Global Economic Uncertainty and Trade Relations: Insights from HSBC

Global Logistics, Global Trade Daily, International Trade

Global Economic Uncertainty and Trade Relations: Insights from HSBC

May 2nd, 2025 IndexBox Leave a comment

The global economic landscape is facing heightened uncertainty as shifting trade relations pose potential risks to growth, according to HSBC Chairman Mark Tucker. Speaking at the bank’s annual shareholder meeting, Tucker highlighted the challenges these uncertainties present for international banks in forecasting medium-term economic conditions. More details can be found in the original report here.

Despite these challenges, Tucker expressed confidence in HSBC’s ability to meet its targets and deliver robust returns by 2025. The bank is also committed to its goal of becoming a net zero bank by 2050, with ongoing reviews of interim financed emissions targets and related policies. According to data from the IndexBox platform, the global banking sector is expected to navigate these uncertainties with a focus on sustainable growth and adaptation to evolving trade dynamics.

Source: IndexBox Market Intelligence Platform

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Update: Who Is Winning The U.S.-China Trade War?

March 5th, 2022 Francois Moreau Leave a comment

In 2018, U.S. President Donald J. Trump initiated a trade war with China. The trade war, which has never officially ended, continues to this day. Neither side appears to be winning and many bystander countries are benefiting as a result of this international dispute.

In some cases, these countries are seeing a number of positive impacts, including an increase in trade exports. This article will take a look at where the U.S.-China trade war currently stands and what outcomes have occurred as a result.

An end to globalization?

One of the main concerns springing from the U.S.-China trade war was that it would damage the international economy and bring an end to globalization. Specifically, because the United States and China are the two largest global economies. However, even a global pandemic could not totally destroy the integrated economies of the world.

Recent research demonstrates that U.S. tariffs on Chinese goods resulted in higher import prices in the U.S. and the Chinese retaliatory measures ended up harming Chinese importers. In the end, two-way trade between the U.S. and China dried up. However, contrary to speculators’ fears, globalization has not disappeared and many bystander countries benefited from the trade war through increased exports.

Explaining Bystander Country Growth

It seems unsurprising that global participants would fill the void after China was axed from the U.S. trade pipeline. Countries like Mexico, Malaysia, and Vietnam benefited the most. However, more surprisingly is that global trade, in products affected by the trade war, increased 3% relative to products not impacted by tariffs. So, not only did imports from other countries increase, but overall global trade increased.

One possible theory is that countries saw the trade war as a chance to expand their global market presence. China, which utilized a zero-COVID policy over the past few years, saw lags in its trade activity as a result. These gaps in global trade gave countries the opportunity to invest in additional trade opportunities or the chance to mobilize larger portions of their workforce. These changes enabled countries to increase exports without increasing prices.

Another theory explaining the growth is how third countries were able to export more to the U.S. and China. This change shrank their per-unit costs of production and economies of scale thus allowing them to offer more products for lower prices. Countries, where global export prices are declining, are also those where the largest increases in global exports are occurring.

Country Trade Growth Factors

One might wonder, what more could be done to take advantage of these types of trade wars in the future? Some countries increased exports overall. Others reallocated their trade by shifting their exports from other countries to the U.S. Finally, in some cases countries saw an overall decrease because they sold less overall. Two primary factors emerged to explain these patterns.

Deep Trade Agreements

Deep trade agreements (agreements that go beyond just tariff regulation, but include other behind-the-border protections) were significant. In a “deep” trade agreement fundamental economic integration provisions, like tariff preferences, export taxes, investments, and intellectual property rights are combined with other provisions. The first layer of these provisions usually supports economic integration like rules of origin and anti-dumping and countervailing duties. Then, other provisions that promote social welfare, like environmental laws or labor market regulations are added in, on top.

Trade agreements beyond just tariff preferences and other fundamental provisions help minimize fixed costs of expanding into foreign markets. Countries with these types of agreements had the necessary security to expand trade as the U.S. and China vie for economic supremacy.

Accumulated Foreign Direct Investment

Deep trade agreements weren’t the only important factor though. Accumulated foreign direct investment was also significant. Foreign direct investment is different from other types of investment because FDI occurs when an investor based in a home country acquires an asset in a foreign nation with the intent to manage that asset. Many areas that are undergoing increased social, political, and economic connections to global markets also see increased direct foreign investment.

Foreign direct investment is significant because it helps manage the utilization of scarce global resources. Poor countries often lack the necessary capital to build the necessary economic infrastructure. By receiving these foreign funds, which are managed from abroad, countries can better develop their economies.

Supply chains interacted like dominoes

Analysts at the Peterson Institute for International Economics predicted as far back as 2016 that U.S. tariffs would cause widespread production shifts in a “daisy chain.” In essence, when U.S. tariffs hit China, companies moved production to a third country. This move then caused other activities in third countries to be shuffled.

Analysts have noted that the complexity of modern supply chains makes predicting these outcomes difficult to predict. However, countries that were more integrated into the global economy seemed more likely to land firm relocations.

No Reshoring of U.S. Jobs

Unfortunately, relocations did not occur in the United States. Supporters of the trade war often hoped that it would result in the reshoring of U.S. jobs. Others were supportive because it demonstrated a way to hold China accountable for its deleterious authoritarianism.

In any case, the trade war did not result in massive amounts of jobs returning to the United States as many had hoped – although admittedly this is something that’s difficult to measure. Overall, third countries were the main winners as they replaced Chinese imports with their own.

Bystander countries benefited the most, especially those with a high degree of trade integration. A good business plan can help a business navigate trying times. In the same sense, countries that adopted a strategy for global trade shakeups came out on top. Despite worries of an end to globalization, the trade war seems to have actually diversified trade and spread opportunities to other countries. In reality, the trade war has helped push us towards a world where trade is not monopolized by the U.S. and China.

Conclusion

Initially, we asked who was winning the U.S.-China trade war? The answer is clear: third countries with deep connections to international partners. This means countries that were able to take advantage of supply-chain shakeups and countries that already had existing trade agreements and large amounts of foreign investment.

For the United States, and China, it appears that the trade war did not result in any major gains. Some analysts believe that it does more harm than good. The U.S. did not see any increased reshoring of jobs and economic activities. Really, the U.S. replaced Chinese imports with imports from alternative countries

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3rd Annual Qatar Trade Summit: A Month Away From Exploring Qatar’s Trade Opportunities

October 20th, 2021 Nispana Leave a comment

Bringing the economies closer to each has never been more imperative than in the post-pandemic period. With Qatar’s independent and robust economic growth, we are bridging the gap between the countries by gathering them under one roof to explore business opportunities.

The 3^rd Qatar Trade Summit will provide a platform for industry leaders to embrace the new normal. Positioned on 9^th and 10^th November 2021, this event will be hosted in Intercontinental Hotel, Doha City, Qatar, where the nation’s key stakeholders will showcase exclusive development made in the past few years. The summit will accentuate the parameters attributing to the country’s vision in economic diversification.

Qatar has positioned itself as a self-sufficient and independent nation that has established diplomatic trade relations with many countries. Their new advancements in technology and innovation has placed them as one of the world’s leaders in the space of transportation infrastructure, building smart seaports and air cargos, improved supply chain and logistics, disruption in free zone innovations and implementing various technologies in trade finance for a holistic approach. Newer collaborations and investments are being made to welcome new players in the space of sports, financial services, logistics management, and retail industry to contribute to further economic growth under the Qatar Vision 2030. The upcoming FIFA world cup is the first step to the roadmap of many other initiatives that will transform Qatar’s economy and build stronger relations with the rest of the world. Qatar Trade Summit will host the contributors of this exponential growth within a month’s time to share their journey and strategies that will lead them to achieve the desired milestones.

Based on the theme “Facilitating Qatar Economic Surge beyond 2021” the summit will bring key concerns into the spotlight: technological advancements, recovering from the COVID-19 pandemic; accelerating the infrastructure developments to be prepared for FIFA World cup 2022; rethinking logistics and supply chain to meet the increasing import/export demand and building smarter ports for increased efficiency.

Under the government support of the Ministry of Commerce and Industry and Qatar Tourism, the summit will be hosting dignitaries such as H.E. Mr. Mohamed Hassan Al-Malki, Assistant Undersecretary for Industry Affairs, The Ministry of Commerce and Industry; Lim Meng Hui, CEO, Qatar Free Zones Authority; Rashid Bin Ali Al Mansoori, CEO, Qatar Stock Exchange; Heba Qadri, Managing Director, Qatar Sportstech; Mark Geilenkirchen, CEO, Sohar Port & Freezone, Oman; Glyn Hughes, Director General, The International Air Cargo Association (TIACA); Abdulaziz Al-Mikhlafi, Secretary-General, Ghorfa Arab-German Chamber of Commerce and Industry, Germany; Dr Olga Revina, Founder & Chairperson, Ukraine Qatar Business Council; Timo Hammaren, Head of Unit, D.G Trade, European Commission and many more from across the globe who will be indulging our guests in interactive presentations and panel discussions. The event will be showcasing cutting-edge solutions from our sponsored and supporting partners such as Qatar Tourism, QFZA, The Commercial Bank (P.S.Q.C), Hutchinson Ports Sohar, DHL Global Forwarding, Oracle, Ran Marine and leading media partners.

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A WORLD OF TRADE UNCERTAINTY

October 28th, 2020 Andrea Durkin Leave a comment

The U.S.-China trade war and Brexit have generated quantifiable uncertainty in the marketplace, but the impact of those events is being eclipsed by the uncertainty generated by the global pandemic.

Taking an Economic Pulse

If you search the Internet for the term “economic uncertainty” or close variations, you’d find what you already know just living through the current times. It’s the default word to describe the uptick in political and trade tensions and in the precarious health of the national economy as well as our personal economic lives.

Even prior to COVID-19, the U.S.-China trade war and Brexit — to tick off current major stressors — Stanford economist Nicholas Bloom, along with his colleagues Scott Baker from Northwestern University and Steven Davis of the Booth School of Business at the University of Chicago, sought to quantify the impact of uncertainty and its impact on business, consumer and policy decisions and vice versa.

Rising levels of political and policy uncertainty are perceived to have a dampening effect on commercial investments, hiring, and economic growth, and appear to be reflected in stock market volatility. Policy uncertainty – including uncertainty in trade policies – doesn’t only manifest as risk aversion by companies, it may effectively raise the cost of capital for investing. Companies may freeze hiring and begin to rely on attrition to thin their employment ranks or begin layoffs in anticipation of slower growth. This behavior in turn may diminish the returns from government stimulus spending, itself designed to induce firm investments by offsetting some of their risk. Stimulus works better if policy and economic uncertainties are reduced.

“Uncertainty” is often described as the intangible or “X factor” in economic forecasts. Bloom and his colleagues wanted to find out whether uncertainty is more tangible and evident than we think.

Stress Testing

Bloom, Baker and Davis constructed an index to measure policy-related economic uncertainty. They used data from search results from newspaper coverage by 10 large publications including the Miami Herald, Chicago Tribune and Dallas Morning News, looking for mentions of economic uncertainty within certain parameters. Their work included a measure of fiscal uncertainty as represented by the number of federal tax code provisions set to expire in future years and drew on disagreements among economic forecasters as a proxy for uncertainty.

An “Echo” Report

First, some caveats:

Newspaper coverage is of course dependent upon the reporting choices made by editors at these papers and weighed against what else is driving the news of the day that may eclipse trade policy. The media mirrors uncertainty it observes and may also generate uncertainty through its own reporting.

And while the stock market has shown patterns associated with political elections, the market doesn’t make significant swings in close proximity to political elections. Politicians like to suggest that party majorities across government is good for the markets. But it would appear that political gridlock offers more stability and is considered more “market friendly” than when one political party has both houses of Congress and the White House.

That said, the Economic Policy Uncertainty index (EPU) created by Bloom and his colleagues maps the impact of “uncertainty” such that we can see clear stock market volatility associated with other types of major political events and policy developments – most recently, flare-ups in the U.S.-China trade dispute and the unfolding of Brexit.

The impacts of uncertainty generated by the global pandemic are clearly much higher than the trade uncertainty associated with the U.S.-China trade war and Brexit.

Furthermore, when comparing key words associated with the four different categories of health, fiscal, monetary and trade policy, trade policy uncertainty had been the highest among the four with a spike in 2019, but it is now low and the lowest among these four – again, due to overriding concerns driven by the pandemic.

Bloom has cautioned that trade uncertainty as a driver may have receded in comparison with other concerns. However, the open-ended nature of the current U.S.-China trade conflict and the looming Brexit deadlines mean that trade uncertainty may be more of a sleeping than a slayed giant.

In general, Bloom, Baker and Davis find that, as measured by the EPU index, current levels of economic policy uncertainty are at “extremely elevated levels.” Since 2008, economic policy uncertainty averaged about twice the level of the previous 23 years.

Pile on the Social Anxiety

Bloom, Baker and Davis have also extracted Twitter data on economic uncertainty and compared their findings with the results reflected in the EPU index. Twitter chatter does reflect much of the same heightened sense of anxiety over the uncertainty of Brexit and U.S.-China trade tensions, but the levels of anxiety generally track lower. This could be largely attributed to the sheer breadth and inconsistency of posts by the millions of people tweeting. It’s hard to find the signal in all that considerable and often frivolous noise.

From 9/11 to SARS to El Niño: An Entire World of Uncertainty

In a broadening of this approach to tracking events and impacts associated with economic uncertainty, Nick Bloom has worked with economists Hites Ahir and Davide Furceri of the IMF to develop the World Uncertainty Index (WUI). They used a series of regular country reports produced by the Economic Intelligence Unit as basis for quantifying references to economic uncertainty across 143 countries.

On a global basis over the last two decades, the WUI shows spikes around the 9/11 attacks, the SARS outbreak, the second Gulf War, the Lehman Brothers failure, the Euro debt crisis, El Niño, the Europe border-control crisis, the UK’s referendum vote in favor of Brexit, the 2016 U.S. presidential election and recent U.S.-China trade tensions. The WUI tends to rise closer to political elections – like the consequential one in two weeks. The authors point out that the index captures uncertainty created by specific near-term events but also long-term concerns such as tensions between North and South Korea.

The authors say global uncertainty has “increased significantly” since 2012. Notably, that uncertainty has not, however, translated into stock market volatility, perhaps because the political news has increasingly become difficult for investors to interpret.

Uncertainty tends to be synchronized among advanced economies, especially among the euro area countries. And, as countries move from regimes of autocracy towards democracy, uncertainty increases but declines as the degree of democracy increases and as the quality of institutions improves. The WUI offers an interesting window into what drives uncertainty in individual economies, as well. For example, China experiences higher levels of uncertainty in association with key leadership transitions. The UK experienced a spike in uncertainty at the time of the Scottish referendum.

When Flat-Lining is Good

Trade as a component of the World Uncertainty Index has been low and nearly flat for most of the last twenty years, but has experienced a major spike in uncertainty over the last four years, in particular due to the U.S.-China trade dispute and the setbacks in negotiating a smooth UK exit from the European Community. As Nicholas Bloom has put it, the United States, UK and China have been “exporting uncertainty”.

Trade Versus COVID-19

For close to an entire year now, COVID-19 has been dominant and pervasive in our lives and the global economy. COVID-19 is novel by definition. The unknowns and uncertainty it wreaks show up everywhere – in stock markets, on Twitter and in the news. It should not be surprising, then, that the spike in uncertainty caused by COVID-19 far outstrips that caused by the U.S.-China trade war.

But global trade tensions are not receding and the aftershocks of COVID-19 will continue to be felt in supply chain restructuring. That restructuring will take place in an environment of increasing restrictions on foreign investments, export controls, sanctions, and blacklisting of entities and individuals that multinational corporations can do business with. Long-established supply chain relationships may be less disrupted, but new relationships may not be initiated at the same rate or in the same way in times of high economic policy uncertainty.

While measuring the real impacts of economic uncertainty in still a relatively new concept, central banks and government agencies are beginning to pay attention, and to that end, it will be interesting to continue to take our collective pulse using indices like the EPU and WUI.

Hear Nicholas Bloom explain in his own words in this webinar presented by the Clayton Yeutter Institute of Trade and Finance at the University of Nebraska. Images are drawn from the slides used by Nicholas Bloom and accessible here.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

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USTR Announces Additional Duties on Cosmetics and Handbags from France, Delays Effective Date Until January 2021

July 14th, 2020 Robert Stang and Emily Lyons Leave a comment

On July 10, 2020, the U.S. Trade Representative (USTR) announced that it would impose a 25 percent additional duty on certain cosmetics, soaps and cleansing products, and handbags that are products of France, valued at $1.3 billion, due to the French Digital Services Tax (DST). Nevertheless, USTR delayed the application of the duties for as long as 180 days, which means that at the earliest, the additional duties would go into effect January 6, 2020. USTR stated that the tariffs could go into effect sooner than the 180-day suspension period, but if this change were to occur, USTR would issue a subsequent Federal Register Notice amending the effective date of implementation for the tariffs.

In July 2019, USTR opened an investigation directed at the Government of France under Section 301 of the Trade Act of 1974, because of France’s new DST, which imposed a 3 percent revenue tax on companies providing certain online services directed at French customers. In December 2019, USTR found that the French DST was “unreasonable, discriminatory, and burdens U.S. commerce” and was expected to collect over $500 million in taxes for activities in 2021. USTR accepted comments from interested parties in early 2020 on a proposed list of goods targeted for additional tariffs, which included French cheeses, wines, cosmetics, and handbags. However, prior to the imposition of additional duties, the U.S. and French governments were able to negotiate a truce that temporarily delayed the implementation of the DST until December 2020 and obviated the need for USTR to take immediate action.

USTR has stated that this action concerning tariffs on certain French goods is not intended to escalate trade tensions with France but instead was necessitated by Section 304(a)(2)(B) of the Trade Act of 1974 requiring that USTR announce the action to be taken within 12 months of the initiation of the Section 301 investigation. The 180-day delay of the imposition of the tariffs is intended to provide USTR and France additional time to continue discussions, which could lead to a satisfactory resolution of the DST matter.

USTR has stated that it will continue to monitor the effect of the trade action and may modify the list of affected goods necessary to ensure resolution of the matter with the Government of France.

This action comes on the heels of USTR announcing a similar action into digital service taxes involving India, the European Union and several other countries. Over the last few years, various governments have enacted or considered taxes on revenues generated by digital services companies within the different jurisdictions. Proponents of DSTs argue that the tax corrects corporate taxation to cover previously untaxed or undertaxed revenues. Alternatively, the position of the Trump administration is that DSTs unfairly discriminate against “large, U.S.-based tech companies” such as Amazon and Google.

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Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.

Emily Lyons is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

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Global Trade Talk: Navigating Geopolitical Currents in a Changing Southeast Asia

July 6th, 2020 Keith Rabin Leave a comment

Global Trade Talk is part of an ongoing series highlighting international business, trade, investment, and site location issues and opportunities. This article focuses on the conversation between Simon Tay, Chairman of the Singapore Institute of International Affairs and Keith Rabin, President, KWR International, Inc.

Hello Simon. How have you been? Before we begin can you tell our readers about your background and current activities?

I am Chairman of the Singapore Institute of International Affairs (SIIA). We focus on the Association of Southeast Asian Nations (ASEAN), a regional organization comprised of ten countries in Southeast Asia, as well as the wider Asia Pacific and Singapore’s role as a hub for trade and investment and greater integration in the region. This includes a range of geopolitical issues including the rise of China, the role of the US, and most recently the coronavirus pandemic, which is serving as an accelerator for changes that have been occurring over the last decade.

Professionally, I am an attorney and was a member of Parliament from 1997-2001, serving during the Asian financial crisis. Then during the 2008 global financial crisis, I was stationed in New York at the Asia Society where we first met. These experiences have given me a unique perspective on the impact of globalization and other trends we have experienced over the past two decades.

While ASEAN currently possesses the third-largest economy in the Indo-Pacific and fifth largest in the world, many foreigners have never even heard of the regional group nor do they recognize its potential. Can you talk about how ASEAN evolved, what it represents as a commercial market and investment destination, and in terms of security and its global importance? What opportunities and obstacles and investment themes are of particular importance to foreign companies and investors in the coming years?

I don’t blame people for not knowing ASEAN. When one looks to Asia, one’s eyes are first drawn to the giants. China in particular has done very well over the past twenty years and no country has grown faster during that time. As it developed and labor costs and standards of living rose, Southeast Asia began to capture the attention of businesses, and deservedly so. ASEAN now has growing appeal, because of greater integration as we create an ASEAN Community with increased consumption and growth. That is why many people refer to us as the fifth largest economy in the world.

The reality, however, is a bit short of that – as we are not really one country or one system. We are, however, working to realize the “ASEAN 2025 Vision.” This is a roadmap adopted in 2015 to articulate regional goals to create a more cohesive ASEAN Community. SIIA is currently working on the ASEAN mid-term review, which is examining our progress, and how crises such as the pandemic can strengthen our will to more fully integrate. While an unfinished project, given the diversity in the region, it is — in some ways — every bit as ambitious as the establishment of the European Union (EU). The trend is toward closer integration.

Before the Asian financial crisis, which began in the summer of 1997, the region was mostly viewed, at least in the US, through the lens of the Vietnam War. Over the last twenty+ years we have advanced, however, and growth in ASEAN has been reinforced. This is true both in developed countries such as Singapore and Thailand, developing nations such as Vietnam and Myanmar, and those in between. Before the pandemic, ASEAN as a whole was growing at a faster rate than China. While the pandemic is hitting our people and economies hard, the region should still outperform the world.

The fundamentals are real. ASEAN is ascending from a lower base, leaving substantial room for further growth. There are many opportunities as countries raise consumption and leapfrog using software, digital innovation, and a greater online presence. Diverse sectors can do well, including labor-intensive manufacturing, infrastructure, services, consumer markets, and others that are part of the new economy.

As you note many people view ASEAN as being similar to the EU, a vehicle grouping together a group of countries into a more integrated market, though without a common currency. Is that fair and can you talk about both the diversity of ASEAN as well as the steps being taken to link these ten nations into a more cohesive entity? Is it possible for companies to have an “ASEAN strategy” or should they be looking at individual markets?

Given what I said about ASEAN, and how it is not yet a cohesive union, that is a very good question. The answer is yes and yes. Movement toward greater integration is very clear but we are not like China or the EU where you can put up one office and that’s it for the region. In a way, this is an economic strength as well as a political challenge.

In ASEAN you have an opportunity to link supply chains from a hub like Singapore, which offers first-class amenities, to less developed markets with eager and driven populations rising out of poverty and looking for jobs in factories and a more modern lifestyle. Myanmar for example is a sizable country with a pool of young people looking for jobs and a government seeking to develop. Myanmar also has a sizable expatriate population that has lived and worked in countries such as Singapore and Thailand, as well as Australia, Europe and the US, where they received education and training. Now their economies are opening – and they are returning with capacity, experience and ideas to implement change. So these countries are not starting from zero.

In between, you have countries such as Vietnam, Thailand, Malaysia and Indonesia. Labor there remains hungry for work, the land is relatively cheap and demand is growing. Today, a lot of attention is focused on Vietnam in particular. This is a country of almost 100 million young, dynamic, and hard-working people, which is well on its way to becoming a competitive supply base for many products.

ASEAN also benefits from not being China. Our diversity offers a decentralized model that adds diversification to global supply chains. It can be more complex to work across ASEAN — there is no one President or government to go to – but it is also less risky for those who can manage across borders – as it is not a case where if one government or economy fails, then the investor also fails. Moreover, ASEAN is not a threat to anyone politically. Vietnam for example has a trade surplus with the US whereas Singapore has a deficit.

Those who invest in ASEAN benefit from having an alternative to China, though are still located in this growing region. This allows synergies with production clusters based there. Being in ASEAN allows companies and investors to benefit and participate in this growing regional economy without putting more eggs into the China basket.

You mentioned the US has enjoyed strong ties with ASEAN since its birth in 1967. This was a time when the US sought to develop regional allies in the face of the Vietnam and Cold Wars. Today, however, despite a move to initiate an “Asian Pivot” under the Obama administration and talk of the “Indo-Pacific” under President Trump, some question US commitment to the region. How do you view the US presence and role within ASEAN? What should US companies and leaders know about ASEAN and how does their presence compare to other nations including Japan, Korea, Australia, and the EU?

The US remains an important partner and market for ASEAN and when looking at its involvement in the region, there are three strands we can talk about. The first is like an underlying current in the ocean, the second is the waves on top, and third like a bright object on the surface. If you look at the current, the destiny of the US remains very much an outward one. It is the country that created the modern world and global trading system you and I have grown up in. It was built to America’s advantage and I think this strong current of the US having shaped and benefitted from this world is ever-present despite current tensions. So we have not seen, whichever President, a lack of interest from US business, its military or security establishment. So whether you call it an Asian Pivot, Indo-Pacific region or before that the War on Terrorism, we believe this current can and should have reasons to continue.

At the same time, there are waves on the surface. These are more noticeable, as it is hard to see the underlying current unless you put your hand deep below. The waves do matter and I would say right now they are choppy and we are now going through a period where Americans are questioning globalization and retreating from multilateralism and international engagement. I was in Seattle during the 1999 WTO protests. At the time President Clinton had the political savvy to suggest we let these voices in to assuage concerns – even as he was the president who signed and implemented the NAFTA agreement. As a result, after a time, things calmed down and the situation became less tense for the moment.

Since then, however, the waves have gotten more turbulent, and it is important to recognize the tensions that brought Trump into office are not singular to him. Remember that Hillary Clinton responded to those choppy waves in her election bid. She supported the Trans-Pacific Partnership (TPP) agreement while Secretary of State, and yet as a candidate against Trump, she too expressed doubts about the TPP. So it is not just the Trump administration and we can see a wave of US constituencies questioning and expressing concerns.

The concern is rising to the point where now even the underlying current of outward movement that I mentioned is less visible. Companies are now being judged by how many jobs they are reshoring and their loyalty to America and American jobs. This is now seen as more important than an overall win-win growing the global economic pie paradigm, which has guided the thinking of policymakers and companies for decades.

And then there is the ball or float which can be seen in tweets and incendiary rhetoric. These attract a lot of attention and concern but they are not necessarily consistent. You mentioned the Indo-Pacific strategy and frankly, I haven’t really seen one. I have seen Indo-Pacific statements and senior US officials talking about issues, but I haven’t seen an overall strategy tying things together. I have to say I view this from an ASEAN perspective and generally, ASEAN is the final stop after a comprehensive strategy dealing with other parts of Asia is finalized.

There is also much less US involvement in multilateral institutions. This is important given the nature of the problems the world faces today. I also think the State Department itself has less access and the whole US establishment which has guided foreign policy and economic engagement, has been weakened.

At the same time other countries – and China in particular – have upped their game. They engage us, not only at the top level – but very thoroughly on an ongoing basis. Ambassadors of these countries, whether you agree with them or not, are out all the time engaging people, and are much more present. The US is still here but less than in the past. Take something as simple as Ambassadors. How many ASEAN countries have sitting US Ambassadors? And if you talk with the ones that are here, how much access do they have into Washington and White House decision-making at a high level? Stove-piping is always a problem in big countries, but it is now becoming a more serious issue.

Since the early days of ASEAN, China has developed rapidly and has now become the world’s second-largest economy. It is also a major driver of economic growth and seeks greater regional and global influence through vehicles such as the Belt and Road Initiative (BRI) and Asian Infrastructure Investment Bank (AIIB), at a time when the US is backing away from multilateral institutions and its traditional role as a global leader on a range of important issues. As tensions rise between China and the US, both in terms of trade as well as influence and security, how is the region affected, and what are the challenges ASEAN countries face in navigating this changing environment?

The pandemic makes a vast difference. We are trying to figure out in a post-pandemic world whether China or the US will recover faster and at the moment the answer seems to be China. It is still early, however, and of course, there is now an outbreak in Beijing so we will have to see. At the same time within China, there seems to be a growing understanding they need to remain engaged with the outside world. They also did not have this pre-pandemic spirit of isolationism and questioning of whether it is good for China to export and invest abroad. So unlike the US, they did not come into this with a globalization backlash, strengthened further by the pandemic.

Singapore recently entered into a “green lane” agreement with China for business travel and Singapore-based businesses of all nationalities can now travel to six cities and regions of China with minimal testing as a first step toward reopening our borders. This is not political but an effort to restore supply chain links and our ability to operate as a hub while maintaining decent safety levels. We are also trying to open Australia and New Zealand, and other countries in ASEAN, but those discussions are not yet concluded.

Also, if you look back to the global financial crisis of 2008, it is notable that Asia and China kept growing. While the US did not shrink, in relative terms its global market share declined. That caused an adjustment similar to when an elevator goes up and suddenly stops. I feel if the US does not respond correctly to the current situation, we may experience another of those adjustments; it doesn’t mean the US will fade and fall down the elevator shaft, but there will be another jerky moment and perceptions in this part of the world will shift further as they did after the onset of the global financial crisis.

That said, people in ASEAN want more US involvement and encourage US investment and more participation by US firms. We think of the market and technology as rational and neutral, but it is beginning to get colored. Meaning if people think the winner will be China there is a tendency to go more in that direction – even though we are still fighting to keep things as neutral, rational, and as inclusive as possible. You can see that in the struggle over the decision this week to award Singapore’s 5G network to Ericsson and Nokia, though it still maintained a smaller role for Huawei.

In the past, there was a belief in the west that China’s development would lead it toward a more democratic form of government and integration within the global trading system that arose following the Second World War. In recent years it has become apparent this is not the case and China is embarking on its own path. This has led to growing concerns about China’s aspirations and efforts to exert global leadership and establish standards in new technologies as seen its “Made in China 2025 initiative”, its policy toward Hong Kong and Taiwan, cybersecurity and privacy, social credit scoring and other policies, practices, and beliefs. Do you share these concerns? How does China’s model translate to ASEAN and do you see a new “Cold War” developing in which countries will be asked to choose sides?

I have studied, lived in, and like the US, but never assumed China would become more democratic. I believe the Party will have to evolve and change in response to China’s development but never assumed this would necessarily be in a democratic direction. When I look at the region beyond China, I would also say most in Asia are not a democracy in the US-style. Even look at Japan, which you Keith know well. It is not a one-party system like China but it is not a US-style democracy. Neither is Singapore. We will have an election here in less than two weeks, yet there is almost no doubt which party will win. So I am not sure you as an American would describe such systems as democracy.

So I do not look at China through an ideological lens of democracy and have always thought China would do what made sense for China. As neighbors, we do have to figure out whether what is good for China will be a threat to us, rather than win-win. This applies when we look at Chinese investment; we tend to look at it through pragmatic calculations. I do not begin with the assumption that it is an attempt to politically suborn every place where they invest. There are of course risks that remain but they can be managed. For example, with BRI we have talked to Myanmar and others about the risks of unproven projects that burden them with high debt. That is Singapore’s style. We initiate projects incrementally. We start with one terminal and gradually expand to five, or one chemical factory into a large complex as demand is proven. We have an idea of where we want to go – but build incrementally rather than start with grand projects.

That is why you now see a number of Singapore industrial parks in Vietnam. These parks are not just physical spaces. Some provide training, education, and skills development for local workers so they can better serve companies based there. This helps our neighbors while developing our role as a hub. Singapore companies are also involved in BRI. For example, Surbana Jurong provides consultancy services to some Chinese investors in ASEAN countries, as well as acting for the hosts on other occasions. The Port of Singapore Authority (PSA) is also pushing out into the region and beyond; recently opening a joint port in Greece with Cosco, a Chinese shipping line. So Singaporean efforts are to seek cooperation and commercial deals that look non-ideologically to support globalization and free trade around the world.

The bigger question is the “new Cold War” between the USA and China. We do feel it. We try to make rational decisions based on market principles but increasingly everything is reduced to whether “you are for or against China or the US.” For the AIIB, Singapore participated from the start because infrastructure is a big issue in the region. We are in the Asian Development Bank (ADB) too and the World Bank. We think there is no reason we can’t be in more than one, and I do not see why the US objected to the AIIB or what was the alternative they were offering. On the other hand, when American’s spoke about the Indo-Pacific we were happy to work with our ASEAN colleagues to develop an ASEAN understanding and response.

The view of the Indo-Pacific that ASEAN has developed is slightly different than the US, as our goal was to make it more inclusive and not just for democracies. But we do agree a larger framework for the region is necessary. For Singapore, as close friends with India, we have no problems working with them as well and continue to hope they will become more and more integrated with the region.

Even before the coronavirus and heightened US-China trade tensions, corporations were beginning to reevaluate global supply chains to lessen their reliance on Chinese production. Many view ASEAN as a natural beneficiary, offering cost and diversification benefits. As a result, we see many clients giving the region more consideration given its strategic location, strong infrastructure and its ability to bridge operations that had been based in China and still rely on inputs from there. How do you view ASEAN’s potential as the region rises in importance as a hub within the global supply chain? What are the prospects for developing and more developed countries in ASEAN– as well as integration between the two, for example, the relationship between Singapore and Batam/Bintan and the Riau Islands, where we have been active for many years, located in Indonesia only 12 miles away?

Our greatest fear is not a splintering of global supply chains but rather the idea of bringing everything back home in response to growing nationalism. Big countries sometimes think they can do that – whether it is the US, China, India, or even Indonesia. They believe they can produce everything for themselves and capture their own market. We used to see this in the “import substitution” and “beggar thy neighbor” days. That is something we need to work together to avoid. Post-pandemic there will be exceptions and a degree of self-supply is important, for example with masks and ventilators, to prevent a cut-off of supply. Similarly, markets such as Singapore which imports almost 100% of its food supply, need to rethink being completely reliant on offshore sourcing. But we need to make sure that tilt does not go too far.

But I would emphasize we are not going to exclude China either. The interesting question is whether we still believe in global supply chains. I think the answer is that we do, provided that security and other key concerns can still be addressed. If that is the case, countries that can provide that, who can reliably manage increasing supply chain complexity with good governance and rule of law, with an ability to deliver will be rewarded. ASEAN and Singapore are well-positioned in that regard.

The larger danger is that countries retreat back completely to a reliance on national production and protectionism. It is a lesser danger for supply chains to split into two, one being the US and the other a Chinese supply chain. Sometimes it is important for other countries to have guts and stand up against that and bullying from either side. This is especially important during the pandemic when some powerful countries were trying to grab masks and other medical supplies for themselves when these had been contracted to others. For Singapore, and for me as an attorney and international lawyer, I emphasize the importance of fulfilling contracts. This does not always work to our advantage in Singapore. Sometimes in the pandemic, neighbors cut off supply but we still try our best to observe our commitments. The rule of law is important. The bottom line is – trust is something you can’t ditch in a crisis.

You ask about Batam and Bintan as part of our strategy to expand across the region. These islands are part of Indonesia but stand just a small distance from Singapore. Back in the early 1990s, there was a lot of excitement in Singapore about their development as an early step in regionalization and cross border cooperation. They are still significant; proximity still matters, but not quite as much as before. Other opportunities arise, and regionalization has deepened. One newer aspect is whether that proximity is connected to another market.

For example, a major Singaporean company now has an industrial park operating in central Java that caters to Indonesia, rather than offshore markets like Batam and Bintan. Singapore also has more than seven industrial parks in Vietnam – and we do more there than in these Indonesian islands nearest us. Why? It is not because we do not like Batam and Bintan; they also have a role to play. But they do not enjoy any special preferences or contiguous market, have no natural workforce so workers there are imported from other parts of Indonesia. In the end, they remain useful, allow easy commuting, but do not provide a definitive advantage in an environment characterized by deeper and more complex regional integration.

ASEAN has been severely affected by the coronavirus – and by most measures handled the pandemic relatively well. Can you talk about how the virus has been handled in Singapore and other countries in ASEAN, the nature of regional cooperation, and how the pandemic is likely to affect economic and other aspects of integration moving forward? What lessons should the US take from the ASEAN experience dealing with the virus?

There are differences in how ASEAN countries have handled this and from what we can see, Vietnam has come out on top in terms of controlling the pandemic. In Singapore, the overall national numbers may look scary, but it is under control for most of the community though the problem is acute within the foreign work dormitories which account for the bulk of numbers.

Singapore has a strong health system and has ramped up testing and treatment facilities; our medical system has coped and there has been a very low mortality rate. Malaysia and Thailand are also doing relatively well. For Laos, Cambodia, and Myanmar the numbers seem ok but it is really hard to know for sure, given low levels of testing. In Southeast Asia, I think the biggest worry is Indonesia where numbers are beginning to rise while the country faces strong economic pressure to reopen.

A key question is transparency. The more you test the more you find cases. So we look at testing rates as an indicator. In Singapore, we have good testing for a small population. As testing increased in dorms for migrant workers, this caused our numbers to really jump. It was just last week that Indonesia overtook us as having the most cases – and we have to ask why did it take that long? Basically, many countries are not testing enough. When they do test, it is for confirmed cases and not more generally – and the number of tests per million is very low. So from the reported numbers, the situation may look acceptable, but no one can be quite sure.

The current question is how to ease up the restrictions to restart the economy and allow travel across borders. There are worries about importing cases and all countries have at least temporarily closed off tourism, which are important parts of their economies. In the pipeline, I think green lanes for business are possible. But there will continue to be concerns about large numbers of tourists unless easy and reliable testing and (ideally) vaccines are ready. So we will have to figure out how to manage borders – allowing transport of workers as well as goods and services – to restart our economies and manage our integration and supply chains in an increasingly interdependent region.

One of the things we have learned is we have to be open to help from outside and cooperation is critical. In early February we first had a China-ASEAN meeting on how to deal with the virus and it was just China, but then we had an ASEAN Summit and this was notable in bringing in Japan and Korea – two countries that have the industry and technology needed to help. Now some of us are advocating Australia and New Zealand also need to be added as well. If we address the pandemic together – we have a much better chance of containing and dealing with it. Harmonizing our approaches to treatment and travel is important. Multilateral dialogue and cooperation are essential and world leaders should encourage talk rather than just closing borders.

India also represents a major economy that borders ASEAN and has traditionally had a major impact though often gets overlooked given the attention paid to China. What is your view on India as a regional and global player and how important is its economy to the development of ASEAN and how should companies be approaching this important market? Additionally, any thoughts on current tensions between India and China?

Last year before the pandemic we had the Regional Comprehensive Economic Partnership (RCEP) discussions which could potentially not only open up India but bring India more into the region as a major global manufacturer and supplier – much as China embarked on that path decades ago. RCEP’s importance rose after the US withdrew from TPP negotiations, and aimed to bring together all ASEAN members and our key trading partners — including India, Australia, China, Japan, New Zealand, and South Korea. But it seems the Indians didn’t like that vision or thought the costs of opening up their market were too high and walked away.

They thought they could scupper the whole initiative, but ASEAN has decided to go ahead without them. That was not our hope and it would have been much better to include them, but we were not going to let India veto RCEP, and it will now proceed, aiming to conclude by the end of 2020. I always tell my Indian friends we have to move – particularly now with the pandemic – and they would be advised to jump on board.

India has tremendous potential and their size and promise will always be there – but it is a bit like a giant universe operating by itself – cut off from the outside. That is sad as there are some really top-class Indian companies that can more than compete in the region. But India as a whole has not really been fully engaged. The politics are complicated – and while Singapore remains great friends of India – it remains to be seen if a path forward can be found. If Prime Minister Modi with all the support he enjoys is not willing to open up, how and when will it happen? Compound that with the pandemic and a lack of desire to integrate, and my fear is India will miss the boat.

For Indonesia, the largest country in ASEAN, it’s different. They know investors are questioning reliance on China because of costs and Sino-American conflict and are working to catch the attention to join global chains and attract more investment to create more and better paying industrial jobs. They are trying but it won’t be easy. China has retained many supply chains, and many that moved decided to go to Vietnam. One Indonesian minister I know quite well is working hard to attract jobs and promote innovation and some companies are moving to base there. The minister told me his scorecard is based on an ability to attract foreign investors and industry. It will be difficult, but it is good they are trying. India, however, has mostly been sitting on the sidelines and it may only get harder over time.

Singapore is one of the world’s great success stories and has become a preferred destination to establish businesses and operate for companies in a wide range of sectors, including as a world financial center. For many years we operated our own company there as a base for activities in Myanmar, Indonesia and other ASEAN markets which lacked the same level of infrastructure, governance and services. Does the Singapore model hold, and what changes need to be made, as neighboring countries develop? Can you tell us about current Singapore initiatives, the upcoming election and the “bubbles” that are being created for business, travel and trade?

Singapore understands we serve as a hub for the region and if we cut ourselves off due to the pandemic and health reasons, we will find ourselves in a bubble that does not have enough air for all of us. You can live your life that way if you need to, but resources become scarce and it will not be much of a life. So we have to reopen, and all small economies face similar issues. New Zealand for example is further away but faces similar decisions.

That is why we talk about green lanes and bubbles. We need to start but in a controlled way with trusted partners. In the past, we were wide open. When you entered Changi Airport, even before you got to the doors, they opened wide. There was seldom a line and often no one even checked your luggage. Now, while I have not been there in five months, I imagine the scanners are working overtime. You need to show a health certificate and the process is much more cautious and guarded.

My analogy is that we have gone from an automatic door and seamless travel to a situation that requires a special pass and perhaps a key before you will be able to pass. Safety concerns are a priority. But for Singapore, the important thing is the doors need to remain open even if there are more checks and verifications to ensure adequate safety and easy passage. Singapore is committed to that. The government just formed a new public-private partnership called the “Emerging Stronger Task Force”. This will gather ideas on how to develop new processes and procedures to get better ideas on Singapore’s economic strengths, and how to move forward into the “new normal” in the wake of the pandemic.

It won’t be easy. But when I look back, there is reason to believe we can rise to the challenges. Singapore came out stronger from the Asian financial crisis and we are determined to do that again. That was true after the global financial crisis as well. If we get it right, Singapore can come out stronger this time as well. Of course, we could get it wrong and have made mistakes along the way; two recoveries do not automatically translate into a third so we have to be careful not to have hubris and to work hard and innovate to succeed.

As you know we have been active and involved with Myanmar’s development for many decades, and one of the more interesting developments – at least in terms of Singapore – are long term plans to develop deep seaports in Kyauphyu, which would provide a land route into China. This initiative would allow shippers to bypass the Straits of Malacca and the Port of Singapore which has long dominated trade in the region. How do you view Myanmar’s prospects and the potential of these projects?

Do we see other ports in the region as a direct threat to Singapore? The answer is no. We think win-win. Our ports are busy and before the pandemic operated almost at full capacity. If Asia continues to grow, the volume of traffic will grow even more. The PSA has been expanding internationally to places in the region and beyond. Moreover, within Singapore land is very valuable and there is a plan to create a new mega port named Tuas in the north of the island. The current site of one port is very close to the city and is such valuable land that, rather than stacking containers, far more value can be realized if it is used for real estate and infrastructure development. So while we do want Singapore to continue as a major port, this means that we welcome and want to participate in growth across the region.

As for Myanmar more generally, we are very encouraged and remain positive. We would love to see them come up like Vietnam. As mentioned, there are several Singaporean industrial parks there and while there are none are as yet in Myanmar – we have very good relationships there and see lots of potential. Many people from Myanmar received their education and training in Singapore and many Myanmar companies rely on Singapore for banking, legal and financial services. So there are extensive people-people relationships and we want to help and be part of their development. Also, two of the most active banks in Myanmar, UOB and OCBC are from Singapore and as Myanmar opens up and liberalizes they are seeking to increase their presence.

Thank you Simon for your time and attention. Look forward to speaking again soon!

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Keith Rabin serves as President at KWR International, Inc., a global consulting firm specializing in international market entry; trade, business, investment and economic development; site location, as well as research and public relations/ public affairs services for a wide range of corporate and government clients.

Archives, Foreign Trade Zones, Global Logistics, Global Trade Daily

Important Things to Know about Doing Business in the UK

June 19th, 2020 Rajesh Velayuthasamy Leave a comment

Interested in expansion into UK markets? It’s a worthwhile investment. The UK is one of the most prosperous and stable markets in the world, with a high wealth per capita and plenty of opportunities for capital acquisition, especially within London.

You’d be forgiven for thinking this kind of prosperity was fairly exclusive. Indeed, following Brexit, it would seem that opening up a business in the UK as a foreign national is going to be quite a challenge. But, in fact, it’s quite the opposite.

Starting a business in the UK is really easy for newcomers and foreign nationals. You can establish a Limited Company in Britain without jumping any additional hurdles. You don’t need VISAs, agreements of trade or anything else — and there is no requirement for specific ID or passports. All you need is a company name, at least one director, to provide all necessary documentation (not as intimidating as it sounds) and to follow the process of registering for taxation. The only barrier you may face compared to a British resident is you’ll need to register your business to a UK address; easily done these days through virtual offices. This criterion of requiring an address does not exist to exclude anyone from starting up in Britain. It is merely a gateway to simpler correspondence and domestic accountability — should accountability be necessary.

It should be noted that accountability is rarely necessary, but when it is, it’s vital. This is because the UK business landscape rests upon a complicated legal structure. Industries form around different regulatory bodies, and standards are upheld by various commissions, depending on your area of business. The nature of the UK business landscape is very protective and favors business stability and longevity. Follow the legal processes correctly and you’ll have a lot of the tools you need to thrive. However, failure to follow the legal structures imposed on your business can result in problems. Regulations are strictly enforced and consequences for non-compliance can be severe.

Education is your best bet. Enter the market aware of all your obligations and legal responsibilities. Legal advice from specialists — those who can ensure you get set up properly and conform to the right guidelines — is often recommended if it is an affordable expense. More than anything, this is to ensure you don’t miss any of the finer details — because your competitors, and customers, will likely be aware of those finer details and take you to task for rule-breaking.

Standards of education in the UK are very high. Similar to the USA, it is legally required for all students to attend formal education until they are 18. Following basic education, many move on to university as higher education is often subsidized by the government with the rest of the money obtained through widely-available student loan systems. Expectations for levels of education are high, so be prepared to meet the high standards set by domestic learning, and contend with partners and consumers who know what they’re talking about. It’s a good business practice in the UK to assume that your customers know as much about your industry as you do, if not more.

This fact leads us to the most important lesson you can learn about doing business in the UK. Good business routinely comes down to good business relationships. Every successful entrepreneur and business owner knows that who you know is just as important as what you know. That means no matter where you do business, you need to build healthy alliances and relationships.

In the UK, the key to building great relationships lies in navigating society and culture. The UK business landscape is a powerful environment for building strong, long-lasting, and loyal relationships that can provide pivotal opportunities for growth. But you have to get this right. In general, UK business culture — particularly the modern and adaptive landscape of London and other large cities — is very open to foreigners. The more you travel outside of cities to do business, the more cultural barriers you may find stand in your way, but this often comes not from hostility towards outside opportunities, but a lack of familiarity. Time and effort to establish yourself is what’s important when dealing with business communities with a lack of experience of foreign trade. A slow and tactful approach is always going to play favorably in the UK, no matter where you are trading.

However, with this idea of openness in mind, there are certainly still some cultural lessons to be learned before diving head-first into business within the UK. As we’ve mentioned, you’re building relationships, and the key to any successful relationship is behaving correctly. Loud, obnoxious, and forceful traits are unwelcome in British culture. Pushing for hard sales or getting in people’s faces with ideas might seem like the mark of passion and enthusiasm, but it won’t make you many friends — even in London. Modesty, restraint, and an even temperament are important. You’re looking to play the long-game here, building up stable bridges over time through humility, gradually increased levels of trust, and real-world demonstrations of your expertise and worth.

In the UK, talk is cheap.

Once you do start forming those relationships, you’ll have to be careful not to lose them. Bonds in UK business culture are tough to break once established, but the early days make them vulnerable if strife is introduced. Privacy is coveted, as is space. Don’t get too personal, and respect distances people establish.

While there are ways your behavior can influence the business relationship, there are also ways that the actions of your new British partners could affect you. If you’re not aware of these factors, you may misinterpret them, which can again lead to conflict. We’re talking specifically about humor. Jokes — commonly at the expense of others — are prevalent in the UK. Referred to as “banter”, these are often light-hearted remarks aimed at teasing another individual. The intent is most-always friendly, but if you’re not familiar with the custom, it can appear to be offensive. The levels of “banter” you’ll experience can vary wildly from person to person, but it is a widespread form of social interaction in the UK. Just remember, it’s all in good fun, so laugh along. People who are unable to take a joke are generally looked upon unfavorably.

Anything else it’s important to know about doing business in the UK?

To make a cup of tea, first, boil the kettle. Place a tea bag in a mug. Ask how many sugars. Each request, for example, “two sugars” means one teaspoon of sugar. Add the requested amount of sugar. Pour the water in. Leave to brew for a few minutes. Ask if they’d like milk. If yes, add a small amount of milk until the tea goes from dark to pale brown. Stir well. Remove the tea bag with your spoon. Extra points if you use the spoon to crush the teabag against the inside of the mug to squeeze out any remnants of flavor.

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This article was written by Rajesh Velayuthasamy, founder and director of Mint Formations, a company that supports local and foreign nationals to establish a business presence within the UK.

Archives, Global Trade Daily, International Banking

B20 Saudi Arabia – Leadership in Challenging Times through Integrity and Compliance

June 17th, 2020 Frank Orlowski Leave a comment

As countries around the globe push to reopen in the face of the COVID-19 pandemic, the business community is struggling with the decision to relax compliance standards as a means to remain agile and navigate a pressing shortage of goods and services. Yet these times necessitate an even greater commitment to integrity.

B20 Saudi Arabia, the voice of the global business community to the G20, recognizes the ethical challenge posed by the COVID-19 health and economic crisis to both businesses and governments and has committed to addressing the issue of corruption by recognizing Integrity & Compliance as one of its key priority areas.

Corruption remains a significant risk for businesses across the world. The cost of corruption is estimated to be five percent of the annual global GDP, i.e. US$3.6 trillion, a price we cannot afford in these times. We have also seen corruption is a key barrier to achieving the UN Sustainable Development Goals (SDGs), such as the elimination of poverty and hunger, promoting a peaceful and inclusive society, improving education, quality of life, and the infrastructure of each state. The B20 Integrity & Compliance Taskforce’s work, therefore, aims to advance the global anti-corruption agenda, touching upon key relevant topics such as responsible business conduct, consumer protection, the fight against corruption, and other efforts at the foundation of a healthy business environment.

Recently I had the opportunity to interview Mathad Al-ajmi, Vice President and General Counsel at Saudi Telecom Company (stc) and Chair of the B20 Saudi Arabia Integrity & Compliance Taskforce. As a prominent attorney and business leader, Mr. Al-ajmi has been influential to the Pearl Initiative, a global coalition of business leaders from the Gulf Region aimed at fostering a corporate culture of accountability and transparency to ensure all applicable international laws and frameworks are upheld within Saudi Arabia, throughout the Middle East, and across the globe.

During my interview with Mr. Al-ajmi, he reinforced that integrity is not merely anti-bribery, but rather something much broader. He believes that to create an open, transparent and legitimate world economy, the members of the global marketplace must be in alignment with the terms and conditions of participating in that economy, both for developing and developed countries. The goal of the B20 Integrity & Compliance Taskforce is to ensure a robust compliance and controls program that is sustainable, globally successful across languages, and able to be implemented proactively.

Mr. Al-ajmi also spoke about how developing economies and micro, small and medium-sized enterprises (MSMEs) will bear the brunt of business loss from the pandemic, making it doubly important they are able to access monetary government support through legitimate channels. The most vulnerable populations, most often coming from developing markets, are those who are disproportionately impacted by corruption – corruption costs developing countries US$1.26 trillion every year and represents a major obstacle to investment, further negatively impacting economic growth and job prospects for these markets in the long term.

MSMEs, Mr. Al-ajmi noted, play a pivotal role in jump-starting the economy in that they account for more than half of most countries’ GDP and are responsible for almost seven in every 10 jobs. Often operating in difficult economic environments, MSMEs are highly vulnerable to corruption, although they may be less likely than large companies to be involved in large-scale influence-peddling scandals, which is why they are one of the B20’s cross-cutting focuses. Simultaneously, MSMEs typically lack the resources, knowledge, and experience to implement effective anti-corruption measures and conduct their business in compliance with international standards and the applicable international laws and frameworks, making their engagement a cornerstone of the B20’s Integrity & Compliance taskforce work.

The B20 will present its policy recommendations to the G20 during the B20 Summit scheduled for October in the form of policy papers to be drafted by each taskforce, including Integrity & Compliance. While the recommendations and priorities in those papers are not yet published, Mr. Al-ajmi outlined a number of key themes in our discussion that he and his task force feel are an integral part of supporting transparency in the global business community:

-Leveraging new technologies with regards to the management of corruption and fraud-related risks.

-Proposing an anti-corruption technology roadmap to both the private and public sector as a strategic vision by adopting technological solutions for identified risk areas.

-Developing digital identities and public national registers to reduce anonymity and increase both transparency and accountability of beneficial owners and third parties. The adoption of these solutions will further enable addressing the challenges of cross-border quality data sharing.

-Ensuring heightened integrity and transparency in public procurement through open bidding processes from multiple vendors, with specific certification criteria to ensure compliance with applicable international laws and frameworks.

-Collectively pursuing and legislating the implementation of responsible business on a global basis in each country, leveraging the applicable international laws and frameworks.

-Supporting code-of-conduct compliance programs to monitor capital spending as emerging market infrastructure projects continue.

-Continuing to align government officials with private industrial programs through compliant lobbying programs and monitoring.

-Protecting whistleblowers by adopting mechanisms and practices in line with leading global practices.

-Strengthening corporate governance in public and private sector companies, such as through yearly certifications for all employees to understand governance regulations.

-Widely and publicly prosecuting bribery to set examples.

-Partnering with and leveraging the expertise of global institutions to improve national anti-corruption plans.

-Actively empowering women across the supply chain by promoting their participation in a wide range of public, economic and political spheres in combating corruption.

As Mr. Al-ajmi reinforced to me, none of these efforts will succeed if we are not operating in a transparent, integrity-driven business environment. Ultimately, this is what the B20 hopes to accomplish through the work of this critical taskforce, ensuring integrity is part of the global business community and society writ large. I am confident the B20 and specifically its Integrity & Compliance Taskforce will have a positive influence on the G20 Summit and look forward to the release of the policy recommendations during the B20 Summit scheduled for October.

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If you have any questions or would like help in the area of Compliance and Controls please do not hesitate to contact me at frank@ationadvisory.com or visit my website at www.ationadvisory.com

Frank and his team at Ation Advisory Group have successfully remediated clients from FCPA and British Anti-Bribery investigations. His team has implemented over 45 global FCPA Certification Programs and Compliance and Controls improvement projects which prevented violations and Improved Goodwill and overall value for a domestic or international organizations seeking to sell, partner with a JV or obtain contracts or new business with government officials and private enterprise.

Archives, Foreign Trade Zones, Global Trade Daily, International Trade

Global Trade Talk: Enhancing US-Korea Trade and Investment Cooperation in a Changing World Environment

June 8th, 2020 Keith Rabin Leave a comment

Global Trade Talk is part of an ongoing series highlighting international business, trade, investment, and site location issues and opportunities. This article focuses on the conversation between Taehee Woo, Vice Chairman, Korea Chamber of Commerce and Industry (KCCI) and Former Vice Minister of Trade, Industry and Energy (MOTIE), Republic of Korea and Keith Rabin, President, KWR International, Inc.

Hello Taehee, how are you? It has been a while since we last talked. Before we begin, can you tell our readers about your background and current activities?

For thirty years I served at Korea’s Ministry of Trade, Industry and Energy in positions including Director-General of the Industrial Policy Division, Assistant Minister for Trade & Chief Negotiator for Free Trade Agreements (FTA), Deputy Minister for Trade, then finally Vice Minister. After leaving the government several years ago, I worked as a professor at Yonsei University before becoming Vice Chairman of KCCI in February 2020.

KCCI is the oldest and largest business organization in Korea. It is composed of 73 regional chambers of commerce and more than 100 major institutions and organizations. This includes approximately 180,000 member companies, ranging from big businesses to SMEs, manufacturing to services, and domestic as well as foreign-invested firms. KCCI is at the forefront of trade promotion by engaging in private-sector economic diplomacy with foreign governments and corporations. Every year we dispatch overseas business missions and organize business forums for visitors to Korea. Through these and other activities we work to expand trade and investment between Korea and other countries around the world.

The Republic of Korea (ROK)’s rise following the devastation of the Korean War was one of the 20^th century’s greatest economic success stories. In little more than a generation, the nation advanced from being one of the poorest countries, to become an advanced modern economy enjoying one of the world’s strongest growth rates. Can you talk about the Korean economic miracle and what allowed this achievement?

The most important factor was the government’s choice of an open, export-led economy. Korea does not possess many natural resources and after the devastation of the Korean War, the government was the leading actor in initiating economic development. Major policies included the “5-year economic development plan” (60s~90s), the “Comprehensive National Physical Development Plan” (70s~90s), the “Saema’eul Movement (also known as the New Community Movement)” (70s) and “Heavy and Chemical Industrialization” (70s~80s). During this period, the government nurtured large exporters as part of its strategy. A trickle-down effect allowed economic growth to flow from large exporting companies to partner SMEs, then to ordinary Koreans. This allowed Korea to grow faster than other developing countries that had a similar start.

I also believe the pioneer spirit, vision and tenacity of early Korean entrepreneurs contributed significantly. There is an expression in Korea, “to serve the country through business”. This guided first-generation businessmen such as Lee Byung-chul (Samsung), Jung Joo-young (Hyundai), Koo In-Hwoi (LG), Choi Jong-gun (SK) in their efforts to bring prosperity to the Korean nation. These men led the “Miracle on the Han” which you reference, advocating “Have you tried it?” (Hyundai/pioneer spirit), “Change everything except your wife and children” (Samsung/innovative thinking) to drive growth forward. Through these efforts key industries including semiconductors, smartphones, automobiles, construction, shipbuilding and petrochemicals were born and enjoyed uninterrupted growth in overseas markets, giving rise and consolidating the position of a ‘Global Korea’.

The dedication and talent of the Korean people has also made an outstanding contribution. Our passion for education is one of the highest in the world. Korea ranks first among OECD countries, with 70% of the 25-34-year-old population holding a bachelor’s degree. The diligence and hard work of the Korean people is also important. Korea has the second-longest working hours among OECD members. During the high growth period centered on manufacturing in the 1970s and 1980s, the input of physical labor acted as one of the driving forces of economic growth.

Previously, the government used to decide which industries to nurture, then distributed resources and applied regulations accordingly. Now that we are past this rapid growth phase, such a strategy is no longer valid. Today, the trickledown effect of exports has declined significantly, and the manufacturing sector is experiencing a slowdown. For this reason, I believe the government’s role should be limited to two things: first, to help individuals spot business opportunities. Second, to ‘renew’ the legal and regulatory system so as to reorganize Korea’s industry around future-oriented service industries and convergence industries.

By the 1990s, China and other lower-cost competitors had emerged, just as ROK living standards were rising. This eroded the nation’s ability to compete on cost as the primary driver. Nevertheless, the ROK has not only maintained its competitiveness but expanded it to where it is now considered one of the world’s most innovative economies. That is true not only in semiconductors, shipbuilding, and automobile production where the ROK has shown traditional strength, but also in R&D, patent activity, smartphones, and other branded products. Now we are even seeing cultural exports such as K-Pop and film, with the ROK production Parasite being the first foreign film to win Best Picture Academy Award. How did the ROK avoid the “middle-income trap” that has affected so many other countries? What steps were taken to allow this continuing transformation?

The first key to avoiding the middle-income trap is innovation and technology, mainly through the adoption and utilization of information and communications technology (ICT). Korea invested extensively in ICT in the late 1990s and early 2000s, building on our earlier success in electronics and semiconductors. This laid a foundation for Korea’s top tier ICT infrastructure, which now includes one of the highest internet penetration, speed, mobile network and cell phone distribution rates in the world. It provided the basis for businesses to build new industries including next-generation semiconductors, cellphones, displays, etc.) as well as advances in conventional manufacturing such as automobiles, shipbuilding, home electronics, and petrochemicals, etc.

Korea also took advantage of the Asian Financial Crisis and the Global Financial Crisis to enhance our capacity and the nation’s economy. Problems such as industrial and financial restructuring and mass unemployment were turned into opportunities to strengthen the competitiveness of our businesses and to catch up to global standards. Not only did Korean businesses achieve technical innovation and accelerate their overseas expansion, but they completely overhauled their practices in accordance with global standards by expanding ethical, transparent management practices, strengthening fair trade and mutually beneficial cooperation.

There are two tasks ahead for the Korean economy to take the next quantum leap. The first is to give a big push to industries of the future by revamping obsolete laws and institutions that were created during Korea’s earlier era of rapid growth. Vested interests became increasingly protected while Korea’s industrial sector was taking root. This legislation now acts as a barrier to business, blocking new initiatives to the point that creating a start-up or venture business in itself is an accomplishment. It seems that due to the COVID-19 outbreak, a social consensus has formed about the importance of the ‘untact economy’ – where face-to-face contact is not needed – and on the need to develop ‘ICT convergence technologies’, which will help serve as the basis for a transformation of our industrial structure.

The second is to build a high-level social safety net. Korea’s GDP per capita exceeds US$30,000. In contrast, social benefit spending as a percentage of GDP is around half (11.1% in 2018) the OECD average (20.1% in 2018). I believe that social benefits can only contribute to economic growth. If the government dedicates state finances to guarantee the basic livelihood and employment stability of the weakest social groups, there will be less resistance toward innovation and change. This change will in turn contribute to job creation and the transition towards future industries. It is imperative we adopt a holistic approach.

We began working together in the early 2000s when you served as Commercial Attaché in New York and our firm represented much Korean government and corporate clients in their efforts to expand trade, investment and targeted transactions including the development of Incheon Airport, New Songdo City and several Special Economic Zones, as well as US firms with an interest in Korea. At the time much of our Korean work focused on overcoming the “perception gap” between Korea’s achievements and a belief its strength was still largely based on OEM production and cheap, substitute products. This served to diminish the value of Korean brands in comparison with their competitors, constraining margins and pricing while introducing a “Korea discount”, which raised borrowing costs and the returns required by investors. Why was it important to raise perceptions of Korea from being a “developing” to an “advanced” nation? How did Korean companies elevate themselves to where firms such as Samsung, Hyundai, and others now possess some of the most competitive brands in the world?

In the early 2000s, Korea’s economic growth was largely based on manufacturing and export of low and medium-priced goods that were useful though without high value-added and we were highly dependent on OEM production for foreign markets – as domestic demand was weak. While Korea’s compounded annual growth rate exceeded 4% for 10 years starting from 2000, geopolitical instability due to North-South relations, the rigidity of the Korean labor market and a need to overcome the effects of the Asian or IMF financial crisis of the late 1990s threw a spanner in the works. This gave rise to the ‘Korea discount’ you mention, which undermined the brand value of Korea, Korean businesses abroad and our borrowing costs.

As a result, we faced a ‘nutcracker’ crisis, where our products were stuck between developed nations and developing countries, and exports of low and medium-priced goods no longer yielded the high growth they delivered in the past. In fact, Korean products were at a disadvantage, from both a price perspective compared to China and an efficiency perspective in comparison with Japan. In other words, Korean goods lagged behind Japanese products in terms of quality and technology and were less price-competitive than Chinese products. Korean brands were also not held in high regard overseas. At that time we would often see Korean products command higher prices as OEM products than under Korean brand names.

Upgrading the national brand was essential in breaking the perception that Korea specialized in low and medium-priced products. To achieve this goal we invested in R&D and technology development so that Korean companies were not undervalued in overseas markets. Building recognition, brand, and both national and corporate images were also of paramount importance, raising awareness and the credibility of Korean products in foreign markets. This had a significant economic impact by improving the competitiveness of our goods. As a result, Korean products now command a premium and according to Brand Finance’s 2019 Nation Brands report, Korea’s brand ranked 9^th in the world, higher than that of Switzerland or Italy.

The strength of Korean companies is based on factors such as active R&D investment, technology development, globalization strategies, and human resources development. Korea ranks 5^th in terms of global R&D investment volume (85.7 trillion KRW), and 1^st in terms of R&D/GDP ratio (4.8%). Our businesses are strengthening Global Korea’s reputation by improving its fundamentals in accordance with global standards. For instance, Samsung’s foldable phone line-up, LG’s Signature TV, and many other Korean products are consolidating a dominant position in the premium market.

When Hyundai Motors first entered the American market in 1986 with its Pony Excel, people thought of it as a ‘cheap car maker’. Now, the company has raised its market share and profile significantly thanks to its continuing ‘quality management’ strategy. Currently, their premium Genesis, Kia, and Hyundai brands occupy the 1^st, 2^nd, and 3^rd position in terms of quality, even before Porsche, according to J.D. Power. Furthermore, Samsung Electronics and Hyundai Motors now own production facilities across the world – with 80% of their total sales coming from international markets. Samsung Group is also actively pursuing global outsourcing of talented individuals to create a more diverse, competitive workforce in recognition of the owner’s awareness that “1% of the talent feeds ten thousand”.

With China and other less-developed countries on our tail, continuing regulatory reform based on public-private partnership is essential to staying competitive. It is important for the government and the business community to work together to reform legislation and institutions that were created in the past era of rapid growth, so that we can give future industries a strong push forward. With the new ‘untact’ economy propelled forward by COVID-19, businesses need to develop innovative Industry 4.0 technologies such as 5G, AI, Big Data, and the government should support these endeavors through regulatory reform.

By operating the Public-Private Joint Regulation Advancement Initiative (PPJRAI), directly housed under the Prime Minister’s Office, KCCI is not only striving to reform regulations but to support technology innovation of start-ups by cooperating with the government through a regulatory sandbox system. This grants waivers and exemptions from regulations that unreasonably hinder the market launch of innovative goods and services.

The ROK was an early proponent of globalization and over time it became a leader in negotiating free trade agreements (FTA), which the nation now has in effect with almost every region including ASEAN, the EU, and Latin America as well as the US, China, India, Australia, and Turkey. How important are these agreements and why has the ROK succeeded where others have failed? What have been the challenges of opening up the ROK economy which has traditionally been viewed as a relatively closed market? Further, given the rise of populism and retreat from globalization seen in recent years, and reliance on trade wars and tariffs as a remedial solution, compounded by a growing belief the US needs to start bringing production back home – a trend which is now accentuated with the coronavirus – how do you view the current trade environment and what do you see moving forward?

Free trade has made great contributions to economic growth and peacekeeping worldwide. Especially over the past 30 years, FTAs have significantly raised individual welfare and living standards. They have not been without side effects, such as the loss of jobs and inequality. Nonetheless, while these negative impacts need to be addressed, the benefits of free trade have been introduced and expanded thanks to the rapid adaptation capacity of the Korean people and businesses, as well as the bold initiatives taken by the government, including multiple, comprehensive FTAs and other mechanisms of bilateral and multilateral cooperation.

The biggest obstacle to opening up Korea, which had been a relatively closed and self-reliant country, has been to convince stakeholders with conflicting interests, especially in the agricultural sector, which is deemed vulnerable to international competition. Still, differences were overcome thanks to a sustained dialogue and efforts to address their concerns and to persuade these entities with national interests in mind and various support systems.

Structural changes that served to slow, and in some cases seek to reverse, global integration were put into motion long before the COVID-19 outbreak. This includes increasing protectionist tendencies, hegemonic rivalry reflected in US-China trade tensions, the crisis of the WTO-led multilateral trade system, transformation of the industrial environment caused by the Fourth Industrial Revolution, and digitalization of the world economy. Among these elements, the evolution of the global value chain and transition from trade in goods to trade in services are of primary importance.

COVID-19 will act as a trigger that accelerates such change and intact business and a stable global value chain will become increasingly valuable. Production reliance on specific countries such as China will diminish, which does not mean supply chain efficiency has become irrelevant. It is possible however to contemplate new supply chain options emerging, that take into account both efficiency and stability, based on country risk. Deglobalization will have the upper hand for a while, which will eventually lead to further digitalization of the global economy in an atmosphere of discord and uncertainty.

The ROK has been credited as having had one of the more effective responses to dealing with the Covid-19 Coronavirus. How is it affecting the ROK’s economy and the domestic and international activities of Korean firms? What is the current situation and what lessons can the US and other nations learn from the ROK’s experience?

The success factors that underly Korea’s COVID-19 response include government efforts, high civic awareness, and dedicated medical staff – who have all contributed to deliver positive results. I believe using the analysis from the MERS outbreak in 2015 to update our prevention system proved particularly useful. Every actor from the field to the control tower moved as one, sharing information in a speedy and transparent manner. This included collaborating among different departments, including the operation of screening centers. Korea’s outstanding health insurance system, which allows for minimal check-up and treatment costs, also played a critical role in containing the outbreak.

Korean test kits and our testing abilities made great contributions not only to the successful prevention of COVID-19 but also to the promotion of Korean medical technology. In April, the Korean healthcare industry exports increased 20% YoY, led by biopharmaceuticals, prevention goods, and test kits. The sales of pharmaceuticals and medical equipment increased by 640 mil. USD (23.4%) and 490 mil. USD (50.8%) respectively.

We also recently experimented with phone consultations and received very positive feedback, which convinced us to implement telemedicine in earnest. We started a little late in this area, but believe Korea will deliver outstanding products in this field based on our unique IT capabilities. K-Bio is also expected to be an important pillar of the Korean industry in the post-COVID era.

China’s emergence as the world’s second-largest economy and its desire to exert more global leadership and power is having profound economic and security implications – not only within Asia but around the world. How do you view the rise of China – both from a geopolitical and policy perspective, as well as in terms of technology, trade, and investment? How is it affecting the activities and plans of the ROK government and other countries in the region? Similarly, how is it affecting Korean firms and their supply chains? What opportunities and concerns do you see developing as a result?

It is true that as the factory of the world, China’s growth has contributed to global economic growth for the past ten years, based on a close-knit relationship with Asian nations. Increased exports to China was also crucial in Korea surmounting the 2008 economic crisis. As an important market and production plant, China will maintain its value in the eyes of Korean businesses and remain part of their business and supply chain base.

At the same time, the global supply chain of various countries took a considerable hit due to the recent surge of protectionism and there is a critical need to diversify to allow more options and less dependence on anyone center of production. As a result, changes in the global value chain and development of the digital economy will likely reduce dependence on China, leading to many new opportunities for additional supply and production destinations.

While the ROK has been a strong ally of the US, with close economic ties since the end of the Korean War, President Trump’s efforts to “Make America Great Again” has caused many changes in US foreign policy and a shift in its focus from multilateral to bilateral dialogue. How have these developments impacted the ROK and how are they changing their relationship with the US? Similarly, how do you view the US administration’s Indo-Pacific strategy as well as its current policy toward North Korea?

Currently, Korea and the US are trying to find a new equilibrium in their relationship with each other. There is still progress to be made regarding the special measures agreement negotiations covering cost-sharing of the US military presence in Korea, but I am confident the two countries will eventually come to an agreement.

In any case, the Korea-US alliance was the foundation of peace and security on the Korean peninsula for more than 60 years, and my firm belief is it will continue to remain so in the future. On May 7th, Secretary of State Pompeo asserted “the US-Korea alliance was the linchpin of peace in the Indo-Pacific region and the world”. The day before our Foreign Minister Kang Kyung-Wha also asserted the government’s intention to “continue collaborating closely with the US on various issues, including COVID-19, based on a strong Korea-US alliance”.

North Korea-US negotiations have been playing a leading role in improving inter-Korean relations, which is why we need to resume dialogue between North Korea and the US. Progress has been slow on the denuclearization front after the Hanoi summit ended without a deal. Nevertheless, the two leaders are still in communication, mainly by exchanging letters.

According to a statement by North Korean leader Kim Yo-jong on March 22, “President Trump sent a personal letter to lay out his plans for stimulating the North Korea-US relations”.

I also hope “COVID prevention cooperation” between the two Koreas among others will provide a new momentum for improving the relations between North Korea, South Korea, and the US. During his May 10th address on the 3^rd anniversary of his inauguration, President Moon also mentioned his “[hope] that South and North Korea will move toward a single community of life and a peace community by cooperating on human security”.

Korean firms – large and small – have been very effective in establishing operations around the world – in both emerging and frontier, as well as developed, economies. What can US companies learn from Korean firms in terms of competing internationally, in particular with developing countries, which despite their problems, will remain a primary source of global growth? Further, what are areas of potential cooperation between US and Korean firms? Should US companies view Korean companies as potential business partners or competitors? Additionally, what kinds of opportunities exist for US firms in Korea and what should they keep in mind as they evaluate and enter this market?

US firms should understand Korea’s success in emerging markets, was not just because their products were affordable, but also because they were customized and localized. You need to establish a presence and research the intricacies of these markets and not treat them as an afterthought. You also cannot talk about Korea’s success story without mentioning the construction boom in the Middle East. Korean businesses blew their clients away – not only with their competitive pricing but by significantly reducing the construction period. In other words, price-competitiveness and speed were the strength of Korean businesses.

Moving forward, I believe Korea and the US can collaborate on areas including building digital infrastructure around the world – with a particular emphasis on the developing economies that are likely to drive global growth moving forward. American platform businesses, Korean start-ups, and our capacity to work in these markets seem a winning combination. Not only to help these countries develop but to provide new high growth opportunities and increases in consumption that do not exist in our own more mature economies. The same could apply to infrastructure such as transportation and construction. This includes cooperation to expand business, trade, and investment into Central and South America, ASEAN countries, Africa, the Middle East, and other regions around the world.

When I was last in Seoul, I was asked to speak on the implications of the Fourth Industrial Revolution, a concept that is rarely discussed or addressed in the US, but gets a lot of attention in the ROK. What are your thoughts on the Fourth Industrial Revolution and how is the ROK and Korean firms preparing to meet the challenges of a rapidly changing business and economic environment?

Korea has achieved great success using a fast follower strategy for growth. Recently, however, the Korean economy has been showing less dynamism, as major industries have been declining while the transition to industries of the future has been slower than we would like.

The Fourth Industrial Revolution is a concept introduced by the World Economic Forum, which calls for a new stage of industrial development that combines the real with the technological world. This is leading to advances, breakthroughs, and convergence in fields such as robotics, artificial intelligence, nanotechnology, quantum computing, biotechnology, the internet of things, decentralized computing, 5G wireless technologies, 3D printing, and autonomous vehicles.

Some worry if we do not embrace the Fourth Industrial Revolution, and China catches up to us, it will only take a split second for Korea to lose its competitiveness. Whether this is the case, Korea’s evolution into a manufacturing powerhouse and shift toward swift informatization and adoption of ICT has prepared us for dramatic change. Building on such experience, the shift toward Industry 4.0 can help introduce a new momentum for innovative growth, provided that Korea is well prepared and we move to address this challenge.

With this in mind, Korea is concentrating its efforts to build an innovative ecosystem and industrial base, so that our strength in manufacturing and advanced ICT can lead to a successful transition that will position us to become a key player in the Fourth Industrial Revolution. Policies and institutions are currently being overhauled to utilize Big Data and foster AI, the core of the Fourth Industrial Revolution. An “AI national strategy” was announced on December 2019 to bridge the gap with leading countries in AI. In addition, the National Assembly passed “Three Data Bills” in January 2020. This will initiate the Big Data industry in earnest through the safeguard of de-identified personal information.

Great strides have also been made in terms of institutional reform. However Korean businesses need to cultivate their adaptive capabilities to allow maximum open innovation. This means moving away from closed down, internal R&D practices, and other practices of the past. While these helped us to develop in the past they now constrain us, and change is needed to allow ideas and technologies to move freely beyond company walls to foster innovation.

Thank you Taehee for your time and attention. I look forward to following up soon.

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Archives, Global Trade Daily, International Trade

COVID-19 Poised to Cause Severe Disruption to Indian Business Conditions

June 8th, 2020 Gordon Cessford Leave a comment

As in so many other countries in the world, turbulent skies lie ahead for India’s economy as a result of the widespread upheaval COVID-19 is leaving in its wake.

Analysts from trade credit insurer Atradius expect that the repercussions of the pandemic will be widespread in India, having dire consequences for trade and causing GDP to contract 3% and business insolvencies to increase more than 30% year-on-year in 2020. This negative outlook tracks with the scenario for the rest of the southeast Asian region, which overall is expected to see a 25% increase in insolvencies this year.

Trouble Brewing For India Ahead of COVID-19

The business environment in India ahead of the global crisis was already on the shaky side. Last year, India’s economy saw weak economic performance, growing only 5.3%, the lowest increase in more than six years. The government – led by Prime Minister Narendra Modi’s reform-minded Bharatiya Janata Party – was focused on solving some of these economic issues, including resolving the banking sector’s bad debt and liberalizing foreign investment restrictions in key sectors. However, it remains to be seen whether those steps will make any difference when the coming wave of business and trade problems hit.

Although the lockdowns imposed to stop the spread of the coronavirus have put an end to clashes for now, an economic downturn that plunges many Indians into poverty could renew and increase social tensions.

Indian Firms Face Significant Headwinds

The comprehensive lockdowns in India that began in late March have caused a drop in domestic demand and a sharp increase in unemployment. Investment and industrial production will likely contract, as well, leading to a 10% or more decline in exports this year. Lockdown measures have especially impacted the millions of daily wage earners and migrant workers employed in India’s informal sector.

Supply disruptions from China, where many manufacturing facilities stood idle for weeks, have caused issues for import-reliant industries, such as pharmaceuticals, consumer durables and electronic manufacturing. Although Chinese plants are largely up and running, supply chain problems could continue should a second spike in COVID-19 cases occur.

Finally, external demand for Indian products has plummeted as key export markets such as the U.S. and China are facing recessions. Although there is no clarity for how long recessions will linger, it is safe to say that export-dependent sectors are in for a tough ride.

All this means most of India’s key sectors are poised to see a deterioration of performance and rise in insolvencies. Specifically, the outlook is poor for India’s automotive and transport, construction and construction materials, consumer durables, electronics and ICT, machines, metals, paper, services, steel and textiles industries. As of this writing, the only major sector with a positive outlook is food.

SMEs, which do not have the financial resilience as larger firms, will likely bear the brunt of the insolvency growth. Even though the Indian government has put forth a sizable stimulus package worth USD 266 billion that includes tax breaks for SMEs and domestic manufacturing incentives, the fundamental weaknesses of the economy represents a severe limit on how much protection the government is ultimately able to provide. In comparison to India’s stimulus package, which Citi analysts peg at around 4% of GDP, Singapore, one of the most stable economies in the region, passed stimulus measures worth more than 10% of GDP.

A Rapid Rebound in India Not Likely

High corporate debt and the problems plaguing India’s financial sector pre-pandemic will likely get in the way of a quick rebound of the economy. In late 2018, the default of IL&FS, India’s large infrastructure financing and construction company, led to concerns about the financial standing of other non-bank lenders and straining corporate and consumer debt markets. In addition, India’s banks carry a high amount of bad debt – non-performing loans accounted for approximately 9% of bank lending last year.

At the same time, the rupee is seeing depreciation pressure and is at risk of volatility in coming months – a scenario caused in part by the withdrawal of global investments in emerging markets in Q1 as financial markets have become more risk averse since the beginning of the coronavirus outbreak. For Indian firms, this adds to already significant cashflow issues, especially those with high loans in foreign currencies.

The extent and duration of the economic impact of the COVID-19 pandemic remains uncertain, but Indian firms face a variety of significant headwinds. Many won’t survive. For businesses trading with Indian companies, it’s imperative that they closely monitor the financial health of trade partners and mitigate credit risk to protect cash flow.

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Gordon Cessford is the President and Regional Director of North America for Atradius Trade Credit Insurance, Inc.

Global Economic Uncertainty and Trade Relations: Insights from HSBC

An end to globalization?

Explaining Bystander Country Growth

Country Trade Growth Factors

Deep Trade Agreements

Accumulated Foreign Direct Investment

Supply chains interacted like dominoes

No Reshoring of U.S. Jobs

Conclusion

The U.S.-China trade war and Brexit have generated quantifiable uncertainty in the marketplace, but the impact of those events is being eclipsed by the uncertainty generated by the global pandemic.

Taking an Economic Pulse

Stress Testing

An “Echo” Report

Pile on the Social Anxiety

From 9/11 to SARS to El Niño: An Entire World of Uncertainty

When Flat-Lining is Good

Trade Versus COVID-19

Trouble Brewing For India Ahead of COVID-19

Indian Firms Face Significant Headwinds

A Rapid Rebound in India Not Likely

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