Photo: Ghislain & Marie David de Lossy

Yet the corporate sector’s increased appetite for temporary staff hasn’t translated into big gains for the Milwaukee-based concern recently. Revenue fell 6% in 2012, to $20.7 billion, and it was also down 6% in the 2013 first quarter.

Chief Executive and Chairman Jeffrey A. Joerres blames abysmal business conditions in Europe, which accounts for about 65% of revenue, and he cites his decision to hold the line on prices, which meant losing some accounts to competitors in the U.S.

Mr. Joerres, 53 years old, has a highly informed view of the labor market and currently chairs the board of directors of the Federal Reserve Bank of Chicago. He recently talked with The Wall Street Journal about changes in the staffing industry and what’s ahead in hiring trends. Edited excerpts:

Companies typically staff up with temps during a recovery and convert them to permanent workers as conditions improve. Are you seeing that pattern now?

Mr. Joerres: In good times, 60% to 70% of our people will receive a full-time offer while on assignment. Right now, it’s around 30%, and the tepid economy is driving that. Permanent recruitment is up about 10% on a year-over-year basis in the U.S.

What’s your general sense of the labor market?

Mr. Joerres: We’re getting little spurts of decent labor market numbers, and then it slides back down. It’s symptomatic of the way companies are dealing with their environment. They’re on hyper alert for any types of changes. So they start to feel demand, but they don’t fill in with a lot of hiring. They’re much more data sensitive, with a good sense of what’s happening in their backlog. They adjust their hiring based on that, so it’s very lumpy.

When will things start to change?

Mr. Joerres: In the U.S., we need to get past this summer and into next year, and understand some implications of health-care reform. And Europe needs to [improve]. It’s probably two years before we will start to see that.

How will new health-care laws affect ManpowerGroup? Will companies hire temps to avoid offering health insurance?

Mr. Joerres: There’s a large state of confusion out there right now. We see the Affordable Care Act as incrementally positive for us. It’s not a game changer, because 100% of the cost is going to get passed through to clients. They’re not laying off permanent people and moving that work to us to avoid paying workers’ insurance.

But I see this business coming to us when customers have their own internal temporary staff, seasonal workers, internship programs, and they don’t want to deal with the issues of who’s eligible, who’s not, and other liabilities.

Staffing firms aren’t just providing temps, they’re now offering broader workforce management. How is that working?

Mr. Joerres: Companies are using us and our industry very differently. Yes, we still have staffing, but it’s a different game than before. Clients are saying, ‘I’m not going to have recruiters on my staff anymore,’ so they’re using us for hiring. We have that, and IT contracting, a finance and accounting division, an outplacement firm, and coaching, training and talent management.

Before, we were an important component of workforce strategy, but a mono-component. Now, 65% of our gross profit comes from the [staffing business], and 35% comes from the other brands. That’s a dramatic change over the last five years. We could see it eventually being 55% and 45%. Our challenge is to get that business growing at a faster rate.

Temporary staffing accounts for about 2% of all U.S. jobs. Are companies moving toward more contingent labor?

Mr. Joerres: Companies are being very thoughtful in their use of different work models. They’ll bring in two people who are full-time, and the rest will be temporary or on contract for a seven-month project.

So employers are operating more as just-in-time businesses. How does this affect workers?

Mr. Joerres: They have to be more agile, too, and that’s stressing the labor force. Those who have intellectual curiosity, who keep their skills fresh, do fine. Others adapt but live with a real sense of anxiety because they’re always out of their comfort zone.

And others fight it and just want to do the same job. That will be difficult, and some of those people are moving into long-term unemployment, which is something that the U.S. has not really dealt with much.

Europe accounts for 65% of your revenue. How are you dealing with your exposure there?

Mr. Joerres: We went through a simplification process last year. We reduced layers where we could. We’ve consolidated offices and centralized some functions. If we look farther out, we don’t see robust growth coming out of Europe. But right now we see ourselves there in a fairly good steady state. It seems to be bottoming out.

Photo: Bloomberg via Getty Images

The wild ride left many wondering whether Bitcoin is a legitimate currency or another speculative bubble. Yet, a growing legion of fans say Bitcoin’s real virtue lies in its value as an international payment network that allows anybody, anywhere in the world, to quickly and cheaply pay for goods.

Bitcoin’s backers believe it will change global payments in the same way the web changed publishing or Skype made free global phone calls possible. And, despite fairly deep skepticism, the crypto-currency has attracted prominent names. Venture capitalists Fred Wilson of Union Square Ventures (an early investor in Twitter and Tumblr) and Netscape founder Marc Andreessen have both invested in the sector.

“Bitcoin is actually two separate things—a payment system and a currency,” says Roger Ver, the founder of Santa Clara, California-based online retailer the BitcoinStore.com. While he concedes that the currency is volatile, “as a payments method, you couldn’t ask for a better system,” he says.

Low cost, low risk

So what’s the draw? Low costs, for starters. Businesses that accept Bitcoin can undercut rivals, since they don’t pay the hefty fees charged by PayPal, credit card companies or wire transfer companies. Those fees can add 2% to 3% to a purchase.

By contrast, Ver observes, Bitcoin transactions cost just pennies, since a buyer simply transfers payments directly to a seller’s Bitcoin account. Pointing to a recent comparison on the website CryptoJunky, Ver says a Lenovo Thinkpad that sold for $744 on Amazon went for $705 in the BitcoinStore.

The digital currency also eliminates the risk of credit card fraud, a huge problem for e-commerce. Online retailers in the U.S. and Canada  lost an estimated $3.5 billion to fraud in 2012, according to CyberSource, a unit of Visa Inc. The problem is twofold: identity thieves who buy goods with stolen cards, as well as so-called charge backs, when a consumer buys something online with his own card, then later claims the card was stolen. In either case, retailers ultimately eat the loss.

With Bitcoin, however, neither can happen. Merchants receive payment before they ship goods—and the transaction cannot later be reversed. “Bitcoin is fraud-proof,” says Joseph David, the cofounder of VirtEx, Canada’s largest Bitcoin exchange. “I can sleep at night knowing that nothing can happen to my sales.”

Equally important, Bitcoin allows North American companies to access a bigger global market. Many currently won’t take international orders paid for by credit cards because fraud rates are even higher. Moreover, many potential customers in Africa, Asia and other developing regions don’t have credit cards. “Bitcoin allows you to export to countries that you could not have sold to in the past,” says Tony Gallippi, the CEO of Atlanta-based BitPay, the largest processor of Bitcoin merchant transactions. One client, he says, has begun shipping its specialty computers to India, Belarus and Vietnam since accepting the digital currency.

Small niche

If Bitcoin’s backers see considerable potential, however, the currency remains a tiny niche for now. One big problem: very few goods can be bought with Bitcoins. Most businesses that accept Bitcoins fall into three categories, according to Gallippi: precious metal and jewelry merchants, electronics retailers, and technology services providers like WordPress.

To broaden the market, BitPay recently signed a deal with, gyft.com, a San Francisco-based purveyor of gift cards on mobile devices. Customers can now buy gift cards with Bitcoins; these cards can be redeemed at hundreds of retailers, including the Gap, Nike, GameStop and BurgerKing. With the easily accessible cards functioning much like digital cash, gyft.com CEO Vinny Lingham says his goal is “To bring Bitcoin into the mainstream.”

Bitcoin’s complicated technology also imposes limits on broader adoption. Users must sign up with an exchange such as Canada’s VirtEx and deal with sophisticated theft-prevention encryption. “The learning curve is steep,” observes David.

Volatility

The currency’s volatility is another drawback, though backers say it can be managed. A customer can buy Bitcoins just before making a purchase; a seller can instantly convert Bitcoins into Canadian or American dollars as soon as a sale is completed. “You only hold Bitcoins for the duration of your transaction,” says Ver. “You don’t have to worry about volatility.”

As Bitcoin works to gain acceptance, however, the biggest risk may be its murky legal status. The Royal Bank of Canada and TDBank recently shut the accounts of two small Canadian exchanges, and tax authorities in the US and Canada are scrutinizing the digital currency. US prosecutors’ indictment of Liberty Reserve, a digital payment network accused of laundering $6 billion, has raised questions about whether Bitcoin is next. It also has a reputation for allowing drug dealers and tax dodgers to transfer money anonymously.

Even if Bitcoin itself stumbles, an improved digital payment system will likely emerge. Among the contenders: Litecoin and Ripple, a rival backed by Andreessen’s firm. Even the Royal Canadian Mint has gotten into the act. It recently introduced the MintChip, though skeptics say it is closer to PayPal than a true digital currency.

“It could happen with a privately created currency, or it could be done with dollars or euros,” says Steve H. Hanke, a professor of applied economics at Johns Hopkins University. “We don’t really know where this is going, but the virtual space will be used.”

World trade is opening up like never before, and Business without Borders is growing with it. The site you’ve come to trust for information on international business is about to become HSBC Global Connections.

On July 9, you’ll have a whole new toolbox of information, analysis and profiles that will help you do business outside Canada/the United States. HSBC Global Connections is a new worldwide information network that helps you expand your business abroad and it will be available free to our American readers.

As you’ve come to expect with Business without Borders, you’ll be reading finely focused stories and tools, along with exclusive insights from HSBC Global Connections’ information partners around the world. You’ll find country guides with a global point of view, international information for corporate-treasury specialists and stories from leading world publications. The new site will provide you with practical advice from strong, independent voices from around the world, as well as insights from leading HSBC experts.

For the past three years Business without Borders has brought you more than 1,600 articles, many of them exclusive to this website. Features on the nuts and bolts of overseas expansion—human resources issues, cash management, navigating regulations, understanding the changing landscape of FX—have been a staple of Business without Borders and they will continue to be part of the HSBC Global Connections mix.

We’re happy to announce that the very best Business without Borders stories will be carried over to HSBC Global Connections, giving you plenty of information that’s right for international business. You’ll read inspirational profiles of many American businesses that have ventured abroad and share in their advice for success. And you’ll still have access to coverage of critical issues in treasury, supply chain logistics, negotiation, business culture and many other topics.

Look for the new HSBC Global Connections, coming to the Web on July 9.

China’s high-speed trains are slightly tweaked
versions of trains developed years ago in Japan
Photo: ChinaFotoPress via Getty Images

So says Li Daokui, economist at Beijing’s Tsinghua University and former academic advisor to the People’s Bank of China at recent Hong Kong conference at the Institute for New Economic Thinking,

Mr. Li, who has been outspoken on intellectual property issues in the past, cited a certain type of high-tech diesel engine, which he says a German company is the leader in, but that a Chinese company he knows is trying to copy.

“I tell my German friends, ‘Don’t worry too much about Chinese companies imitating you, they are creating value for you down the road,’” he said.

“This type of imitation can’t replace fundamental research…they don’t have the accumulation of knowledge, the know-how to continuously grow,” he said. What it does do, he said, is create an ecosystem in which innovations will eventually build off of each other and help industry and the economy overall.

“It creates social value,” he said. “It lowers the monopolized rents…and this innovation is not threatening the leading edge of the leaders.”

“We criticize and attach value judgments…we have to understand the mechanism of these kind of innovations,” he added, noting that economists haven’t quantified the benefits of bandit innovation, as he calls it.

The issue strikes at the heart of the whole point of the modern patent system, which is to give innovators a time-limited monopoly to enjoy the fruits of their invention. Some economists, however, say patents take away the incentive by other companies to innovate.

It also touches on the ultimate putdown of China’s economic boom of the past three decades: That very little it had to do with innovation and much of it was thanks to copying Western technology.

There’s a hot debate over exactly how much innovation goes on in China. Some say there’s more than the country’s reputation suggests, and that it’s starting to be a big advantage to Chinese-based manufacturers. Others note there are virtually no global Chinese brands that can rest their names on indigenous Chinese technology.

As to whether China can eventually be the leaders on the frontier of invention, not just the bandits, Mr. Li is sure it will happen.

“I totally disagree with the very popular view that China culturally is not positioned to innovate…There’s no single Chinese culture. There is a large array of subcultures,” he said, pointing to the entrepreneurial engineering culture in southern China. “I have faith that time will enable China to innovate in the Western fashion.”

Another speaker at the forum, economist and Warburg Pincus venture capitalist William Janeway, questioned whether China can move beyond this stage of bandit innovation.

“It’s not yet clear whether economic powerhouses of Asia will succeed in making the change from innovation follower to frontier,” he said.

Photo: Bloomberg via Getty Images

Stein is a respected macroeconomic researcher and business consultant based in Stockholm. He is a dry wit and his predictions are cautious and yet expansive enough to merit close attention. For example, in Japan, where immigration is frowned upon, a rapidly aging population is going to make it difficult to maintain prosperity, Stein says. He notes that last year, Japan’s population was reported down by 200,000. By 2050, he says, Japan will no longer be in the top 10 nations by population. “Japan’s has pretty bad demographics,” he says. “In 500 years there will only be 50 Japanese alive.”

A big population won’t make a nation prosperous—the people of India can attest to that, as can Nigerians, Bangladeshis and Indonesians. But it can help. A young demographic in a very populous nation can really help, he says. Hence the potential for economic expansion, as witnessed in China in the last three decades and always waiting on the tarmac but never quite taking off in India.

While it is not absolutely guaranteed, demographic matters cause economic growth, Stein says. “If you compare countries of equal size and equal development, countries with bigger populations will flourish,” he says. Looking at the age of the population will tell you a lot about their prospects.

“We’re conditioned to think of the 21^st Century as the Asia century, and the BRICs are the biggest winners. Not true. About the only things that the BRICs have in common is that their currencies all begin with the letter ‘R’.” Two nations, Russia and China, will see their future imperilled by aging and falling populations. In Russia, which has already experienced declining population there are cities in the far north that are being emptied and allowed to nature. He describes it as an abandonment of civilization.

Owing to the “One Child” policy begun in the 1980s, China’s population is rapidly aging. The dependence ratio—the number of elderly or children compared to people of working age and therefore capable of sustaining them—is fast rising. China may not be able to sustain its economic ascent unless there is greater population renewal. “Chinese demographics, shifted 25 years, look as bad as Japan’s.”

The problem is also acute in Europe, where austerity in southern nations has increased dependence on the largesse of their northern brethren. But Germany’s population is fast aging and adults in their later economically productive years are apt to save more than spend. Don’t look to them for the kind of consumption that stimulates a vigorous economy and therefore pay the bills of southern dependents.

The situation is especially dire when you look at how much the Germans have socked away—it’s not much, Stein says. On average, households have but €200,000 in savings, less than the French of the Spanish. “They’re already aggrieved at paying people who call them Nazis all the time.”

While the United States (and Canada for that matter) is also aging, it is aging more slowly than other nations. While the median age in China and Germany is 50, in the U.S. it’s 40. The United States is set to gain another 100 million people by 2050, a rate surpassed only by Nigeria, India, Pakistan and Tanzania. The U.S. population increase will be driven by first- and second-generation immigrant populations, who will reshape the culture.

Growing populations consume more, but the patterns of consumption will shift, Stein says. The tastes of city dwellers will dominate consumption tastes. Will the automobile culture of suburbia decline—along with the purchase of automobiles? Will there be a switch from physical goods to personal services? “Whoever can come up with a way to make concierge services to the middle class will prosper,” Stein says. It’s the day-to-day stuff that he says will make someone “enormous amounts of money: shopping, haircuts, housekeeping—services in which the providers come to you.”

Among Stein’s other provocative observations:

• African populations are among the fastest-growing in the world
• Watch countries with big population growth and decent economies. Ignore cyclical ups and downs.
• Allocate more investment to rising populations with good economic institutions. If a declining population has a declining dependency ratio, be cautious.

Since September, retailers including Gap Inc., Sweden’s Hennes & Mauritz AB, American Eagle Outfitters Inc. and Forever 21 Inc. have opened stand-alone stores in Mexico. The new arrivals aim to compete for an enviable niche carved by Spain’s Inditex SA, operator of Zara, which first set up shop in Mexico in 1992 and now has more than 246 stores here.

Photo: Bloomberg via Getty Images

On a recent weekday at the mall in Mexico City’s upscale Santa Fe area, 20-year-old law student Ana Sierra was scouring the racks at H&M. Holding a blouse that retailed for the equivalent of $8, Ms. Sierra said she and two friends had traveled more than an hour from the opposite end of the city to shop at the store.

“We are already tired of the same options,” Ms. Sierra said, praising H&M for its variety and affordability.

Analysts say these new entries have contributed to weaker sales growth in recent months at the country’s largest retailer, Wal-Mart  Store Inc’s local unit Wal-Mart de Mexico Walmex SAB, as consumers trade up to fancier shopping experiences and department stores offer varied credit options.

Steady employment gains in Mexico have lifted incomes, and economists project healthy economic growth in the years ahead. The country’s sizable and youthful population—the median age among its 112 million citizens is 26—is making Mexico a prime target for retail brands favored by the young.

To be sure, retailers still face challenges. Mexicans spend about $21 billion a year on clothing, according to apparel chamber Canaive, which represents 8,600 manufacturers. But around 60% of that is believed to be on stolen, smuggled or counterfeit garments acquired in street markets. Americans spend around $200 billion a year on clothes.

Encouraging the retail newcomers is the relaxation of steep tariffs on imported clothing. For more than a decade, Mexico applied antidumping duties as high as 533% on Chinese-made apparel to bolster its domestic garment industry. But in December 2011, the country eliminated the last of those transitional duties on Chinese clothing, lowering that barrier to entry. Currently the top tariff is a more palatable 25%.

“Because Mexico is a huge aspirational market, the removal of import tariffs for apparel may well be the single most-important retail event in the country in the past few years,” says a report by analysts at Credit Suisse, which estimates that clothing in Mexico was previously at least 50% more expensive than clothing in the U.S.

Top department stores in Mexico say it is easier to recruit major international brands than in the past. “Now with the situation in the U.S. and Europe, the brands that were very difficult to obtain are coming to Mexico,” said Patrick Slim, chief executive of Grupo Sanborns SA, which operates Sears and Saks Fifth Avenue stores in Mexico. Premium denim brands 7 For All Mankind and True Religion are on the shelves at Sears Mexico.

One sign of that success: Mexican apparel makers are scrambling to adapt to the changing tariffs, appealing to existing and new stores to stock at least 30% Mexican-made clothes.

“Our message is: welcome to our country, but it’s important to create jobs so that the consumer has money in her pocket to spend in the stores,” said Sergio López De la Cerda, head of apparel industry chamber Canaive. Mr. López said that, so far, the two foreign companies his chamber approached have been receptive to the possibility of producing in Mexico.

Mexican apparel makers employ 320,000 people, down from a peak of 750,000 in 2000, when Mexico was briefly the top-supplier of garments to the U.S. Thousands of Mexican clothing factories closed after 2005, when China joined the World Trade Organization and developed countries began to reduce tariffs on Chinese apparel.

Currently Mexico is the fifth-largest supplier in dollar-terms of apparel to the U.S., the world’s top consumer market, while domestic manufacturers supply much of Mexico’s own clothing needs.

Grupo Sanborns’s Mr. Slim, whose father is billionaire Carlos Slim, said the company tries to give Mexican producers priority, and sources over 60% of its fashion merchandise domestically. Sanborns brings some of its in-house brands from India, but since Mexican tariffs on Chinese-made textiles and clothing have come down the company will likely migrate some of that production to China, he said.

Robert Hanson, chief executive of American Eagle Outfitters, said he has asked his sourcing team to find a balance between production in Asia and Latin America, including possibly producing in Mexico as the retailer expands into Latin America. Currently about 65% of the Pittsburgh company’s products come from the Asian-Pacific region, with a good part of that from China. Many of its garments also come from Northern Africa and the Middle East.

For Mr. Hanson, targeting the growing Mexican consumer market was a no-brainer. He got to know Mexico well while working for more than a decade at Levi Strauss & Co., since Mexico is very competitive in denim production.

“We have a really robust infrastructure in North America, so we don’t have to repeat everything” by entering Mexico, Mr. Hanson said. American Eagle’s Mexican sales could eventually surpass the $300 million of its second-biggest market Canada, he added.

“You have to go where the opportunity is,” he said.

Photo: Hiroshi Higuchi

Back then, larger firms were usually able to get bank credit and source their funding needs through nonbank borrowing and overseas capital markets. But SMEs, which account for 99% of businesses and employ 67% of workers in the region, were often unable to borrow needed capital. Household credit was mostly limited to the wealthy and well-connected, while mortgage lending was virtually nonexistent. Excluded households were forced to seek credit through informal channels at much higher costs.

Much has changed in recent years. The commodities boom, greater macroeconomic stability, more diversified economies, a growing middle class and an expanding and relatively young labor force have all helped boost incomes and lift banking deposits, thus providing more funds for banks to lend.

Bank credit should rise by 13% in Colombia this year, by 15% in Brazil and by 10% in Mexico, according to the Economist Intelligence Unit (EIU). The outlook is particularly bright for the small-to-medium enterprise sector: Some 77% of banks in the region plan to boost credit to that segment this year, according to a survey of 106 banks done by the Inter-American Development Bank (IDB) and the Latin American Banks Federation in late 2012. A full 66% of respondents believe Latin American SMEs will have a more prosperous 2013.

The rapid economic expansion has also increased credit demand as new free-trade agreements have made imported products more affordable. All of this has buoyed consumer demand for goods that are particularly sensitive to credit: luxury goods, household appliances and furnishings, electronics and vehicles. Sales in Colombia of clothing, footwear, furniture, carpets/curtains, soaps, cleaners and household appliances have grown 11-15% a year since 2010, according to the EIU. Demand for video and audio equipment has surged by more than 20% annually. Growth rates are similar in the smaller Peruvian market and, with a few exceptions, in the high single digits in Mexico and Brazil.

Much of the growth in consumer lending that has helped fuel this growth originated in store credit cards. Credit card ownership is high in Latin America compared with other developing countries, according to the International Monetary Fund (IMF)’s Global Financial Inclusion (Findex) survey. In Mexico, of the 19.3m consumers who have credit cards, store cards account for 72%. More than three decades ago, one of the leading players, Grupo Elektra, began offering in-store credit to Mexico’s “great unbanked” for the purchase of household appliances and electronics. Grupo Elektra went on to secure a formal banking license and expand into other Latin American countries. Walmex (Walmart’s Mexican subsidiary) and other retailers operating in Latin America have followed suit.

Credit unions, micro-credit agencies and government-backed lending operations for the poor have also helped those with lower incomes gain access to credit; these advances were supported by improvements in the environment for microfinance in several countries. According to the IDB’s annual Microscope study, produced by the EIU, Peru and Bolivia lead the rankings of 55 developing countries in the expansion of microfinance.

North American firms have taken notice. Latin America is an increasingly important market for Dorel Industries, a Canadian juvenile products, home furnishings and sports/leisure group, and MEGA Brands, a big Canadian toy company. The rise in credit is also good news for US-based Whirlpool, Black & Decker, Tempur-Pedic and Herman Miller, all of which have strong Latin American presence.

Prospects for credit-driven sales expansion in the Andean region are also promising, according to Lima-based Stephen Benoit, chief representative, Andean Region at Export Development Canada. Although livestock, crops and processed foods are in demand, new opportunities have been emerging. “Peru is investing heavily in new health care facilities that will require a broad range of materials and equipment,” he notes. Major Peruvian investments in broadband technology may trigger demand for wireless networking and cloud computing products and services, he adds.

Although household credit growth has outpaced corporate credit growth in most countries, corporate lending has also increased significantly, particularly in Mexico, Guatemala, Panama and Costa Rica. Across market segments, credit for construction has grown fastest in the past decade, followed by the services and trade sectors. But bank lending to agriculture, livestock and other so-called productive sectors has lagged.

Credit bubbles

Is Latin America’s recent credit expansion sustainable?  Rising mortgage credit and house prices in Brazil and other markets warrant “careful monitoring,” according to an IMF working paper entitled “Latin America: Vulnerabilities under Construction?” by Luis Cubbedu et al. The authors believe that more action is needed to close information gaps and strengthen oversight. They also argue that deeper reforms are necessary to ensure that the growth of the housing market remains sustainable.

Consumer credit extended by non-banking institutions is also an area of concern. In 2011, La Polar, a major Chilean retail firm with extensive consumer banking operations, was hit by a scandal over mismanagement of its loan portfolio. This weakened public trust in the government’s financial watchdogs and highlighted the low lending standards of some retail firms.

But, the overall quality of regulation and supervision has greatly improved in response to past crises. Colombia’s banks have generally shown discipline in their lending practices, according to EIU’s Federico Barriga. Consumer credit is generally “available only to urban middle and upper classes,” he says.

Such rise in demand for and granting of consumer credit in Latin America  should present small-to-medium North American enterprises with a continuing opportunity to sell more premium priced goods and services. Despite the recent upturn in credit in Latin America, bank credit/GDP ratios are mostly still lower than in countries outside the region with similar income-per-capita levels according to the IMF paper. The credit markets of Chile, Panama and Brazil are the deepest, all above 50% of GDP. The Hansen and Sulla IMF working paper found that, in 2004-11, the highest credit growth occurred in countries with low initial credit/GDP ratios, notably Brazil. The fairly bright outlook for most Latin American economies supports a continued expansion of credit—and this “catch-up” to credit-to-income levels nearer those of other middle-income countries seems likely to continue.

Mexico looks particularly promising. The country’s relatively low credit penetration rate and low ratio of loans to deposits indicate ample scope for expansion. However, Mexico’s government has recently tabled financial reforms in Congress, which could have helped boost credit, particularly to SMEs.  “If the country improves the rule of law, generates greater opportunities for private investment (by opening sectors still limited to private and foreign investment) and reduces the informal economy, credit could grow two or three times faster than GDP,” says Nathaniel Karp, chief US economist at Spanish bank BBVA.

Indeed, a strengthening of the institutional framework and economic reforms would further boost credit markets throughout the region.

(L to R) Presidents from Mexico, Enrique Pena Nieto, Colombia,
Juan Manuel Santos, Peru, Ollanta Humala and Chile, Sebastian Pinera
Photo: AFP/Getty Images

The presidents of Chile, Colombia, Mexico and Peru want to create something bigger than another free-trade agreement. They want to encourage the free movement of merchandise, capital, labor, services and investments.

The bloc already represents a market of more than 210m people that, created in June of last year, is not to be dismissed as “rhetoric”, according to María Claudia Lacouture who heads Proexport, Colombia’s trade promotion body. After all, average GDP growth of the member countries was 5% in 2012—almost 1.9 percentage points higher than Latin America’s average and 2.8 percentage points higher than the world’s.

Indeed, thanks to the commodities boom of recent years and rapidly rising inflows of foreign investment, the four countries are among the region’s healthiest economies. Combined, they have a GDP of $1.7trn, or one-third of the Latin American total, which places the union as the world’s eighth largest economy.

A stronger regional market could help North American businesses in a variety of ways. “There are plenty of opportunities for the mining service sector that should benefit greatly from this alliance,” says Mark Moseley-Williams, who heads Canada’s Continental Gold, a junior mining company operating in Colombia. “Hopefully, it will also mean an easier flow of human capital between member nations.” That might well happen as the member countries went beyond focal free-trade deals by removing visa requirements for one anothers’ citizens, by promoting student exchanges and by opening shared embassies and trade delegations in Singapore and Ghana.

The union could also encourage new types of regional energy integration. Pacific Rubiales Energy, a company listed on the Toronto and Colombian stock exchanges, is now Colombia’s biggest independent oil producer and also has operations in Peru. A senior executive there believes that the Pacific Alliance “is a bloc that, among many other aspects, looks at joint developments and technical cooperation to give sustainability to the energy sector.” Stronger ties could foster joint development and technical cooperation and make environmental policies more consistent across borders.

This Pacific club is already attracting the notice of other possible members. During the summit, Costa Rica sealed a free-trade agreement with Colombia to streamline its addition to the alliance; Guatemala is keen to join. New entrants will have to complete bilateral trade agreements with the existing members before they can be considered.

With a strong willingness to welcoming the U.S. and Canada, the Pacific Alliance shares a free-market approach that sets it apart from another regional bloc, Mercosur, whose members are more protectionist. Canada, considered an obvious fit for the bloc by some commentators, currently has “observer nation” status and is still pondering the idea of entering. Earlier this week, US vice president Joe Biden met President Santos in Bogotá and expressed interest in joining as an observer.

Even with the four member nations already having free-trade agreements in place with Canada and the US (and some of them with some Asian nations), analysts believe that the Alliance could provide a potential trade boost by tying up the loose noodles in the “spaghetti bowl” of overlapping bilateral, regional and multilateral free-trade agreements these countries have in place. The idea is to boost productivity levels by strengthening the regional supply chains and thus include them in the much broader global supply chain. Although Canada, the U.S. and Mexico have created extensive supply chains with one another and with Asia, supply chains between Latin American countries and the rest of the world remain largely undeveloped.

The union is also seen as a bargaining chip for Colombia, as well as other smaller countries, that are eager to be part of the Trans-Pacific Partnership, or TPP—a multilateral free-trade agreement that includes Asian, Australasian, and North American countries as well as Chile, Mexico and Peru.

“The Pacific Alliance is also a bridge to speed up the relations, the search and consolidation of the process of integration with Asia,” explains Sergio Díaz-Granados, Colombia’s trade minister. “We are taking advantage that the negotiation is done in bloc thanks [to the fact] that Mexico, Chile, and Peru already have strong links with that region.”

But, like all new, especially overly ambitious, trade blocs, this one already faces challenges, including the cementing of the MILA, or the Mercado Integrado Latinoamericano, which tied the Chilean, Colombian and Peruvian bourses. The MILA started operations two years ago and was expected to give a boost to trading and to initial public offerings. Nevertheless, the market is still thinly traded and, while the entry of Mexico will provide the necessary boost, Mexico’s stock exchange is currently dealing with addressing the legal regulations that would allow it to enter. For Juan Muñoz, executive director of investment banking at JPMorgan for Colombia, that highlights a broader issue, as “the big challenge to the real development of a common stock market will still be the harmonisation of the fiscal, operative and compensation markets between the four.”

Legal and regulatory issues could crop up as the countries try to ease tariffs. In Cali, the member countries agreed to eliminate 90% of tariffs, which will oil the works for a complete elimination “in the shortest time frame possible,” according to Mexico’s president, Enrique Peña Nieto. However, this is a matter specific to each country—something that must be signed off on by lawmakers in some of the member nations by the end of June.

Expectations are high and, challenges notwithstanding, these “serious” Latin American countries are in a good position to show their more protectionist colleagues at Mercosur what free trade can do for their economies.

Photo: Floriano Rescigno

What is big data? Fritz relies on the definition in Wikipedia: “A collection of data sets so large and complex that it becomes difficult to process using on-hand database management tools or traditional data processing.” It is has resulted from the falling cost of electronic storage, he said. “In the past, large companies might have kept data for only six months. Every six months it downloaded its data onto tapes and warehoused them. Now, with new technology, data can be kept much longer.” He said it’s possible to analyze all the relevant “hot” data they’ve ever gathered.

The problem is that all that finding useful insights from all that data seems impossible. “Big data is a universe of a lot of things going on,” Fritz said. The phenomenon was first tackled in 2004, when Google created the MapReduce programming model for processing a lot of data using a parallel, distributed algorithm. That led to Hadoop—open-source software supporting data-intensive distributed applications. Armed with these new tools, data scientists could begin to manipulate mountains of data, testing different data sets against one another to find new insights. (“A data scientist,” Fritz said, “is a statistician who makes a lot more money.”)

Suddenly, private and public organizations could tackle big issues by overlaying, filtering and combining massive data sets. Here are three examples:

• Visa Inc. put big data to work to better understand credit card fraud, which costs the organization billions of dollars a year. Visa employed Hadoop to build analytical tools to get a better understanding of fraudsters and their fast-evolving crime. Six cents of ever $100 is lost to fraud, so it’s an important pursuit. In the past, an organization like Visa could analyze only 2% of its data. It used to base security assumptions on average fraud rates for individual business sectors. Today, it can analyze the market as a whole with detail right down to individual merchants’ terminals. By looking at more attributes more effectively patterns have emerged from transactions and their location, average authorization volumes and frequency of fraudulent purchases. Today, Visa’s data engine can look at as many as 500 aspects of a transaction at once. This analytical muscle has saved Visa $2 billion a year in potential incremental fraud losses by addressing vulnerabilities before they’re attacked.
• Stanford University wanted big data to go after emerging diseases faster. So its researchers consulted the “Gene Expression Omnibus”, a public genomics data repository. They looked at disease genomes then examined 167 drugs in the Drug Connectivity Map, a directory that links patterns associated with diseases to corresponding patterns produced by drugs and genetic manipulations. They were looking for pattern associations not normally associated with individual diseases. What emerged was an anti-seizure drug that might be of use against inflammatory bowel disease.
• And Big Oil wanted to improve its risk trade-offs, so companies looked at scores of data sets in their portfolios comprised of risk models, geological and engineering data to determine optimal portfolios. The number of options available in so much data is 10⁵⁰, and yet the analysis can be done in minutes.

How can you put big data to work in your business? The miracle of big data, Fritz said, is that there is no barrier of entry for any organization that wants to slice and recombine its own data, or data pertaining to it and its industry that can be found in the public domain on the Web. Much of your big data opportunities are more material you have in-house or you can get off the Web for free.

Fritz suggested hiring data analysts who can mine your information for new “data products.” LinkedIn is producing new services based on in-house information from its online members. Walmart is trying to improve its customer reach by looking at data. What is it looking at? The nature of its millions of transactions. “Transactions in the real world are all about behavior,” he said. “Look for patterns in the transactions.”

Looking at big data in different ways will help you to better understand big problems and how to tackle them faster. Indeed, Fritz said that the cutting edge of information analysis is no long big data, but “fast data”—getting answers from analytics that happen in real time. The next stage will be about predictive behavior and preparing for it. President Barack Obama’s second presidential campaign used big data to better understand the candidate’s followers and to predictive how they were going to vote.

Mexican President Enrique Pena Nieto (R) and Chinese
President Xi Jinping shake hands in Mexico City, June 4, 2013
Photo: AFP/Getty Images

The deals cover areas including food, energy, mining, infrastructure and education. The two also agreed to resolve recent differences over textiles and to allow Mexico to sell pork and more types of tequila to China.

Mexican President Enrique Peña Nieto said the agreements mark “a new phase” in the relationship between the two countries and said he agreed to visit China in 2014.

Xi preceded a U.S. trip with three stops in Latin America, an important trading partner for China which needs the region’s commodities—ranging from pork bellies to oil—to feed its people and stoke its powerful export engine.

Both Xi and Peña Nieto are trying to make their mark as reformers. In a recent speech, Xi said China could stay “dynamic” only by keeping up with the times.

Since assuming power in December, Peña Nieto has pushed through a number of long-stalled reforms. At the top of his agenda: opening up Mexico’s energy sector to private investment, which would spur an investment boom and an increase in economic growth.

“Mexico and China are two countries ascending in a new international order,” said Peña Nieto as he welcomed Xi. The Chinese leader said both countries were ancient civilizations and share a similar history of struggle for independence which had created between the two peoples a natural affinity which make them “good friends and great partners.”

In the past decade, as China’s manufacturing export-driven economy has surged, the Asian giant’s trade with Latin America has sharply increased. But most of that has involved the acquisition of Latin American commodities, ranging from Brazilian soybeans to Chilean copper and Venezuelan oil.

While most of Latin America has benefited from the high prices that Chinese demand has created for commodities, Mexico’s case is different. Like China, it exports manufactured goods, mostly to the U.S., and its economy has suffered from China’s emergence as the world’s factory floor as Mexican-based maquiladoras moved to China, and Mexico’s share of U.S. imports fell.

But a decade later, the situation has changed. Rising wages in China have led to higher labor costs there, while high oil prices have made transportation more expensive. It is now cheaper to land many products in New York from Mexico than from China, said Jaime Serra Puche, a former Mexican trade minister. The transportation costs from China alone would be equal to a 12% tariff, he said. As a result, Mexico’s share of the U.S. import market has risen from 10% to 13% over the past seven years.

“Mexico has recovered the ability to compete vis-à-vis China to penetrate the U.S. market,” Serra Puche said.

Analysts say it is time for Mexico to take a more aggressive stance with China. “We now need for Mexican products to compete in China,” said Luis de la Calle, a consultant and former Mexican trade negotiator. “We should now have an aggressive strategy instead of a defensive strategy with China.”

In an interview, José Antonio Meade, the Mexican foreign minister, said Mexico was hoping to gain greater access to Chinese markets, especially selling foodstuffs, manufactured goods, minerals and energy.

China has a massive trade surplus with Mexico: Last year, it exported US$57 billion worth of goods to Mexico, while Mexico only exported $6 billion to China. Mexico’s current exports to China “are not representative of our potential if we had proper access to the market, and that will be part of the dialogue,” Meade said.

Meade emphasized that Mexico’s relations with North America continue to be its main foreign-policy focus. Indeed, President Barack Obama recently met with Peña Nieto during a visit here.

Aside from commercial concerns, some analysts have suggested the Chinese visit to Mexico and other Latin American countries stems from a Chinese desire to show the flag in an area traditionally dominated by the U.S. as the U.S. turns its attention more and more to the Pacific, a region where China is flexing its economic and military muscle. China’s interest in Mexico fits well with traditional Mexican efforts to balance the overwhelming weight of the U.S. on Mexican affairs by developing relations with other global powers, thus creating political maneuvering room.

A U.S. official discounted the likelihood of any geopolitical strategy behind Xi’s trip to rival Washington in its own hemisphere, as some believe the U.S. is trying to do with China in Asia. The official said China primarily wants to trade with Latin America. “I think they are looking for business opportunities, not payback,” the official said.

Meanwhile, Mexican manufacturers, sore about what they say are unfair Chinese subsidies, aren’t optimistic about Mexico’s ability to open Chinese markets.

“This is not the moment to receive China with a marching band and feast,” said Julio Rodríguez, a top official at Mexican manufacturing group Canacintra. Rodríguez said Mexican industrialists expected little from the visit. He said Mexico had been naive in dropping tariffs on a host of Chinese goods in recent years, while the Chinese market remains for most purposes closed to Mexican goods.

Rodríguez said Chinese manufacturers get export credits, have strong government support and enjoy the benefits of other unfair trade practices. “What we want is reciprocity,” he said. “We want to compete on a level playing field.”

The two countries could find a middle way, some analysts say. For instance, both would profit if Chinese companies invest in factories in Mexico which would then take Chinese unfinished products, finish them in Mexico and then use Mexico’s geographical advantage and preferential tariffs under the North American Free Trade Agreement to export to the U.S. and Canada. Auto parts could be such a win-win situation for both Mexico, which has become a leading car manufacturer, and China, as Mexico would create more jobs and China would cut down on transportation costs, said Rodríguez.

—Anthony Harrup contributed to this article.

Arkadi Kuhlmann, CEO and chairman of ING Direct USA
Photo: Bloomberg via Getty Images

Q: How do leaders become good leaders?

A: Competencies count. Character matters. But good leaders are really the product of constant learning about their personalities, relationships and careers, not to mention the kind of leader they want to become. Simply put, good leaders capitalize on opportunities to build character and learn new ideas and better ways to do things almost every day. They constantly reflect on their commitment to the leadership role. That’s why fighting ego is so important. Big egos close the mind.

Q: OK. So how do open-minded leaders learn?

A: That’s the thing. Everyone takes a custom-made path. The leaders I interviewed all relish taking calculated risks and pushing beyond their comfort zones. They see mistakes as opportunities to learn. They know their strengths and weakness. They value trust. They are ready to adapt whenever necessary.  This is critical.  As Lululemon founder Chip Wilson points out, leading is a game in which nothing is done perfectly and the goal is simply to get better. But like in golf, you need a different combination of clubs for each hole. The big thing, of course, is that everyone I met generally saw continual learning as the path to continual excelling. You’re out of your mind and insecure if you think you need to be able to do everything well. Accepting the need for help is required to be a good leader. And you can’t just look for help in the obvious places because the really important influencers and critical knowledge people in any organization may not be the people you think they are.

Q: Did the leaders you met use formal mentors?

A: Ivey Dean Carol Stephenson thanks a mentor for a transfer that pushed her out of her comfort zone and helped her develop as a leader. And don’t forget the mentor role played by good boards. After Chip Wilson sold a skate-and-surf retailer that he built to a private equity group in the late ‘90s, a board was created and it removed him as CEO. That upset him until he realized that he ran the company for 15 years and didn’t make it profitable. Under an experienced board, the company implemented financial controls and made money. And that opened Wilson’s eyes to the value that can come from having a solid team of directors, not to mention having a founder willing to let go when the time is right.

Q: Do today’s leaders really have time to learn something new every day?

A: Everything worthwhile takes time. Barbara Stymiest, BlackBerry chair, told me that her challenge over the past two decades has been to keep up in a rich way about what is going on in the world. The trick is making time for the hard work that continual learning requires. When Charles Brindamour became CEO of Intact Financial Corporation, he blocked three to four hours every morning to gain a better understanding of areas that could influence his company. As CEO and chairman of ING Direct USA, Arkadi Kuhlmann conducted post-mortems like a die-hard hockey fan analyzing the performance of his or her favorite team. If companies put as much effort into figuring out what went right or wrong with a product launch or growth strategy as people put into analyzing why a goal was scored, or not scored, then the global economy would be much better off.

Q: Was there anything in common that you found surprising?

A: Most of the leaders in my book lacked an early burning ambition to be glorified as a leader.  Instead of dreaming of corner offices with private bathrooms, they were initially driven by a desire to make a positive impact as an individual or team member. As former Canadian Prime Minister Paul Martin put it, he was never hit by a stroke of lightning that made him jump up and declare, “Genghis Khan, here I come!” Umran Beba, president of PepsiCo Asia Pacific, got the leadership bug as head of her high school folk dancing club in Turkey, a job that included everything from recruiting dancers and managing a leadership team to setting a performance agenda and fundraising. Early leadership roles often spark the desire to excel as an organizational head, but they also reinforce the willingness to collaborate and trust others. That’s another key lesson. The next generation of leaders will need to embrace collaboration like never before because, as Lt. Gen. Russel Honoré (Ret.) says, sharing control over decision-making is often the only way to get things done in the new normal, where hierarchical thinking is a barrier to achieving results.

Q: Final question. You mentioned that N.R. Narayana Murthy, the billionaire co-founder of software giant Infosys, regularly scrubs the toilet to help him remain humble and open to learning from others. Do you think Steve Jobs would have been a better leader if someone had given him a toilet brush early on?

A: I don’t know if anything could have made Jobs act differently as a leader. The only thing I can say, at least with any certainty, is that if he was given a toilet brush, and if he had any interest in using it, then the toilet brushes on the market today would be a heck of a lot nicer.

N. R. Narayana Murthy, Co-founder of Infosys Ltd.
Photo: Getty Images

Q: OK, so let’s start with the toilet brush.

A: The gift idea stems from my experience in the classroom. I am always impressed by the quality of students in my MBA class. But when it comes to the desire to lead teams, departments or organizations, the level of confidence in some is often too high for the level of experience they have. Overconfidence needs to be checked early because success only further inflates the ego. For leaders, this is a major challenge, especially in India, where the hierarchical structure surrounds successful people with an aura of awe that serves as a barrier to good leadership because it makes it difficult to foster candor and establish the kind of relationships required to collaborate.

When meeting with N.R. Narayana Murthy, the billionaire co-founder of software giant Infosys, it struck me that many business students would love to have his career, but few are probably prepared to emulate his leadership style. Believe it or not, when Murthy gets home after a long day at the office, he frequently cleans the family lavatory. He doesn’t do this to impress his wife. Learning from Gandhi, he takes on tasks widely considered beneath his station as a reminder that all contributions to society should be valued. In the corporate context, this shows that you have respect for everybody’s contribution. And humility keeps Murthy’s mind open to learning from others. At Infosys, he had one rule: People can disagree as long as they are not disagreeable. That allowed him to get honest feedback and learn, among other things, that he tended to be too sales oriented, which made him at risk of valuing the contribution of salespeople more than others. That was a big revelation for him.

Q: Did you meet other leaders in India that go out of their way to battle ego?

A: I interviewed Gautam Thapar, chairman of the Avantha Group, and Kiran Mazumdar-Shaw, founding chair of Biocon. They each work extra hard at maintaining perspective because, as Mazumdar-Shaw told me, success makes you expect to be treated a certain way and when that doesn’t happen you get “uppity.” She was taught by her father, a brew master, to respect anyone who works hard at doing a good job. But she still relies on her husband to keep her grounded, which he does by constantly reminding her that people who mind, don’t matter, while people who matter, don’t mind. This is especially important to Mazumdar-Shaw because she understands the value of collaborative leadership.

Q: And Thapar also thinks ego is a major barrier to good leadership?

A: Absolutely. He advises leaders to shoot for the stars while keeping their feet firmly planted on the ground. He also thinks any CEO who writes a management book while still in office should be fired for hubris. Without humility and introspection, Thapar says CEOs are headed for derailment. He reminds himself there are plenty of so-called icons of management whose corpses now litter the road of downfall.

Q: How big a problem is ego outside of Indian boardrooms?

A: Ego is an issue for every leader in every organization. Former football star Michael Clemons once told my students he always found his biggest challenge staring at him in a mirror. Lululemon founder Chip Wilson says he took too long to realize leadership wasn’t about obtaining personal glory, a goal that puts off quality employees. Leadership, he says, is about making everyone else successful.

Q: Let’s be clear. You are not saying huge egos can’t succeed?

A: Correct. That’s not what I am saying. Plenty of Apple shareholders go on and on about how successful Steve Jobs was as a leader. But as former CEO of TransAlta Steve Snyder told me, good leaders work hard to earn employee respect every single day. And with all due respect to Jobs, he didn’t go out of his way to show respect to Apple employees.

Q: OK. So what else does it take to be a good leader?

A: Good leaders lead by example because, as General Motors CEO Dan Akerson pointed out, if you accept mediocrity, it will become a hallmark of your organization. Good leaders communicate a vision that inspires employees to work for more than just a paycheck. They take risks, but not ones that they don’t understand. They know the meaning of accountability, which Maple Leaf Foods CEO Michael McCain insists is inseparable from leadership. And we are not just talking about accountability during a deadly crisis. Good leaders bend over backwards to credit teams for success, but also step up to take the blame when an outcome is disappointing, like Bell Canada Enterprises CEO George Cope when the company lost its original bid to purchase Astral Media. Good leaders are aware of blind spots. Good leaders, of course, also must get the job done and they don’t cross lines in the process.

Christine Lagarde, Head of the
International Monetary Fund 
Photo: AFP/Getty Images

A lawyer by training, she came to the post after a six-year stint in the French cabinet. She is described as warm, informal—and highly disciplined. She was, after all, a member of the French national synchronized swim team in her youth, and still hits the gym almost every day.

Rumors persist that Lagarde may someday return to France and run for president. But these days, her focus is on repairing battered markets and an ailing global economy, a task that requires diplomacy and stamina. She recently sat down in her Washington, D.C., office with David Wessel, The Wall Street Journal‘s economics editor, to talk about the state of the world. Her edited remarks follow:

Q: We’ve come through a devastating financial crisis. Are we out of this?

A: We avoided a collapse in 2012. We have to guard against a relapse and we certainly do not have the luxury of relaxing. I think 2013 is going to be a critical year.

Q: In what sense?

A: A lot of the advanced economies’ leaders, thinkers, decision-makers are tired with crisis management. They want out of it. In a way, that’s good; but there is still work to be done. About 80% of the decisions have been made, for instance, in the strengthening of the European Union—a lot of the financial sector is better governed, better capitalized, better supervised. But if you don’t do 100% of it, you’re at risk again.

Q: There seems to be an unfortunate but understandable tension, particularly in Europe. When things start to get a little better complacency sets in. It’s almost as if we need another crisis in order to get things moving again.

A: I don’t think it’s Europe specific. I think it’s also true in other economies, including in the U.S. The fiscal cliff is dealt with, and yet there is more to be done. The moment yesterday’s crisis is dealt with, you want to forget about tomorrow’s issues. The central banks have been very helpful in that respect. They’ve accommodated a degree of slow-paced reforms and gradual fiscal consolidation.

Q: Have we done enough to renovate the financial system so we don’t have another crisis, or is there still more work to do? Are we safe from the banks yet?

A: No, not yet. It’s my 80/20 rule: I think 80% of the job has been done—liquidity ratios, identifying the systemically important international financial institutions—but if you turn to the over-the-counter derivative markets, for instance, it hasn’t been done. It’s still very obscure and not transparent at all. Plenty of work has been done, but international cooperation is going to be critically important, because otherwise you’ll have people having done what they think is their job in their respective corner but it will not be consistent with what others will have done. Bankers, traders, financiers are very smart and astute people; they will find out what is the right channel to optimize the system—which is fine, as long as risks are taken care of and as long as, at the end of the day, it’s not the taxpayer who picks up the bill.

There’s another issue, which is much on my mind: the rapid growth and development of emerging-market economies. For the moment, they have been quite sheltered because they are not financially sophisticated. It sounds a little patronizing to say that, but when you look at the development of their financial sector, the size of their financial sector relative to total [GDP], it is not that mature. It will develop, it will increase, it will be more interconnected and, as a result, there will be crises arising. The last crisis was in the advanced economies, but there will be one in emerging markets as well.

Q: Do you think democracy is up to the challenges we face?

A: In the short run, it’s a hurdle. You need to comply with the parliamentary rules, you need to communicate and you need to be transparent, which are the attributes of democracy. But in the long run, it’s a win-win because if there is ownership, there is appreciation of what each and every one in the system has to do.

Q: Asia is about 60% of the world’s population, and it will be about two-thirds by 2025. It’s obviously a growing share of the world economy. What challenges do you see in that?

A: One of the key challenges will be aging. Whichever corner you look at, with a few exceptions, you have rapidly aging populations, and that will have consequences in terms of consumption patterns, saving patterns, productivity and general development—which these populations, governments and international institutions, including the IMF, will have to be cautious about. That will be the case for Japan and China. India is going to be a different story. But you take Japan and China, and you have the second- and third-largest economies of the world.

Q: And it comes at the same time as we have similar trends in the U.S. and Europe. So what’s the problem? What are the tensions?

A: I think we need to be very open-minded about this, because typically the norm would be for aging people to actually save less. This is not what we are seeing in Japan. What we’ll see in China will be interesting—a country where pension schemes, health benefits and welfare systems are certainly not as developed as they are in the advanced economies. How will people behave? How will they save? How will they consume? Will they rely on the next generation?

Q: Look at the other side of the coin: the youth bulge in the Middle East and Africa. What about that?

A: Big challenges. This youth bulge is located in countries that have a pretty high growth level, much higher than in many other places in the world. Starting from such a low base, the per-capita growth of those countries will very likely progress, and that will cause frustration, backlash, possibly social unrest, certainly population migrations. And again, from an economy point of view, things have to be thought through in advance. These big trends will not materialize in the next two or three years. You’re talking not just 10 to 20 years, you’re talking 10 to 50 years. But they should be anticipated now.

Q: What kind of things do you think we should be doing to get ready for that? Is it a question of research, taxes, fiscal policy or immigration policy?

A: All of it.

Q: When you talk to leaders of governments, do they talk about these long-term demographic things?

A: They’re more focused on the short term because that’s where they have to make decisions, that’s where their own personal future lies. And you tend to stand where you sit.

Q: How big an economic risk do you think climate change is?

A: It’s a massive risk and it’s a huge opportunity, and for the moment we are ignoring both risk and opportunities associated with it. At the IMF, we look at it from a narrow lens—energy-subsidy reform, the price of carbon, a market for carbon. You know about half a trillion dollars is actually spent directly on subsidies for fuel, gas and electricity. To engage governments to change that and to make sure they can encourage better spending—not encourage massive consumption of fossil energy—it’s very difficult. Yet it’s a risk and an opportunity. The risk is excessive consumption. The opportunities are huge, with the spending that is saved reoriented toward infrastructure, education, health, you name it.

Q: What are the risks of not addressing climate change?

A: Our kids will be grilled, fried, toasted and roasted.

Q: You have said economists and policy makers have unwisely downplayed inequality. Why does that concern you?

A: Point No. 1: What we see from just looking at the numbers is a massive unequal distribution of wealth around the world—and not just in advanced economies, pretty much everywhere. Point No. 2: We now have research that demonstrates more equal distribution of wealth is conducive to more sustainable growth. So if we all take the view that solid balance and sustainable growth is adequate, necessary for a more balanced world with less unemployment and less risk of social unrest, the conclusion is fairly straightforward. We must pay, and governments must pay, more attention to a more equal distribution of wealth. I’m not a communist, but the reality is there.

Q: I’m curious, what’s at the top of your worry list when you go home at night?

A: Climate change is one for sure. So is the education of women. I know it’s a little bit farfetched relative to the core business of the IMF and its mandate. But I’m personally convinced that it is the answer to many, many, many issues. Whatever we can do to encourage and facilitate the education of young girls, access to financing for women, I think will go a long way in the development and better stability of economies around the world. Those are sort of long-term goals. I go to bed at night thinking about more short-term issues: countries facing difficulties; the U-turn by the Japanese authorities and whether it’s going to work; the U.S. challenge of coming up with a credible plan to reduce the deficit and to change the trend of debt.

Q: Do we have global governance that’s adequate for the globalization of markets and corporations and for issues like climate change?

A: No, I don’t think so. But I think that it is going to be difficult to achieve what would be desirable. Look at financial-market supervision or the definition of norms and standards in all sectors and areas or the organization of a carbon-emission market. It would be a good occasion to design a new system—or global economic and financial surveillance around the world—in order to anticipate a potential crisis. All these functions will be even more necessary in the future. But global governance is resented by governments, who have their own sovereignty.

Q: I sense a great deal of excitement about Africa at the moment. Is it justified and, more importantly, what has to happen for this momentum to continue?

A: I sense the same thing, particularly in the corporate world. I think it’s partly caused by the richness of all sorts of commodities that lie out there underground. It’s also prompted by the population size and the fact that there will be so many people between the ages of 16 and 40 who will be an available workforce. What will keep the momentum? I would say two things: peace and education of women, because if the education of women is not tackled promptly, then I think we will be heading for very difficult demographic challenges in Africa.

Q: Besides Europe and North America, you’ve been to Algeria, Brazil, Chile, China, Colombia, Egypt, Germany, India, Indonesia, Japan, Latvia, Malawi, Mauritius, Mexico, Malaysia, Niger, Nigeria, Peru, Philippines, Russia, Saudi Arabia, South Africa, Thailand, Tunisia and Turkey. If you were to go back and visit some places as a tourist—leaving out France and the United States—where would you most like to go?

A: I think I’d like to go back to Peru and to Tunisia.

Q: Why?

A: Peru because there’s such a mixture of coastline, extraordinary colors, historical remains or sights that I haven’t seen, and extremely gentle people that I’ve met. As for Tunisia, it’s the warmth, and I want to see how changes are taking place. And you also have a mixture of beautiful sea. I think in a previous life I must have been a dolphin, so anything that has this attracts me.

Q: How do you manage the jetlag of all these trips?

A: First of all, I can sleep on a plane. I don’t drink. I don’t smoke. I don’t eat meat. I think I have a healthy schedule that helps me cope with different time zones. I think it helps. I used to fight against my own body and tell myself don’t doze, don’t give up, you’re on daylight. I don’t fight with my body anymore. When I sense that it needs a 10-minute doze, I let myself doze. I might sit in the back of a car and tell the person next to me just give me a break, don’t talk to me, I’m going to sleep.

Photo: AFP/Getty Images

By contrast, H&M—the biggest buyer of clothing from Bangladesh’s $20 billion garment industry—has taken a highly public role in pledging to work with factories to improve their standards.

The jury is still out on which approach is better.

After a series of deadly factory fires in Bangladesh and last month’s factory collapse, which killed more than 1,100 people, Wal-Mart has publicly blacklisted about 250 Bangladeshi suppliers found to have safety problems.

Walt Disney Co. told its licensees in March that they could no longer produce Disney-branded goods in Bangladesh after boxes of Disney sweatshirts, bound for Wal-Mart, were found at the site of a major factory fire in December. Wal-Mart said it didn’t know its goods were being produced at the plant, which wasn’t authorized to make them.

Supporters of the stay-and-fix-it approach say it encourages retailers to play a more-active role in lifting standards, increasing the odds factories will fall in line. “The easy thing is to withdraw,” says Viveka Risberg, the head of Swedwatch, a nonprofit group involved in developing countries.

But even backers of the fix-it approach admit it has its limits. Retailers can’t catch everything that goes on in factories or fully track their suppliers. H&M has continued to face problems elsewhere, including in Cambodia, where the collapse of a rest area last week hurt more than 20 at a factory that was making H&M clothes without its permission.

Other critics say H&M parent Hennes & Mauritz had no choice but to double down on Bangladesh because the garment volume it requires from there is so big. Earlier this month, H&M was the first major label to sign a new industry pact, updated after last month’s catastrophe, to tighten safety standards in Bangladesh.

H&M is “better than other buyers but still needs to do more if it wants to be effective,” says Rashadul Alam, joint secretary of the Bangladesh Independent Garment-Workers Union Federation. More pressure on factory owners by buyers is the only effective means of prompting change in the industry, he said, since the government is loath to take on wealthy and politically connected factory owners.

A key test of H&M’s approach is under way at a Dhaka-area factory owned by Garib & Garib Co., a sweater supplier for H&M that was the site of a 2010 fire that killed 21 people. H&M has been the company’s biggest client since soon after its five-story factory was inaugurated more than a decade ago, its owner said, but H&M’s earlier efforts to prevent workplace accidents there failed.

In the fall of 2009, H&M’s auditors dropped in on Garib and found fire extinguishers had been covered, a safety violation that the retailer says was fixed on the spot. Nazmul Haque Bhuiyan, the owner, says the fire extinguishers weren’t covered.

But such safety controls didn’t prevent a fire from breaking out in February 2010. A short circuit on the first floor set the building on fire—an accident that H&M said couldn’t have been detected by an audit. Twenty women and a male supervisor died of inhaling noxious fumes from burning acrylic yarn, according to Mr. Bhuiyan.

Garib & Garib closed for six months. Mr. Bhuiyan says he borrowed $900,000 to make repairs and change all the wiring, and still has $2 million of debt from costs related to the fire. He said H&M contributed compensation for the victims of the fire, something the company confirmed. H&M declined to comment on Mr. Bhuiyan’s account that he had to pay for all the repairs.

Several buyers left Garib or declined to take delivery of orders after the fire, Mr. Bhuiyan says, without naming the retailers. But H&M stuck with the company, stepping up oversight while maintaining the same volume of orders as before the accident, accounting for 70% of Garib & Garib’s business.

After the factory opened again, H&M began making two unannounced visits a month, up from one a month before the fire, with the most recent last week, Mr. Bhuiyan said. He said he also got an email from H&M recently informing him his factory would undergo a fresh fire inspection as part of fire-safety checks H&M is conducting on all its factories in the country, and that the company would split the cost.

Other factories in Bangladesh say they have benefited from H&M’s more-flexible approach. DBL Group, which owns several factories and has worked with both Wal-Mart and H&M, says H&M gave one of its factories more time to resolve complaints of overtime violations and worked with the company to fix them, while Wal-Mart ultimately cut that factory off. Mohammed Abdul Quader Anu, a director at the company, said it was able to use the extra time from H&M to cut working hours for some employees, which it achieved in part by offering bonuses to teams that were more productive during regular work hours.

Labor group leader Babul Akhter said that Garib & Garib and DBL Group are now among Bangladesh’s better factories, particularly when it comes to physical safety, though some issues relating to leave and annual salary increases remain. Both plants say they meet compliance requirements for working hours and pay.

Wal-Mart said it stands by its zero-tolerance policy to automatically cut ties with suppliers that violate its safety standards or engage in unauthorized subcontracting. “Our message is loud and clear to our suppliers that we don’t tolerate such behavior and we are not backing down from it,” said Rajan Kamalanathan, Wal-Mart’s head of ethical sourcing. “Suppliers may try it, but as soon as we know what they have done, they will no longer work with Wal-Mart.”

Even if Garib & Garib and DBL are making progress, to be sure, they are only two of the more than 166 factories H&M says it uses in Bangladesh.

Boosting standards at factories H&M and other major retailers work closely with, meanwhile, is only part of the solution. It doesn’t cover the scores of other factories that sometimes wind up with retailers’ orders after authorized factory owners subcontract the deals to other, unapproved manufacturers. Retailers say the factories often do this without their knowledge.

In the case of the recent Cambodia accident, in which a relaxation shelter fell into a pond, an H&M supplier redirected the order to the factory without H&M’s permission—a violation of its code of conduct, the same one it applies in Bangladesh. “We can never guarantee that a supplier doesn’t subcontract an order to a factory that is not approved,” says Maritha Lorentzon, H&M’s Social Sustainability Coordinator. “But the more presence you have in a country, the greater overview you have.”

Mr. Bhuiyan says he is convinced H&M is serious about improving factories, but he says their flexibility does have a limit. The firm has warned him that there can be no second chances at Garib & Garib, he said.

“They say, ‘Be careful Nazmul. If I get one chance I’ll put you out,’” said Mr. Bhuiyan.

—Kate O’Keeffe, Gordon Fairclough, and Sun Narin in Phnom Penh, Ben Fritz in Los Angeles and Shelly Banjo in Dallas contributed to this article.

Fred Hochberg, president of the Export-Import Bank

The government organization came under fire last year from those opposed to financing export deals. Its charter was renewed, but a fight over the bank is expected to flare up again next year. Ex-Im bank president Fred Hochberg defended the bank’s success at its annual spring meeting, saying he’s fulfilled the mandate handed to him by President Obama at the bank’s annual conference three years previous. He said Ex-Im’s efforts led to the support of 255,000 jobs in 2012.

“Here at Ex-Im we have a role to play – financing American companies and their workers to go up against unprecedented competition – from foreign companies, from state-owned enterprises and from foreign governments,” he said in a speech at the organization’s conference. “U.S. exports now top $2.2 trillion dollars. And 6.4 million more Americans now work in the private sector than three years ago. But the real credit goes to the innovation and dynamism of American businesses and your workers.”

The Ex-Im Bank provides loans and loan guarantees, as well as credit insurance to American business to help support the export of goods and services. Ex-Im says only 1% of American companies actually export goods.

While the bank recently completed a $4.97-billion direct loan to the Sadara Chemical Company, a joint venture between Saudi Aramco and Dow Chemical Company, that directly supports 18,000 American jobs, Ex-Im is largely focused on small and mid-sized businesses, says Phil Cogan, vice-president of communications for the bank who is based in Washington. “People forget that big businesses weren’t always big,” Cogan says.

Cogan says that in many instances smaller American businesses may actually be exporting, but only to limited markets. He said one of the goals of Ex-Im is to help those companies consider expanding to other foreign markets while mitigating some of the risk.

“We’re talking to companies that are already exporting and only doing into one or two countries,” he says. “Sometimes that’s a Mexican-American exporting to Mexico because they know the region. We want them to think about exporting to Indonesia or Guatemala. But they are afraid they won’t get paid – and that’s universally the No. 1 reason companies won’t export… And small businesses need capital to fulfill an order they have in their pocket – and that’s where we come in.”

Ex-Im’s record of loans is diverse – with an increase of 17% more support going to businesses operated by women or minorities – and have very few failures. It also has a solid record of risk management performance, with a default rate of 0.336%, according to Hochberg.

Cogan says that despite making the largest financing in Ex-Im’s history this year with the Sadara deal, 87% of its transactions are aimed at small businesses.

“We’ve done the biggest deal in our history and $10,000 transactions at the same time,” he says. “And those smaller deals can be as costly in terms of time required, but the growth in business and jobs stems from small business.”

Behind the move: an environmental push.

Photo: Erik Isakson

The push isn’t in North Carolina but in Europe, where governments are trying to reduce fossil-fuel use and carbon-dioxide emissions. Under pressure, some of the Continent’s coal-burning power plants are switching to wood.

But Europe doesn’t have enough forests to chop for fuel, and in those it does have, many restrictions apply. So Europe’s power plants are devouring wood from the U.S., where forests are bigger and restrictions fewer.

This dynamic is bringing jobs to some American communities hard hit by mill closures. It is also upsetting conservationists, who say cutting forests for power is hardly an environmental plus.

On a hot Tuesday along North Carolina’s Roanoke River, crews were cutting the trees in a swampy 81-acre parcel, including towering tupelos. While many of the trunks went for lumber, the limbs and the smaller trees were loaded on trucks headed to a mill 30 miles away, to be ground up, compressed into pellets and put on ships to Europe.

“The logging industry around here was dead a few years ago,” said Paul Burby, owner of a firm called Carolina East Forest Products that hired subcontractors to cut the trees after paying a landowner for rights. “Now that Europe is using all these pellets, we can barely keep up.”

The logging is perfectly legal in North Carolina and generally so elsewhere in the U.S. South. In much of Europe, it wouldn’t be.

The U.K., for example, requires loggers to get permits for any large-scale tree-cutting. They must leave buffers of standing trees along wetlands, and they generally can’t clear-cut wetlands unless the purpose is to restore habitat that was altered by tree planting, said a spokesman for the U.K. Forestry Commission.

Italy and Lithuania make some areas off-limits for clear-cutting, meaning cutting all of the trees in an area rather than selectively taking the mature ones. Switzerland and Slovenia completely prohibit clear-cutting. It is a common logging practice in the U.S.

U.S. wood thus allows EU countries to skirt Europe’s environmental rules on logging but meet its environmental rules on energy.

The wood-power industry says its approach is environmentally sound. “We only take the low-value material from the forest,” said Nigel Burdett, the environment chief for Drax PLC, a U.K. power company that is converting some coal units at the U.K.’s biggest power plant to wood and setting up pellet mills in the U.S.

The industry also cites the ability of trees newly planted after cutting to absorb greenhouse gases. “Young trees absorb more carbon than older trees,” said John Keppler, chief executive of the U.S.’s biggest wood-pellet exporter, Enviva LP, at a London conference on “biomass” power in April. “What’s the best way to get more carbon absorbed? Cut it down. Replant.”

Environmental groups dispute that logic. They say all the carbon that mature trees have been “sequestering” is instantly released when they are burned, far more rapidly than saplings can absorb it.

If Europe’s goal is to reduce carbon emissions, “it doesn’t make any sense to cut down the trees that are sequestering carbon,” said Debbie Hammel, a resource specialist at the Natural Resources Defense Council.

The European Union’s environment agency said it is trying to assess the consequences of creating a U.S. pellet boom. “The European Commission is currently analyzing the environmental risks” of large-scale biomass production, said a spokeswoman for the office of the energy commissioner at the Commission, which is the EU’s executive body.

The Commission, she said by email, is trying to determine “whether such risks can be effectively managed through existing forest/environmental policies.”

The push began in 2007, when the Commission set a goal, by 2020, of reducing Europe’s greenhouse-gas emissions to 20% below their 1990 level. It also set a goal of moving Europe to 20% renewable energy by 2020.

Solar and wind couldn’t meet the latter goal, policy makers recognized. They said wood qualified as a renewable energy source as long as it came from forests that would grow back. Emissions from burning wood contain less of certain chemicals, such as sulfur, than coal smoke.

European countries devised a system of awarding credits to companies that generate electricity from renewable sources. They then can sell their credits to electricity suppliers.

Drax has long burned coal in a plant rising from pastoral Yorkshire fields. This has become an increasingly unattractive practice, for a variety of reasons that include a carbon tax floor the U.K. made effective this year. Drax has set out to convert half its coal units to wood.

The plant has converted one of its six units so far, and last year it sold about $90 million of renewable-energy credits to other companies, a spokeswoman said. After it fully converts two more units, Drax expects to burn about seven million tons of wood annually and collect about $600 million a year from renewable-energy credits.

“’The logging industry around here was dead,’ said one logger. Now, with Europe’s demand, ‘we can barely keep up.’”

Reasons for favoring the U.S., besides its ample forests close to ports, include political pressure in Europe against buying in countries where there would be a risk of getting illegally harvested tropical hardwoods.

Europe’s nine largest wood-burning utilities consumed 6.7 million tons of wood pellets in 2012, according to Argus Media, which tracks the industry. Argus expects European pellet consumption to nearly double by 2020, with much of the new demand met from the U.S. American mills exported 1.9 million tons of pellets last year, up nearly fourfold in three years, by Argus’s figures.

U.S. exports of coal to Europe have also risen, owing partly to price fluctuations in natural gas. Energy analysts call the trend temporary since some coal plants are set to close in coming years.

The pellet economy appears to be developing faster than rules to guide it.

Principles the EU has told member countries to follow say wood for energy can’t come from forests that aren’t reforested after cutting. Also, trees from sensitive areas like wetlands, old-growth forests or areas of wide biodiversity aren’t supposed to be burned for power. Doing so would violate sustainability criteria the European Commission has outlined, said the spokeswoman for the commission’s office of the energy commissioner.

Those criteria were set for biofuels such as alcohol distilled from wood. The EU has told member countries to use the same guidelines in forming their policies on wood as fuel, though this currently isn’t binding on them. The EU is currently studying wood-specific rules. Individual countries will be responsible for interpreting and enforcing them, said people involved in the policy process.

In the U.K., it still isn’t clear exactly what restrictions there ultimately will be on wood from wetlands trees, said the U.K. Department of Conservation and Climate Change. The U.K.’s draft rules indicate it might be permissible to use some such wood if it were determined that logging it didn’t permanently change a wetland’s ecosystem, a spokeswoman said. European authorities can’t mandate what forests in other countries are harvested, only tell European companies what kind of wood fuel will qualify for renewable credits.

With the rules so unsettled, ensuring the forestry is sustainable has been left largely to power companies and pellet suppliers.

Drax said it carefully monitors its supply chain. “We are not taking old-growth forest,” said the company’s Mr. Burdett. Drax said it requires pellet suppliers to exclude wood from areas that would be permanently deforested or have their ecosystems destroyed.

Many of the pellet-making plants springing up in the U.S.—which include plants planned by Drax and other European power companies—are near pine plantations established long ago partly to serve the now-slumping wood-pulp market.

Enviva charted a different course. The company, backed by New York private-equity firm Riverstone Holdings, put some of its pellet plants near natural hardwood forests that had established loggers and access to ports, but depressed tree-cutting activity because of pulp-mill closures. Enviva, a supplier to Drax, recently opened one of its largest plants so far in Northhampton County, N.C., in the coastal hardwood belt.

Mr. Burby, the logger who bought rights to cut trees along the Roanoke River near Windsor, said that in the past, he would “shovel-log” the swamps—clear-cut them with bulldozer-like vehicles riding on makeshift roads made of trees. He sold the large trunks to lumber mills and smaller stuff to pulp mill.

Some of the logging that feeds European demand is done in swamps like in Windsor, N.C.

In 2009, a paper-company pulp mill he sold to closed. His business fell off steeply, partly because “you couldn’t get rid of the hardwood pulpwood.” Landowners didn’t want big mounds of limbs piling up, and without a market for the pulpwood, it was hard to make a profit.

Now, Enviva’s pellet mill in Ahoskie, N.C., has created a new market for pulp-grade wood. Standing on a section of higher ground near the Roanoke, Mr. Burby said the pellet mill made it possible for him to keep his crew working there, cutting the pine, oak, beech and sycamore in the drier sections and the tupelo gum and cypress hardwoods that grow tall in the flooded areas.

“With Enviva opening up, you can justify shovel-logging again,” Mr. Burby said.

The North Carolina Forest Service allows logging in wetlands as long as it complies with state laws prohibiting destruction of waterways, said a spokesman, Brian Haines. Among voluntary “best management” practices, the agency urges loggers in its published guidelines to “minimize activity on saturated soils and near waterbodies.” In wet areas, the state recommends building roads out of trees as Mr. Burby did, to help keep heavy machines from damaging the wetland.

Enviva said it requires timber suppliers to follow state-recommended best-management practices and sometimes audits logging operations. Customers sometimes inspect Enviva’s operations, its spokeswoman said, so it has an incentive to be careful where its wood comes from.

Still, wood from forests with trees more than 100 years old, including some from wetlands, does wind up in pellet plants, according to loggers. In recent months, foresters have clear-cut portions of two such Roanoke River areas and delivered some of the wood to Enviva’s mill in Ahoskie, the loggers said.

Logger George Henerson said that earlier this year, he sold Enviva several hundred tons of hardwood that his crew clear-cut from a swamp that hadn’t been logged for about 100 years.

“Enviva, now they need wood bad enough that they’re paying for some swamp logging,” said Mr. Henerson.

Academics who study wetland forests say some of those along the Roanoke are sensitive environments that it may not be possible to clear-cut sustainably. William Conner, a forestry professor at Clemson University, said recent research shows that wetland trees in the Roanoke area regrow slowly after clear-cutting and without the same species mix.

Stanley Riggs, a geologist at East Carolina University, said that besides the animal and plant habitat that mature wetland forests provide, they help prevent flooding. He said clear-cutting them is “destroying a whole ecosystem.” A North Carolina group called the Dogwood Alliance, along with the Natural Resources Defense Council, is launching a campaign against pellet mills.

Enviva’s spokeswoman said the swamps along the Roanoke were logged sustainably, because the loggers took measures to prevent damaging the ground, such as keeping their bulldozers on a temporary road, and the landowners will let the trees naturally regrow.

Photo: AFP/Getty Images

“The critical thing is that a lot of what is crossing are goods in a supply chain that have to get to places in a narrow time window,” says Dr. Bill Anderson, Ontario Research Chair in Cross-Border Transportation Policy at the University of Windsor. “So they can’t be relaxed about the fact they get through in a good day in 10 minutes, but an hour on a bad day because it disrupts things. And there’s a huge variance in crossing times and you can’t plan for that.”

Currently, an estimated 221,000 jobs in Michigan alone are linked to transit involving the border crossing into Canada. There is a rail tunnel, a barge for hazardous waste, a tunnel for cars and the Ambassador Bridge, which is one of only two privately owned bridges linking Canada to the U.S. The proposed new bridge should be completed by 2020.

Offering another border crossing has been a contentious issue for more than a decade. The Ambassador Bridge, which is aging and in need of updating, is owned by the Moroun family, who have opposed any move to add a new border crossing, saying it owns a monopoly on the crossing in perpetuity. The Moroun family launched a civil suit to stop construction of the bridge, which will be located a few miles away and link highways in Canada to those in the U.S. The family lost a Michigan referendum on the issue in last November’s election.

One of the big factors for experts examining the crossing is the lack of redundancy. Terrorism, weather or even a chemical spill could close the Ambassador Bridge and snarl traffic and trade for hours or even days, disrupting trade along the way.

“If there was a spill on the bridge or there’s an accident, you’d have to take everything to Sarnia,” says Anderson. “And losing one bridge makes it the post-9/11 scenario, with trucks backed up. And that makes U.S. and Canadian companies less productive.”

The new bridge, which is expected to cost $3.5-billion once roadway, inspection stations and other factors are considered, should alleviate some of the concerns about trade crossing over the border.

“It is arguably the busiest border crossing in North America,” says Mark Butler with Transport Canada. “Our traffic studies indicate it’ll increase over the next 30 years. The Ambassador Bridge goes through [5.5 miles] of city streets. Consequently, you have some truckers who go through Port Huron and that’s a detour, especially if it is just-in-time delivery materials heading to manufacturing plants.”

The new bridge will greatly expand opportunities to utilize new technologies and move trade across the border much quicker.

“At the new bridge there will be about 30 lanes and the existing Ambassador Bridge has 20 lanes,” says Butler. “Our forecasts and traffic studies say that traffic over the next couple of years will increase or even double because of sheer economics.”

Anderson agrees, saying the expanded capacity will allow for more rapid travel.

“More lanes across makes it possible to take advantage of trusted trade and traveler programs,” he says. We’ll have three lanes in each direction rather than two. Firms will get more benefit for that.”

Anderson points out that two of the most significant growth markets in North America are Toronto and Chicago. Shipping goods between those two cities is key to trade for American companies. “Losing the bridge would be a big issue for American companies,” he says.

In April, the new bridge received approval from President Barack Obama, news that came about six months after Canadian Prime Minister Stephen Harper reached an agreement with Michigan Governor Rick Snyder over how the bridge would be financed. The Canadian government will pay for the entire cost of the bridge under an arrangement that would see it recover the money over a period of time through tolls.

Building the bridge is expected to create 12,000 jobs in construction, according to Governor Snyder, and more than 30,000 additional positions indirectly relating to the project.

It remains to be seen whether the building of a new bridge will have any impact on the current spat between Canadian and New York officials over improvements to the Peace Bridge between Buffalo and Ft. Erie, Ont.

Photo: tangeroutlet.com

North Carolina-based real estate investment trust Tanger Factory Outlets Centers Inc., which already has three locations north of the border, is expanding in Canada. This month, Tanger and partner Toronto-based RioCan REIT will break ground on a new outlet mall near the capital city of Ottawa that is expected to cost about C$120 million. They are also spending an estimated C$60 million to expand a smaller outlet mall in Cookstown, about 50 miles north of Toronto.

Tanger and RioCan, Canada’s biggest retail landlord, also co-own two small outlet shopping centers in Quebec. Large-scale renovation and expansion projects for those centers could begin later this year, said Stuart Craig, vice president of planning and development at RioCan. Mr. Craig said the partners hope to break ground next year on another shopping center near Calgary.

Meanwhile, Simon Property Group, another U.S. REIT, is working toward the August opening of the Toronto Premium Outlet, about 25 miles northwest of the city. That project is a joint venture with Calloway REIT, which is based in the Toronto area. The center, which the company says is 85% leased, will house Hudson’s Bay Co.’s first-ever outlet.

Simon Property also is set to begin work on a shopping center near Montreal in July — that one a collaboration with Calloway and SmartCentres, a big Canadian developer of unenclosed shopping centers. Other Canadian locations could be on the way. In a recent earnings call, Simon Property mentioned Vancouver as another potential market for expansion.

“Canada generally is very attractive to most U.S. retailers,” David Simon, chief executive, said. But many retailers want to establish a full-price presence in Canada before considering an outlet location, he said.

“The luxury brands are starting to hit Toronto,” he said. The Toronto Premium Outlet is planning a second building phase that, he said, will able to house those retailers when they are ready to launch an off-price outlet.

Analysts at BMO Capital Markets see Calgary, Ottawa, and Edmonton as further potential markets for a Simon Property’s upscale outlet mall, saying in a research note, “Canada could support seven to 10 new fashion outlet developments over the next several years.”

U.S. retailers have been looking to Canada for growth in greater numbers recently. Target Corp. is in the midst of a massive Canadian expansion, with plans to open 124 stores this year. Others who have recently set up shop here, or plan to, include department-store Nordstrom Inc., J.Crew and Ann Taylor.

Photo: Getty Images

Drawn by government tax breaks and the country’s deep reserve of talented game developers, these companies are setting up studios focused on developing digital games as consumer taste shifts away from traditional videogames for console players and personal computers.

Microsoft Corp. opened its Lift London studio in November last year, one of the company’s bets on making online games for tablets, mobiles and PCs. “This isn’t a little experiment to see if it works, we’re here to make hits,” said studio head Lee Schuneman, who moved from Rare Ltd.—Microsoft’s U.K. Xbox console games studio—last year.

The revival of the game industry in the U.K. followed the sharp drop in revenue and job cuts it saw between 2008 and 2011 after the closure of big, console-based studios, in response to the shift to digital and companies’ departure to countries that offer tax relief to the industry.

Richard Wilson, head of The Independent Games Developers Association, which represents the country’s game industry, said that since 2011 there has been “an explosion of small startup companies.” The sector contributed £947 million ($1.45 billion) to the U.K.’s gross domestic product in 2012, up from £912 million in 2011.

It isn’t hard to see the attraction of the digital space. Sales of video- and PC games in the U.S., which accounts for 45% of videogame sales world-wide, fell 21% in 2012 to $7.09 billion, according to market-research company The NPD Group. By contrast, digital-content spending, which includes downloads of games and in-game purchases, subscriptions, mobile and social-network games, grew 16% to $5.92 billion last year.

In the U.K., nearly 80% of the game studios are now focused on the digital sector, Mr. Wilson said, with the rest focused on producing games that are sold in retail outlets.

Microsoft doesn’t foresee digital-game production at its Lift studio overtaking console production in the short term, Mr. Schuneman said. But he added that the digital-games market “is a fast-moving space.”

Don Whiteford and three of his colleagues started up the Nomad mobile-games studio in Warrington, near Liverpool, with the redundancy payout from THQ Inc., a U.S. developer that collapsed in 2012. Their first game, based on the fantasy board game Talisman, launched in the Apple and Android app stores last month and a second iteration for multiple players will follow later this year.

“The benefit for the mobile developer was that you could deploy your product relatively easily” by putting it on the app stores at little cost, Mr. Whiteford said in an interview. But as the industry has grown and more games have come to the market, the challenge now is to stand out, he said. Nomad spent what Mr. Whiteford said was a “not insignificant amount” on a marketing campaign to publicize the game internationally.

The government’s efforts to lower corporate tax rates and offer industries greater tax relief—in the hope of stirring a sluggish economy—have helped make the U.K. more attractive to game companies, said Divinia Knowles, chief financial officer of Mind Candy, the company behind Moshi Monsters, a website where children adopt and nurture a pet monster. Mind Candy has 80 million members and a savvy merchandise division selling magazines, sweets, collectible figures and wallpaper that helped the company earn sales of £29 million in 2011, the latest year for which figures were available, from £1.9 million in 2009.

“Low corporate tax rates are a good incentive [to develop in the U.K.], as is research and development tax relief,” Ms. Knowles said.

The government raised tax relief on research and development spending to 225% in April 2012 from 200%. The corporate tax rate is to be lowered to 20% by 2015 from 24% currently.The U.K. government last year also proposed a tax credit for the games industry, although the European Commission in April launched an investigation into whether the game industry’s tax breaks are necessary to support the industry.

The credit would offer 25% tax relief on up to 80% of the production budget of a game, similar to an existing credit for the country’s film industry.

A Treasury spokeswoman said the government expects the games industry to claim around £25 million of support a year if the relief is approved. “The government is taking the necessary steps to ensure the U.K. remains a world leader in these sectors and that they continue to make their valuable economic and cultural contributions to the U.K,” the spokeswoman said.

To steer clear of European Union restrictions on state aid, the tax credit was crafted to be predicated on a cultural test which ostensibly ascertains the ‘Britishness’ of a particular game, although the characters and setting of a game can also come from the European Economic Area. Studios get points if a British or EEA national develops the game, as well as for the game’s location or the origins of characters in the game, all of which count toward qualifying for tax relief.

The measure’s introduction has been delayed by the Commission’s investigation, and an adverse ruling could lead to its abolition.

Mr. Wilson, Tiga’s chairman, said the film tax credit in the U.K., as well as a French tax relief for its game industry, were investigated by the EU before being approved, so he is hopeful the investigation will only produce a delay rather than abolition of the credit.

Japanese games developer Konami said it is looking to create a team of U.K. developers to expand its Pro Evolution Soccer series into the European market. Shinji Hiran, Konami’s European president, said the team would “provide more localized elements that ensure the game looks and sounds familiar to local fans.”

Homegrown developer talent is another rationale for international investment into the U.K. Tiga research shows that 80% of the work force in the U.K.’s game industry is qualified to a university degree level or above and almost 100 universities in the U.K. offer specific games development courses.

Gree, the Japanese social-network group that entered the U.S. market with its purchase of mobile developer Funzio last year, chose the U.K. to set up its European studio in 2012, partly owing to the pool of talent in the country. The first project to come out of Gree’s studio shortly is a collaboration with Mind Candy on a new Moshi Monsters mobile game.

“We appreciate the long history of games development for consoles and mobile in the U.K. and therefore we know that many talented developers are based here,” said Daisuke Kobayashi, Gree’s U.K. senior vice president. “At the same time the location is very convenient to reach many parts of the world and allows us to easily attract talent across Europe.”

Some senior figures in the industry have pushed for reforms to retain this edge in personnel. Ian Livingstone, an influential figure in the U.K. fantasy and game industry, who was at the helm of Eidos Interactive when it developed Lara Croft, has lobbied to get computer science back into secondary schools.

Photo: AVTG

“The spectrum of acceptance of GE crops is wide,” says Cary Sifferath Middle East, Africa & Europe Regional Director of the US Grains Council, “from the Irish who rely on imported corn and soy and are very open to GE crops, to Austria and Hungary where everyone, from government to the public, are adamantly opposed to GE foods.

The latest Eurobarometer study, conducted in 2010, showed widely diverging views on GE foods among consumers from different EU states. But several patterns have emerged: support for biotech food has been fading over the 1996-2010 period and opposition seems to be least pronounced in countries that produce GE crops.

Yet European livestock producers continue to rely on imported feed protein—to the tune of 32 million metric tons of soy products annually, according to the US Department of Agriculture (USDA)—almost all of it biotech varieties from Argentina, Brazil and the U.S. This tension between public opinion and structural supply deficiencies plays out differently in each member state, which means that both regulation and business opportunities will likely be locally driven.

According to the USDA, EU member states fall into one of four categories, based on the level of acceptance of biotech crops (see chart). Understanding the dynamics between consumer attitudes, farmer and industry positions, and the government’s regulatory stance in different states is critical for U.S. and Canadian companies eyeing the opportunities in the EU market for food and agricultural products and services.

EU member states categorized by their level of acceptance of GE foods (including % of public poll respondents that supports encouragement of GE foods)

Producers - These are the European countries that are the continent’s largest producers of GE crops. By and large, governments and the general populace in this group consider biotech plant production a positive—helping to enhance agriculture productivity and ensure food security. Spain is the leading producer, with 85% of the EU’s acreage—more than 93,000 hectares—of GE corn authorized for cultivation within the Union. Portugal, the Czech Republic and Slovakia—the second-, third- and fourth-largest producers of GE corn, respectively—view biotech crop cultivation and research with a pragmatic eye, working to reap the economic benefits of biotechnology while keeping a finger on the pulse of public opinion. In Romania, where farmers grew GE soybean prior to the country’s accession to the EU, acceptance remains strong among consumers, producers and government bodies.

Adopters. Countries in this category are generally ready for broader adoption of GE foods—domestic farmers and manufacturers have a positive perception and there is little public opposition. The UK government has been a proponent of the potential benefits of biotech foods. Even so, popular demand for clearer labeling and disclosure of GE ingredients is rising. A recent poll conducted by the government’s Food Standards Agency indicated that two-thirds of British consumers consider the labeling of GE ingredients in food products to be “important.”  The election of a new government in Ireland has moved the country closer to a position of greater acceptance of GE foods. And the other members of this category—Denmark, Estonia, Finland, Lithuania and Sweden—would all produce GE crops if authorized in the EU.

Hesitators. This is the category with the largest number of EU member states. In these countries, GE plant production is seen as contributing to greater farming productivity, and both farmers and industry are generally open to biotech agriculture. At the same time, popular views favor organic practices as the means of achieving long-term sustainability of food and agricultural production. Regulations are restrictive across most countries and public opinion is opposed to GE plant adoption. The Netherlands and Belgium—particularly the latter’s Flanders region—boast the highest level of receptivity to GE crops. In Poland, authorities are increasingly opposed to GE foods, which are widely perceived as unhealthy, but there is unregulated production of biotech corn. In Germany, acceptance of biotech crops is waning. All open-field testing there has ceased and production of GE crops is banned. BASF, a leading German agrochemical company, announced in early 2012 that it planned to relocate its biotechnology plant science headquarters to the U.S. In Bulgaria and France, while farmers and industry are amenable to biotech crops, governments and consumers are strongly opposed to the influence of international agribusiness conglomerates. As a result, both countries have banned production of GE crops.

Opponents. The countries in this group represent the die-hard opposition to biotech agriculture in the EU. In these states, biotechnology is seen—not only by consumers and governments, but also by local farmers—as incompatible with organic agriculture, which they have chosen as a strategic path to ensure sustainability and differentiation for their crops, as well as to obtain public subsidies. Four members of this group—Austria, Hungary, Greece and Luxemburg—have instituted national bans on planting GE crops. Austria, a major organic producer in Europe, is the most vocal opponent of GE foods in Europe. Given its historic and economic ties with Hungary and Slovenia, Austria’s stance on biotech foods has influenced public views and policies in these countries. Rising nationalistic anti-globalization sentiments among Hungarian farmers and consumers have strengthened these views. In 2011 Hungary ordered private companies to destroy thousands of hectares of biotech corn, and it has been a consistent opponent of GE foods.

Across the EU, food and farming remain emotionally and politically charged issues that give rise to a wide array of opinions among different member states. Even in biotech-producing countries, popular demand for clearer labeling and disclosure of GE ingredients is rising.

On the packaged foods front, consumer food giants, like American chocolate manufacturer Hershey’s, are looking ahead and finding it wiser to adapt to the anti-GE sentiments that continue to swell in Europe, In 2010 Hershey’s agreed to remove all ingredients extracted from GE crops from its confectioneries sold in the UK.

Yet the EU’s own livestock industry is structurally reliant on imported GE feed. As UK environment secretary Owen Paterson commented in December 2012, “There isn’t a single piece of meat being served [in the typical London restaurant] where a bullock hasn’t eaten some GM feed.”

This tension between public opinion and structural supply deficiencies will mean that the future of biotech foods in Europe is far from certain, and unlikely to be decided at the central EU level. According to expert observers, the current climate and outlook for biotech foods in the EU create excellent opportunities for companies that specialize in diagnostic testing of food products, consulting on food labeling, as well as for organic producers and exporters. North American companies looking to capitalize on the opportunities in Europe’s food, agriculture and biotech industries will do well to study the local dynamics and trends within each EU member state.