The whole world is wearing it and sitting on it.

Photo: Arthur Twomey

“The major products made from hides into leather products are shoes, auto upholstery and leather consumer goods such as coats, gloves, bags, etc.,” says Stephen Sothmann, director of international affairs for the U.S. Hide, Skin and Leather Association.

The world’s leather market is complex and largely overlooked in the trading world. But it is not insignificant. The total world inventory at any one time – mostly from cattle – is about 250 million hides. About half of all beef cattle (called bovine in the industry) hide production goes into making shoes.

While hide tanning goes back as far as 7000 BC, the United States has long been at the forefront of tanning hides. (The phrase ‘tanning’ comes from the Latin word tannum, meaning oak bark, which was among the first chemicals used to preserve hides.)

The first recorded U.S. tanneries started around 1791, although history says the first English leather worker to come to the New World was a shoemaker named Experience Miller, who arrived in Plymouth Colony in 1624. He found Native Americans used bark tanning to preserve cattle and other hides. A hide is defined as from an older animal, while a skin is from younger or smaller animal.

From a peak of about 2,000 tanneries in the 1800s, the number today in the United States has fallen to less than half of that, largely because of environmental concerns.

Yet the United States remains the largest exporter of hides that are processed into consumer products elsewhere, mostly Asia. According to the U.S. Hide Association, in 2010, export value for American hides and skins reached US$1.9 billion for hides and US$526 million for the processed wet-blue (wet-blue uses chromium as a preservative to semi-tan hides, leaving a bluish tinge) hides.

“It is all about consistency of the product,” says Chris Daniel, senior vice-president, beef margin management, Tyson Fresh Meats Inc.

Tyson exports about half the hides it produces – representing about 6% of the total value of a slaughtered cow. The company does not disclose hide sales, but Tyson processed about 141,000 head of cattle last year and has tanneries in Amarillo, Texas, Dakota City, Neb., Finney County, Kansas, and Joslin, Illinois.

American hides command premium prices in hungry global export markets such as China and South Korea because of their quality and also because the hides are larger compared with those of other beef-producing countries. One American hide averages about 65 pounds.

“The most expensive come from heavy steers and don’t have any brands or insect markings on them and are known as ‘heavy natives’,” said Sothmann. “In the last several months these hides have sold in the $70-per-hide range, and were even up into $80 in mid-2011.”

Seven countries consume about 97% of all bovine hide exports: China/Hong Kong, South Korea, Taiwan, Mexico, Italy, Thailand and Vietnam. Last year alone, China accounted for 48% of all American hide exports. The Vietnam market jumped 161% last year, although the volume is still relatively low at roughly $107 million. One reason for the increase in Asia is that more tanning and processing is being moved offshore from the United States to the region.

The continued but quiet success of the U.S. hide export industry comes as a drought in the Texas cattle region has forced ranchers to decrease the number of cattle they support, leading to higher retail meat prices across the country.

As well, soaring hay and feed prices are also to blame for the country’s lowest cattle herd size in more than half a century. The U.S. National Agricultural Statistics Service said there are 90.8 million head of cattle and calves in the United States, 2% fewer than in 2010. It’s the lowest inventory since 1952, when the nation had 88.1 million head of cattle.

“U.S. hides are more expensive due to size, cost of production and quality,” said Sothmann, noting that Tyson, Cargill, National Beef Packing Company and JBS USA represent more than 65% of hides produced in the United States.

Photo: Andersen Ross

That is one of the central findings of a team of scholars from London School of Economics and Harvard Business School, who have burrowed into the day-to-day schedules of more than 500 CEOs from around the world with hopes of determining exactly how they organize their time—and how that affects the performance and management of their firms.

Their study—known as the Executive Time Use Project—incorporates time logs kept by CEOs’ personal assistants, who tracked activities lasting more than 15 minutes during a single week selected by the researchers. The project, which is ongoing, so far has collected data from three different studies of CEOs from around the world.

In one sample of 65 CEOs, executives spent roughly 18 hours of a 55-hour workweek in meetings, more than three hours on calls and five hours in business meals, on average. Some of the remaining time was spent traveling, in personal activity, such as exercise or lunches with spouses, or in short activities, such as quick calls, that weren’t recorded by CEOs’ assistants. Working alone averaged just six hours weekly.

The more direct reports a CEO had correlated with more, and longer, internal meetings, the researchers found. Rather than foisting off responsibilities to other managers, CEOs with more direct reports may be more hands-on and involved in internal operations, they said.

But not all direct reports are equal. In companies that incorporated a finance chief or operating chief into the corporate hierarchy, the CEOs’ time in meetings was reduced by about five-and-a-half hours a week, on average, the researchers found.

Even if a CEO has a lot of direct reports, “the effect of the CFO or COO is stronger,” and may help reduce a CEO’s time spent in internal meetings, says Harvard Business School’s Raffaella Sadun, a co-author of the project. The other researchers were Oriana Bandiera and Andrea Prat, of the London School of Economics and Julie Wulf of Harvard Business School. Their preliminary findings were just published in a Harvard Business School paper.

The researchers said they weren’t surprised by the amount of time spent in meetings, since one of the roles of a CEO is to manage employees and meet with customers and consultants.

A busy meeting schedule—often conducted virtually in global companies—can indicate that executives are engaged with their companies and close to their managers and clients. Still, CEOs say they pine for more solo time to think and strategize.

Rory Cowan, CEO of Lionbridge Technologies Inc., a Waltham, Mass., technology-services firm with about 4,500 employees, says he is constantly communicating with staff and clients. “I don’t know when I’m not in a meeting,” he says.

Instead of spending a lot of time in long face-to-face meetings, however, Mr. Cowan spends more time “doing frequent iterative touches,” either in person or via text messages, instant messaging and video chat—sometimes with “four or five windows open concurrently.”

As a result, his meetings rarely last more than 15 minutes, he says.

Lars Dalgaard, CEO of SuccessFactors Inc., a human resources software firm, says he spends about a third of his work time, at most, in formal meetings.

“While you are sitting in a meeting, your competition is getting stuff done,” he says. (Software firm SAP AG recently announced that it was acquiring SuccessFactors.)

NV “Tiger” Tyagarajan, president and CEO of Genpact Ltd., a technology-management firm, recently analyzed his time use to make sure he was spending enough time meeting with clients. He determined he was. But he does wish for more time to “sit back and think,” he says, or simply to bounce around ideas “without a fixed meeting or a fixed agenda.”

Mr. Dalgaard says he tries to dedicate as much as 25% of his week to thinking by making time on flights or blocking out time on his schedule—occasionally retreating to a quiet room or driving on the highway to let ideas crystallize.

Likewise, Mr. Cowan says that he tries to “build a big fence” around his first work hour in the morning at 7 a.m. to clear his thoughts, catch up on reading and manage email.

In contrast, Jon Oringer, CEO of New York based stock-photo provider Shutterstock Images LLC, doesn’t seem to lack “alone time.” He is rarely on the phone and averages about three meetings a day mostly lasting about 30 minutes, with some going up to 90 minutes.

The rest of the time he is usually scoping out his competition on blogs like TechCrunch, monitoring Web traffic and Twitter feeds and working on his own pet projects.

He is in the office from about 9:30 a.m. to 4 p.m., but says he works a lot from home, even during weekends.

“It doesn’t feel like I work when I’m working,” Mr. Oringer said. “It’s my thing.”

Executives’ assessment of how they spent their time differed from the actual records, as noted by their calendars and personal assistants, researchers found.

When top executives compare their top priorities to their time use, “they are usually surprised about the mismatch,” says Robert Steven Kaplan, a professor of management practice at Harvard Business School.

He recommends executives substitute the word ‘money’ for ‘time’ when deciding how to schedule their week. “With money… you’d be more careful and judicious about it. If someone asked you for some, you’d be more likely to say no,” says Mr. Kaplan.

The researchers’ global study involved both private and public companies from many countries; they didn’t determine whether executive time use correlated with a firm’s performance.

In another sample of 94 Italian CEOs, the researchers found that the way an executive budgets his or her time strongly correlated with a firm’s profitability and productivity, measured as revenue per employee.

In the Italian sample, the key to a company’s performance was with whom CEOs met. Meeting with external figures didn’t help a firm’s productivity, they found. Better performance came from more internal meetings, they found.

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We follow up our World in 2050 report by arguing that the rise of emerging markets will impose new strains on energy supply. We conclude the world can grow and without excessive environmental damage – but it will need a change in human behaviour and massive collective government foresight.

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The Robi isn’t riding the latest luxury trend. Rather, its appeal is its economical price. Starting from $250,000 for a two-seat piston-powered version, Robinson’s helicopters are in a price category of their own — one that brings helicopter travel down to the middle-class business or individual, not just the elite.  By comparison, a lightweight turbine-powered helicopter costs around $1.4-$1.5 million.

Indeed, by making affordable helicopters, Robinson has become one of the world’s leading civil helicopter companies and created a whole new category of helicopter customer – the cattle farmers, mining companies, tourism outfits, engineering firms and other mid-sized businesses who lose productivity to poor or congested roads, or difficult terrain.

“We’ve always followed the Henry Ford concept – if you lower the price, you will sell more aircraft,” said president Kurt Robinson.

Much as Henry Ford envisioned a car in every driveway, Frank Robinson, founder of the company, and Kurt’s father, envisioned a helicopter for the average man. A mechanical engineer who was fascinated by aircraft, Frank worked for Cessna, Bell Helicopters and Hughes Helicopters in the 1950s and 1960s.

“He proposed to them the idea of making a small personal helicopter that any man could own. They told him they couldn’t do it because it wouldn’t be affordable given their cost structure. That was the light bulb for my father. He realized the only way to do that was to break out on his own. And so he did,” said Kurt in an interview at the company’s large plant in southern California.

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Working out of the family garage in the early 1970s, Frank designed the R22, a piston-powered two-seater “personal” helicopter that was such a game-changer, a version of it hangs at the Smithsonian in Washington.

An article in an aviation magazine on the new helicopter would generate Robinson’s first international sale, in 1976, to a cattleman from Australia. “The guy flew up here on his own dime, visited my father and put down a deposit on the R22 — before it was even certified,” Kurt recalled.

From there, Robinson Helicopters took off. The company soon expanded its line to the R-44, a four-seat version, which is priced in the $400,000 range, and in October, 2010, came out with the R66 turbine-powered five-seat version, which sells in the $800,000 range.

It also expanded its foreign markets. Robinson is now in 60 countries, from Australia, to Canada, throughout Russia, the Middle East, Asia and Latin America. In fact, the privately-held company consistently sells more helicopters outside the country than it does in the United States. Kurt Robinson estimates that split can range anywhere from 60-40 to as high as 80% of annual sales outside the country.

One market he hopes will open up more is China. “Actually, China is very restricted about where you can fly. You have to get permission if you want to fly from one airport to another. It is not like it is in the U.S., where you just jump in the helicopter and go fly somewhere.”

Although located not far from the family garage in Torrance where it all began, Robinson Helicopters has soared quite a distance. Today, there are 1,100 designers, engineers, designers, assembly workers and flight instructors employed at the plant. More than 3,000 parts go into a helicopter and all are made here – everything except the engines and adds-ons such as GPS systems.

The Robi’s reputation has soared as well. In 1997, Jennifer Murray became the first woman to circumnavigate the world in a helicopter – in an R44. That helicopter now also hangs at the Smithsonian.

Frank Robinson retired in 2010, passing the reins to Kurt, who is keeping the firm close to its roots. “We are very much a design-engineering firm,” he said. There are several projects on the boards – a float version of the R66, as well as police and newscopter versions.

“We’ve got a lot of different ideas that will keep us going,” he said.

Photo: PhotoAlto/Frederic Cirou

Corporate or business travel is one of the largest discretionary expenditures within a company. In many cases it may be second only behind salaries. But can a company still think of business travel as discretionary?

Business travel is considered to be an essential tool of commerce in both large and small companies. In fact, small companies seem to have a greater reliance on business travel as they often lack the visibility of large companies.

Moreover, small companies have to compete with large companies in order to acquire new customers. And, in order to do that, they often have to invest substantially in business travel for the sort of face-to-face meetings that prove they are up for the job. It is estimated that in large firms business travel costs make up 3% to 5% of sales. In smaller companies this tends to be much higher.

A recent study conducted by an economic forecasting agency found that there is a definite link between business travel and corporate profitability. Every dollar spent on travel by a U.S. company can generate an average of $12.50 in revenue and $3.80 in profit.

While the ongoing economic downturn has made companies across the board consider cutting back or drastically reducing “discretionary” business travel budgets, the study is evidence this is a “penny wise and dollar foolish” approach. The bottom-line benefits that accrue from business travel are clearly achievable. Over the next five years certain industries such as real estate, utilities, rubber and plastic manufacturing and food services, are projecting a total of $129 billion in travel spending.

So, what can a company do to optimize the return on investment in travel and spend smarter? Travel is highly variable but the good news is, it is controllable. The best way to manage it is through compliance and setting firm rules for employees

By controlling and working with business travelers in regards to how a trip is to be booked, and where or with whom to book the trip, a company can realize the growth that only ‘getting on the ground’ can stimulate.

Tom Ciccone is the director of corporate sales and service for Fare Buzz

Canadian Prime Minister Stephen Harper (L) is
greeted by Chinese President Hu Jintao before
their meeting on February 9, 2012 in Beijing, China
Photo: Getty Images

While on an official visit to China this week, Prime Minister Stephen Harper and Chinese Premier Wen Jiabao negotiated a ream of trade agreements. These included everything from sharing pandas to selling Saskatoon’s uranium yellowcake to China for its nuclear energy program. As well, Canada and China signed a foreign investment and protection agreement designed to protect investments in each other’s country.

Although Canadian officials deny these are the first steps toward an all-out free trade agreement with China, the prospects are enough to send a loud message to the United States: They can do their own deals, thank-you very much.

Although two-way trade between Canada and the United States is still the world’s largest – roughly about $1 million a minute – China is becoming one of Canada’s emerging trading partners. Two-way trade is about C$58 billion a year, with C$45 million coming from China and C$13 billion leaving Canada for China, mostly in agricultural products.

While reluctant to say so, the U.S. administration is becoming increasingly nervous about the growing strength of China, and its new ties to countries like Canada. In sum, America fears it is being bypassed and losing the trade and economic clout it once had — something it was trying to re-establish through the Trans-Pacific Partnership (TPP).

With the collapse of the Doha Round global trade talks among 153 countries in the World Trade Organization, many countries have been actively pursing bilateral or regional trade pacts. The latest, and one of the largest, is the Trans-Pacific Partnership (TPP) among nine Asian and South American countries, including the United States. Other countries in TPP include Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam.

Canada, Japan and Mexico have asked to join. But Canada is reluctant to negotiate the so-called “entrance fee” the U.S. and other countries are demanding. Mostly, that involves Canada opening up its supply management system for dairy and poultry to direct import competition.

Both the U.S. and New Zealand, a major dairy producer, are demanding that Canada, as well as Japan, offer up its protected agricultural industries to foreign competition (Japan offers protection for its rice producers).

Back in Beijing, Canadian Trade Minister Ed Fast commented on the deals with China: “Our end game is to deepen our trade relationship in one of our key priority markets.”

But according to one Canadian trade official, the real driver for Canada is a worry that the U.S. will try to “keep us out of the [Trans-Pacific Partnership].”

Canada is also looking for alternatives for its vast oil sands reserves after the refusal by President Barack Obama to approve the 1,600-mile Keystone XL pipeline between Alberta and refineries in the U.S. Gulf Coast. The pipeline, which would run through Montana, South Dakota and Nebraska, would cost about $13 billion.

In the meantime, Canada is moving ahead with another pipeline from Alberta’s oil sands to its West Coast. Called the Northern Gateway pipeline, it would move about 525,000 barrels a day to Kitimat, British Columbia, to be shipped onto major Asian markets such as China.

“China needs our resources,” said a Canadian trade official, noting that China has already made capital investments in Alberta’s oil sands.

Besides stepping up trade relations with China, Canada is also making nice with TPP members Singapore, Brunei and Malaysia. Those countries are the next stops for Trade Minister Ed Fast on his swing through Asia.

“We are on the sharp edge of a strategic sword,” said one Canadian trade official.

McCain found a way to help the Indian farming
community | Photo: Andrea Pistolesi

Reputation-building is even more vital for a foreign firm in an unfamiliar country. It is not enough to find a local partner to navigate the bureaucracy, or adapt products to the local consumer. To position themselves for long-term success, firms must also build recognition and gain consumer loyalty. Corporate social responsibility—from implementing social programs to creating an environmentally sustainable business—can help.

Of course, small and medium-sized firms are often strapped for the resources necessary to implement substantial CSR initiatives. The challenge of doing so may seem even bigger in emerging markets. Endemic problems in India—where, despite strong economic growth, poverty rates are still around 50%—can make a firm’s efforts to help improve socioeconomic issues seem like trying to empty a well with a teaspoon.

Building a community

According to Manoj Chakravarti, previously vice president of corporate affairs and general manager of CSR at Titan Industries, the first thing smaller firms need to clarify is whether CSR is primarily a PR exercise or an integral part of a sustainable business strategy.

McCain Foods, a Canadian food manufacturer, has found that some well-chosen, small-scale strategies can produce big results. The rural area of Gujarat, which provides a favorable climate for processing potatoes, is a key state for the company’s success in India. McCain recognized that the long-term support of the local community would be invaluable. Thus, when building its potato-processing plant in the area, the company instituted preferential hiring policies for local workers in order to increase incomes and improve quality of life in the area. It also donates to local causes such as schools and matches any contribution an employee makes to community-building projects. The company also provides English courses, and safety and hygiene training for employees, knowledge that workers can pass on to their community.

According to Jaideep Mukherji, global director of emerging markets at McCain, these efforts have formed “a protective ring” around the company, since the local community has a strong stake in ensuring that the company does well. It also helps McCain attract and retain talented employees.

McCain is not the only company that recognizes the benefits of CSR. In a 2011 global survey by Grant Thornton, a consultancy firm, executives in India were among the top five countries surveyed that cited the “recruitment and retention of staff” as an important driver for CSR practices (67% for respondents did so in India, compared to 50% of respondents in the U.S.).

Giving locals a stake in your success

A bank of goodwill gained through diligent CSR efforts can also protect a company when a problem strikes. In India, for example, land tracts are usually owned by a patchwork of different owners. So when building a factory or a road, meeting the needs of local community members and government counterparts is crucial to securing the go-ahead. When Coca-Cola entered India, it faced angry consumer boycotts after it over-used water sources in several states and was accused of “drinking India dry”. Later, the company faced further heat after a BBC study found a Coca-Cola plant was providing local farmers fertilizers with toxins.

McCain, on the other hand, found a way to help the community. The company realized that local farmers needed to reduce the amount of water, fertilizer and electricity used for production of crops. Farmers in the region used twice the amount of fertilizers generally used by McCain-employed farmers. So, during the potato-growing season, McCain set up a demonstration field and invited local farmers to watch and learn about micro-irrigation (drip and sprinkler) techniques, which use much less water and require less fertilizer than flood irrigation, but that also increase yields. “After seeing the results, pick-up among local farmers was almost magical,” says Mr. Mukherji. By 2011, with some subsidies from the local government, all farmers in the region had switched to micro-irrigation techniques for potatoes and other crops. Mr. Mukherji estimates that farmers’ profits per plot doubled as a result of the initiative.

Rewarding efforts

Mr. Mukherji suggests that the business case for CSR can be trickier to make when financial returns are less clear-cut. For example, companies choosing a fuel source between natural gas (which is more expensive in India) and coal (which is cheaper, but also produces more soot and greenhouse gases) may worry whether end-consumers are willing to pay for the cost difference. If they are not, a company that has to absorb a high cost difference may not be convinced that CSR makes good business sense.

But many companies recognize that the brand-building dimension of CSR can bring financial returns in the long run. Studies seem to indicate that CSR does carry some weight with consumers in developing countries. A 2010 Edelman study found that consumers in Brazil, China, India and Mexico are more likely to purchase products from companies that promote good causes—more so than consumers in North America and Western Europe. Mr. Chakravarti argues that a company’s CSR initiatives can be the deciding factor for consumers, especially when other factors are similar.

Foreign companies looking to engage in CSR in India may take inspiration from the fact that many of India’s most successful home-grown companies, including Tata, Infosys and Vipro, are those that have integrated CSR into their core business model. For example, two-thirds of equity of Tata Sons is held by philanthropic trusts involved in community initiatives such as hospitals, schools and research. In the end, the effort can bring plenty of rewards. For businesses that take the time and effort to act as a steward of their communities, the community may prove an eager advocate for them.

Well over a half a century later, the greenback continues to reign supreme, despite periodic predictions of the currency’s demise as the leading transaction currency in foreign exchange markets and the dominant invoicing currency in international trade.

Most recently, worries about the economic and fiscal health of the United States in the wake of the 2008 financial crisis have prompted cries for another currency to replace the dollar.

But — just as was true at the end of the Second World War — the currency continues to dominate for one simple reason: an absence of alternatives.

“The dollar’s role as a reserve currency is safe as far as the eye can see,” said Marc Chandler, global head of currency strategy at the bank Brown Brothers Harriman and author of “Making Sense of the Dollar: Exposing Dangerous Myths about Trade and Foreign Exchange.”

“People would like an alternative, but there ain’t one,” Chandler said.

Some economists predict, however, that the dollar’s dominance will erode over the next decade and that several currencies — the euro and China’s renminbi most likely among them — will emerge as strong rivals.

“It used to be believed that there was room for only one true global currency and that the incumbent has the advantage,” said Barry Eichengreen, a professor of economics and political science at the University of California, Berkeley. “The logic for that is what economists call network externalities – that it pays to use the same [currency] that everybody else uses.”

Eichengreen said it’s the same argument people once used to explain the near monopoly of Microsoft Corp.’s Windows operating system before competitors such as Linux and Apple Inc. showed files could be shared on different systems.

“We don’t need to use dollars just because everybody else uses them,” said Eichengreen, author of “Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System.” “I don’t think it will be a winner-takes-all world where there’s one dominant global currency. There’s no reason why people in the western hemisphere wouldn’t use dollars and people in China use their currency.”

A buyer walking through a factory in China purchasing neckties for J. Crew, for instance, won’t care whether the price is quoted in renminbi or dollars because punching the numbers into a smartphone could quickly provide the currency comparison.

In a sign of the looming shift, China and Japan announced a plan at the end of 2011 to begin direct trading of their currencies – avoiding the longtime step of converting to U.S. dollars first. As part of the deal — a bid to cut costs and boost trade — Japan will hold renminbi in its foreign-exchange reserves.

“The pact is a baby step in the direction of the internationalization of the renminbi,” said Charles Kupchan, a professor of international affairs at Georgetown University. “It suggests the Chinese, with the willingness of Japan, are beginning a conversation that would ease the dollar out from its current pride of place in Sino-Japanese trade.”

As the economic might of emerging countries such as China and India grow, and the U.S. fades as a economic superpower, the debate over the end of the U.S. dollar’s status as the primary reserve currency is a question of when, not if, some observers say.

“At some point in the second half of the next decade, the Chinese economy will be bigger than America’s and by around 2030, the collective GDP of the main emerging powers will equal the collective GDP of today’s leading western nations,” Kupchan predicted. “There’s going to be an inevitable diffusion of wealth and power that will mean that the dollar gradually loses its monopoly as a reserve currency.”

The renminbi has a long way to go before it can serve as a widely held reserve currency and Beijing is by no means ready to start letting its value be determined by market forces. China also lacks the necessary deep, open and liquid financial markets long possessed by the United States.

Similarly, the euro — after falling out of favor amid worries about European leaders’ abilities to solve the region’s sovereign debt crisis — also must restore the market’s confidence to win back its appeal.

Central bankers around the world lightened up on their exposure to the dollar amid worries about the U.S. government’s ability to manage its finances and rein in a more than US$1 trillion deficit.

But the most recent data from the International Monetary Fund show the U.S. dollar gained back some lost ground and accounted for 61.7% of total allocated reserves at the end of the third quarter, a 2% increase from the previous quarter and a 7.5% jump from the same quarter a year ago.

Euro-denominated holdings, slipping nearly 1% from a year ago, accounted for about 25.7% of reserves.

“A huge and liquid market is what the dollar has going for it,” said Catherine Schenk, professor of international economic history at University of Glasgow. “Its value may fluctuate, but investors know they can get in and out of it very quickly. There’s no other international market that can rival it.”

With Europe’s troubles and the widespread changes that must come before China’s currency is freely convertible, “by default, the dollar looks like it has a bit more longevity,” she said. “On the other hand, if the U.S. debt [issue persists] and the economy doesn’t bounce back, the outcome will be more diversification because central banks will try to reduce their dollar holdings.”

The gradual shift away from U.S. dollar reserves over the coming decades will likely mean a lower standard of living for Americans. It will no longer be so easy, for instance, to import BMWs and other goods by exporting green pieces of paper.

On the other hand, a basket of reserve currencies – most likely dominated by the dollar, the euro and the renminbi – may help thwart future bubbles in the United States and elsewhere because central bankers will have options for their reserves.

Economists and other prognosticators say it is hard to predict what the mix might look like in a decade and beyond.

For now, Somali pirates are happy to have their ransom payments in U.S. dollars – a sign of the currency’s dominance.

“If there are Somali pirates 10 years from now, they may ask for euros or, who knows, they may even ask for Chinese currency,” said Eichengreen.

Yum! Brands Chairman and CEO, David C. Novak

Think about it: If a guy builds three world-class brands—KFC, Pizza Hut and Taco Bell—and then amasses more fast-food outlets than any one else on earth—about 36,000—wouldn’t you want a personally autographed rubber chicken from him? That’s just one of the ways Novak has rewarded his best troops during a remarkable 12-year reign.

It is with real chickens, of course, that he has made his true mark—and, increasingly, with chicken dinner for China. Operating from Louisville, Ky., headquarters that resemble a rambling, southern colonial-style mansion, Novak has managed to turn millions upon millions of Chinese into ardent, practically ferocious fans of Kentucky-style finger-lickin’ good chicken.

“Our business is people-capability first, then you satisfy customers, then you make money.”

In fact, KFC is now by far the largest fast-food chain in China—a ringing testament to the power of aspirational marketing.

“Not everybody in China can come to the United States; it’s a very expensive thing to do,” Novak says. “But you can experience what is a part of the U.S. The power of the brand is immense.”

Pizza Hut has also been a big hit in the Middle Kingdom. The chain, which serves not just pizza but also appetizers, wings and pasta, is China’s No. 1 casual-dining operation. In all, Yum! garnered an estimated 45% of its $12.5 billion in revenue from China last year and 42% of its operating profit.

Novak was early to China, then pushed hard. The company is now the largest U.S. retail developer in that country, with more than 3,500 KFC stores, including 600 added last year, and another 560 Pizza Huts. It’s essentially one big bet on demographics—and as Novak sees it, the odds are only getting better.

“When I first went to China in 1997, you would see the parents in line, and they would buy food for their kids. But they couldn’t afford to necessarily buy anything for themselves,” he recalls. That’s no longer the case: “The consuming class is growing so rapidly. People say it’s about 300 million people now, and in eight years, it will be 600 million.”

Novak, 59 years old, is more than a strategist. He’s also a rather good humorist. Once the chicken gag wore thin, as it inevitably would, he switched to chattering teeth on legs; the idea was to recognize promising managers who walked the talk of leadership.

Behind the laughter are some very serious principles. “People leave when they don’t feel appreciated,” Novak says. “That’s why we’ve made recognition a really high value. Our business is people-capability first; then you satisfy customers; then you make money.”

As a result of that view, the walls and ceiling of his office are festooned with hundreds of photographs of Novak with cooks, restaurant managers and other employees around the world who have done meritorious work. Anyone applying for a management job at Yum! would do well to study those walls.

“If you can’t go and put your arm around a cook and make that person feel good, don’t come to work here,” Novak will say.

Novak is a thoroughly self-taught practitioner of the managerial arts. “As silly as it may seem, for years when conversation turned to the subject of where people had earned their MBAs, I’d excuse myself and go to the bathroom so I wouldn’t have to answer the questions,” he writes in an instructive and engaging new book, Taking People With You, published earlier this month by Portfolio/Penguin.

Novak does appear to have learned a thing or two. In fact, based on one of the endorsements on the book’s cover, he could be the dean of the business schools at Harvard, Wharton and Stanford combined. “David Novak,” blurbs Warren Buffett, “is the best at leadership, whether teaching it in this book or practicing it.”

In other words, Novak is a thoroughly worthy successor to “Colonel” Harland Sanders, known to most folks simply as Colonel Sanders, the southern gentleman who founded the company in 1952 and whose likeness still appears on KFC signs everywhere.

The original colonel—who won his title not from battle, but from the state of Kentucky as a business honor—ran the company as Kentucky Fried Chicken. Eventually, in 1964, he sold it to a group headed by future Kentucky governor John Y. Brown. After changing hands twice more, KFC, which then had 4,720 stores in the U.S. and another 1,855 in dozens of countries overseas, was acquired by PepsiCo in 1986.

Perhaps the most remarkable part of all is how David Novak got his foot in the door and over time rose to the top, becoming chief executive of the resulting Yum! Brands and eventually carrying the mantle of the U.S. to China.

The son of a surveyor for the U.S. Coast and Geodetic Survey, he lived in 23 states before he finished seventh grade, moving from one trailer park to the next every three to four months. “We always looked at it like an adventure,” he says, his southern accent tinged with inflections from Texas and the northern plains. “On every move, we tried to get up and get going early so we could always get the best possible spot in the next trailer park,” he says.

The traveler eventually packed himself off to the University of Missouri. He collected a degree in journalism, went to work in advertising and eventually jumped to one of his clients, PepsiCo—or more precisely, PepsiCo’s Pizza Hut chain.

As he left advertising behind, he breathed a great sigh of relief. To be beholden to clients wasn’t his slice of pie. “I wanted to be accountable,” he says. “I wanted to make the decisions.”

He began to do just that, duking it out with such rivals as Godfather’s Pizza, then run by erstwhile presidential candidate Herman Cain, Little Caesars and even McDonald’s (MCD), which made a foray into pizza in 1989. Novak, ever the jester, snapped back at McDonald’s with ads warning customers they’d be making a “McStake” if they ate “McFrozen” pizzas.

In his four years at Pizza Hut, Novak helped double sales and profits, earning a nice promotion for himself: He took over sales and marketing of Pepsi’s flagship brand, Pepsi-Cola.

Worried about being pigeonholed a marketing guy, Novak paid a visit to PepsicCo’s then-CEO, Wayne Calloway, and asked for an operations job. “I said, ‘If I don’t do a good job, you can fire me, put me back in marketing, do whatever you want to do, but give me a shot at this.’ “

In 1992, he was named chief operating officer of Pepsi-Cola North America. “PepsiCo was a company that had a reputation for taking risks on people and putting people in big jobs early in their career,” he says.

The next stop: the presidency of KFC, and he took to it like a hungry man to a bucket of chicken. In fact, he says, he liked it so much that he said “no” when PepsiCo offered to put him charge of the Frito-Lay snack unit, which was then twice as large as KFC.

“I said no because I love the restaurant business,” he explains. Fortuitously, he adds, his decision to stick with KFC left him in a great spot for Pepsi’s 1997 spinoff of KFC, Pizza Hut and Taco Bell into a separate company called Tricon Global Restaurants. “I didn’t know at the time that they were thinking about the spinoff,” he says.

Nice break—for both Novak and investors. He took over as CEO of the new company in 2000 and the stock took off. Since the spinoff, Yum! shares have delivered a total return of more than 800%. The stock of his former parent, PepsiCo, is up 122% by comparison, and the Standard & Poor’s 500 index is up 75%.

Novak, it must be said, still has a long way to go to catch up with one particular rival. Although he tops McDonald’s in number of outlets, the guys with the Golden Arches do twice as much dollar volume. But if Novak has anything to do with it, that gap could start narrowing. He continues to search the world for growth opportunities, and he has plenty in his sights.

It starts with China, which is growing at a nearly 30% annual clip. Novak also is looking for serious sales in India—$1 billion in 2015, up from an estimated $230 million last year. He is also ramping up in Africa, Russia and Thailand. In all, Yum! has nearly 19,000 restaurants outside the U.S., including more than 10,000 in emerging markets.

The only real problem is at home, in the brutally competitive U.S. markets for fast food and casual dining. There are scads of rivals, and the punk economy of the past few years hasn’t helped one bit. Taco Bell, which accounts for some 70% of operating profits here, clocked a 2% drop in same-store sales for the third quarter. KFC and Pizza Hut were each down 3%.

Novak and his team are making some smart moves in response. Yum! is selling more and more of its U.S. stores to franchisees, earning a lump sum up front and then steady royalties.

For instance, the portion of franchised KFC stores in the U.S. is climbing to 95% from 87%. Though stable, this kind of business isn’t as profitable as running your own store in a high-return market, but Novak is simultaneously raising the portion of overseas outlets that the company owns rather than franchises. The upshot: Some 70% of all Yum!’s company-owned stores are likely to be in emerging markets by 2014, up from 53% now.

In addition to the ravages of the market, Taco Bell took a public-relations hit from a 2011 lawsuit by a California resident claiming its beef didn’t meet industry standards because of too many additives, but the suit was eventually withdrawn. Novak seems confident 2012 will be a recovery year for Taco Bell, thanks in part to new offerings like tacos with nacho-cheese shells.

Pizza Hut, for its part, is facing stiff competition from delivery-only operators like Papa John’s and Domino’s, but Novak sees room to expand in smaller towns across the country.

KFC is redoubling efforts to ensure that customers get the quality and service they expect. And Novak is unloading Yum’s Long John Silver’s fish chain and A&W All-American Restaurants to plow more money into emerging markets.

Investors needn’t fret that Novak will be gallivanting around China while the U.S. drifts. On his visits to China he stays just long enough to say the only three things he can say in Chinese: Hello. Thank you. Build more.

China has the technical and engineering talent,
but needs to build the leadership talent
Photo: Peter Cade

Breakneck economic growth has far outstripped the supply of management talent. Meanwhile, Chinese companies in both the private and state sectors are responding to government incentives to “Go Out” and compete against the best companies in the world—while juggling fierce competition, rapidly changing technology and shifting macro-economic forces at home.

No wonder some of the world’s most prominent business schools are eyeing China as the next educational frontier.

China Europe International Business School got to China early. That gives it a head start in terms of faculty and facilities. Its new pitch: “China Depth Global Breadth,” marrying insight into how China works with an international perspective that attracts students from China and around the world.

Dean John A. Quelch, a veteran of the Harvard Business School and London Business School, insists that despite economic turmoil in Europe, the CEIBS brand in China remains untarnished. “Germany is held in very high regard,” he insists. Besides, he adds: “People in China take the long view.”

Mr. Quelch talked with Andrew Browne in Shanghai. The following interview has been edited.

WSJ: Like everybody else in China, CEIBS seems to be investing massively in infrastructure. Tell us something about your expansion plans.

Mr. Quelch: The Shanghai campus will double in size by the end of 2013. We also have a campus that we opened in Beijing in 2010 and we currently have operations in Shenzhen that may convert into a fully fledged campus within the next two to three years.

We also have an appetite for going west, and looking at that hundred million people in the Chengdu-Xian-Chongqing triangle, who will eventually want their own business school and will not necessarily want—or be able—to fly to Beijing or Shanghai.

The reason why Stanford exists is because Harvard always thought that Californians would be happy to come east to Boston, and never imagined they’d want their own Harvard, a.k.a. Stanford.

WSJ: The No. 1 complaint of foreign companies in China is lack of management talent. Isn’t that a huge opportunity for you?

Mr. Quelch: First of all, China’s pace of expansion has outrun the speed with which managers can experientially develop themselves, and so our role is to be an accelerant. We take experienced or high-potential young managers, and we accelerate the speed with which they can assume more management and leadership responsibilities.

Second, because we cannot serve everybody—obviously—the admissions criteria that we apply and the rectitude of our admissions policies is extremely important to our overall economic impact.

WSJ: What’s the mix of students between college graduates and mid-career managers?

Mr. Quelch: We focus on more senior executives even compared with a Harvard Business School. We graduate 1,000 people a year, roughly, 800 of them are executive MBAs; average age 40. The other 200 are MBAs; average age 30.

You have to have an extremely strong teaching faculty—very practical, very experienced—to be able to command the sustained attention and respect of 40-year-old business people.

We are the No.1 revenue-generating business school in executive education in Asia built around our unique ability to deliver both “China Depth and Global Breadth.”

WSJ: How do the changes in the CEIBS syllabus over the years reflect the shifting dynamics of the Chinese economy?

Mr. Quelch: Initially the focus was on functional competency [in] finance, accounting and marketing etc. Now the emphasis is on integrated general management and problem-solving across functional silos. Teamwork and leadership in fast-growth markets are stressed in our curriculum.

WSJ: Lack of integrated management is said to be one of the weaknesses of many Chinese companies? Why is that?

Mr. Quelch: The main reason is that China is run by engineers [who] typically have strong skills in finance and accounting and economics, but with less developed skills in the areas of leadership, change management, marketing, to some extent strategy as well.

So the soft skills, as we refer to them in the States, are the ones which are underdeveloped in China. The hard skills are well-developed. And so our curriculum places considerable emphasis on overlaying soft skills on the foundation of hard skills that many students bring to the classroom.

WSJ: Isn’t part of the problem that state-owned enterprises have many of the same kinds of rigid hierarchies that you have in the Communist Party?

Mr. Quelch: That may be the case. But there’s one thing that I’ve discovered in China: no-one—and I’m talking about the state sector—gets promoted for breaking the rules, but no-one gets to the top if they just follow the rules. So there is an art in China to taking new initiatives but doing so in a manner that is not destabilizing.

WSJ: But can that system generate true innovation?

Mr. Quelch: I think you can, if you throw a considerable amount of money behind it. But certainly a major challenge in the state-owned sector is to achieve innovation.

In every country the public sector is different from the private sector, whether it’s the U.K. or the U.S., there’s an approach, a culture and a style that is different, norms that are different. But in China I think that the gap is wider, certainly than it is in the States, and it’s almost a case of natural selection where people come to a fork in the road in China and either go to the state sector or to the private sector. And the mental mind-set associated with each is more substantially different than it is in the U.K. or the U.S.

The innovation in China is much more likely to be generated out of the private sector, even though the state sector is hugely well-endowed with resources that could fund innovation.

WSJ: What advice would you give to Chinese companies headed overseas?

Mr. Quelch: Chinese companies should not go abroad as Chinese companies. They should go abroad as companies with an important differentiated value offering that consumers will be happy to pay for—and the country of origin is irrelevant.

WSJ: When will we see the emergence of global Chinese brands?

Mr. Quelch: I think that Chinese companies will add value initially in the B-to-B (business-to-business) sector, not the B-to-C (business-to-consumer) sector. Many people in China are eagerly awaiting the day when the first truly global Chinese brand enters the top-10 ranking of the world’s most valuable brands. I think that’s probably at least a decade away.

But Chinese companies like Huawei, ZTE—these companies have extremely good technology and know how to invest in technology acquisitions and, increasingly, they are acquiring or hiring non-Chinese to help them become global players. Those are the companies that are likely to be at the forefront of Chinese value-added overseas. Yes, there will be a Lenovo, there’ll be a Haier, there’ll be a Geely—we’ll all, as consumers, be interested in following the fortunes of these B-to-C companies, but I think the B-to-B space is where Chinese companies are really going to excel.

You look at Sany at the moment: it’s a very promising long-term competitor to Caterpillar.

WSJ: You say that Chinese companies are increasingly hiring foreigners and becoming diverse. Can you give examples?

Mr. Quelch: If you go to the U.K. website of Huawei, you will find that it’s all about Basingstoke. It’s not about Huawei as the global brand; it’s about Huawei as a company that is in Basingstoke.

This is where the Chinese are going to move faster than the Japanese because a major brake on Japanese global expansion ended up being the shortage of talented Japanese who were interested in, or linguistically able to, operate in international markets.

But the Chinese are much more outgoing, and perhaps because they’re coming 30 years later there are many more millions of Chinese who are English-language capable.

My guess is that whereas when a Japanese company made an acquisition the foreign executives immediately hit the equivalent of a glass ceiling, in the case of foreigners in a Chinese company, it’s going to be easier for them to move up the ranks.

What will really make a difference in that regard is reciprocity. If and when, for example, Sam Su of Yum Brands becomes the first Chinese CEO of a Fortune 500 company born in China then they will accept a free flow of non-Chinese executive talent throughout their organizations.

WSJ: What was the biggest surprise for you working in China?

Mr. Quelch: The biggest surprise is that there are no weekends in China. I’ve always been a very hard-working person, but I have been amazed at the degree to which on Saturdays and Sundays I find myself involved in professional activities.

The way I explain it to my friends in the U.S. is that you cannot achieve 10% GDP growth per year by working a 35-hour week – even if you’re as smart as the Chinese.

I remember Jack Welch famously held meetings on Saturdays with his people. But I think for many Chinese this is an historic moment of opportunity – a once-in-a-lifetime, maybe a once-in-a-millennium moment in time that no one wants to waste. So many Chinese display a relentless resolution to work hard today for themselves, their families and a better China.

It’s estimated that around three billion people
globally will be migrating from rural areas
to cities in emerging markets
Photo: Win Initiative

Stormy markets overseas are dampening the global forecast for commodities over the next 12-24 months. That contrasts sharply with the long-range picture of unprecedented demand for raw materials to fuel the massive urbanization of emerging markets like China and India.

Add in disruptions, such as natural disasters that reverberate along global supply chains, or new technologies that are changing the way we capture and consume resources, and the old, dull days of commodities are long gone.

Indeed, volatility is the new normal, said Diane D’Erasmo, executive vice president, commercial banking for HSBC Bank, in her opening remarks at The Competition for Commodities panel discussion held in New York on Jan. 24. The event was part of the Global Economic Outlook series presented by the Economist Intelligence Unit (EIU), Business without Borders and HSBC Bank.

For the international executives in attendance, the panel presented some guideposts for the road ahead: a short-term bust, a long-term boom and a steady parade of disruptions.

The bust

With the euro zone teetering on the brink, and China showing signs of stress with a housing bubble and inflationary pressures, “2012 is shaping up to be a difficult year for the global economy,” said Leo Abruzzese, global forecasting director for the Economist Intelligence Unit. The EIU is predicting a 60% chance of slow, uneven growth this year for the global market, and a 40% risk of a global recession.

Panelist David McAlvany, CEO, McAlvany Financial Group, a New York wealth management and gold brokerage, was more pessimistic: “The period of 2012-2013 could be a repeat of 2008.” He said the coming financial crisis is not just a reckoning of the recent government bailouts, but of the debt-spending ways of the past couple of decades.

“We will not see the same commodity demand we saw prior to 2007-2008. We are at the end of a major credit cycle and in fact, will see demand destruction going forward,” McAlvany said.

Europe remains the biggest trouble spot, the panelists agreed. China, while slowing, is still posting growth of 8%-9%. And while the U.S. economy is brightening, the weak job market remains a problem. “It will still take a couple of years to regain the lost jobs,” Abruzzese said.

With slower consumption globally, prices for most commodities will weaken in 2012-2013. After recording a 27% increase in its index of 14 raw materials in 2011, the EIU’s World Commodity Forecast is predicting a 10% decline in 2012, and a 4% decline in 2013.

For gold, which is not included on the EIU index, and some other “real” assets, the bad news is good news. Taking advantage of low-interest rates, investors are flocking to the safe havens. “Precious metals can do very well,” said McAlvany, who is forecasting limited downside for gold.

The boom

When it comes to commodities, all eyes are on China and its voracious appetite to fuel growth. China is already world’s largest consumer of metals, chewing up about 40%-50% of the world’s supply

And the Asian giant is only at the beginning of a mass urbanization movement as its population migrates from rural areas to the cities and a middle-class lifestyle. By 2025, according to the EIU, China will have 15 cities that will be three times the size of New York City — all needing bridges, power grids, housing, water, roads. “So ask yourself, what will happen to steel prices then?” said Abruzzese.

This massive transition is not just happening in China. Panelist Stefan Heck, a director at McKinsey & Company, and leader of the consultancy’s clean technology practice, estimates three billion people globally — in China, India, Brazil, Africa — are moving into middle class. And the shift is happening much faster than ever before.

It took about 100 years for the industrial revolution to bring tens of millions of Americans into middle class. “China is going through the same GDP growth in 16 years,” Heck said.

That accelerated growth will be a major pull on commodities, he said. “We’re not going to run out of oil or copper, but as we go from conventional to unconventional gas sources, as we go further offshore to drill for oil, as we go to lower grades copper and iron ore, the cost of extracting those resources is going up,” Heck said.

Price volatility will be affected in other ways. He pointed to technological advances that have brought a closer correlation between commodities that we once thought of as independent. Biofuels, for example, are directly linked to food crops. “Now, a crop failure in one region will cause a fuel spike someplace else,” Heck said.

Alternatives

As demand — and prices — for commodities soar, Heck believes the use of substitutions, such as alternative fuels, or new technologies to increase productivity, will also rise. Businesses and governments will have no choice.

Some are already thinking ahead. China and Europe, for example, have major pushes to deploy renewable energies such as solar and wind. “The first big wave of solar was 22 times more expensive than electricity in the United States,” said Heck. “Today, solar is about 20% more expensive, so we are very close to parity, and in some pockets it is already cheaper.”

In the coming competition for commodities, businesses will need a new game plan, but one that can sustain short-term swerves. “I would be building my war chest and anticipating aggressive expansion within the next 24-36 months,” says McAlvany. “Beyond this next period of extreme pressure, for those with well-run franchises and strong balance sheets, the world’s your oyster.”

Photo: Ross Durant Photography

Rather than result in a more orderly, less risky commodities market, the opposite could occur. Dodd-Frank could lead to greater price volatility, said Susan Ervin, a partner with Davis Polk law firm and former regulator for the SEC and Commodities Futures Exchange Commission.

Ervin was an expert panellist at the recent Competition for Commodities event in New York, part of the Global Economic Outlook series presented by the Economist Intelligence Unit, Business without Borders and HSBC Bank.

“The impact is unclear,” she said. “To the extent that there is a higher cost to doing business and greater regulatory compliance burdens, that may diminish the number of major participants in market,” she explained.

Whether fewer players with more controlling stakes will bring higher or lower commodities prices is anyone’s guess. “There is disagreement about that, to say the least,” Ervin said.

Signed into law by President Barack Obama in July, 2010, the Dodd-Frank Act is an ambitious, 2,000-page bill that covers many aspects of financial markets from consumer protection, clearance and settlement, to addressing the too-big-to-fail issue. It was a response to the 2008 banking crisis and lawmakers are still writing the rules. Some are expected to be in effect this year.

For the audience of international business executives, Ervin laid out three main aspects of the bill that will have direct implications for commodities markets.

First and foremost, Dodd-Frank will create a regulated, transparent marketplace for the vast and opaque world of swaps. “The swaps market dwarfs almost every other financial market in the world and covers every type of commodity,” Ervin said.  The regulations will establish rules for swaps dealers and cover every step of a transaction from initiation through trading and clearing.

While the intention was to increase transparency and mitigate credit risks that currently exist in unregulated swap transactions, the actual effect may be to bog down the market by dramatically increasing the regulatory burden — and costs — for commodities transactions.

“To give you an idea of the scope, my law firm tried to break down every rule in terms of actionable items. We found 1,900 tasks for swap dealers to comply with the rules,” Ervin said.

A second area is speculative position limits. Already imposed on futures contracts to prevent speculators from manipulating or controlling the markets, Dodd-Frank will put speculation limits on swaps as well. One reason for this is not all swaps are able to move to regulated markets, so the limits, in theory, would diminish some of the speculation taking place in commodities.

There is already a list of 28 physical commodities that will see new speculation limits, Ervin said. “[The limits] are significant enough that there is already litigation to overturn the speculative limits rule.”

Lastly, the Volcker Rule section of the Act, to prohibit speculative proprietary trading by banks, will spill over into commodities markets. “The concern here is that banks are very key liquidity providers in commodities markets,” Ervin said. “The Volcker Rule would put very strong constraints on market-making activity by banks.”

With the 2008 financial crisis in the rear-view mirror, opposition to the sweeping and, say critics, overreaching, Dodd-Frank Act is rising.  “Dodd-Frank tries to cover so much territory, and that’s one of the problems with it,” Ervin said. “It reflects the political environment in which it was written.”

Now the question is whether Dodd-Frank can survive the current political environment and a presidential election. “If there was a total Republican slide, Dodd-Frank could be on the rocks,” Ervin said.

EXECUTIVE SUMMARY

Located in South America and bordering Brazil, Chile, Uruguay, Bolivia and Paraguay, the Argentine economy covers a wide spectrum of industrial and commercial activities. It presents opportunities for foreign investors across these activities, with access to a highly qualified labour force.

Key operating points:

• Business may be conducted in Argentina by incorporated companies, partnerships, individuals, and branches of foreign businesses. In all cases, key information must be registered in the Public Registry of Commerce, and the conduct and dealings of the enterprise are governed by the commercial code and supplementary laws and regulations. In the case of a general partnership of a non-commercial nature or where the commercial code is silent, the civil code applies.
• Foreign enterprises prefer a corporation, a limited liability partnership (‘S.R.L’), or a branch as the local form of entity.
• It is relatively straightforward to setup and close a business in Argentina, however it should be noted that certain administrative procedures should be followed and these can be time consuming.
• As a result of the devaluation of the Argentine peso at the beginning of 2002, several foreign exchange regulations were issued to limit the transfer of money abroad but they have been relaxed up to date, although some formalities have still to be observed.
• Although Argentina can be considered a high-tax country, certain tax incentives are granted in several fields such as the mining industry, biotechnology, software and oil & gas industries, among others.
• Furthermore, Argentina has signed Double Tax Treaties, following in general terms, the Organisation for Economic Co-operation and Development (‘OECD’) and/or UN Model Tax Convention, with several territories, outlined on page 18 in Taxation.
• Strong labour unions have been in existence for many years but, with rare exceptions, unions and individual workers have a generally favourable attitude toward foreign investment and management.
• Social security costs constitute a very sizable part of the cost of doing business. Fringe benefit remuneration is significant only at the managerial level.
• Argentine nationals living in Argentina are considered as tax residents. In general, foreign nationals acquire residence for tax purposes when they have been in the country for more than 12 months of a particular taxable year, or when they have obtained a permanent residence visa from the national immigration authority. Tax residents are taxable on world-wide income, and a foreign tax credit is available.
• As an exception to the above rule, foreign nationals assigned to Argentina for working reasons and for a period not exceeding five years are considered as non-residents for tax purposes. Non-residents are taxed only on their Argentine-source income.

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EXECUTIVE SUMMARY

This guide, Doing Business in Australia, provides a high-level overview of the Australian business environment, including the common types of business entities used by foreign investors to enter the Australian market and the taxation and statutory environment.

The guide also covers some practical issues that face business entities when entering Australia, such as human resources, employment law and banking.

Whilst the guide does have an emphasis on corporate entities, an overview of the taxation obligations for individuals and its administration is also provided.

Ten points for foreign investors

1. Australia has one of the strongest, most competitive, open and flexible economies in the world. It offers investors a stable political and economic environment and foreign investors have access to a highly skilled and multilingual workforce.
2. There are a number of different operating structures (e.g. companies, partnerships and trusts etc.) that can be used to run a business in Australia. The structures each have different regulatory requirements and reporting obligations. Prior to entering the Australian market, foreign investors and businesses should become familiar with the different operating structures in order to determine the best structure for the business that they wish to operate in Australia. Advice should be sought when making these important decisions.
3. Reporting requirements for local and foreign companies with the Australian Securities and Investments Commission (ASIC) will vary according to the type of entity and whether it can take advantage of certain relief measures available to reduce compliance obligations.
4. Businesses generally have the period July1  to June 30 as their accounting year, though with permission from the Australian Taxation Office (ATO) they may adopt a different year end to align with overseas reporting requirements. Accounting records should be denominated in Australian dollars and be written in English.
5. An Australian company is liable to pay Australian tax on its worldwide assessable income at the corporate tax rate of 30%. Corporate permanent establishments are liable to pay Australian tax on Australian-sourced income only, at the corporate tax rate of 30%.
6. Other than ”ordinary” income, Australia also has statutory income in the form of Capital Gains Tax. In addition, some other key areas of taxation to be aware of are tax consolidation, tax losses, transfer pricing, taxation of foreign arrangements and thin capitalization.
7. Withholding tax is generally applicable to dividends, interest and royalties paid between Australia resident entities and foreign entities, which include individuals. It is worth noting that, with regard to dividends, Australia has an imputation system which can remove the withholding tax obligation.
8. Australia has a goods and services tax (GST) of 10%, which is applied to the consumption of most goods, services and property in Australia. Exports of goods or services consumed outside Australia is generally exempt from GST.
9. Foreign investment consistent with community interest is encouraged in Australia. The Foreign Investment Review Board oversees proposals by foreign businesses and individuals to undertake direct investment in Australia and makes recommendations to Government. Acquisitions in certain key sectors, company takeovers above certain values and the acquisition of interests in property above threshold values will require prior approval from the Foreign Investment Review Board.
10. Due to the complex nature of Australian employment law, foreign investors intending to employ either locally or to bring expatriates to Australia should seek advice and assistance in order to understand the employment environment and Australia’s employment law, prior to employees commencing work in Australia.

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EXECUTIVE SUMMARY

Brazil is one of the most promising emerging markets in the world. A high degree of diversification in its product exportation base, a diversified list of trading partners, internal economic stability, increasingly large work force and good social standards are helping to attract more and more global investors. In addition to this, the forthcoming 2014 Soccer World Cup and 2016 Olympics are generating a large number of infrastructure investment opportunities.

The Brazilian Government and Congress have made a concerted effort to improve the economic stability of the country and have implemented changes in Brazil’s tax legislation, governance, and regulatory background. There are still a few reforms to be implemented by the new Government, but Brazil is demonstrating that it is becoming increasingly connected with the international business network.

The purpose of this publication is to provide foreign investors with a broader view of the current economic, legal and business environment, to be faced when doing business in Brazil.

Key points for foreign investors to consider when looking at this territory:

• Brazil is the biggest country in Latin America, occupying almost half of South America.
• The basic legal concepts regulating foreign capital in Brazil are defined in Laws 4131 of 1962 and 4390 of 1964, which were regulated by Decree 55762 of 1965. The legal concept of foreign capital includes tangible and intangible assets.
• In Brazil there is a wide variety of federal programmes designed to encourage national economic development and also to promote regional development. They tend to favour operations in the poorer Northeast (SUDENE) and Amazon (SUDAM) regions. Several programmes provide export incentives.
• Relevant benefits are granted to foreign investors not domiciled in tax havens and who invested in Brazil pursuant to the regulations established by Resolution 2.689.
• There are no legal minimum share capital requirements for a corporation, except for financial institutions and insurance companies, and certain other legal entities with specific business purposes.
• Dividends remitted to non-resident shareholders or quotaholders are not subject to any withholding tax.
• Capital gains earned by local resident entities are taxed at a higher rate than the capital gains of non-residents.
• Payments of any type made to tax havens are generally subject to withholding at a higher rate.
• As a general rule, foreign exchange transactions made in order to allow payments to non-residents, considering royalties, technical services, technical, administrative and any other assistance or any other revenue, including the reimbursement of any costs, are subject to specific financial tax (IOF – see page 14 for more information).
• On 16 December 2009, the Brazilian government started to establish minimum capital requirement to invest through or ’the thin cap rules’, through Provisional Measure 472, with immediate effects.

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EXECUTIVE SUMMARY

Economic reforms in China have led to an unprecedented change in the nature of the business environment and the opportunities available for foreign investors and privately owned companies. However, there remain bureaucratic and operational challenges and this guide presents an introduction to some of the key areas that businesses should be aware of when setting up operations and doing business in China.

Some key issues for foreign investors are as follows:

China joined the World Trade Organization (WTO) in 2001 and market access has been gradually phased in.

Despite considerable bureaucracy, the government is making efforts to promote foreign investment.

Although many industries are largely state-owned, the non-state sector, made of collectively-owned, foreign-owned and private companies, is rapidly gaining importance in the Chinese economy.

China has been proactive in removing tariff and non-tariff barriers for trade in goods through the negotiation and implementation of regional free trade agreements.

Certain foreign exchange restrictions are in place.

Preferential tax treatment such as tax holidays and reduced tax rates for enterprises in Special Economic Zones have been removed with the implementation of a new corporate income law effective from 1 January 2008. Incentives are now available for high-tech businesses.

There are market access and production controls, as well as restrictions on operations.

Distribution and some service sectors are open to foreign investors.

China’s new anti-monopoly law came into effect on 1 August 2008, and China will join other countries with anti-trust laws that regulate competition.

Despite the fact that managers and skilled labour are still in short supply, the situation is getting better with the millions of new fresh university graduates coming into the labour market every year.

Protection of intellectual property is an area of concern.

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EXECUTIVE SUMMARY

Hong Kong, which has been ranked the ‘World’s Freest Economy’ for over a decade, is a regional business hub in Asia. Hong Kong’s proximity to China, its similarities in terms of culture, social customs and language, and its international business environment, have made it an ideal base for foreign investors to enter the Chinese market. These characteristics also help mainland investors to invest in regional and global markets. Hong Kong continues to be Asia’s second largest and the world’s fourth largest Foreign Direct Investment recipient.

Based on the World Bank Doing Business Survey, Hong Kong is ranked second in terms of ease of doing business in the world. It offers a number of competitive advantages as a hub for investors to conduct their business, such as:

• The Hong Kong Government has long been endorsing a ‘market driven with minimal government interference‘ policy. Foreign investment is welcome and there is no policy to protect the local industry against foreign competitors. The Hong Kong business community is also receptive to foreign investment.

• Strategically located at the centre of Asia, all of the region‘s key markets are within a 4-hour flight and half of the world’s population is within a 5-hour flight. Hong Kong’s International Airport is the busiest in the Asia Pacific, with direct flights to over 155 international destinations.

• Hong Kong’s proximity to, and close and unique relationship with, mainland China, has made it the gateway to mainland China for business. English is the language of business in Hong Kong and many people speak English, Cantonese and Putonghua and have a good understanding of international and mainland Chinese business.

• Although no particular aspects of Hong Kong‘s tax regime favours foreign investment and there are no significant tax incentives for foreign investment, Hong Kong‘s low and simple tax system is attractive to foreign investors. The corporate tax rate and income tax rate are capped at 16.5% and 15% respectively, with no turnover tax and no tax on capital gains or dividends.
• Hong Kong is a free port and generally imposes no customs duties on imported goods, with a few limited exceptions.

• Hong Kong‘s immigration policies are designed to attract professionals, talented individuals and investors to ensure the city‘s continued competitiveness and enrich the quality of Hong Kong‘s workforce. Hong Kong‘s labour force has not been known to voice any objections against foreign investment.

While the Hong Kong Government has adopted a policy of minimum intervention towards the regulation of the territory’s business and industry, investors still need to be aware of regulatory aspects relating to their specific sector, where appropriate. This document contains reference to some common issues that investors should be aware of when operating in Hong Kong and/or using Hong Kong as a gateway to mainland China, although specific advice on their particular circumstances should be sought.

EXECUTIVE SUMMARY

Mexico offers an attractive business environment, legal certainty, one of the world’s largest free-trade agreement networks, as well as highly developed economic sectors that offer very competitive costs. The country is committed to developing its infrastructure in order to create a world-class logistics platform suitable for international businesses. The government of Mexico is also investing in initiatives to simplify regulations applicable to international businesses. Specifically, the Mexican government supports foreign investments through different public institutions which advise, support and facilitate various business transactions in Mexico.

In 2010, Mexico was favoured by large amounts of foreign direct investment, in the automotive, manufacturing, aviation, information technology and tourism sectors.

Mexico is today’s opportunity

• Strategic geographic location.
• Competitive labour costs
• Accessibility to large markets
• Low operation and transportation costs
• Young, talented and highly qualified population
• Economic stability and its favourable business environment
• Wide network of free trade agreements
• Legal certainty for foreign investment
• Strong and dynamic manufacturing industries
• Internal market
• Infrastructure and logistic abilities for industry

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EXECUTIVE SUMMARY

This report introduces a general overview of the Kingdom of Saudi Arabia’s investment environment and provides a comprehensive guide for the individuals and companies who are willing to invest in the Kingdom of Saudi Arabia. It details the country’s economic status and its position in the global markets and presents how the Saudi Arabian government draws foreign investors’ attention to the Saudi market through certain incentive packages.

This guide covers several issues to be considered in evaluating the prospects of operating and investing in the Kingdom of Saudi Arabia. These include the regulatory framework of entities, tax aspects, audit and accountancy, human resource and employment issues, trade and banking.

Saudi Arabia encourages foreign investors to operate in transport, education, health, information and communications technology, life sciences, and energy, and in six ‘Economic Cities’ that are in various states of development.

In order to operate in Saudi Arabia, foreign investors need to consider the following issues:

General points:

• Stable political system.
• Islam plays a large role in its citizens’ lives.
• Cultivating solid business relationships before entering into business dealings is key to your success.
• Safe and secure family environment.
• Well-established infrastructure.

Business points:

• Strong banking system.
• 100% foreign ownership of companies and property.
• No minimum capital requirement.
• No restriction on repatriation of capital.
• The ability for foreign investors to sponsor foreign employees.

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