK and Japan. With the seven year GBPJPY uptrend broken and UK rates set to fall further as we approach autumn, a continued unwind of this chunk of the carry trade looks likely.

Secondly, funding UK Plc. looks increasing problematic. Like US Inc, the UK suffers with what are termed ‘Twin Deficits’ – running both a trade deficit and a budget deficit. The decision to nationalize Northern

© Brian Jackson | istockphoto.com

fx trading

Rock left the budget deficit in the UK at over 40% - no bragging rights there for the ex-Chancellor Brown – and has left a dangerous precedent should one or more other lenders fall into terminal decline. History would suggest that in such a position, rates would be more beneficial being raised than reduced, to entice saving and erode the level of the public debt but this risks all out collapse in the property market and certain doom for the Brown/Darling (Laurel and Hardy) administration.

Thirdly, the continued ascent of the commodity markets, for a net importer such as the UK, at a time when the Pound is falling is potentially ruinous. NYMEX crude has risen by around 40% in the 6 months to May 2008, but in Sterling terms it has

I expect someone more eloquent than me has already written that the Bank of England is stuck between a Northern Rock and a hard place, but this certainly looks the case with respect to the Monetary Policy Committee’s base rate policy. risen by a whisker off 50%. Non-seasonally adjusted producer price inflation hit 23.3% y-o-y in April08 with inflation at the factory gate turning at 7.5% per annum. Margins in the High Street are being violently eroded and constant rises in domestic energy bills and at the petrol pump have seen the Chelsea Tractor (the vehicle of choice for the West London school run) increasingly desert the car parks of the upmarket Waitrose in favour of brazenly discounted supermarkets like Aldi and Lidl. The UK economy, so heavily weighted towards the service sector, looks increasingly likely to see job losses spill over from the City of London to the retail and leisure sectors.

A couple of pockets aside (notably Spain and Ireland) the ailing property markets in the UK and US look likely to be far more burdensome for their domestic economies than in Germany or Switzerland for example where the obsession with home ownership is nowhere near as acute.

RICS (The Royal Institute of Chartered Surveyors) reported over 95% more Estate Agents saw falling prices compared to those that saw rising prices in the UK in April 2008 and more than 70% of all mortgage

deals that were available to the public on February 1st 2008 had been withdrawn just 10 weeks later. The UK domestic savings ratio has fallen from 10% in 1997 and over 6% in early 2006 to around 3% at the turn of this year. The growth of UK Plc has been built on debt, in part backed by house prices, on which banks were lending percentages and multiples of income that far outstripped what was common in mainland Europe. A prolonged decline in property prices and continued tightening of personal credit criteria is likely to lead the debt laden and service sector reliant UK economy start to post some very sorry looking GDP numbers over coming quarters.

I expect someone more eloquent than me has already written that the Bank of England is stuck between ‘a Northern Rock and a hard place’ (if not I claim it as my own) but this certainly looks the case with respect to MPC base rate policy. Domestic growth is faltering and inflation rising with annual house price inflation probably falling into negative territory before this article is published. With Corporation Tax receipts from the City falling as more writedowns are forthcoming from beleaguered financial institutions and the mountainous Public Debt burden becoming an obstacle for fiscal stimuli Mervyn King is damned if he does and damned if he doesn’t. Some economists are expecting CPI inflation to be double the 2% target by the autumn but also looking for Base rates to go sub-4%. With RPI already running above 4%, the spectre of negative real interest rates is another reason to be wary of the Pound.

From a Global standpoint, one must also factor in the number of countries still heavily overweight the US Dollar in their official reserves.

Sterling was a reserve beneficiary during the period of the ‘boom times’, being the fastest grower as a percentage of FX reserves held by Central Banks because of both attractive yields and the ‘dynamic’ UK economy. There now seems a strong prospect of a long-term rebalancing in favour of the Euro, Japanese Yen, Swiss Franc and, at some point down the line, the Chinese Yuan. The Euro seems to have proved itself as an increasingly stable currency, the Japanese economy is slowly pulling itself out of its Kondratieff winter and the Swiss Franc remains a safe haven in times of Geopolitical and market turmoil. I am not in the camp of the Dollar being cast adrift for all eternity, but with a (borrowed) Finance Minster’s hat on, it would seem prudent to hold a mix of these currencies in reserve in a more egalitarian framework. Are these currencies too high for sovereign investment at current levels? In my view, no.

The investments by Sovereign Wealth Funds in ailing Investment Banks over the past few months suggest these decisions are made from a very long-term structural basis and valuations are by no means the primary motivation. In this guise I see a greater demand for Euros, Yen and Swiss Francs over the British pound from Reserve flow perspective over a multi-year period.

It is worth noting that, at current interest rates, funding a short position in Sterling against all the major currencies outside the Australian Dollar and New Zealand Dollar will cost money as the ‘carry’ will be against you. However, by using an activist technically-based investment strategy, sensible risk management and selling into short-term rallies in the Pound, I feel that good returns will continue to be available over the next 12-18 months. I would not be surprised to see GBPJPY fall to around 160 and EURGBP achieve parity over this time horizon.

Paul Day is Deputy Head of MIG’s Research Department. He has worked in the Financial Markets since gaining a Degree in Economics from the University of Liverpool in 1993. He spent 12 years at HSBC in London where he was Manager of Futures Research and, subsequently Manager of Strategic Trading. He employs a technical methodology to trading FX, Bond and Commodity markets.

Paul is a member of the UK based Society of Technical Analysts and his research is frequently quoted by Market News Services and Bloomberg as well as being received by traders at many of the world’s leading Investment Banks and Hedge Funds. On behalf of MIG Investments he is available for lectures and seminars.

Contact him via email: research@migfx.com

sustaininggrowth | 29

fx trading

Forex making money in

The foreign exchange market or “forex” as it is known is the largest and most liquid financial market in the world. Billions of pounds, dollars, euros and yen are being traded every hour, 24 hours a day. Usually in forex investors are trying to take advantage of the tiny movements, measured in one-hundredths of a cent. Most of them are employed by central banks, international banking groups, financial institutions and other professional investors. However, the spread of high-speed broadband internet and the development of sophisticated software packages enables individuals, with a little help, to participate in this huge global financial market where they can try to grab a little of the profits for themselves.

O

ne of the companies helping individual investors to trade in the forex marketplace is FxPro, the trade name of EuroOrient Securities and Financial Services Ltd. FxPro is comparatively new as a company in the forex marketplace but it’s owned, controlled and managed by industry professionals with a long experience in the forex, banking and financial services industries. This experience, along with the fulfilment of elaborate and strict conditions, has allowed the governmental authorities of Cyprus to grand the company with all the necessary licenses so the company offers its services as a regulated financial services firm (CySEC licence

30 | sustaininggrowth

no. 078/07). We are proud to be licensed in the European Community and to be able to offer higher protection to our clients. Forex investors are now protected similarly to all other investors who invest in different financial instruments. Once an investor starts trading with us, he will realise the professionalism and care that we provide to all our clients regardless of their portfolio size.

During the past few years retail investors have been able to participate in the forex market by utilising the trading platforms of companies like FxPro. Usually retail investors join the forex market for speculation, for fulfilling an investment strategy or for hedging purposes. They may use different investment strategies according to their market

expectations and investment profile. As a stand-alone investment, the forex market is considered a high risk investment; however, if forex trading is used for hedging purposes or if the investment strategies followed are appropriate for the investor’s circumstances, then as an investment vehicle, forex may increase diversification and reduce the overall risk of investors’ portfolios.

Making money in the forex market is as easy as making money in all other liquid financial instruments, such as stocks, bonds and so on. Investors take a view on the likely movement of a specific currency pair, such as the US dollar and the euro, and on that view they take a position: buying dollars and selling euros if they expect the US currency

fx trading to rise against the European one, or vice versa if they expect the dollar to fall versus the euro, and so on. It is not, of course, quite that simple to make money since currency movements are not easily predictable and they depend on many different factors, such as interest rates, inflation, a country’s gross domestic product and many other macroeconomic and non-macroeconomic factors. If the investor’s analysis was correct and the dollar indeed depreciates against the euro, then by closing the open position sometime in the future, the investor will profit from the difference between the purchase and the selling price. If, of course, the dollar had risen in this example, then the investor might had to sell the US currency for less than he was able to buy it at, and therefore, he will incur a loss.

It is widely accepted in the financial world that the higher the risk, the higher the return.

Investing in the forex market is a high-risk investment and therefore, the expected return could be high as well. But investors should note that in the forex market, the possibility that their investment may become of zero value is higher compared with other traditional forms of investments such us stocks, bonds and so on. The maximum risk of an investor is his equity (deposits plus profits) since all open positions are closed automatically when the margin falls below 5% to ensure that there is no negative balance in the account. An investor should always consider his knowledge and experience in the relevant market as well as his financial condition and investment horizon before investing in any financial instruments including forex. FxPro has incorporated into its trading platform special risk management features such as “Stop Loss,” “Take Profit,” “Buy Limit,” “Buy Stop,” “Sell Limit” and “Sell Stop” that can be used by investors either to limit their exposure (risk) to the market or to secure a predetermined profit.

FxPro also categorises each retail investor who opens a trading account according to how much risk he should be exposed to.

The categorization is performed during the account opening process and if certain criteria are not fulfilled, for example, adequate market knowledge, dealing experience and so on, then the investor is classified as a “retail investor.” Our company also ensures that clients understand the risks involved in forex trading, the trading terms and conditions, any conflicts of interest that may arise, the company’s execution policy and other vital information. Retail clients can also, through the FxPro website (www.FxPro.com), get access to global financial news provided by industry leaders and educate themselves with information that might help them and might affect their investments.

Another advantage that the forex market has over other types of investment is the fees charged. Usually, the majority of investments carry commission charges, either upfront or at the exit while in the forex market investors can find companies that do not charge commissions. FxPro, for example, doesn’t charge its clients any commission for trading in the forex market; instead, the firm makes its money in other ways. For every currency pair that we publish in our trading platform, we quote “bid” and “ask” prices (the difference between them is known as spread), which apply for opening or closing positions for each currency pair. For every open position that is held overnight, there is an overnight charge or credit, called swap rate, which is based on the interest rate differential of the two currencies that make up each currency pair.

The decision on whether an individual investor is better off and whether to trade on his own using our proprietary software or through a broker depends on his/her knowledge and experience. There is no right or wrong way of trading but it is advisable that inexperienced investors seek advice from independent financial advisors before they start trading. We provide to investors our trading platform through which they can place orders 24 hours a day, five days a week. Investors can also contact our operators during operating hours, they can monitor their portfolios online at all times, they can watch world news related to their investments and they can generate or print statements of their accounts.

Investors who are not familiar with forex and wonder whether the global foreign exchange market is suitable for them can visit our website and download our unlimited free practice account, FxPro MetaTrader. This will provide them with an opportunity to get familiar with the forex industry, to learn about our quotes and charges, get experience how price movements affect their investments and test various trading strategies. When they feel

confident that they can trade in a real environment, they can apply online to open a trading account and start trading once they fund their account.

The FxPro website includes educational material for investors to understand the financial instruments, discussions and global news on how market forces affect prices, etc.

We also provide investors with live seminars on understanding our trading platform and to become familiar with opening and closing positions, or using the various order features such as “Stop Loss,” “Take Profit,” “Buy Limit” and so on.

Our company is proud to have a diversified group of industry professionals in all key positions. Our multilingual customer support service is one of our strong elements and gives our clients the opportunity to select their personal operator. Our advanced IT infrastructure allows our operators to communicate fast and efficiently with all clients and help them to find a solution to their problems.

The company has strict detailed procedures which follows and all of its employees abide by strict confidentiality rules and the industry code of business conduct.

Certainly, we at FxPro see continuing opportunities ahead. The forex market is expected to remain the leading financial market in the world in terms of volume and liquidity and we believe that over time, as retail investors become more knowledgeable and sophisticated, they will participate more in the forex market. Due to new financial instruments like Contracts for Difference (CFDs) and the advancements in technology, retail investors can participate in the forex market on equal terms. These new instruments require less initial investment compared to traditional forex investments and enable retail investors to participate in the forex market with ease.

We believe that over time, more retail investors might include forex investments in their portfolios, either to enhance their return and decrease overall risk, or to try to take advantage of the volatility the forex market provides.

Of course, no one can predict the volatility of the forex market in the future but history says economies, and consequently their currencies do not move at the same pace; therefore, one should expect fluctuations between currencies to continue and forex market to remain volatile but still the most liquid market. We recommend inexperienced investors to seek independent financial advice before they start trading in the forex market.

sustaininggrowth | 31

fx trading

Tackling the technical issues of

FX TRADING Swiss FX company, MIG Investments, repositions itself with a new brand identity focused on client centricity amid plans to become a Swiss bank. In a strategic maneuver to accentuate its current and future offering of specialized FX services, the company has launched a new and vitalizing corporate branding campaign in the lead-up to its application for a Swiss banking license.

D

riven by substantial growth with its online services, worldwide clientele base, shift in consumer segment, and recent restructuring and investment since it’s inception in 2003, MIG Investments has commercially repositioned itself in the industry in a move to highlight a more customer-centric approach to clients. Offering some of the most competitive trading conditions on the market today, MIG aims to provide the optimal trading environment by ensuring clients receive an unrivaled combination of trading tools, security and support. Aggressive trading spreads start as low as 1 pip on USDJPY and EURUSD for institutional clients, with over 30 currency pairs in the offering. Their bid to remain highly competitive means clients benefit from continually revised conditions according to the ebbs and flows of the market.

As a testament to MIG’s commitment to provide a trading edge over its competitors, the company has built up a world class research faculty, housing some of the industry’s most respected analysts, including Richard Morrish, head of Research and one of London city’s leading trading exponents, and Bill Hubard, Chief Economist, and former host on CNBC and Bloomberg; known in financial circles as the Prophet of Perrymead. With over 80 years of combined industry savvy, the research department provides clients exclusive technical analysis and intraday reports, assessing major currencies and crosses. As a special service to high net-worth clients, private consultations with experts are also available – an industry first. The research team makes regular appearances on major financial television channels and contributes editorials and analysis to leading global publications.

32 | sustaininggrowth

Confidence is Capital “One of MIG’s credos is to instill a level of confidence in its customers and to reassure them they are receiving the best trading conditions at all times. Client focus is at the heart of everything we do”, says Wissam Mansour, CEO of MIG Investments. As a stimulus to the company’s application for a Swiss Banking license, MIG Investments is heavily focused on increasing its already prominent market share as one of Switzerland’s leading online brokers by continuing to deliver some of the most comprehensive FX solutions to traders, while building out other products and offerings within the financial services industry. The underlying aim of the company’s rebranding initiative is to sharpen its industry positioning by highlighting its expertise in the FX sector, and to reflect a change in the range of services, advantages and opportunities it plans to provide clients as a licensed Swiss bank.

Confidence is Capital is the company’s new advertising slogan, which aims to communicate a positive message of integrity and trust to its stakeholders by emphasizing a closer connection between client and broker through personalized attention, better support and trading tools – part of MIG’s customer-centric strategy and areas of its business experiencing momentum.

Customer Centricity MIG’s customer centricity is promulgated by its client support team – a group of professional, multilingual men and women delivering highly individualized customer support. The team serves clients in over 100 countries in over 20 different languages, and employs a cross-channel approach to client relations. The result is a holistic and exclusive

fx trading

© gvinpin | istockphoto.com

level of treatment with synergy between Client Support and processing centers at the Back Office.

A new website provides increased accessibility overall to trading tools and support with content optimization and functionality as key design drivers. An exclusive portal to MIG’s research team is in the works, and will provide an efficient way for traders to access key research tools and value-adding market insight to protect their investments.

MIG Partnership solutions provide another important facet to its customer-oriented strategy. Designed to accommodate the forays of banks and financial institutions into offering a fast and efficient way for their clients to trade FX, MIG’s White Label and Introducing Broker partnerships are prodigiously customizable, with tailor-made income sharing solutions allowing for greater revenue potential by meeting the partner’s business needs and financial structure –in essence, solutions can be adapted to a business’ way of doing things with minimal set up costs.

On line, MIG will make available a support area for partners with access to tools to support their business.

MIG’s aim is to increase the overall accessibility to the FX market and provide greater freedom as to when and how clients wish to trade. Technology and innovation is an intrinsic part of this approach.

The company offers one of the most versatile and user-friendly trading platforms on the market today – the MIG Trading Station.

Clients can also select multiple means of trading, such as via PDA’s or mobile software, or automate a trading strategy through its programming services.

Security and performance The company is intact with Swiss financial integrity and a solid performance record, regulated by the Swiss Federal Department of Finance (SFDF) and ARIF, a private Swiss self-regulatory body against money laundering. Compliance standards are implicitly maintained throughout the organization with the help of some of the world’s largest professional auditing and services firms. Currently also Switzerland’s fastest-growing online FX broker, MIG is affiliated with numerous top tier banks and other reputable Swiss and International financial organizations. The company is investing heavily in infrastructure, technology, research, its people and processes, and is taking proactive measures partly in response to recent legislation by the Swiss Federal Banking Commission (SFBC). In a drive to regulate the upsurge of FX brokerages firms in the Swiss Market, and to refine the level of consumer protection and overall service quality in the industry, the SFBC recently issued an amendment to its Banking Ordinance which requires that all Swiss FX dealers comply with Swiss Banking Law requirements. MIG plans to apply for a banking license and hopes to be granted approval by early 2009.

Find out more on www.migfx.com sustaininggrowth | 33

private banking

a winning approach to

Sustaining Growth spoke with Keith Gapp, Head of Strategic Marketing and Communications, EFG International, who describes the keys to success in private banking as he sees them, drawing on general preconditions of success, and factors specific to EFG International.

34 sustaininggrowth

Š Kineticimagery | Dreamstime.com

Private Banking

private banking

A

t face value, private banking is highly attractive, with a vast global market; a fragmented competitive landscape; relatively low capital intensity; and the potential for high returns on equity. But it does not lack for challenges. In common with investment banking, it is people intensive; unlike investment banking, it tends not to generate significant one-off fees from large transactions. It is dependent on high quality (and fairly expensive) people; and confronts transaction and reputational risk on various fronts. Most importantly, private banking is a qualitative business which is extremely difficult to get right.

EFG International has come a long way in a short space of time. Since its inception in 1995, it has grown dynamically to become a significant global private banking player, with clients’ AuM approaching CHF 100 billion.

I wouldn’t want to claim that EFG International has found the universal keys to success, but I do see two general factors that underpin such outperformance: generic preconditions of success, and enabling factors distinct to a particular business.

I see the preconditions of success as follows: • A clear and constant focus on private banking and asset management. EFG International has been built on the strength of a single focus. No distractions, no competing business lines, just one overriding passion: the multi-faceted craft of private banking. At many organisations, by contrast, private banking is a peripheral activity; an appendage of retail banking, investment banking or asset management.

• Leadership continuity and experience. This means a leadership team that appreciates the nuances of private banking. Being a relationship business, it also helps if people hang around. EFG International has a stable senior team that knows the industry, and has a proven record of building up a number of private banking businesses – something all too rare in an industry suffering significant rates of churn.

• A true client-centric ethos. Most banks pay lip-service to this, but few live up to the billing. I believe that, for any successful business, clientcentricity must form part of its fundamental core. EFG International was founded on the back of a passionate desire to provide wealthy clients with the level of service they expect and deserve – an ethos which holds true today.

• Avoiding confusing form with function. All too often, our industry fixates on technical products, missing the fact that private banking is a means to an end. Private banks need to be there for clients as things change; to provide practical advice reflecting life’s events, both good and bad, rather than simply managing a lump sum of money. As we like to say to clients: it’s about you and yours. The client as a person; the goals, interests and passions that drive them. Their life, family, and business interests – all inextricably linked.

Then there are those factors distinct to a particular business.

For private banking, I see the need for a distinctive, flexible business model that places relationships centre stage. At EFG International, Client Relationship Officers (CROs) are empowered to run a business. But we are no virtual franchise, and constantly seek to strike the right balance in the blurred territory between autonomy and prescription. CROs are empowered to serve clients, but subject to careful controls and balances.

They are able to focus their energy on clients, serving them as they see fit, free from the things that typically hinder this, including budget cycles,

random goal setting and changes to remuneration, and managers who lack practical experience but think they know best.

But the important thing is not the business model per se, but what it means for clients: • Such a distinctive approach appeals to leading entrepreneurial private bankers. Our CROs typically have long experience, and relish the opportunity of working in an organisation totally committed to private banking.

A practical consequence is virtually no turnover.

• This in turn provides clients with valuable continuity. The stuff of competitive advantage, its value grows over time in a virtuous cycle. Yet private banks often cast it away, by fiddling with organisation, leadership and remuneration; and applying arbitrary sales targets. Fundamentally, success in private banking comes down to facilitating a relationship between a professional and a client, which takes time and a conducive environment to flourish.

• There needs to be a fundamental commitment to giving clients the best solutions available. The claim to open architecture is often undermined by distortionary internal sales targets. EFG International is a notable exception. We set no sales targets. CROs are compelled only to advise clients; to devise solutions using the finest means at their disposal. We have also developed certain in-house capabilities, to sit in competitive juxtaposition with external service providers. The emphasis here is on complex areas such as structured products and hedge funds, where a private bank can add most value by being in the vanguard of fast-moving developments.

This is integral to private banking. It is all about having the brain power to simplify complexity for clients.

Two other business-specific enablers are flexibility, and the ability to combine organic growth and acquisitions. Wealthy individuals are a global phenomenon, but private banking has grown up localised and fragmented. So we see flexibility as a must. Why change a name if it works in a particular market? What can be more powerful than local leaders, with local knowledge and connections? As for acquisitions, the key to success, in my view, comes down to a meshing of organisational culture. The integration of small, entrepreneurial organisations into larger bureaucracies will always be hindered by obstacles. By offering controlled freedom, EFG International is able to attract such organisations, while also appealing to teams seeking to break out from the large corporate environment.

Private banking is so interesting – and challenging – because of its many moving parts. As we say: it is professional expertise, crafted into advice, delivered one (unique) relationship at a time. As well as all of the factors described above, it also requires adaptability. A special business culture built around clients deserves to be protected; however, any business that fails to adapt to changing circumstances will ultimately suffer from stasis.

Evolving the approach to fit the stage of growth, while retaining the special characteristics that have enabled such growth in the first place, is an issue front of mind at EFG International as we steer the business forward.

It is why we like to think of ourselves as a private bank unlike any other.

EFG International Bahnhofstrasse 12, 8001 Zürich, Switzerland Tel +41 44 226 1850 www.efginternational.com

sustaininggrowth | 35

outsourcing & offshoring

the pro’s and cons of

outsourcing & offshoring When work is offshored, be it to India, China, Russia etc, one key question that the end user organisation needs to resolve is how to staff the operation. Offshore staffing issues are prevalent, whether the firm offshores to a captive operation or to a third party supplier

T

o maintain and improve the level of service, it is crucial that the highest quality of staff is found. This is true of work offshored to a captive, whereby the user organisation needs to decide how to find the high quality of staff needed to complete the project, and also when offshoring work to a third party supplier, when the recruitment decision lies with the third party, and therefore finding a supplier who can be trusted to find the right staff is absolutely essential.

Clearing the confusion that fogs the outsourcing market is probably the first step. Outsourcing, by definition, refers to a process

36 | sustaininggrowth

where an end user engages the services of an outsourcing supplier to conduct one or more of its business processes. This could be anything from marketing to cleaning or IT. Outsourcing has been part of the business landscape for as long as business has been conducted, as companies have always formed partnerships with other companies.

Offshore outsourcing, or offshoring, is the headline grabbing process.

Images of Indian call centres and British dole queues abound, as trade unions and protectionist politicians warn of the dire consequences of job slippage to the sub continent. But are these horror stories hype or the real picture?

outsourcing & offshoring

For the last few years, outsourcing, and offshoring in particular, have started to mature and become a more widely accepted and recognised business practice. There have been a mix of successes and disasters, but as time passes firms learn from their mistakes and move forward with increased knowledge and constant improvements being made to conduct and standards within offshoring. As offshoring becomes more widely recognised and more popular, a wider array of companies are considering offshoring as an option.

Offshoring is not suitable for every company though and careful consideration needs to be taken before any decision is made. Some organisations are just not suitable for offshoring, aspects such as staffing and company culture may pose such a big obstacle that offshoring may cause more harm than good. So firstly you need to look at the benefits and balance those against the negatives. At times offshore staff will simply not have the level of skill required to complete the necessary tasks.

Offshoring is not the answer to every problem, but in many cases it is beneficial.

Firms need to assess the skills slippage that can result from outsourcing and offshoring agreements. To retain core competencies in-house is vital, as employees’ skills are a factor that is crucial to a firm’s success. When choosing an outsourced supplier it is vital not

to outsource the knowledge that makes gives the company a competitive advantage. Outsourcing relationships have in the past broken down because suppliers have not been able to offer the skills necessary for the end user organisation, whilst other relationships have also been brought into question because of security issues relating to intellectual property.

Offshoring is definitely increasing in popularity for a number of reasons. Organisations wishing to get their call centre work or back office accountancy work done in a much cheaper location may look to offshoring as the answer to cutting costs. With advances in technology and improvements in infrastructure in many formerly third world countries like India, being able to conduct a process such as answering UK calls for National Rail Enquiries in Bangalore, has become a lot easier.

Cost isn’t the only driver. Many companies cite offshoring as a way to heal the skills gap that will become a greater and greater problem in the UK as the population ages.

Offshoring is an integral part of the rising tide of globalisation. Whereas in the past, many developing countries could only really compete in global agricultural markets, the ability to provide services, such as IT, accounting, call centre work etc. is having a real impact on these countries’ economies. India recent huge economic growth is not solely

sustaininggrowth | 37

outsourcing & offshoring down to offshoring, but it is an essential factor. The worry in the UK has been that developing countries will benefit to the detriment of European economies. But this shouldn’t be the case. European countries will be using these offshore locations to conduct lower level work – much of the higher-level operations will be retained in-house or on-shore at least.

In turn, this should boost these companies’ revenues, which will be ploughed back into the home nation. If the future rolls out as predicted, globalisation will have a positive impact on all countries competing on the world stage – every country will benefit, meaning jobs for all.

But it’s not just economic benefits. There is evidence that globalisation and offshoring are instrumental where it comes to ironing out political difficulties. Look at India and Pakistan. Historic rivals, until recently they were on the brink of a possible nuclear war. But Western companies have cited political instability as one of the major barriers to offshoring. Many companies froze offshoring plans, when political tension in the area began to look as if it might bubble over.

India and Pakistan must have realised the potential economic benefits they were in danger of losing out on (Pakistan is trying to establish itself as a major player too) and this must have been significant when it came to the decision to accelerate the peace process.

India is undoubtedly streets ahead in the offshoring game, but there are other countries close on its heels. China is growing at an astonishing rate, whilst the Philippines is also a big player, and other countries are queuing up to get in on the act. From Egypt to Brazil, South Africa to Russia, countries are looking at their infrastructures and skills sets to see what services they are able to offer. Many of these countries have high graduate numbers and good language skills and are therefore able to supply a whole range of ßoutsourced services.

But outsourcing doesn’t have to involve sending your business processes off to some far-flung location. Companies have historically tended to favour local companies when it comes to outsourcing a business process. And this trend for offshoring in no way signals the end of onshore outsourcing (outsourcing to a company that is based in your own country), or a near shore location, such as somewhere in the EU. Despite most companies being happy with their offshore service, offshoring has received some bad press. There have been media horror stories flying around about poor offshore service and fraud, and research showing companies could be damaging their reputations and losing market share by offshoring call centre operations. As a result of this, some companies have publicised their anti-offshoring stance and used it as a marketing ploy to win customer favour.

And the benefits of onshore outsourcing are multiple. Again, the argument is to use the expertise from another company to conduct your accountancy back office operations, for example, which means that you don’t have to provide any resources in-house and frees your organisation to concentrate on their core business. Using an outsourcing partner in the same country also means that cultural hurdles and language problems are evaded and legal and technical processes will all be familiar.

Whether onshore or offshore there are pitfalls to avoid. The first rule of thumb is careful vendor selection. Whoever the supplier is and whatever service they offer, from cleaning to marketing, there are a number of considerations. Company culture is first. Understanding your working methods and expectations is imperative to the success of the outsourc-

38 | sustaininggrowth

ing partnership. For example, if they operate a flexi time system and you insist on people being in the office at 8.30am, this could cause problems down the line.

Once you have a supplier, the next step is contract negotiation - sitting at the table and hammering out the ground rules. Again, this is an area where many outsourcing partnerships fall flat. Unrealistic goal setting can be a problem, from businesses that want to get the most from their money and suppliers who are too eager to please. But if unrealistic SLAs are set and the supplier can’t meet them, this can cause bad feeling and could spell the end of the relationship – a waste of time and money.

Contractual points have to be clear, concise and adhered to. Periodic revision of the contract and how both parties feel about it can help build a harmonious relationship. Similarly with SLAs – these have to be realistic and regularly reviewed. Slotting key performance indicators in to your contract can also help as they provide a benchmark against which you can measure your supplier’s performance.

But success is a two way street in an outsourcing relationship. Think twice before bartering your supplier down to the last penny. If you insist on unrealistically high targets at a low cost, you may compromise on service quality. For example, some procurement teams have been so draconian that the suppliers can never hope to deliver the service, as the penalties are cheaper than meeting the SLAs. Being too hardnosed where it comes to costs could mean that you lose out on your own cost savings and the supplier loses the incentive to do a good job.

Clear communication is paramount. Whether this is careful communication of objectives to everyone involved, to regular meetings between your business and the supplier, regular communication is vital to the success of outsourcing.

Details on the level and type of communication should be incorporated into the contract. It is also important to have one person at your business responsible for managing the relationship – if there are too many people directly involved, responsibilities become blurred, which can have an effect on the efficiency of the operation. Clear lines of communication and good account management are pivotal factors in successful outsourcing.

Transparency of operations and costs is also key. Secrecy, back biting and unfeasibly large bills cause bad feeling and can be the downfall of your outsourcing relationship. If everyone knows what everyone else is doing, is upfront about any niggles and is prepared to give cost and activity breakdowns for invoices, this smoothes the path for a better relationship.

Whether the public, politicians, commercial and public organisations like it or not, it is undisputed that outsourcing, and offshoring, is here to stay. But in order to make the most of it and limit damage of any sort, it has to be managed in the best way possible. Thorough research of potential partner and destination, airtight contracts and achievable SLAs are all part and parcel of sensible outsourcing practice. Offshoring could well initially appear as the enemy of the UK economy and employment, but harnessing it in the correct way and embracing the rising tide of globalisation could be beneficial to all businesses and countries concerned. © Illustrations | James Thew | istockphoto.com

The NOA is an organisation, which advises companies on outsourcing and lobbies on best outsourcing practice. For more information on outsourcing please go to: www.noa.co.uk

air charter

A

ircraft were meant to allow us to cross borders effortlessly, we were supposed to be able to live our lives in multiple cities and maintain face-toface relationships across the world. Sadly today, for many passengers, this is not the case. Air travel has become a grind and the passenger has lost all elements of control; queues to increasingly full international airports; limited parking; sloppy concierge; queues at check-in, the lounge, security and customs. Add in airport buses, delays for missing passengers and extraordinarily long taxi times, and it is no wonder that many people are tired of commercial air travel.

Once airborne, things do not get much better. Space is limited; service is often patchy

40 | sustaininggrowth

PRIVATE at best. Meals are not inspirational and like the aircraft arrive when the airline chooses rather than when it is convenient. Discussions with colleagues or family are hard to keep confidential.

So having killed off the golden age of flying, are we now seeing the emergence of a golden age of private aviation? Customers have total control; they avoid the hassles and throngs of the airports – the endless queues, invasive security searches and delays. Instead, they fly on their own schedule – any time, any place. The service is seamless, from home to the aircraft to the final destination and can typically save time and money. A European road show of X cities, takes a whole extra day and half flown commercial and the expense of this can be exuberant.

By any measure, the private jet industry is currently experiencing explosive growth. Even at the recent National Business Aviation Association’s (NBAA) annual convention, it was difficult to find a company that wasn’t using the adjective ‘record’ as the default descriptor for their business.

Pundits forecast 24,000 private jet sales over the next two decades. The upshot is that demand vastly exceeds supply. Talk to any heavy jet salesman and ask for immediate delivery, and you’ll find none can provide you with a new aircraft before 2010 or, in some cases, 2011.

So will the growth continue, or might economic cyclicality provide us with a very different picture in the medium term? Having seen the wealth creation of the last

air charter

JETS decade, the rise of a global society, the value of time to corporate and having experienced private aviation first hand, I believe the answer is no.

For my ‘check-in’ process on a recent industry trip, all I had to do was say ‘hello’, present my passport, walk 20 paces to the aircraft steps and climb aboard; no ticket, no formalities and my passport information already pre-cleared. I was a secure passenger, known to the industry colleagues on board and happy to be travelling in closed company among friends.

Far away from scanners and security staff asking me to surrender my bottled water, halfstrip and join 500 others in the crushing experience of a typical airport terminal, I relaxed in my seat and unwound for an experience that

Giving you the ultimate edge and control

was more akin to being in a private dining club than flying on an airliner.

En route, I talked constructive business with my co-passengers for a few hours, dined with them at 37,000 feet, slept soundly and even had the opportunity to shower and pen a draft of this editorial before arriving at my destination refreshed and ready for the next day’s business.

While the Airbus corporate jet is complete luxury for most, a similar experience in a similar environment, with the same productivity, can be enjoyed by flying on a Learjet 45, to name but one popular aircraft model. A new light aircraft will cost £6m, although buyers should be prepared to wait more than a year for the one of their choice.

However, while waiting, customers can

use a private jet without owning one via companies like Air Partner. Clients can either charter for a one off flights or buy a JetCard, which typically start at around £83,000 for 25 flight hours with guaranteed aircraft availability on a choice of aircraft types (or they can opt to pay two per cent extra for an environmentally kinder CarbonNeutral JetCard).

In today’s cash-rich, time-poor society, for many corporate or individuals that have suffered the exasperations of travelling on airlines within Europe once too often, there is a growing mantra: save time, do smarter business – fly private.

David Savile, Chief Executive Air Partner plc

sustaininggrowth | 41

long distance leadership

Nobody likes to have difficult conversations. That’s why they’re called difficult. But whether you’re leading a team, overseeing a department, or running a company, there are times when you have to say to yourself, ‘This situation isn’t getting better on it’s own.’ At that moment it’s time to recognise that you’ve been avoiding the difficult conversation, hoping that whatever was wrong would somehow turn itself around. It hasn’t. Now, what do you do?

DIFFICULT long distance conversations essential to have, too easy to avoid

I

f you were faced with this situation ten years ago, you would have scheduled a meeting. Maybe you’d arrange for a neutral location to put both of you at ease. But we’re no longer in the nineties. In fact we’re only two years away from the second decade of the 21st century. This person is quite probably in a different location from you, possibly in a different time zone. In short, you need to address something that you’ve been putting off, and you’re not going to be able to have a face to face discussion. You’re going to have to do it virtually.

For the past three years I’ve been working with leaders at all levels who are faced with just this situation: • A finance manager based in The Netherlands with staff who work in Manila • A programme manager on the US East Coast whose customer is 1000 miles to the south and whose major suppliers are in Asia • A business unit president whose direct reports are spread across the globe, so that there is never one time when all of them are awake People such as these share a common challenge: strategic decisions related to cost and customer responsiveness have created a situation where one of the major management tools of the 20th century—the face-to-face meeting—is no longer available.

In my research, I’ve discovered that there are plenty of ways of overcoming the obstacles thrown up by working in the virtual environment when relationships are going well: conference calls, email, shared drives, and a whole host of collaboration software tools exist

42 sustaininggrowth

to support productivity in this environment. But when it comes to those difficult conversations, it’s not technology that will solve the problem. It’s people. To be sure there’s a role for technology. High bandwidth technologies like state of the art video conferencing work better than low bandwidth technologies like email for conducting difficult conversations. But ultimately technology won’t resolve a difficult issue. The differentiator is the behaviour of the leader.

There are five things that effective leaders do to ensure that difficult conversations will have an impact in the virtual environment.

1. Build Virtual Relationships Building relationships is the basis for any good conversation. Whether your staff is down the hall or around the world, it is important for them to feel connected to you. To build virtual relationships, one team leader asks all team members to share on-line photos. Another has regular 1:1 phone conversations and staggers the hours of the conversation so that sometimes she’s the one on the call in the middle of her night. These attempts to build virtual relationships show an interest in the other person as a person, and pave the way if a difficult conversation is required. One thing is sure: if you go into a virtual difficult conversation without having built a virtual relationship, you’re leaving the outcome to chance. Don’t wait to build virtual relationships until you need them. It will be too late.

2. Face the issue openly Picture yourself and one of your staff in a conference room. You’ve asked for the meeting because you are concerned that the person’s

long distance leadership

performance seems to be erratic of late. You haven’t had much time to prepare because your prior meeting ran late.

So you open the discussion by saying “Something’s not right.” How will this conversation go? Often a conversation that starts like this will go quite well. The other person will squirm. You’ll maintain eye contact (maybe squirm a bit yourself on the inside and wish you were better prepared). But somehow you both will blunder your way into a discussion and a resolution. It happens a lot.

Blundering into a difficult conversation in a virtual environment almost never turns out well. Things go quiet. Neither side has any body language cues to go on. The potential for mutual problem solving evaporates. The importance of starting off well is heightened in the virtual environment.

© ilex | istockphoto.com

Simple statements that acknowledge that there is an issue that you would like to discuss are usually the best way into the conversation.

For example, you can say “I’ve asked for this discussion because I think you and I may have a difference of opinion about what constitutes success in your position. I want to hear your views and also let you know what I think.” Notice with this type of introduction, the speaker is identifying a performance gap as well as setting the tone for a dialogue.

3. Explore the issue together One of the reasons that difficult conversations are difficult is that both parties often find themselves in a disagreement over the nature of the problem. The manager says the employee’s performance is erratic. The employee replies by saying the manager gives conflicting direction. If the manager counters at this point with evidence, be prepared for a battle of wills. Listening is usually a more powerful communication strategy at this stage than telling. In the end you’re still the boss. So you’ve got the power. But in a virtual environment, you don’t want to win the argument in the first five minutes and then spend the next two months wondering whether the person got the message. Be sure the other person feels that you’re willing to listen.

4. Focus on Results The reason to have a difficult conversation is to help the other person improve his or her performance.

Exploring the issue, no matter how collaboratively is only half the task. The individual needs to come out of the conversation with a clear understanding of what success will look like. Otherwise they will live in fear of the next time they hear from you.

An important part of your preparation for a difficult conversation is to be clear what you expect of the other person. Then you can use the exploration phase to decide whether you think your expectations are realistic. Sometimes you’ll find that you will need to adjust your expectations so that the employee can be successful. There is also the possibility that you will conclude that this person is not the right person for the job. Regardless of what you conclude, by exploring the issue openly and being clear what is required, you should be in a much better position to have more open discussions with this person.

5. Express confidence Television programmes like ‘The Office’ and cartoons like Dilbert convey the impression that most managers are incompetent power mongers. Organisational research, however, paints a different picture. For most employees, their immediate supervisor is the face and voice of the company. What you say has a major impact on how people feel about themselves, their work, and the organisation in general. After you’ve had a difficult conversation and landed on a course of action, there is one more step that it is important to take.

That step is to use your power to help the person believe that what they are about to do is indeed possible and that you have confidence in them. This needs to be authentic. If you don’t have confidence, then redefine the success criteria. This final act of expressing confidence will create the tone for all of your follow up meetings.

One final note: Don’t celebrate too soon. Confronting a difficult situation is hard work for the manager, and it might be a relief for you to have it behind you. But for the employee the hard work is just beginning. You’ve asked the employee to change, and they may not have the skill or willingness to see the change through. It is more important in virtual situations to build in follow up than it is in face to face situations. In the virtual environment, you literally can’t ‘see’ how things are going. So the action plan and follow up are much more important, or you might find yourself in a similar situation in a few months time—only now the stakes are higher.

Dr Richard C Harris is a management consultant in private practice in Boston, USA, as well as a senior advisor to The Chaos Game, Ltd. and its clients.

He is a former Managing Director of Forum UK in London and was previously Senior Vice President in charge of Global Research for The Forum Corporation in Boston. The Chaos Game is a UK-based consultancy which specialises in helping leaders improve their personal performance in order to have a greater impact in their organisations.

sustaininggrowth | 43

e-assessment

?

E-ASSESSMENT

Modern e-assessment is more about providing challenging and imaginative assessments of knowledge, skills, attitudes and competencies. It is part of a growing trend to move qualifications and learning from paper to the computer.

44 | sustaininggrowth

F

or some years, e-learning has provided organisations and individuals with the tools to use technology for the support of learning and training. There is now a wealth of experience in class rooms, the workplace and at home enabling individuals to learn at their own pace on computers. Assessment on computer is but the flip side of the e-learning coin. It has become more sophisticated by providing systems to measure the performance of individuals as part of the delivery of the learning.

It is timely then to review what is meant by e-Assessment, what it offers and recognise that it is more than just computerised quizzes comprising multiple choice questions,.

Modern e-assessment is more about providing challenging and imaginative assessments of knowledge, skills, attitudes and competencies. It is part of a growing trend to move qualifications and learning from paper to the computer. Electronic assess-

ment is the use of computers to set, deliver and often mark tests of a student’s skills, understanding and knowledge of a subject.

Its impact on learning is growing rapidly through diagnostic or formative tests within managed learning environments. This includes recruitment and employee development to the delivery of assessment for vocational and professional qualifications.

Automatic assessment provides a set of tools and techniques to measure learning, identify educational and training needs and build on strengths through accurate and timely feedback. From the schoolroom and lecture theatre, to the workplace and the offices of education management and policy makers - all will be radically affected by e-Assessment. The impact on employers, employees and those seeking employment, on the learners, on those who deliver learning and those who set policy and strategy will be profound.

There are two elements of e-Assessment: e-Testing to measure skills and knowl-

Š Qwasyx | Dreamstime.com

Using ICT to measure knowledge, understanding and skills

?? ?? ? ?

?? edge by questions and assignments presented on the computer, and e-portfolios to record performance and achievement usually in the workplace but also in project and coursework.

Within e-Testing the first category of use is Formative (or Continuing) Assessments, within the context of a programme of study enabling the trainer or teacher to monitor regularly how well parts of a course have been understood, to plan or to motivate. A second use is self-assessment or diagnostic testing. It provides a low risk, non-threatening method by which learners (with or without the tutor) can measure their own achievements or identify gaps in knowledge, at their own pace. The final category is Summative, where the assessment is presented as the culmination of a programme of study, typically in the award of a qualification. A large research project, the PASS-IT Programme (www. pass-it.org.uk), concluded that with the appropriate software and question design, tests on computer were equivalent to their paper counterparts. This has led directly to the Scottish Qualifications Authority offering part of their qualifications in Higher Mathematics and Intermediate Computing online in each of the last three years.

The systems allow assessments to be delivered frequently and often at any proctored secure location, maybe even on demand. A significant volume of marks and outcomes can be collected and automatically stored on management information systems. As importantly, they can be rapidly fed back to the Learner or student. The variety of assessment methods and the range of knowledge, skills and understanding assessed can be greatly increased whilst the heavy burden of marking may be reduced.

With more versatility than the printed page, the power of information technology to include multimedia within the questions can also be used. This reinforces the all ready well-observed phenomenon that students respond very well to assessments presented through the computer and find them much more rewarding than the paper equivalent. The systems can collect and store large volumes of data about how each item is answered. This data can then be analysed and presented in many formats and reports to help refine the questions and present feedback to the learner and teacher alike.

Whilst most current examples of successful e-Assessment are as stand-alone events, it is when e-Assessment is incorporated within a recognised learning programme that its greatest benefits of

Prof. Cliff Beevers, Chairman of eAA

Jeff M. Ross, eAA

??

The challenge

?

for e-Assessment

? ? ? professionals, students and employers will be to realise the full potential of the

technology to deliver

?

innovative assessments

?

that are motivational,

raise commitment and

?

improve the educative

?

?

experience for the learner

flexibility, motivation and analysis are best realised. Such is the experience of thousands of pupils within the Scottish educational system through the SCHOLAR Programme (scholar.hw.ac.uk) where Higher and Advanced Higher qualifications can be studied online in Mathematics, Chemistry, Physics, Biology, Computing, Business and French.

The most common delivery system is the pure web based system using a standard web-browser. It is easy to set up though, at times, prone to the problems of using the web, in terms of security, delay and lost lines. A more robust, and typical method is to use the web to deliver a secure copy of the test, which is then presented to the candidate via local software, isolated from the vagaries of the web. The influence of the web can be further reduced by publishing the test on to a disk that is then activated locally.

It is necessary to consider the implications of security, confidentiality and authentication of the candidate either taking the test or submitting the work. There are significant implications for educational institutions and work based tracking of achievement though these issues are being addressed in

e-assessment a number of ways. The Accountancy profession has taken some of its qualifications onto the computer giving its trainees both formative and summative tests.

The challenge for e-Assessment professionals, students and employers will be to realise the full potential of the technology to deliver innovative assessments that are motivational, raise commitment and improve the educative experience for the learner.

Computers are good at running tests and recording achievement, for many reasons.

They are consistent and able to repeat the same task endlessly and impartially, and perform multi-tasking. They generally provide a rewarding experience for the candidate, far removed from the normal reaction to a ‘written’ test. They offer versatility and flexibility, providing new and varied ways of presenting information. They are adept at analysing and reviewing data, and they can hold great volumes of tests, responses and information valuable to both teacher and learner.

Over the last twenty years there has been considerable growth of e-Assessment from small disparate, shoots of activity to a wide range of computerised assessments, a profession has also begun to emerge.

The annual London based e-Assessment Question conference (www.e-assessment-question.co.uk) has provided over the last 6 years for a profession that is concerned with the design, delivery and quality of these e-Assessments. Moreover, the newly-formed professional body that is the e-Assessment Association is now becoming established to support professionals in this burgeoning field.

The embryonic e-Assessment Association (www.eaa.irtesting.net/) has three major goals for its community: to provide professional support for workers in this field of expertise, to work collaboratively with members and national organisations to create and communicate the positive contribution that technologies can make to assessment methods and produce a statement of good practice for commercial vendors of e-assessment. To this end eAA is working with the Institute of Educational Assessors at their conference in April, is preparing a series of meetings around the UK in May and June to investigate the challenges over the next decade and work with a leading awarding body to set up an e-journal in both e-learning and e-assessment.

eaa

The e-Assessment Association www.e-assessmentassociation.com

sustainginggrowth | 45

marketing strategy

the value of a professional

marketing strategy

H

ow can you persuade customers to buy from your company instead of someone else’s? How can you discover what customers need and want? In complex markets, how can you find out what your competitors are doing, in order to offer something different? How can you grow your company, but ensure that growth is sustainable? And how can you price your products or services to optimise value for the customer, as well as profit for the company?

A marketing strategy helps with all these vital elements. And whilst it addresses big issues, the marketing plan itself is actually a straightforward concept. It doesn’t have to be an overly complex report, or filled with jargon and complicated charts and diagrams – indeed, for any plan to be effective, the simpler it can be kept, the better.

46 | sustaininggrowth

The Marketing Plan In essence, a marketing plan consists of six stages – decide your objectives; audit the business environment; perform SWOT analyses; decide the strategies that will achieve the objectives; devise the programme including budget; and build in room for measurement. The actual length of the finished plan will depend on the company, the level of detail required by the CEO and the type of industry you’re in.

Each of these stages can be broken down further if the company desires it; the sub-stages will consider how you’re going to take the product or service to market, including your communications plan. How are you going to make your customers aware of your product? Are you going to use classical communications channels – direct marketing, media advertising? Or do you want to use newer technologies and techniques such as SEO

(search engine optimisation) or PPC (pay per click) to drive people to your website? Do you want a mixture of approaches? Who is your target audience? Market research, at the start of the plan, will help you ensure that there is a demand for your product, and help you focus your resources on finding and attracting the kind of people who are likely to want to buy from you.

Having a structured approach also helps you clarify your marketing mix. How are you going to price your product or service – gain more market space by pricing low, or price higher and gain value from fewer purchases with higher margin? Where will you sell the product; via a shop, or mail order, or online, or a mixture of approaches? A marketing plan helps you identify these issues, research who your likely customers are and what they will need and want, and gives you a structure for delivering the right product or service, in the

© kutaytanir | istockphoto.com

In our fast-changing business world, having a professional marketing strategy is more important than ever.

The theory is simple; identify target customers, then deliver them an offering that drives competitive advantage.

In practice, it’s a little harder.

marketing strategy right place, at the right time, at the right price.

A plan also builds in time for you to measure the results of your marketing activities.

With effective metrics you can see what was successful and what was unsuccessful; and decide where to invest resources in future, as well as identifying areas that could be dropped.

The key to remember is that an objective is what you want to achieve; a strategy is how you plan to achieve it. A large company is likely to need a more detailed, formalised plan, whereas a smaller company won’t necessarily require the same level of detail. This may work to the smaller company’s advantage, because it means it can adapt more quickly to external environmental or economic changes over which it does not have any control. This flexibility and willingness to modify plans as circumstances change is key to the success of any marketing plan, and explains why a simple framework is preferable to a complex, bureaucratic structure that is unnecessarily rigid in its approach.

An overly complicated plan can stifle originality, preventing or hampering the intuitive and creative leaps that lead to innovation, differentiation and the creation of new market space – areas vital for any company to consider if it wants to beat the competition, grow sustainably and create a healthy profit. On the other hand, too unstructured a plan can lead to a chaotic situation where too many people have a voice, and there is a lack of focus. The management skill is in finding the balance of an appropriate level of control without sticking too rigidly to pre-existing arrangements.

server might have concluded that IBM was in the business of manufacturing meat slicing machinery. If it had kept that mindset, it would not have evolved into the technological giant it is today. It’s by thinking outside the conventions and assumptions of your day-today business – in other words, thinking like a marketer – that you begin to find the insights and inspirations that lead to better satisfaction for the customer and better value for the company.

It’s sometimes said that marketing is all of business, seen from the point of view of the customer. This is a powerful concept to bear in mind – without customers, you don’t have any business and you don’t have any profit.

Satisfied customers will come back to you for repeat purchases – and it’s much more economically effective to hold on to

© Robert Mizerek | Dreamstime.com

Its often said that marketing is all of business, seen from the point of view of the customer.

What business are you in?

The broader implications of the strategic plan are of considerable use to companies as well.

Thinking in planning terms makes you think about your brand, for example – have you got an effective brand? How does it compare with your closest competitors? Why is it that some brands can seemingly stretch in many different directions successfully – think of Virgin – whereas other brands get their strength from sticking to a core product or service?

Considering these possibilities can help you think in more innovative ways and make discoveries about the competitive effectiveness of your business in ways you might not have considered. A hundred years ago, an ob-

existing customers, than it is to go expensively searching for new ones.

It can help to consult at all levels of the organisation about what should go into the marketing strategy, but ultimately responsibility for the plan lies with the Marketing Director, if the company is large enough to have one.

Getting a wide range of views from different departments is useful, but the Marketing Director needs to ensure that the strategy takes into account the needs of the company as a whole and is directed squarely at identifying potential customers, finding out what they want from the organisation, and satisfying them. It can also help to consult outside the organisation, as that can give you competitor knowledge and an understanding of your company from the outside, leading to insights you might not have thought of. However, it’s important to recognise that outside influences come with their own agendas and observers may not understand what the company can offer as well as its employees will do.

Using the plan to deliver your objectives A marketing strategy should be developed

whenever the company has a new product or service to take to market; or wants to introduce its products into a new marketplace; or wants a new strategy for where it wants the company to be. A long-term plan is usually three years, but a year-long plan is possible and becoming more common, especially with products driven by technology. In the past, five-year plans were common, but less so now as the marketplace changes so quickly and long-term predictions become harder to make. It’s also worth pointing out that marketing planning should be an ongoing process, not an annual box-ticking exercise.

Ultimately, a marketing plan is a tool. It’s how the individual uses that tool that makes the difference, in terms of keeping up to date with the market environment and choosing how to tailor the plan for their own organisation’s individual set of circumstances. The traditional plan will show you where to put market research, for instance, as part of the process. The competitive advantage comes from what you do with the data you collect; how you turn data into information; the insights that you as an individual observe and introduce; and your judgement of what the marketplace needs and wants.

For the interested individual or organisation who wants to explore in more detail how to create a marketing plan and learn more about effective marketing planning, The Chartered Institute of Marketing runs several courses to help companies compete strategically. These courses range from short practical introductions that can be completed within a day, to longer residential courses at its training centre in Berkshire, aimed at the experienced manager who wants to create more strategic value for the company. The Chartered Institute of Marketing also believes it’s important to keep the theory of marketing closely connected to the reality of marketing in practice, and this is why we introduce new courses each year to take account of changes in technology such as social networking, and how such innovations can fit into the classical marketing strategy.

The author, David Thorp, is Director of Research and Information of The Chartered Institute of Marketing. To find out more, please visit www.cim.co.uk/training or call 01628 427200

sustaininggrowth | 47

conference management

mpi Tony Carey was an independent meeting planner for 30 years and now writes and lectures on the art and skills of organising. He can be contacted at: tonycarey@psilink.co.je

At

long last the conference has taken its rightful place in the spectrum of business communication. On the chart representing how to get a message to a bunch of people it lies somewhere between one to one and one to 10,000.

And is becoming more sophisticated and better understood as an important communication medium.

Many organisations are now spending more of their marketing budget on face to face events than on advertising and other ‘above the line’ sectors.

So what’s in a meeting, seminar, conference, road show or convention that benefits an organisation? The answer is nothing - if it isn’t professionally organised.

In fact a poorly run conference can have the opposite effect of the one intended.

There are scores of reasons for staging face to face events and not all are as obvious as the legal requirement of an AGM or the weekly board meeting. When a company wishes to communicate a new philosophy, strategy or a new sales campaign to staff, dealers or the public, then a series of meetings is often the best way. Certainly more convincing than letters or e-mails or advertisements (except to a large mass audience).

48 | sustaininggrowth

face-to-face conferencing But live events encourage personal interaction so are unique in providing opportunities for team building, for levels of management to mingle and that all-important networking.

Usually, in any endeavour, it is useful to return to first principles before starting out.

And I believe there are 12 basics that a meeting planner should stick up on the office wall. They are as follows:

Conferences can be a useful occasion for research among the participants about products or attitudes and they should showcase the parent organisation to its full advantage.

1. The establishment and maintenance of a clear aim and some SMART objectives.

Unless you know where you’re going, you won’t get there, so define your goal and three or four specific, measurable, achievable, relevant and time-based objectives. Make sure everyone involved understands and buys into them. Then make them happen.

Of course, many events will be educational or designed to inform and some will have a mix of objectives. Most importantly each event must have a clear aim or goal.

And all should be evaluated for success.

Too often, conferences are held to maintain a tradition rather than for a specific purpose - and they run into the sand as a result.

Sales meetings are perhaps the easiest to monitor as results are tangible. Some years ago I ran a conference for a pharmaceutical company wishing to regenerate interest in a particular medication. We created a very creative programme in Guernsey and the 75 strong sales force went home smiling. “Was it a success?” I asked my client a few months later. “Awesome”, he replied. “We have doubled our sales, since the meeting.

Which brings me from the ‘Why’ to run a successful event, to the ‘How’.

2. An understanding of the needs and expectations of the stakeholders.

The stakeholders in an event are not only the attendees whose time you are going to steal, but also the originating organisation, your boss and any sponsors, not to mention the destination and venue. (You will doubtless think of others). Your event will be a success if you can fulfil all their expectations.

3. Meticulous planning, preparation and monitoring of the event.

You can almost guarantee failure if you skimp on the planning. An hour spent thinking through the project will save a day unscrambling the ensuing chaos.

The best way to tackle a complex enterprise is to break it down into manageable chunks, so divide up the project into (for

conference management joining Meeting Professionals International (MPI) a 22,000 strong association at whose regional meetings you can tap into the experience of the top professionals in this field.

on the way up

© Dmitriy Shironosov | Dreamstime.com

6. Thorough budgetary planning, analysis and control.

After you have listed every single item that could possibly cost you, add 10% for the items you have inevitably overlooked. There are scores of ways of improving the bottom line without lowering standards or services, but they demand research, good negotiating skills and a creative approach.

example): Travel/transport, Accommodation, Business programme, Budget, Social programme, Miscellaneous; to suit your event.

Once your (preferably flexible) plans are in place it is wise to monitor their execution closely.

4. The creation of a stimulating, creative, balanced programme appropriate to the aim, the delegates and the location.

No-one enjoys an all-work meeting so a good programme balances work and play. The profile of the delegates will often dictate what social and leisure activities are best provided, but the destination and the venues will influence your choice. Whatever activities you choose, they should contribute to the overall purpose of the event.

5. The choice of a suitable venue in an appropriate location.

When seeking a suitable venue, it’s all too easy to choose your honeymoon hotel or the Chairman’s favourite golf resort. It would be a mistake. The venue must suit the aim and the attendees.

Venue finding is almost a distinct skill, demanding considerable research and the preparation of a ‘Request for proposals’ (RFP), which is circulated to potential properties. Many sources of reference are available to the planner, but I recommend

Budgets should be flexible so it is important to keep a close eye on expenditure throughout your preparations and, latterly, day by day.

7. Clear and timely communication between all involved in the project.

Disaster is guaranteed if the meeting planner fails to communicate plans and changes to plans up, down and sideways - continually. For complex conferences, it is wise to prepare diagrams so everyone knows how to talk to whom.

8. The creation and leadership of a motivated management team.

Leadership is not just management with extra vitamins, it is something that must be exercised by a professional event planner. Creating a suitable, well-motivated team, for each project, is vital. As is the delegation and inspiration that follows.

Team members such as venue staff and coach hosts may never meet you, but they expect leadership.

9. Simple administrative procedures.

KISS or ‘Keep it simple, stupid’ is a good axiom. The more complicated a plan the more likely it is to collapse under pressure, and bear in mind that pressure is a given in the meetings business. We are dealing with people and often circumstances beyond our control. Risk and crisis management are an integral part of the administrative role of the planner.

10. The projection of a suitable image to the participants, the public and the media.

Even if your meeting is exclusive, it remains a showcase for the organisation and will reflect on the latter’s professionalism. If the large conference is large or controversial, then other audiences will hear about it - even the media.

Success breeds success and failure damages reputations, so attention to the image being projected is time well spent.

11. Effective procedures for the assessment of success and outcomes (ROI).

How can you know if you have run a successful event? Not by the smiles or polite compliments of delegates. Only by quantifying both expectations and outcomes can you really prove a return on investment.

This requires research, measurement and analysis. The extra work will be well worthwhile if it results in your promotion!

12. Providing the best possible environment for communication to, from and between the participants.

Finally, and almost in summary, the planners task is to ensure that everything that is provided contributes to an enjoyable and stimulating experience for all. These days, few events do not have ‘networking’ as an objective, so the task of providing a relaxed environment that facilitates this, is even more important.

So, whatever your communication challenge, the answer doesn’t necessarily lie with the traditional media - most of which are now discovering unaccustomed lean times. The experiential form of communication is now right up there with the internet and multi-media.

But to achieve their purpose, meetings and conferences (and exhibitions and seminars, etc.) must be professionally planned and executed. I wish you happy planning!

MPI’s FUTURE WATCH - 2008 • Meeting Professionals International, the global meetings industry community, is committed to delivering success for its more than 22,000 world-wide members by providing innovative knowledge and learning experiences, connecting people and ideas and creating rich marketplace opportunities. Founded in 1972, the Dallas-based organisation delivers global human connections through its 68 chapters and clubs in 20 countries around the world.

• With more than 2,000 members in Europe, MPI currently has 11 chapters in 12 European countries, including: Belgium, Denmark, Finland, France-Switzerland, Germany, Italy, Netherlands, Norway, Spain, Sweden and UK, and has a recent growth rate of about 20 percent.

• The European Meetings and Events Conference, co-created by MPI, will be held in Torino 1-3 March 2009.

sustaininggrowth | 49

conferencing

MALTA meet

a smart choice

What do Cadbury, Pfizer, Sony and the Commonwealth Heads of Government (including Her Royal Highness Queen Elizabeth) have in common? They’re smart, particularly in their choice of meeting destinations… They’ve opted for Malta.

M

alta features among the 2008 ‘Smart21 Communities’ list compiled by the Intelligent Community Forum. While Malta is the smallest EU member, with a population of some 400,000, the Maltese Islands (Malta, Gozo and Comino) support an Information Communications Technology industry of 200 companies and 6,000 workers.

If you want your conference or incentive event to be more than just an overseas business trip, where delegates are rushed from the hotel to the meeting room to the dining venue for more shop-talk in a ubiquitous setting… then Malta should definitely top your locations list.

There’s more to the Islands than cutting-edge technology and communications! Among other things, we provide exciting options for conference and incentive groups. While the general environment is conducive to making the most of the time available for entertaining delegates, we are also equipped with the expertise of professional local suppliers to ensure trouble-free event execution.

Our 5 and 4 star hotels include internationally renowned chains, as well as boutique up-market properties. Local Destination Management Companies (DMCs) are constantly developing innovative programmes, utilising our historic buildings as striking venues for events.

And if that weren’t enough, we enjoy 300 days of sunshine, surrounded by the breath-taking Mediterranean Sea. The Islands have a history of hospitality and they are also English-speaking to facilitate communication and ensure that your needs are met.

The Maltese Islands were established as a meetings venue long before the

advent of WiFi-enabled laptops! The pre-historic temples in Malta, Mnadjra and Hagar Qim (which translated from Maltese literally means ‘standing stones’), the much sought-after Hal-Saflini Hypogeum, as well as the Ggantija Temples in Gozo were utilised for ritualistic meetings by one of the world’s most ancient civilisations. These UNESCO World Heritage Sites date back to around 5,000 BC and are the oldest freestanding temples in the world – older than Stonehenge and the Egyptian pyramids. While historians investigate the mysterious people who built these sites, the enchanting atmosphere that wooed them to our shores still captivates visitors today.

It’s not just the general atmosphere that is alluring - the climate itself also plays its part. Take your delegates from a frosty winter to our temperate Mediterranean climate in a matter of a three-hour flight at most, accessible through the main European gateways. As Simply Red front man, Mick Hucknall enthusiastically told the cheering crowd attending the band’s electrifying concert on the Island in 2007, ‘It’s great to get some sun on your back in November.

Simply brilliant!’

Make the most of the time available to entertain delegates on the honey-coloured shores of the Islands, with the help of our professional local suppliers, who are experienced in organising and executing grand events that demand surgical precision.

Think of taking your team for a boat trip around the Islands’ Coast, hugging the respective coastlines. Take your guests for a day-trip to enchanting Gozo (Malta’s sister island) or a cruise to Comino. The Mediterranean charms of the Islands will leave you spoilt for choice! Meet Malta - the Mediterranean’s best-kept secret, where you can safely expect to be positively surprised.

For more information about the Maltese Islands as a destination for conference and incentive travel, kindly contact the Malta Tourism Authority’s MICE Segment via email: mice@visitmalta.com and visit www.visitmalta.com/business-travel

sustaininggrowth | 51

fleet management

emissions © Massman | Dreamstime.com

are we being misled?

In

10 years the perception of automobile pollution has evolved. As well as the criteria according to which a vehicle is considered as being “clean”.

At the start of this decade, the debate on pollution was focused on the impact of the automobile on people’s health.

A correlation between vehicle particle emissions and respiratory infections (asthma, cancer) had just been made. After that, the vehicles emitting the largest amount of particles were judged to be the most polluting (non-catalysed diesel vehicles, not equipped with particle filters).

The German government proposed tax measures whereby non-filtered diesel vehicles were more heavily taxed than petrol vehicles.

The 2003 heat wave posed a new threat linked to the automobile: global warming, due to the increasing concentration of greenhouse gases in the atmosphere. CO2 emissions became a new threat caused by vehicles. From then on a multitude of reactions were to be seen from manufacturers, who undertook emission reduction programs, and also from users and governments.

But have we really dealt with this issue?

To deal honestly with the issue of automobile pollution, the weight of carbon dioxide emissions per kilometre is insufficient. Every vehicle has to be considered throughout its 3 lives: • Its conception and manufacture • Its use (globally speaking) • Its destruction ITS CONCEPTION AND MANUFACTURE: Manufacturing new vehicles requires the transformation of raw materials into finished elements (bodywork, engine, electronics, paintwork…). Each of these transformations necessitates a considerable input of energy that can be compared from one vehicle to another according to technical features and manufacturing methods employed. Each new vehicle delivered, as from 0 km, has already had a considerable ecological impact. Recycled materials and respect of environmental standards in factories contribute to a cleaner manufacturing of vehicles.

ITS GLOBAL USE: The use of the vehicle covers two key elements to be taken into consideration when measuring the impact on the environment: the choice of vehicle and the driver’s behaviour. The ratio CO2 emissions per kilometres through petrol consumption give us the mass of CO2 emissions per litre of fuel consumed. The average for diesel vehicles on the market is 2,65 kg of CO2 emitted per litre of diesel consumed, and 2,38 kg of CO2 per litre of petrol consumed

52 | sustaininggrowth

(manufacturer’s data). In reality there is a direct relation between CO2 emissions and fuel consumption, which shows the limit of the use of basis weight of CO2 emissions per km.

According to the French government, a clean car (eligible for a tax bonus) is a car that emits less than CO2 120g per km. This concept does not take into account local pollutants (HC, CO, NOx, particles) and yet their impact on the environment and people’s health is well-known.

The concept of Euro norm, converting the emissions of local pollutants is therefore an indispensable complement to the CO2 emissions.

As for the driver, he is directly responsible for a part of the pollution linked to his vehicle. A smooth driver who anticipates events and ensures that his vehicle is properly serviced contributes to limiting pollution.

Mileage per annum is the third key element linked to vehicle use. This is set by one’s needs to use his car to travel. Obviously, the more a vehicle is driven, the more fuel it consumes and the greater the impact it has on the environment.

ITS DESTRUCTION WHEN IT CAN NO LONGER BE USED: The energy necessary to eliminate a vehicle depends on the materials that were used to manufacture it and whether or not they can be recycled. The latest directives set the recycling rate at 80% of the mass. Some manufacturers go even further by imposing higher recyclability ratios, and by using recycled materials in their new cars (Renault Eco2 and the Peugeot Blue Lion are 95% recyclable).

Consequently, the concept of the clean vehicle has still to be established. It must take into account direct and indirect emissions during the life of the vehicle, its manufacturing and recycling. Beyond the simple notion of CO2 emissions, local pollutants must be taken into account depending on their impact on the planet and the people’s health. The financing of an environmental project compensating the emission of a ton of CO2 “costs” between 15 and 22€. As for off-setting a ton of particles, this would cost 400 000€ (Source: Heatco, EU project).

The increase in the cost of petrol could accelerate research into cleaner fuel, but it has been noted that oil-producing zones considered non-profitable at $50 a barrel become profitable at $100 (oil-producing sands, depth of well drilling …)

Making smart choices today that will remain smart tomorrow is a specialist’s mission. Leasing partners can elaborate fleet balances taking into account vehicle use and country specificities, drawing up a personalised Total Cost of Ownership. Foreseeing future taxation evolutions globally and in each country is fundamental for tomorrow’s cost optimisations.

The author, Christophe Duprat, is Head of Marketing for ALD Automotive.

Email: christophe.duprat@aldautomotive.com

supply chain

Global warming can be defined as the increase in the average temperature of the earth’s surface resulting from increased emission of greenhouse gases from human activities. Nowadays the term climate change is often used interchangeably with the term global warming because it helps convey that there are “other” changes in addition to rising temperatures.

T

he Kyoto Protocol, The Stern Review and many other documents and studies have successfully attracted the attention on the importance of the subject and called for action. Driven whether by concern for the environment, corporate reputation or demand from customers, global warming is and will increasingly be on the agenda. A recent survey conducted by McKinsey¹ is one of the examples showing that the majority of global executives regard climate change as strategically relevant and important to consider in many of their key decisions.

Transportation is seen as one of the major contributors to greenhouse gas emissions resulting in global warming. The 6% per annum² expansion of the world trade in the last ten years has increased the need for transport which is expected to continue in the future. As a company involved in transportation, Maersk Logistics focuses heavily on environmental initiatives and helps its customers reduce their impact on the environment.

Climate change will affect the basic elements of life for people around the world – access to water, food production, health and the environment. Since climate change is a global problem, it demands an international response, based on a shared understanding of long term goals and agreement on a framework for action.

Achievement of long term goals would require resources (human, financial, time) and a well structured change management. Maersk Logistics believes that alignment within the industry and its customers would create a unique synergy and pull all parties in the same direction. Collaboration, on the other hand, would be the key to success in establishing a common and robust framework.

54 | sustaininggrowth

In parallel with working together to establish a common framework, there are also short-term initiatives which would show immediate effect on carbon emissions.

Improving equipment utilization, switching to more environmentally friendly modes of transportation and reducing the inventory levels are among the short term initiatives that would help to reduce carbon emissions in your supply chain. Typically, lower carbon emissions come along with lower overall logistics costs and maintained or even improved service levels – a win-win situation for you and the environment!

With increasingly more and more companies having defined emission reduction targets, the main challenge is to understand the current level of carbon emissions in their supply chain. Having a tool that would enable businesses to baseline their carbon emissions is essential in order to start to drive year on year improvements.

With the ‘Maersk Carbon Footprint Calculator’, Maersk Logistics is able to map CO2 emissions for all legs in your global supply chain, from the pick-up at the factory until delivery to the point of sale. The carbon footprint can be valuable for a variety of purposes, including environmental reporting and identification of “carbon hotspots” in your transportation supply chain.

In addition, Maersk Logistics has launched a consulting service last year, SupplyChain CarbonCheck™, which aims to support companies in reducing carbon emissions in their supply chains.

In a 4-step approach Maersk Logistics identifies carbon reduction potentials in the supply chain. The first step is to measure the current carbon footprint broken down into the different legs of supply chain by using the ‘Maersk Carbon Footprint Calculator’.

With increasingly more and more companies having defined emission reduction targets, the main challenge is to understand the current level of carbon emissions in their supply chain.

After defining the main drivers of carbon emissions, a simulation of alternative supply chain configurations are made and compared with current footprint. The identified CO2 reduction potentials are evaluated based on a variety of factors (strategic fit, impact on CO2, impact on supply chain costs and also the ease of implementation) which translates into concrete recommendations. In a last step, Maersk Logistics assists the clients in implementing the agreed solutions.

Notes ¹ How companies think about climate change, A McKinsey Global Survey. The McKinsey Quarterly conducted the survey in December 2007 and received responses from 2,192 executives around the world ² World Trade Organisation (WTO) - Growth in the volume of world merchandise trade and GDP, 1996-2006

supply chain

EFFICIENT SUPPLY CHAINS LEAD TO

LOWER CARBON EMISSIONS Photo: Rui Vale De Sousa | Dreamstime.com

Case Study – UK retailer By conducting a SupplyChain CarbonCheck™, Maersk Logistics was able to analyse the client’s supply chain from Asia to UK and define the main drivers of carbon emissions. The effect of the supply chain improvement initiatives implemented was documented as a 29% reduction in CO2 and 21% reduction in supply chain costs on a cubic metre basis. The findings of the study enabled the client to understand the drivers of their carbon emissions and also provided alternatives to implement policies in order to reduce carbon footprint and logistics costs.

Environmental Initiatives: While helping its customers reduce their impact on environment, Maersk Logistics also acts internally to care for the environment. As part of the A.P. Moller - Maersk Group, Maersk Logistics is fully committed to the group’s environmental policy. Some achievements from the A.P. Moller - Maersk Group: 2008: ‘CO2 booklet’ for our employees was published. The debate on CO2 emissions are high on the public agenda, and to best inform our employees about the debate on CO2 emissions and climate change – and our stand on these issues - a pocket size booklet was made available to all employees.

2007: • The A.P. Moller - Maersk Group Health, Safety & Environment Manual was published.

• A Health, Safety & Environment Action Plan for 2008-2012 was developed.

• A one year sponsorship was entered with the highly regarded Massachusetts’ Institute of Technology (MIT) Joint Program on the Science and Policy of Global Change.

• All A.P. Moller - Maersk owned vessels are painted with TBT-free hull paint as of February 2007

About Maersk Logistics Maersk Logistics provides responsive supply chain solutions customised to your integrated supply chain, warehousing and distribution, or multi-mode transport needs. A recognised leader in the international logistics market, Maersk Logistics has over 7,000 dedicated employees who are always available to support your business from over 200 offices in more than 90 countries.

About Supply Chain Development From analysis through design and implementation, our experts in supply chain development identify issues and create solutions for your business. Maersk Logistics combines knowledge and experience with best-in-class analysis techniques and tools to provide the supply chain optimisation results you need.

Please contact erling.johns.nielsen@maersklogistics. com to learn more about how your supply chain can become more efficient and environmentally friendly.

www.maersklogistics.com

2006: All Maersk vessels operated for Maersk Line, Maersk Tankers, Maersk Supply Service and Norfolkline are ISO 14001 certified.

Please visit http://about.maersk.com/en/CorporateCitizenship/Environment.htm for further details. sustaininggrowth | 55

© Thea Walstra | Dreamstime.com

customs tariffs

sound advice is the key to successful

expansion

More and more companies are venturing overseas in search of business growth.

Sound advice, especially in the field of customs duties, is a necessary provision to pack with companies for the journey. Our International Trade expert John Carlin explains why...

I

t is of course very good news if a business is in the position to have any growth to manage but what can sometimes happen is that the projected growth becomes the entire focus of attention. In such cases there is a danger that fundamental existing “black holes” within the corporate or business structure are overlooked or worse still ignored. I always remember the story concerning the rush to the California gold mines of 1849. Many prospectors couldn’t wait to get started and set out across hundreds of miles of what was, let’s face it, a hostile environment. Fairly soon into the journey it became clear that more preparation time would have been a good idea.

I don’t really see the management of business growth as all that different in that before setting out it is wise to check that the foundations of the business are in order. In fact there are even more benefits to be obtained when the correct business checks are applied because the results will further enhance the company profile and outlook.

Let me give a specific example. A well known UK business had decided to begin sourcing product overseas primarily because of increased orders which could not be met by UK manufacture but an associated benefit was that production costs were cheaper. This is a common strategy of UK and EU business: that of increasing supplier volume in the Far East. At the same time there was sufficient interest in the company to encourage some expansion into selected other EU member states. So if we pause there and review matters we see that at the same time as production was moving to the Far East some goods would be directly shipped to other countries within the EU. I would

not expect anyone to disagree that these developments are a sign that the business was ready for growth and yet the process was not managed and before too long problems started to occur.

In the first place there were shipping procedures to consider and because this was an unknown area the Directors felt they needed to obtain various freight costs from different reputable freight forwarding companies; nothing wrong with that of course. In the ultimate a number of different companies were selected to move the goods but the first point to note here in my opinion was that the business had too little in-house experience and didn’t know what questions to ask and requirements to stipulate. As long as it sounded plausible enough and the cost was acceptable against other costs then all seemed well and matters were set to proceed. The next thing was the structure to be set-up in the member states where business was to be done. It seemed best that local distributors would be appointed who would be responsible for all in-territory procedures. Another process was undertaken and again all was set to proceed. Growth - yes, but managed? I’m afraid not!

In fact the manufacturing process relied on a degree of tooling which was shipped from the UK (well there was no longer a need for it here), and the tooling concerned must be assigned a value to be included in the dutiable value of the goods subsequently imported. No-one had considered that requirement and the upshot of it all was a lengthy investigation by Customs in one particular EU country which soon spilled over into everywhere else.

The really unfortunate thing in some ways was that the independent distributors bore the brunt of the investigation because they were the importers of

record for their territories. I did feel sympathy for some of them who had diligently tried, with the help of their freight forwarders, to correctly classify the goods. I have seen cases where the exact same goods were imported into different member states with different duty rates assigned - not a good idea.

This also highlights the fallacy that just because the costs in one country, in this case the UK, seem fine and “acceptable” it does not mean that the margins achievable in other markets will be the same. Too often companies rely on their sales and GP forecasts and extrapolate without taking into account some of the much more complicated costs and obstacles that can arise to hinder growth and expansion in a different market. The customs treatment of goods and the types of entity that should be set up overseas are but two notable examples of where different cost structures can arise.

There are plenty of other examples I could provide about the wisdom of taking full advice before venturing overseas in search of business growth.

Yet more and more companies are “rushing to California”, because the UK is yielding comparatively little expansion. I am the last person to discourage such an idea but I do say that sound advice, especially in the field of customs duties, is a necessary provision to pack with you for the journey.

www.belldavies.com John has been advising companies on customs and international trade issues for over 20 years and can be contacted at Bell Davies on 01372 360870 or via email at jnc@belldavies.com

sustaininggrowth | 57

customs tariffs

customs a fashionable tax?

58 | sustaininggrowth

customs tariffs

Few companies that either import already or decide to move production or sourcing offshore, really understand the true cost or benefits of the process – costs can be reduced quite substantially – if only the companies delved a little deeper.

T

here are perhaps only a few subjects more likely to evince an impassioned debate in a pub discussion when compared to sport or fashion, cars or house prices. Nevertheless, if that inn were to host some international trade experts, those rare gurus that can make a real, verifiable difference to your bottom line, then one of their hot potatoes would not be the latest Chelsea signing, celebrity wedding or whether blue is the new black, but instead the way that companies are treated

by HM Revenue & Customs department and the true cost of customs compliance.

Few companies that either import already or decide to move production or sourcing off shore, as is the trendy thing to do, really understand the true cost or benefits of the process. Often, simply showing senior management that there is either a material net saving on current operations or that headcount will be reduced by off shoring can win the day. But these are but the start – costs can be reduced quite substantially – if only the companies delved a little deeper. Let me explain.

A common misunderstanding is that customs duty costs and charges, often processed, submitted and advised by a company’s clearance agents, are fixed, unalterable costs. After all, “they come on a bill”, “we have to pay what customs charge” are common statements made by logistic managers about some of their freight agent’s fees. But any charge from Customs is merely the result of government systems crunching data or information submitted by the importer: sort of “you put it in, that’s the bill”. Put another way, change the inputs and you can radically change the charge.

Now, I’m not advocating a reckless manipulation or submission of erroneous information, after all that could be construed as fraudulent, but the importer has many options when determining what to

declare to Customs. His handicap is not knowing what to do. As many contacts in the industry would also say, neither does their agent as their main role is to expedite freight and removals; not to mull over how best to declare some goods when speed of clearance is essential.

So to some basics then. Firstly, all goods have a tariff heading. Use of this on an entry declares the goods to customs. Other tax critical detail includes the value, the country of origin and the relationship between the seller and the buyer (yes – true!). There are over 15,000 of these tariff headings and in order to illustrate how complex they are you should only need to look at the level of debate/argument over the years that has occupied the courts and the ECJ. Enough paper to save a forest or two. Not only that, consider a recent Departmental case where demands were issued by Customs for some uncooked turkey meat. These had been entered under a heading carrying a 8.5% rate but Customs didn’t like this and raised assessments. Accordingly, the company headed off to Tribunal to debate whether the meat had been seasoned over its entire surface. Imagine: a Court of the realm debating whether enough seasoning had been applied. Unlikely Gordon Ramsays though I would guess there were a few expletives peppering the air after the hearing’s result. All this simply highlights is that disputes about interpretation can arise in the most unlikely places.

For the prudent importer then, knowing the right code under which to declare his goods quickly becomes apparent: he could be paying 4% or 6% but has been paying at 12%. Reviewing the codes used for goods against those available in the tariff should therefore be, as a minimum, a regular annual activity for the serious importer.

Once a review has commenced, two main results are possible for the use of incorrect codes. Firstly, that overpayments have been identified in which case, the lucky

company will be able to submit a claim to Customs for a refund. On the other hand, underpayments are potentially identified where if he were paying at 4% and Customs came knocking at the door, an unexpected bill of 8% would be winging it’s way. Not good news and I’m sure the Directors would be reaching for the phone.

To make matters worse, a single entry error can mushroom into a three year retrospective investigation which, from experience, is the unwanted and unplanned cost of this process – management time. Should the company be lucky enough to be paying at the higher rate when a lower one should have been submitted, a nice three year reclaim to bolster current profits could arise.

This all highlights the worth of conducting a suitable review: certainty. Too often, companies engage with government on rather loose ground. Corporate tax returns are submitted on the basis of “this is what we think we need to pay” and the company sits back and, well, waits. HMRC can open a file on this return at any time within a year from filing.

The EU system for determining tariff headings offers a copper bottomed, gold plated guarantee (indeed – one of the few great ideas to come out of Brussels) whereby a company can obtain a certificate to legally confirm the correct heading and, by definition, the correct duty rate which is binding upon Customs.

So to the Director who isn’t entirely sure about what his costs really are concerning international trade and customs duty, “Don’t be blue, awareness is the new black”. Enough said…

www.belldavies.com John has been advising companies on customs and international trade issues for over 20 years and can be contacted at Bell Davies on 01372 360870 or via email at jnc@belldavies.com. © Franck Boston | istockphoto.com

sustaininggrowth | 59

inward investment

GLOBAL

INVESTMENT ENVIRONMENT is it the end of the world as we know it?

By Alessandro Teixeira, President, World Association of Investment Promotion Agencies (WAIPA)

60 | sustaininggrowth

inward investment

A

ccording to World Bank experts, the world economy has entered a period of financial market turmoil, slowing growth and heighted inflationary pressures.

Indeed, the U.S. subprime mortgage crisis has spread to the broader U.S. housing market and asset-backed securities markets around the world, tightening credit conditions. Those constraints, along with rising oil prices, did exert pressures on global economic growth.

Aside from the fact of obviously posing complex policy challenges to the international community, such a context also saves room for optimistic prospects. It is unquestionable that policy makers, both from developing and high-income countries, should take firm actions to alleviate the impact of soaring food and energy prices on the poor as well as work hard on building a consistent, easyto-access, easy-to-figure-out-and-complywith business environment. The longer-term challenges presented by financial globalization and economic interdependence can no longer remain unaddressed. Yet, it is equally important to point that world investment prospects indicate that global foreign direct investment (FDI) flows over the next five years will be pushed upwards by buoyant growth, competitive pressures and improvements in business environments in most countries.

© yhloon | istockphoto.com

One assumption became a certainty: that of developing countries currently being the locomotive of world economic growth, softening the impact of the slowdown in the U.S. economy and the projections for Japan and the Euro area, which have been revised downward for 2008. That is not a random statement. Studies conducted by multilateral organs indicate that global growth is projected to drop to 2.7 percent in 2008 (from 3.7 percent in 2007), with most of the weakness originated in high-income countries. Developing-country growth is projected to decline to 6.5 percent in 2008 (from 7.8 percent in 2007), yet remaining well above the average of the performance of the last decades. That leads to the understanding that improved underlying structural factors are influencing the overall economic performance of these countries.

In a report released last March, the Institute of International Finance (IIF), a global association of financial services firms, estimated that net private capital flows to

‘

Should the IFF assumptions prove to be right, the scale of capital likely to flow to emerging markets in 2008 will be formidible

emerging markets rose to US$ 782 billion in 2007 from the previous record level seen in 2006 of US$ 568 billion. Should the IIF assumptions prove to be right – and ongoing global economic and financial performances indicate so – the scale of capital likely to flow to emerging markets in 2008 will be formidable.

Let us shift our attention to Latin America and the Caribbean, for instance.

The Economic Commission for Latin America and the Caribbean (ECLAC) has recently reported that Latin America and the Caribbean received a record US$106 billion in foreign direct investment (FDI) in 2007. The Commission has also identified regional economic growth and the sustained global demand for natural resources as the driving force behind the investment growth. Indeed, the upsurge in investment was mostly catalyzed by market-seeking transnational corporations intent on taking advantage of growth in local demand for goods and services and by natural-resource-seeking companies against a backdrop of increased global demand. The turbulences in the U.S. economy did not significantly jeopardize investment in the region in 2007. The resilience of local economies (as demonstrated by the fact that regional demand remained buoyant), continuing global and especially Asian demand for natural resources, and the capacity of transnationals in the region to diversify their export markets also contributed to the rapid growth of FDI.

The ECLAC report also pointed that the main FDI recipient country in Latin America in 2007 was Brazil, followed by Mexico, Chile and Colombia. Brazil alone received US$ 34.6 billion in 2007 (an impressive 84% increase when compared to FDI inflows to the country in 2006). In contrast to the situation in recent years, when investment received a significant boost from usually a small number of acquisitions, in 2007 the upturn in investment in Brazil was spread out across several different sectors.

If Latin America and the Caribbean sort of regained some ground in terms of share of global investment flows, Africa and Asia do not fall behind. Continued high oil and gas prices played a decisive role in the maintenance of African record inflows. The continent attracted investments of approximately US$ 36 billion, mostly in cross-border mergers and acquisitions (M&As) in the extraction and related service industries.

Yet, new inbound M&A deals in the banking industry also contributed to the continuity of continent´s mesmerizing growth.

As for Asia, China and Hong Kong (China) remained the leading developing-economy destinations in 2007, with inflows of US$ 67 billion and US$ 54 billion respectively.

Yet, the A.T. Kearney FDI Confidence Index highlighted India´s superior attractiveness to investors willing to put their money in the telecommunications and utilities sectors.

China – which is now committed to meeting its World Trade Organization (WTO) obligations – is still ranked by most international firms as their preferred investment destination. Despite the rumors that there are signs of unease in the Asian giant about FDI, 35% of global investors view China investment environment more positively than they did one year ago. India, by its turn, shows no smaller performance. FDI inflows increased 250%, from US$ 6.7 billion in 2005 to US$ 16.9 billion in 2009. The country continues to attract investors in the high value-added services industry sectors, particularly financial services and information technology.

Whilst pessimists go desperate with unfavorable economic growth projections, global external imbalances, rising interest rates and increasing inflationary pressures along with high and volatile commodity prices, I choose the pragmatic approach to this entire situation. Obviously one cannot ignore the risks and challenges posed by the continuous globalization of the world economy to the international entrepreneurial and financial community. If in one hand invest-

sustaininggrowth | 61

inward investment ment and trade liberalization have provided greater freedom to transnational corporations to organize their production activities across borders; in another, openness alone is not always sufficient for the expected benefits to materialize. We are witnessing an era in which markets are compelled to grow mature, and governments called to respond with unprecedented policy measures targeted at building and preserving a comprehensive regulatory framework in overall financial, economic and political segments. Prudent fiscal planning together with the efficient use of monetary policy instruments are useful keys to maintain price stability. Countries which make use of such basic toolkit will certainly be better placed to sustain growth over the long term.

Risks and challenges accounted, it is important to also mention reasons for optimism.

The expectations of continuous growth in FDI lean on the ongoing global trends towards better business environments, technological change and the search for competitively priced skills. Sharper global competition will inevitably push companies to grow through acquisitions or seek lower-cost destinations.

Within this context, it is imperative to devote some attention to increasing outward investment by companies from emerging markets.

Significant outward FDI flows from emerging markets are a relatively recent phenomenon.

Although almost all developing countries remain net importers of FDI, several of them have nevertheless emerged in past years as important outward investors. Multinationals based in emerging economies have, in recent years, undertaken some large, highprofile acquisitions in developed countries.

Additionally, emerging market investors have played an important role as equity investors, providing support to the financial system in the mature economies. According to the IIF, these substantial equity infusions have allowed key institutions to maintain appropriate levels of capital and have helped limit the fallout from the subprime credit excesses.

Global flows of FDI reached US$ 1.8 trillion in 2007, a growth rate of 36% in comparison to the previous year. Regardless the U.S. highrisk mortgage market, which shook credit markets and placed a squeeze on low-cost capital, cross-border M&As continued to increase. The elasticity of the global economy helped fuel FDI growth in 2007. That, together with the improvement in the global investment climate and the overall trend for liberalization and deregulation of domestic markets has acted as a spur to FDI. It is widely acknowledged that, as investors decide how and where to allocate their capital, they weigh

62 | sustaininggrowth

a plethora of new issues, mostly consistent with modern concepts of sustainability and sustainable development.

I expect globalization to produce a virtuous circle extensive to all, in consonance with the United Nation Millennium Development Goals, bridging economic, political and social gaps. Obviously, structural policy adjustments should provide the foundations for a context in which business environments are improved, regulatory and political risks are reduced, inequalities are banned and partnerships for development are sealed. Yet, of even greater importance is the commitment of policy makers to take effective steps to design and implement fiscal and monetary policies that emphasize fiscal sustainability and price stability. By compromising to adopt such measures, they will certainly be fostering sustainable growth and increasing local capabilities to cushion eventual tremors in a world of interdependent reverberations.

As the president of the World Association of Investment Promotion Agencies (WAIPA), I am aware of the challenges and opportunities that are defining the world investment climate. It is my duty to help enhance WAIPA´s awareness, influence and importance. Such an assignment is made possible through the strengthening of association´s internal and external ties. Internally, by promoting continuous interaction amongst associated investment promotion agencies, building capacity and ensuring consistent benchmarking exercises. Externally, by keeping dialogue channels open with multilateral organizations and developing projects which are aimed at contributing to the establishment of a business environment whose obstacles are reduced and opportunities enhanced.

For many years we have seen the momentum of globalization in encouraging trade and investment. As regards to investment climate, pessimists might say we have reached the end of the world as we know it and, frankly, it is not all gloomy news. This era of uncertainties and global interdependence calls for coordinated planning, structural policy reforms and deep revision of old management concepts. An era of caution, rise in protectionism and tightening of financial markets - that is unquestionable. Yet, also an era of rise in global cross-border M&As, increased participation of emerging economies as both importer and exporter of capital and unexplored opportunities in multiple centers of growth scattered worldwide. It would be acceptable to sit and moan. I rather roll up my sleeves and do my job with renewed enthusiasm.

inward investment roundup sustaining Growth

In association with

Bulgaria

offers a full and comprehensive inward investment review.

We’ve sought out the experts and the result is three country reports packed with essential information and useful advice.

Note *depicted countries and their geographic location are inaccurate and intended for illustrative purposes only

Political system Republic

turkey - page 70 switzerland - page 65 bulgaria - page 68

C

Capital city

Sofia

Total area

111,000 km2

Population

7.8 million

Currency

Lev

GDP Growth

5.8%

GDP

$42bn

Inflation

3.3%

GDP per Head

$5,604

Switzerland

Political system Direct Democracy

C

Capital city

Bern

Total area

41,290 km

Population

Political system SP Republic Capital city

Ankara

7.6 million

Total area

780,580km2

Currency

Swiss Franc

Population

76.2 million

GDP Growth

2.4%

Currency

New Turkish Lira

GDP

$424bn

GDP Growth

5.3%

Inflation

1.2%

GDP

$508bn

GDP per Head

$55,750

Inflation

6.1%

GDP per Head

$6,670

2

Turkey

C

sustaininggrowth | 63

inward investment

Switzerland Your business location in Europe

p66 © Guodingping, p68 © Trajancorbel | Dreamstime.com

The services provided by Osec, the official Swiss foreign trade promotion agency, include its mandate to promote exports and imports from developing and transitional countries and also its task of supporting Switzerland as a business location. With its location promotion activities, Osec provides services for potential investors from abroad. The ‘Location Step-by-Step’ concept provides needs-driven services on three levels, which are, depending the state of development, ‘Initial Information’, ‘Basic Consulting’ and ‘Detailed Consulting’.

F

ounded in 1927, Osec is a non-profit organisation which has a mandate from the Swiss federal government to undertake operational foreign trade promotion. In addition to the export promotion work carried out in the past by Osec for Swiss and Liechtenstein companies, this year Osec has also been assigned responsibility for import and investment promotion to the benefit of SMEs from developing and transition countries as well as for promoting Switzerland as a business location in order to attract foreign investment. With the combination of the four foreign trade promotion mandates an organisation has been created under the already long established name of Osec whose expanded range of services will not only attract a larger group of clients but will also create synergies.

Switzerland as a business location: very attractive for foreign companies Switzerland is known as an attractive country as far as low company taxes are concerned. But to think of Switzerland as nothing more than a tax haven and a land of chocolate and beautiful mountains is really to miss the point. The excellent underlying conditions in Switzerland - a skilled workforce, stability, a secure future, trustworthiness, and an international perspective – are highly prized by numerous companies and organisations that have made Switzerland their home in recent years. Because these days Switzerland is one of the top business locations in Europe.

Services offered to promote Switzerland as a business location As part of the activities to promote Switzerland as a business location abroad potential investors, managers and consultants receive all the necessary information about business location Switzerland and its attractiveness, but also about the difficulties which have to be overcome. Within the comprehensive concept Location Step-by-Step various services are offered. The three steps are Initial Information, Basic Consulting and Detailed Consulting.

Step 1: Initial Information The goal of Initial Information is to provide the most important indications about Switzerland as a business location. Whether via the web, info brochures, investor hotline, media tours, or at an information event, Osec guides foreign investors. More detailed information about information events organised by Osec abroad are to be found via the link: www.osec.ch/location_events.

sustaininggrowth | 65

Switzerland.

Trade & Investment Promotion.

Switzerland. Let’s make it your country. www.osec.ch Switzerland’s attractions as a holiday destination are widely known. Yet this gem in the heart of Europe is also an attractive business location. More and more companies and organisations from across the world are opening up branches here: Switzerland offers not only low corporate tax, but also qualified workers, high productivity, universities and colleges of international renown, stability, long-term security, efficiency, reliability, a high quality of life and a first-class infrastructure. You can find out how to make Switzerland your business location in a non-binding consultation or by visiting osec.ch.

inward investment

Step 2: Basic Consulting Under the Basic Consulting Programme, Osec helps foreign investors in a personalised manner and addresses their specific questions.

Osec carries out this task in close collaboration with partners from the private sector, as well as with the network of Cantonal Economic Development Offices. The following services are offered by Osec in the framework of the Basic Consulting Programme: First Consultation Osec supports the investor through his or her First Evaluation. Osec supplies contacts to the Cantonal Economic Development Offices, and works with the investor to develop a short list of potential locations as quickly as possible.

Customer Requirement Profile Osec is pleased to work on and reply to specifications submitted by foreign investors. In such cases most often asked questions include: What are the criteria for success? What is the IT infrastructure available? What is the availability of specialised / highly trained workers? etc.

Offer During the final phases of location selection, Osec is still at the disposal of foreign investor during the stage where personalised offers are submitted. Osec can open the right doors to top decision maker in the Cantons identified, and is available to answer questions about the data contained in offers received for site selection.

Fact Finding Mission In cases where investors want to develop a first hand impression about Switzerland as a business location, Osec is pleased to assist to organise and accompany delegations on discovery tours, taking into account all customer specific needs. Switzerland has a lot more to offer than just mountains and chocolate!

Step 3: Detailed Consulting The detailed information, professional analyses and verified contacts of the «Location Step-by-Step» platform puts you on the path to a successful location in Switzerland. Detailed consulting services are executed by private experts at a fee.

Strategy The strategy products from «Location Step-by-Step» are employed on the basis of the analyses and results of your personal Basic Consulting session. We will make the initial enquiries for you in Switzerland. The clear, modular structure of the three different strategy products and the options for combining them guarantee you a high degree of flexibility and individuality.

Implementation Location Step-by-Step’s implementation products are employed when you have clarified your location plans in detail using the strategy products, or if you are already located in Switzerland. Depending on your needs and questions, you can choose from our different products that offer professional assistance.

Implementation products are as follows: • Relocation Services • Real Estate Services • Staff Services Swiss companies locating abroad In addition to providing support to foreign companies locating in Switzerland, Osec also helps Swiss firms in the search for and assessment of business opportunities on international markets. Osec has been successfully conducting export promotion activities for a long time. Since its establishment in 1927, of course, the requirements have changed considerably, international trade has gained in importance, but the opportunities and risks still have to be carefully weighed. To support Swiss and Liechtenstein companies in the development of foreign activities Osec therefore coordinates Business Network Switzerland, a comprehensive network of expert partners at home and abroad. In Switzerland and Liechtenstein this network consists of the cantonal chambers of commerce as well as local chambers of commerce and industry, but business and trade associations and private specialists are also involved on a project-toproject basis. Abroad too Business Network Switzerland encompasses the bilateral chambers of commerce and the Swiss Business Hubs. These 16 hubs in selected markets exhibiting growth and special importance are available to help the Swiss SMEs become more international. Their knowledge of the local markets and key players has already been a great help to many Swiss firms in their expansion abroad.

Import and investment promotion The other two mandates carried out by Osec cover Swiss economic development aid. The programme of import promotion is called «Swiss Import Promotion Programme» and helps SMEs from developing and transition countries to export to Switzerland and the EU. The investment promotion activity is conducted under the name IPSSA – Investment Promotion in Sub Sahara Africa – and helps selected countries and industries in Africa to find investors from abroad.

Both mandates are geared towards creating jobs in these countries, reducing their poverty and promoting sustained development. At the same time this opens up new products and new procurement markets for Swiss and European companies.

Strategy products are as follows: • Legal Services • Tax Services • Financial Services

Osec, Stampfenbachstr. 85, CH-8021 Zürich www.osec.ch • e-mail contact@osec.ch,

sustaininggrowth | 67

grants and incentives

Grants and incentives in

G

rants & Incentives is a specialized Deloitte service line dedicated to assisting clients in obtaining the maximum impact from EU Structural Funds and the Cohesion Fund, national public subsidies, grant resources, and other economic incentives while minimizing the time and effort involved. Our Grants & Incentives team assists both recipients and awarding authorities across Europe and the globe in all sectors of industry, commerce, education and healthcare, both public and private.

Structural Funds have been newly-opened for Bulgaria, yet they follow patterns of projects and systems that have been in place in other member states of the European Union. Deloitte has extensive experience on both ends of the EU funds policy cycle, having assisted both the European Commission and managing authorities of various member states as well as final beneficiaries in developing, managing, controlling and evaluating Structural Funds.

Deloitte’s team is ready to help its clients with assessing their possibilities, designing projects, and preparing management and control strategies that will protect their entity and allow Bulgaria and its regions to grow and develop.

Services Deloitte‘s goal is to provide top quality professional advisory services in the area of project applications to European Union funds.

Services for Grant Receivers Deloitte provides expertise on the potential opportunities EU funds can offer.

EU grants are designed to expand companies’ business plans by potentially offering grants for:

68 sustaininggrowth

L to R © Bogdan-Gabriel Postelnicu, Alexander Hübert, Petko Danov | istockphoto.com

Bulg • Expanding their production capacity – EU funds may be used to co-finance the construction or reconstruction of factory premises, greenfield or brownfield production facilities projects, or to purchase new technologies, new production lines or other productive tangible assets • Covering expenses for human resources development – EU funds may be used to cover training expenses, the cost of trainers and professional HR counselors, or to develop training courses, e-learning courses and modules for the employees • Investing in research and development – EU funds may be used to support the purchase of research equipment or researchers’ overhead expenses, including salaries • Investing in know-how and other intangible assets – EU funds may be used to cover expenses connected to purchasing know-how, patents and research findings, new production manuals and procedures • Improving IT infrastructure – EU funds may be used to co-finance purchasing IT technology in companies, or to introduce internet access for private and public institutions or electronic communication facilities for companies • Supporting the energy sector and reducing emissions – EU funds may be used to help with the construction of power plants using alternative energy sources and with the purchase of technology to reduce waste, renew heating systems, or adapt to alternative energy sources • Promoting products on foreign markets – EU funds may be used to co-finance company’s participation in international exhibitions and trade fares as well as to produce presentation materials and strategies to reach new markets • Investments in waste treatment and reduction in pollution – EU funds may be used to cover expenses for construction of waste-water treatment facilities, filters and units reducing air pollution, recovery of old ecologic burdens, construction of solid waste disposals, waste recycling facilities and other measures connected to reducing environmental pollutants • Real estates development in urban areas – EU funds may help to realize the complex renewal of brownfields and run-down urban areas, including recovery of old ecological burdens, re/construction of buildings for the purpose of research and premises of small and medium-sized enterprises, including subvention for subsequent lease of the premises or construction of leisure-time and sports facilities In order to help our clients succeed we apply an individual winning approach covering the whole lifecycle of the project: • Analysis of grants & incentives opportunities • Definition of projects • Checking eligibility for funding • Advisory services in public funding • Preparation of feasibility studies and cost-benefit analyses

grants and incentives

aria • • • •

Completion of applications Management of grants Seminars and training courses on EU funding Cooperation with banks on pre-financing and bridging loans

Services for Support Providers Our specialized Grants & Incentives team renders the following professional services to grant awarding authorities: Methodologies

• Proposals for methodologies and processes • Formulation and evaluation of individual calls

Seminars and Conferences

• Organisation of seminars and conferences on specific themes related to EU funds • Thematic trainings, seminars and professional consulting

Strategic documents and plans

• Assistance in launching and managing the process of strategic planning • Elaboration of strategic plans, development concept of strategic documents • Assistance in realisation and monitoring of the prepared strategic plan

Analyses and studies

• • • • •

Control and evaluation

Analyses of training needs Marketing studies of objectivity or effectiveness of structural funds Economic and financial analyses of selected intentions Feasibility studies of development concepts Analyses of the effectiveness of current processes and programmes Methodologies

• Preparation of ongoing reports on realisation • Preparation of final reports on realisation • Ex-ante evaluation of operational programmes

Why Deloitte?

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in 140 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte’s 150,000 professionals are committed to becoming the standard of excellence. Deloitte’s professionals are unified by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from cultural diversity. They enjoy an environment of continuous learning, challenging experiences, and enriching career opportunities. Deloitte’s professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities.

We are business people first – We try to understand underlying strategic operational drivers before attempting to address narrow, technical issues.

We get things done – We have a bias towards action and results. Clients tell us repeatedly that they place a great deal of value on our ability to meet engagement time frames and deliverables.

We do it with you, not to you – We roll up our sleeves and work side by side with our clients in solving their issues.

We believe managing change and capitalizing on the opportunities it presents are the essence of success for today’s participants in the emerging Eastern and Central European markets. With the help of our professionals, clients can seize the opportunities they need to shape a healthy future.

EU Grants & Incentives departments of Deloitte Central Europe have a network of more than 150 specialists at their disposals from all over Europe. This provides us with valuable knowledge and experience in utilising EU structural funds utilization.

We provide a valuable combination of both local knowledge and concrete projectbased experience from EU countries, which have already benefited from EU funds in the past. Moreover, our International Coordination Centre in Brussels provides us with up-to date information on developments in the grants and incentives policy of the European Commission. The great advantage of our solution is in our intensive transfer of experience with EU Structural Funds from current EU member states to Bulgaria.

Contact: Borislav Stratev, bstratev@deloitteCE.com Tsvetanka Kalfin, tkalfin@deloitteCE.com Deloitte Bulgaria OOD, 103 Alexander Stamboliyski Blvd.

1303 Sofia, Bulgaria. Tel: +359 2 80 23 300 • Fax: +359 2 80 23 350

sustaininggrowth | 69

© Raphael Hukai | Dreamstime.com

turkey

mergers & acquisitions in

turkey

D

eloitte has been in Turkey over twenty years, but there is no doubt that these last few years have been the most exciting in terms of foreign investment. Around 2004, Turkey quite suddenly “came onto the radar screens” of many investors, first in banking and telecoms and then in an ever-broadening range of other sectors. The Turkish economy had moved from being a high-inflation joke to being a serious opportunity.

The EU decision in December 2004 to open accession negotiations was also highly important, though everybody knows that accession will be a long drawn out process at best. In 2008 global uncertainties, made worse by the legal case for the closure of the ruling AKP, are likely to cause a decline. But the Private Equity Confidence Surveys we run, together with our informal discussions with investors, show that a lot of interest remains.

70 | sustaininggrowth

Turkish business outlook Foreign multinationals (strategic investors) first came in substantial numbers in the late 1980’s, in the era of the Özal reforms. From the mid1990’s until about 2003 there were low levels of foreign investment, partly due to fears of Turkish economic instability and partly due to investors’ focus on Eastern Europe instead as it opened up after the Communist era. Starting in 2004, foreign investment rose again, to levels at least 10 times as high as in previous years.

One major class of investors has been multinationals wishing to be present in the large and growing domestic market here: banking, telecoms, retail, insurance, the health sector and many parts of manufacturing have attracted strong interest. Some of the largest such investments have been privatizations, such as Telsim GSM, Petkim petrochemicals and Tekel drinks and cigarettes; highways and electricity distribution are next. But there have also been private sector sales above US$ 1 billion such as Garanti Bank (2005), Finansbank, Denizbank, UN Ro-Ro and

turkey Migros. All deals have been friendly, because the tradition of family-owned groups means that few companies have a large enough public float to make a hostile approach realistic.

Our “Annual Turkish M&A Review 2007” recorded 162 transactions with a total value of US$ 20.6 bn (including estimates where deal values were not disclosed). For 2008 to date, Mergermarket records 47 transactions with a total value of US$ 8.3 billion. The top ten transactions in 2007 were: Acquiror Target Sector

1 2 3 4 5 6 7 8 9 10

ING Bank Socar, Turcas and Injaz Projects Global-Hutchinson-EIB consortium Kohlberg Kravis Roberts Çalık Holding Nat Comm Bank of Saudi Arabia Dogus Holding (re-acquiring 4.7%) Zentiva Eureko Cadbury Schweppes

Oyak Bank Petkim Izmir Alsancak port UN Ro-Ro ATV Sabah Türkiye Finans Katılım Bankası Garanti Bankası Eczacıbası Saglık Ürünleri Garanti Sigorta Intergum

Financial services Petrochemicals Infrastructure Logistics & transport Media Financial services Financial services Pharmaceuticals Financial services Food & beverage

Deal value US$m

2,673 2,040 1,275 1,252 1,100 1,080 674 626.5 489 450

Private equity groups have become highly active. The Migros and UN Ro-Ro deals were with BC Partners/Turkven and KKR respectively. There are many opportunities where an injection of finance can transform the prospects of a local business. Various private equity groups now have offices in Istanbul; others actively assess the market through visits and local contacts.

Deals in the manufacturing sector have often been driven by plans to build export production capacity. Although Turkish production is not as cheap as China’s, and has become more expensive as the Turkish Lira appreciated in real terms, it is still substantially cheaper than Western Europe’s. Producing here allows far more flexibility than producing in China.

At the smaller scale, there have been many acquisitions by multinationals of the Turkish distributors of their products. These transactions too are normally done on a friendly basis, even though theoretically the existing distribution contract could simply be terminated, because of the importance of retaining local market knowledge and distribution channels.

Real estate investment, in large shopping malls and office development, has also experienced dramatic growth.

Deloitte assists investors with finding appropriate partners and throughout the negotiation process. There are a wide range of advisors competing in the market, mostly fairly small scale by international standards. Our M&A partners and staff obtain mandates because of our international outlook and capability and because of the wide range of clients and contacts which Deloitte Turkey has built up in its audit and tax departrments.

Valuation Investors should not normally base a valuation on the profit shown in the statutory financial statements. It might be higher than reality because the statutory accounting principles are driven by tax law (e.g. provisions may not have been made), or it might be lower than reality because of tax evasion or high depreciation. Discounted cash flow valuations depend on five or ten year projections that are never easy in a volatile economy such as Turkey’s. The country risk factor applicable to Turkey has narrowed substantially, as measured by the spread of Turkish 10-year Eurobond yields over US Treasury yields, from around 10% at its worst to around 2.8% now (up from 2% a year ago). Many other emerging markets have seen similar trends. This means that the rates used to discount future cash flows are lower than before, and consequently values depend on a much longer future outlook than before.

Whatever the results of a discounted cash flow exercise, many investors will seek the reassurance of establishing what prices were paid in comparable transactions. As the transaction volume grows in Turkey, information is accumulating on the typical prices (EBITDA multiples) being paid.

Due diligence Valuation is easier where the due diligence is thorough. We have assisted many investors for the last 20 years in understanding the financial and tax position of Turkish businesses. Issues we often focus on include: measuring financial position and recent results in accordance with International Financial Reporting Standards; effects of related party transactions; the measurement of EBITDA, working capital and debt including adjustments for areas such as factoring and credit card instalment sales; exchange rate risks; analysis of profitability by division or product; analysis of the cost base; any carve-out of parts of the business not subject to the deal; provisioning for doubtful receivables, unsaleable inventories, rebates and incentives given; and the search for contingent or missing liabilities. Small and medium size companies do not usually have independent auditors, although they often have a tax certifier giving an annual report to the Ministry of Finance on whether the company has calculated its tax liabilities properly. A particular fear in small or medium sized businesses is that they might not have recorded all transactions in past periods: this issue presents a tax risk which is sometimes fatal to the transaction, due to the expectations gap between the foreign investors unwilling to accept such risks and a local owner who is sometimes much less concerned.

Structuring the deal Because of tax risks and the fear of unrecorded liabilities, many investors seek a deal structure where the business will be transferred to a new company. Provided that the assets are transferred from the existing company at a fair value, a NewCo structure should reduce the risks from old problems. But the sale of the assets from the existing company creates a taxable gain in the existing company; moreover all contracts have to be moved, and all employees transferred, generating a right to collect their accumulated severance pay. For these reasons, especially the tax burden, vendors prefer to sell their shares in the existing company. If they have held the shares for more than two years, no tax arises on the gain on disposal.

Apart from this basic but often troublesome issue, we often advise on the appropriate holding structure, depending inter alia on withholding tax rates from Turkey as defined in Double Tax Treaties. Finding the right earn-out arrangements and the right protections for the investor are often also key.

Taxation The corporate tax rate is 20%. Dividend distribution is subject to 15% withholding tax, which is reduced in most of the Double Tax Treaties to 10% (sometimes 5%). There is no group taxation: each entity is taxed totally separately, and there are now stricter transfer pricing rules to combat the moving of profits within a Turkish group or abroad. Losses can be carried forward five years, but not back. The tax authorities do not formally agree assessments and can open an investigation of tax returns up to five years back. VAT at 18% is levied in a similar way to European countries but the rules are not identical.

Anthony Wilson

is a UK chartered accountant and Turkish qualified accountant. He heads Deloitte’s due diligence services in Turkey. He has lived in Turkey for almost 20 years, after transferring from the corporate finance division of Deloitte’s UK firm.

sustaininggrowth | 71

business fun

Illustration: www.benovision.co.uk

a wry look at

business

T

his tale was told to me by a friend.

A Chartered Accountant by profession and a raconteur by inclination. Who believes it to be true.

In the dim, distant past, when political correctness was a mere glint in some North American University Professor’s eye and had not yet been exported to plague the rest of us. There lived in Glasgow a lady of somewhat questionable morals who plied her trade with an enthusiastic professionalism that put all her other sisters to shame. She was a lady of outstanding natural beauty, wit, and charm, combining a level of education and culture exceptional in the City, ensured that she was always in demand. Many were overawed by her level of education so her clients were predominantly of the better sort who wiped their feet on the doormat before entering her premises. Not only did she run a well kept house, but her business acumen and sense of civic duty dictated she should pay her local rates and taxes. ‘I should pay for the Police. They’re always polite and understanding to a working girl’.

She dutifully completed the declarations at the end of the financial year, paying the tax due with a promptitude that put the rest of her fellow citizens to shame. Realizing that her working life in her chosen profession might only last as long as her looks and stamina would allow, money needed to be put away in a pension, which required a

74 sustaininggrowth

declaration of earnings. The Inland Revenue was suitably impressed and her file was kept in the local Tax Inspector’s office. However, this exemplary behaviour presented the Official with an almost insuperable problem. In which industrial category should her occupation be put? Because prostitution did not feature in the Revenue’s extensive list. Although her face might well have launched a thousand ships, from battleships to cruise liners, none of the trades in the ship building industry seemed suitable. Similarly in the second oldest profession, Journalism, although populated with rogues and villains of all description, did not fit the bill either. Despite the fact that Barristers wore wigs solely to distinguish them from their clients in court, the Inspector felt that their activities while questionable were not illegal.

So the Law didn’t suit. So he held an impromptu conference in his office and posed the problem to his staff. Many ingenious suggestions were made. The Catering and Entertainment Industries were rejected as being too imprecise and any suggestions in the medical line were firmly rejected. The meeting was adjourned. But at 5.00 pm, the youngest and most pimply youth in the office knocked on the inspector’s door and came in.

‘Please Sir, I have it.’

‘Yes?’ Said the Inspector.

‘She should be classed in the building trade’.

‘Why’? Said the Inspector.

‘Because her main job is collapsing temporary erections’