Managing Growth Issue 2

managing

GROWTH SPRING 2008

€4/£3

the essential guide to sustaining fast growth

Inward Investment Report

Cyprus, Bulgaria & Macedonia

Business Education

Knowledge is power

European Investment Fund

Extending the SME value chain

plus AEO • conference management • european networking • climate change

Contents

Contact us | editor@managingrowth.com | Spring 2008

Copenhagen

70

cover story

10 European Investment Fund - Extending the SME value chain news

8 Growth Finance News business education

28 Research in Business Education - Gordon Shenton sets out how the EFMD

EQUIS Accreditation system is now tackling the issue

34 The Key Reason for obtaining a quality MBA - By John Fernandes, President and CEO of AACSB

42 The Modern MBA - Jeanette Purcell

examines the benefits of obtaining an MBA

Editor’s Letter

inward investment

I

46 Inward Investment Report - Noble

f knowledge is power, then this spring edition of Managing Growth is a portfolio of business muscle. Taking a closer look at the European Investment Fund for European SMEs, we investigate the high growth potential of development capital.

The ABCs of business education are spelt out as we examine the benefits of business qualifications. Reporting on inward investment, we reveal essential insights into how it can be done successfully. The logistical problems of transporting goods are tackled with a valuable lesson in the qualification that will simplify customs procedures. And finally, we explore the successful management of business conferences, empowering you to network to your heart’s content.

Charles Vandeleur Editor

knights or conspiring dragons? - By Kai Hammerich, President of WAIPA

52 Macedonia - New business heaven in Europe

56 Cyprus - Poised for Serious Growth - By Marina Thedotou of CIPA 58 Cyprus - A Serious Contender to Holding Company Jurisdictions - By Pieris Markou of Deloitte Cyprus

60 Understanding the Emerging Investment Opportunities in Cyprus

- By Christos Mavreliis of Demetriades & Co

62 Bulgaria - One of the EU’s newest members

supply chain and logistics

24 AEO – Authorised Economic Operator - A proof of high security

standards - By Robert Verrue, EU Commission

26 AEO- An Enviable Opportunity - Editor Charles Vandeleur editor@managingrowth.com

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

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

10

By Jon Carling of Bell Davies

conference management

66 MPI - Meeting the needs of modern business by Didier Scaillet

Print Design & Production Phillip Wentworth design@gamutplanet.net

68 Essential Algarve - Choice destination

Website Design & Hosting www.d2media.co.uk

70 Copenhagen - A great place to do

Advertising Sales James Stone Colin Gilmore-Smith Victoria Pearce Email: sales@managingrowth.com Finance Director Andrew Lidstone Email: accounts@managingrowth.com Published by Raellen Communications Ltd 145-157 St John Street, London EC1V 4PY Tel: +44 207 639 3311 Email: editor@managingrowth.com Web: www.managingrowth.com Cover: © Photo: Androsov Konstantin | istockphoto.com

for conferences and incentives

business

general interest

6 Deloitte Fast 500 18 The Enterprise Europe Network - A

one-stop shop for business and innovation support services

20 International Chambers of Commerce - Charting a business roadmap for a climate change pact

73 Business Fun - A wry look at business 74 Editor’s Choice - Each issue we unearth luxury places to stay and do business - this issue we visit the Copenhagen Plaza

managinggrowth | 5

What is the Deloitte

Technology Fast 500?

W

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

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

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

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

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

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

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

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

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

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

6 | managinggrowth

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

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

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

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

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

© Photo: Youssouf Cader | Dreamstime.com

Deloitte fast 500

Technology Fast500 EMEA 2008

www.fast500europe.com

growthfinance news EIB and KfW sign Risk Sharing Framework Agreement for SMEs IN FRANKFURT, THE European Investment Bank (EIB) and KfW Bankengruppe have signed a risk sharing framework agreement for the KfW SME programme ‘Capital for Work and Investments’. Under this risk sharing agreement, between 2008 and 2010 the EIB will assume risks for a total of EUR 100 million arising in connection with subordinated financing offered under the KfW programme.

Detlef Leinberger, member of the Board of Managing Directors of KfW Bankengruppe at the signing of the agreement in Frankfurt said: “The mezzanine financing we offer is especially important for small and mediumsized enterprises (SMEs) because of the quasi-equity tranche that it includes. I am very glad that the EIB is joining this programme. In so doing, it is supporting the SMEs of Europe’s largest economy, companies that create both innovations and jobs and, as such, need corresponding financing offers” .

Matthias Kollatz-Ahnen, EIB Vice-President, underscored this: “Our goal, and that of the European Union, is to support innovation and jobs in SMEs and, in this way, to boost the competitiveness of Europe’s economy. In order to achieve this goal we are ready to design suitable financial products and also to accept greater risks. Mezzanine capital gives us leverage, above all for more jobs. In addition, this joint financing is a successful continuation of the cooperation between our two institutions.”

The KfW SME programme ‘Capital for Work and Investments’ is part of the ‘Unternehmerkredit’ (entrepreneur loan) family of products that offer subordinated financing which specifically targets start-up entrepreneurs, the self-employed and SMEs. This subordinated financing combines the advantages of debt and equity capital: entrepreneurs do not need to provide any collateral for these loans. A long loan term featuring a grace period of up to seven years eases liquidity pressure during the investment phase while helping the companies to retain their profits and, in this way, to increase their equity capital.

The programme component ‘Capital for Work and Investments’ is tailored to the needs of established companies that have already been active in the market for over five years. Companies are using this programme mainly to finance investments within Germany that contribute to their sustained economic success while creating or safeguarding jobs. Similar investments by German companies in other countries are also being financed. The

8 | managinggrowth

subordinated financing under this programme is tied to a classic loan of the same amount for which standard bank collateral is provided. The volume of this kind of financing package is limited to EUR 4 million per project. The programme is offered through commercial banks, which assume the liability for the classic loan that they onlend.

KfW, in turn, releases the banks from liability for the subordinated tranche, for which no collateral is provided. The interest rate depends on the credit rating of the company receiving the funds. In the year 2007 a total of EUR 323 million was committed under this programme, with 50% offered as unsecured subordinated loans.

The EIB and KfW have been working together in the fields of SMEs and the environment for several years.

Last year, for example a joint programme for the purchase of carbon credits, managed by the KfW Carbon Fund, was set up. The aim of the EIB-KfW Carbon Programme is to support SMEs in particular from all over Europe which need carbon credits to comply with their CO2 emissions targets under the European Emission Trading Scheme (EU ETS), but that are unable to access or develop projects that can reduce carbon emissions abroad. Furthermore, KfW has taken on a key role in the EIB initiative for establishing a post-Kyoto fund for the period after 2012.

About KfW: KfW Bankengruppe gives impetus to economic, social and ecological development worldwide. A promotional bank under public law, its shareholders are the German federal government (80%) and the federal states (20%).

Its balance-sheet total of EUR 360 billion (as at 31 December 2006) makes it one of Germany’s biggest banks.

It performs its legal mandate to offer financial support in various economic and social areas. By granting longterm loans at favourable rates, KfW Bankengruppe supports, among others, commercial SMEs and business start-ups and also stimulates both innovation and the equity capital market. It takes a strong stand for climate and environmental protection and its diverse financing offers make an important contribution to promoting investment and sustainable development both within Germany and abroad. In addition, it supports the private housing sector and the development of municipal infrastructure while being committed to education finance. KfW Bankengruppe does business in the area of export and project finance and performs promotional tasks in developing and transition countries.

Europe Arab Bank subscribe $50m as part of $200m warehouse facility of WEST, a subsidiary of Willis Lease Engine Corporation Europe Arab Bank’s Transportation & Logistics Team, headed by Relationship Director Gilles Charmey, has subscribed $50 million in the newly issued warehouse securitization facility of WEST (Willis Engine Securitization Trust), a wholly owned subsidiary of Willis Lease Engine Corporation. The company leases spare commercial aircraft engines, parts and aircraft to commercial airlines, aircraft engine manufacturers and overhaul/repair facilities worldwide. These leasing activities are integrated with the purchase and resale of used and refurbished commercial aircraft engines.

The $200 million WEST warehouse securitization credit facility is provided by a syndicate of banks including Calyon as sole underwriter and structuring agent for the warehouse securitization facility, Bayerische Landesbank, Credit Industriel et Commercial, and Europe Arab Bank.

The facility will be used to finance the acquisition of new aircraft engines and support the medium term growth of Willis Lease’s portfolio.

Avenir Entreprises Mezzanine: EUR 60 million to support SMEs in France

The renaissance of German Venture Capital The ERP-EIF Dachfonds team continues to see outstanding opportunities in German Venture Capital. Full or partial exits achieved in its portfolio funds such as for Xing (formerly OpenBC, now traded on the Frankfurt Stock Exchange with a ~EUR 190m market cap), Eyesquad (sold to Tessera Technologies) and DocMorris (recently acquired by Celesio) support this positive assessment.

The German VC’s bright outlook is further substantiated by a number of promising developments at existing portfolio companies of the funds in which EIF has invested. Examples include IDEA AG (that recently signed a licensing agreement with Alpharma) and Wazap that launched its services very successfully in Germany, China and most recently in the US. Currently, Germany provides for lucrative opportunities to invest in young tech companies at reasonable valuations. As the biggest European economy and most populated EU country, Germany has a competitive advantage and offers the critical size, notably for companies with internet-based business models addressing consumer and B2B markets.

These market conditions are considered to be unmatched in Europe.

There are also sound prospects in the Life Sciences and other segments of the venture space. This is particularly so for VC fund investors with the necessary experience, ability and funding who enable their companies to enter the market. By supporting such investors, either established or as emerging teams, the ERP-EIF Dachfonds participates in promising, innovative technologies ranging from OLEDs (Organic Light Emitting Diodes, a technology, that is just now commercialised in the first TV sets) to novel Stent Materials.

It is in this context that the ERP-EIF Dachfonds has recently committed as cornerstone investor to both Wellington Partners Ventures III Life Science and Wellington Partners Ventures IV Technology.

To be fully able to address the current and future investment opportunities and to ensure its active investor approach pre- and post signature, the Dachfonds team at EIF has recently been reinforced with the recruitment of Dr. Markus Schillo as Principal. With his Life Science and VC experience, he further enhances the knowledge base of the team and adds significant execution resources.

Prior to joining EIF, Markus Schillo spent three years as CEO of BioFutura Equity-Partners, where he was in charge of a VC sub-portfolio of a renowned Private Equity company, advised the corporate finance unit of an investment bank (M&A, capital market transactions) and was mandated by several medium-sized pharma companies to support their business development and licensing activities. Before this, he was investment manager at BdW (Private-Equity branch of Dresdner Bank AG) responsible for VC and early stage fund-of-funds investments of BdW. Markus Schillo graduated from the University of Karlsruhe with a Diploma in Biology and received his Ph.D. in Molecular Biology at the Institute for Molecular Cell and Neurobiology.

The two major players in SME financing in France, CDC Entreprises and OSEO, and the European Investment Bank (EIB), the bank promoting European objectives, are joining forces to support high-potential small and very small enterprises at the development or buy-out stage by means of an innovative vehicle called “Avenir Entreprises Mezzanine” (AEM).

The EUR 60 million provided by CDC Entreprises, OSEO and the EIB will enable the investment fund “Avenir Entreprises” to play an enhanced role in SME financing.

Specifically, AEM will issue convertible bonds worth between EUR 50 000 and EUR 300 000, generally with a maturity of eight years and redeemable in one or several instalments. The attraction of this mezzanine instrument for businesses is that it is similar to quasi-equity, so enabling them to fund themselves while maintaining their debt capacity and strengthening their balance sheet.

Avenir Entreprises will develop a new product aimed at better meeting the financing needs of small and very small French companies with a turnover of less than EUR 50 million.

Avenir Entreprises will strengthen its regional presence by means of this new financial product (which will be distributed through OSEO’s network), in confirmation of its commitment to energising France’s economic fabric, with the help of two major French (CDC) and European (EIB) lenders.

This first such operation in France will enable the EIB – the EU’s financing institution, whose priorities include SME support – to meet the needs of small firms more closely. “The European Investment Bank puts SME financing at the heart of its activities and has launched a Europe-wide consultation aimed at improving the financing instruments to support small businesses. This operation mounted along with OSEO and CDC Entreprises provides an example of the kind of innovative financing that can be developed in Europe. I welcome the fact that we are able to carry it out in France” said EIB Vice-President Philippe de Fontaine Vive.

Owned by CDC Entreprises and OSEO, Avenir Entreprises has been making equity investments of up to EUR 2 million in French SMEs for more than 20 years. It has supported over 500 firms and is part of the “France Investissement” facility.

managinggrowth | 9

european investment fund

EIF

EXTENDING THE SME VALUE CHAIN Small and medium-sized enterprises (SMEs) are a major source of jobs, entrepreneurial skills, innovation as well as economic and social cohesion in the European Union (EU).

There are some 25 million SMEs in the EU, accounting for over 99% of all enterprises and contributing up to 80% of employment in some industrial sectors, such as textiles or construction.

I

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

This is where EIF steps in.

EIF: a brief overview Established in 1994 as part of the European Investment Bank (EIB) group, the European Investment Fund (EIF) is a financial body which activity is centred upon two areas: Venture Capital and Guarantees.

EIF supports SME finance for innovation, research and development, entrepreneurship, growth, and job creation, in line with the strategy set by the Lisbon European Council in March 2000.

EIF’s venture capital instruments consist

10 | managinggrowth

of equity investments in venture capital funds and business incubators that support small and medium sized enterprises. EIF takes participations in these funds, usually through significant minority stakes.

EIF’s guarantee instruments consist of providing guarantees to financial institutions that cover credits to SMEs. EIF’s counterparts are banks, leasing companies, guarantee institutions and mutual guarantee funds. These financial intermediaries then provide financing to SMEs. EIF has a unique and specific shareholders structure. It is owned by the EIB (66%) and the European Union - through the European Commission (EC) (25%) but is also the only EU organisation that enables public and private financial institutions (32 from 17 countries) to have a shareholding (9%). In October 2006, the Industrial Development Bank of Turkey (TSKB) has become EIF’s first shareholder in Turkey, evidence of EIF’s commitment to supporting the economic development in the region.

european investment fund

EIF Venture Capital activity the end of 2007 and through its participaWhile venture capital and other early stage tion in 272 funds, EIF actively contributes to financing are developing in Europe, they rethe development of venture business in the main lower than in the US. Many econoEuropean Union. mists suggest that one of the important reaEIF’s generally co-invests its own resourcsons behind the American success in the es along side third party resources from its arena of knowledge economy is its vibrant two main shareholders. capital markets, and especially its venture Since 2000 EIF has managed EIB’s recapital funds. The greatest benefit from vensources dedicated to venture capital and ture capital is that it redistributes risk away small/mid caps which is a EUR 4bn everfrom the entrepreneur to the venture capital green mandate. The EIB’s mandate main obbusiness, which diversifies the risks in its jective is to support technology and industrioverall portal innovation folio. Conthroughout EIF is a leading player sequently early stage, in the VC market, not this way of expansion only due to the scale financing and deand scope of its investstart-ups, velopment ments in the high-tech in particular capital, with early-stage, technolhigh-tech an emphaogy transfer and laterones, may sis on instage segments, but substantially novative EU also due to its catalytic affect the companies speed of deand generrole in attracting privelopment alist funds vate sector funding. of new techin the EU’s nologies and neighbourthus with it, long term economic growth. ing countries. By end December 2007, To live up to this challenge, it is vital that amounts signed using EIB resources have European venture capital is able to generate reached over EUR 3.5bn. returns that can match the return figures of In addition to this, EIF has managed EU the US market. By achieving this, it will beresources the MAP (Multiannual Programme come an equally attractive and self-sustainfor Enterprise and Entrepreneurship) proable asset class that can provide long-term gramme. From 2001 and up to 2006 EIF and stable funding to European technology managed this budget line dedicated to SME and innovation. growth and development. By end December EIF is a leading player in the VC market, 2007 amounts signed under EU resources not only due to the scale and scope of its reached over EUR 0.3bn. investments in the high-tech early-stage, EIF also manages funds of funds investtechnology transfer and later-stage seging its own resources along side public and ments, but also due to its catalytic role in private non shareholder investors. attracting private sector funding.

On a mandate awarded by the German EIF’s investments also cover the main Federal Ministry of Economics and TechEuropean markets represented by the UK, nology (BMWi) in 2004, EIF manages the France, Spain, Italy, Germany, Austria, the ERP (European Recovery Programme) Benelux, Scandinavian countries and EastDachfonds, a EUR 500m facility (including ern and Central Europe. EIF total Venture EUR 250m from EIF) for VC investments in capital portfolio amounts to EUR 4.4bn at tech companies located mainly in Germany.

managinggrowth | 11 © Photo: Enjoylife25 | Dreamstime.com

european investment fund This was the first mandate awarded to EIF by a non-shareholder which therefore places confidence and gives additional impetus to EIF’s activity.

Neotec was co-sponsored by EIF and the Centre for the Development of Industrial Technology (CDTI: Centro para el Desarrollo Tecnológico Industrial), a public business entity of the Spanish Ministry of Industry, Tourism and Commerce, in 2005. Reaching EUR 183m, the programme has brought together Spanish public and private sector investors to boost investment in Spanish SMEs. NEOTEC leverages EIF resources to ensure a coordinated approach between EIF, national public bodies and the private sector, and furthermore, gives Spanish public and private investors access to EIF’s know-how in fund-of-funds management.

In 2006, EIF and Natixis Private Equity (NPE) jointly sponsored Dahlia, a Pan-European fund-of-funds. Dahlia combines primary and secondary investments, building up on the respective strengths of EIF and Natixis. The initial fund amount totalled EUR 300m. Commitments to date have reached some EUR 83m. iVCi – dedicated investment programme in Turkey In December 2007, EIF, the Technology Foundation of Turkey (TTGV), the SME Development Organisation of Turkey (KOSGEB) and the public Development Bank of Turkey (TKB) launched a dedicated fund of funds and co-investment programme in Turkey. Istanbul Venture Capital Initiative, or “iVCi” as the programme is known, aims to serve as a catalyst for the extension of the private equity industry in this country notably in the early stages which is crucial to the development of the Turkish economy. iVCi is to be advised by EIF. EIF is expecting to invite a small group of blue chip Turkish and international investors to participate in this programme.

The first closing of iVCi took place in Luxembourg on 13 November 2007 at EUR 150m.

Financing Tech Transfer Technology Transfer is the process by which the results of research and development (R&D) are transformed into marketable products or services. This transformation can take place through a number of means, in particular collaboration between research organisations and industry, licensing and creation of start-up businesses.

To capitalise on European research as a means to promote economic development and a knowledge-based society, EIF’s Tech-

12 | managinggrowth

nology Transfer programme aims to support the needs of European research organisations.

Some examples of EIF’s technology transfer operations: • A UK-based venture fund with IP Group, which goal is to support spin-offs up to the point that they reach critical financial mass. The fund invests at both seed and post-seed stages. It is not technology-specific but generally invests into life science, ICT, materials/physics and nanotechnology.

• EIF and the University of Leuven (Belgium) entered a partnership agreement to create a centre for drug design and discovery.

This department will pursue drug development projects in close collaboration with academic research departments such as the Rega Institute for Medical Research. This initiative will, for example, help to fund Rega’s drug development to fight viral diseases.

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

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

By the end of December 2007, EIF had signed 190 Guarantees operations covering over 28 European countries. Out of these signatures, EUR 7.3bn were made using EU financial resources from which over 360.000 SMEs have benefited indirectly from enhanced access to finance.

SME loan guarantees activity EIF’s main product line under mandate of the EC consists of bilateral SME loan portfolio guarantees.

They allow, for example, financial

european investment fund institutions, mutual funds or promotional banks to enhance SME lending through economic capital relief. Although these guarantees are provided to financial intermediaries, European SMEs can reap the benefits, as such portfolio guarantees contribute to developing the lending activity of the banking sector towards smaller companies.

This type of guarantee cover aims at very small SMEs.

plified by the launch of a recent European initiative for the development of micro-credit in support of growth and employment. The initiative purpose is to identify and overcome the main barriers impeding the development of micro-credit in the European Union.

Credit Enhancement (Securitisation) activity EIF credit enhancement for securitisation, is meeting an important demand in the capital market. There is a growing attention on the scarce resource of equity capital for banks, Microfinance driven by stronger focus on shareholder valUnder EU MAP, the Micro-credit ue, with decreasing margins in a weak and Guarantee facility supported enpartly over-banked economic environment, trepreneurs and micro-enterprises changing regulatory framework and the curwith up to 10 employees, guaranrent difficulty for banks of raising additional teeing micro-loans of up to and avequity in the capital markets. erage of EUR 8,000-10,000. It was At the same time banks are making aimed at very small businesses just strong efforts to improve their risk managestarting up which face particular difment instruments and to adapt their busificulties in having access to financness model; certain banks are moving away ing due to the relatively higher risk from their traditional lending activity, and in they represent and the insufficient particular from SME lending. SME loan sesecurity they can provide. curitisation is therefore an important means The Micro-credit allowing banks window encouraged to keep on exThe Micro-credit window financial institutions to tending longencouraged financial become more involved term financing institutions to become in this area by offerto SMEs, and more involved in this ing loans of a smaller EIF plays a sigarea by offering loans amount, to provide nificant role by of a smaller amount, access to financing making these to provide access to to a larger population transactions financing to a larger of small companies happen as EIF population of small for a wider variety of can take both companies for a wider investments and to senior and mezvariety of investments provide guarantees for zanine positions and to provide guaranriskier loans. in this very speThe scheme was cialised area of tees for riskier loans. in operation between activity.

2002 and 2006; guarIn 2007 EIF antee commitments approved and has entered into new credit enhancement signed under the Micro Loan Winexposures for more than EUR 1.3bn spread dow reached roughly EUR 200m, across a large number of deals and jurisa considerable sum, considering dictions. EIF has supported both synthetic micro-loans average amounts. In all structures (directly as credit default swap micro-credit operations, “mentorcounter-party for mezzanine or senior risk ing” (the regular follow-up of end vis-à-vis originators in unfunded transacusers) is an essential feature. In this tions or through guarantees on credit linked respect, specialised non-profit maknotes to investors in partially or fully funded ing organisations play a very importransactions) and cash transactions (typitant role that is complementary to cally through bilateral guarantees on assetthe banking sector, which provides backed bonds). Since EIF more often than the financial resources (ADIE, ICO, not restricts it involvement as credit enPrince’s Trust, Fonds de Participahancer to the mezzanine risk segment, it tion, DTA, and Firststep). manages to achieve a high leverage effect There is a consensus at European on the capital resources backing its guaranlevel on promoting microfinance as tee activity. The credit enhancement activa means of social integration and a ity started off as a typical product for SME source of employment: this is exemloan and lease receivables portfolios but has

managinggrowth | 13 © Photo: Barbagianni | Dreamstime.com

© Photo: © Dwphotos | Dreamstime.com

over time come to cover also other asset classes, as for instance, venture loan financing and micro finance assets.

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

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

Joint European Resources for Micro to Medium Enterprises – JEREMIE JEREMIE is an initiative undertaken jointly by the European Commission and the EIB Group. Its aim is to give to the Member States the possibility to create investment funds by using part of their structural fund allocation for the period 2007-2013. The investment funds will be managed by an intermediary (which could be the EIF). Its purpose is to

14 | managinggrowth

ease access to finance to start-ups, mic ro - e n t e rprises and S M E s , with the help of a range of financial products adapted to the specific needs of the final b e n e f i c i a ries (including equity-type or mezzanine investments). JEREMIE has been designed to allow for a more creative use of structural funds, turning away from subsidies towards structured products which will substantially increase the leverage of public grant money.

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

During 2006 and 2007, the special JEREMIE task force created within the EIF conducted some 40 gap analyses, throughout the 27 Member States. Memoranda of Understanding have already been signed with the Slovak Republic, Romania, Bulgaria; a letter of intent was signed with Portugal in 2006 and the first Jeremie funding agreement was signed with Greece in June 2007.

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

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

EIF is however not just financing, it is also

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

improving access to finance. The new JEREMIE programme which improves SME access to EU Structural Funds, is an important new area.

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

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

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

European Investment Bank, Brussels

e-commerce

multicards more shoppers online than ever before E-commerce sales have increased significantly as consumers continue to shop online

D

ata from comScore Networks showed that in 2006 consumers spent more online than ever before. A late holiday push sent the overall spending for the year to $102.1 billion -- the first time spending for one year has topped $100 billion. For 2005, spending was $82.3 billion for the full year and $19.6 billion for the holiday season.

E-Commerce boosts local economies enormously and especially the upcoming younger generation has hardly any concerns about security and use of credit cards online.

Fewer shoppers are still worried about the security of their financial information when making online purchases. Although some are concerned about providing their credit card information, despite assurance of card companies to compensate a possible loss, most of these shoppers really do want to shop online as online shopping has a lot of advantages.

There are new tools available, and more on the way, that aim to reduce online fraud and therefore reduce opportunities for chargebacks. It’s no secret that online merchants are at a disadvantage when it comes to chargebacks. With no credit card to swipe or receipt to sign, verification of a sale is voodoo at best. When customers offer their credit card over the internet they want assurance that their account information is safe.

Most payment service providers support the authenticated payment programs by VISA and MasterCard where the chargeback risk is shifted to the issuing bank, instead of the merchant.

Each major credit card issuer has come up with a secure system online that involves use of a password known only to the credit

18 | managinggrowth

card owner. Customers should look for sites that support these new standards, ‘Verified

by Visa’ and ‘MasterCard SecureCode’. It’s just like entering your PIN at an ATM. If an incorrect code/password is entered, the purchase will not be completed. Even if someone knows the credit or debit card number, the purchase cannot be completed without the private code.

MultiCards’ Gateway --which integrates seamlessly with call center systems, websites and other business systems—reduces fraud and subsequently delivers lower transaction rates. Payment processing can

be provided for both single- and multi-site merchant operations to provide a full audit trail with reporting functions. Of course, with operations facilitated by PCI compliant easy back- and front office integration.

The new Payment Card Industry (PCI) data security standards are network security and business practice guidelines developed by Visa, MasterCard, American Express and Discover Card.

This programme was developed in order to further improve the security of card data processing and storage on credit card processing payment systems and are intended to protect cardholder data ensuring that members, merchants, and service providers maintain the highest information

security standard. MultiCards is one of the payment service providers (PSP) that have successfully completed the participation in this programme and have reached PCI compliant and certification status.

“The e-commerce business is all about making money and finding ways to make more money. It’s hard to make (more) money, when some consumers don’t feel safe or comfortable executing a transaction on your website.”

That’s where SSL (Secure Socket Layer) comes into play. SSL is all about encryption.

SSL encrypts data, like credit cards numbers (as well other personally identifiable information) which prevents the “bad guys” from stealing your information for malicious intent.

You know that you’re on an SSL protected page when the address begins with “https” and there is a padlock icon at the bottom of the page.

Moreover, recent surveys show that 93 percent of online shoppers surveyed by VeriSign reported that they felt it important for an e-commerce site to include a trust mark of some kind on their site. Moreover 64 percent have abandoned a shopping cart/basket because they didn’t get a sense of security and trust when it came time to provide payment information and 75 percent of online shoppers will only make purchases through sites that include a trust mark.

“Online brand preferences are hardening as consumers become more loyal and increasingly accustomed to the design and organization of their preferred sites.” according to Nick Hendriks. “In mature Internet markets, we are starting to see the same types of consumer brand loyalty you would see in the offline world. Early adaptors have an advantage, but it’s not too late…”

european networking

Enterprise Europe Network the

a one-stop-shop

With more than 500 contact points and 4,000 experienced staff, the Enterprise Europe Network is the largest network in Europe providing expertise and services for business. These are available to companies of all sizes irrespective of whether they are in manufacturing or services, although they are primarily directed at small and medium sized enterprises (SMEs). Enterprise Europe Network consists of research institutes, universities, technology centres, chambers of commerce, and business and innovation development agencies.

It can help clients in their search for business partners, especially in countries other than their own, arrange individual on-site visits to assess a company’s needs and provide advice on a broad range of business issues 18 | managinggrowth

for business and innovation support services

T

he Enterprise Europe Network, launched in January 2008, builds on the strengths of the previous Euro Info Centre and the Innovation Relay Centre networks by including many of the services provided by the two former networks. The separate services provided by these two networks in the past meant that potential clients would often have gone to different locations to receive complementary advice. With more than 500 contact points covering more 40 countries in the EU and beyond, the new network is able to provide local business support using the ‘no wrong door’ principle across the whole network from all network partners. SMEs now receive personalised information that is tailored to their needs from all contact points in the new network.

By grouping services under a single roof, administrative procedures are simplified and advice is provided on a coordinated basis. Overall, on an annual basis,

the network undertakes around 50,000 technology audits, concludes more than 1,000 partnership agreements, and organises 4,000 local events and workshops on SME-related topics. The Enterprise Europe Network offers entrepreneurs a one-stopshop where they can seek advice and benefit from a wide range of easily accessible business and innovation support services.

Identifying EU business opportunities Small businesses, especially in their early stages, often do not have the resources to closely monitor all the different kinds of assistance that EU programmes can provide. Nor are they always able to fully assess the innovative and market potential of their products or explore new business opportunities, particularly outside the areas they know well. The Enterprise Europe Network bridges this gap. The network aims to overcome this by ensuring that companies, either individually or in consortia, are aware of the possibilities available to them.

european networking

priority. In addition, the network can assist SMEs by encouraging their participation in European research programmes and by applying for funding where appropriate.

Encouraging innovation Technological breakthroughs are crucial to economic development across Europe and the network attaches special attention to encouraging innovation in the knowledge community. Innovative processes not only enable companies to develop new goods and services and reduce costs by improving production techniques, but they can also contribute towards energy efficiency, a priority which has risen rapidly up the EU agenda.

The network can provide help to small businesses with technical issues, such as intellectual property rights, standards and EU legislation, as it can be difficult for companies to remain abreast of changes in EU related opportunities. The network promotes innovation by encouraging SMEs to become more innovative and by sharing research results and cooperation opportunities to trigger new ideas and possibilities.

Promoting collaboration with regional and sectoral innovation clusters and ensuring access to innovative technology is another

Developing cross-border cooperation Fewer than one in ten SMEs do business outside their own country, despite the abolition of national barriers and the opportunities firms with comparative advantages can find in niche markets. By using established contact points, the network can provide specialised advice for companies wishing to expand their operations abroad, both within the EU and further afield.

An estimated one million European SMEs could be involved in cross-border trade and investment, if only they could call on the appropriate support services. The network organises matchmaking events to assist technology transfer and business cooperation by identifying suitable trusted partners. Summary details of potential partners are stored in the network’s business cooperation database and circulated widely within the network.

visits to assess a company’s needs and provide advice on a broad range of business issues.

The Enterprise Europe Network aims to overcome the knowledge gap regarding different sources of EU financing and ensure companies are aware of all the possibilities available.

Feedback to the European Commission The network also provides the European Commission with a unique means of communicating directly with smaller companies, using a regular feedback mechanism to ensure that the policies and initiatives it prepares suit the requirements of SMEs and do not adversely affect the competitiveness and innovative potential of smaller companies.

More information on the new Enterprise Europe Network can be found at: www.enterprise-europe-network. ec.europa.eu/index_en.htm

Research cooperation and EU funding Sharing the results of research can trigger new ideas and new opportunities, stimulating firms to develop products and services beyond their initial horizons. The network can help develop these exchanges and nurture potential partnerships. It can help clients in their search for business partners, especially in countries other than their own, arrange individual on-site

managinggrowth | 19

climate change

charting a

BUSINESS ROADMAP for a climate change pact

The Bali roadmap produced during the United Nations Framework for Climate Change (UNFCCC) meeting last December charts the course to negotiating a new international agreement on climate change by 2009. Business, government, non-governmental organizations and intergovernmental organizations are now working together to address perhaps the most urgent issue of our age.

T

he next big opportunity to advance the discussion will be at the 14th Conference of the Parties (COP14) to the UNFCCC in the Polish city of Poznan in December 2008. COP-14 will further develop a process that is intended to lead to a long-term climate regime involving all nations and providing business with the clarity that it needs to plan and undertake long-term investments.

There is no shortage of areas where action is needed: mitigation, adaptation, finance and technology − including market-based approaches as well as flexible and voluntary ones to engage capital markets.

More frequent substantive dialogue between business and government must be a regular component in the global talks taking place within the UNFCCC, and in a host of important forums, including the G8, the Asia-

20 | managinggrowth

Pacific Economic Community, and the U.S. Major Economies Initiative, among others.

Four practical issues must figure prominently in ongoing discussions: the need for more business-government engagement, policy frameworks that stimulate greater business investment, the use of all energy options, and policies which take into account the wide range of national and sectoral requirements.

Ministers and negotiators working on the UNFCCC agreement must bear these four issues in mind, particularly as business will deliver most of the effort, financial resources and technological solutions to help put all countries on the path to cleaner development and to combat the risks of climate change.

An analysis by UNFCCC indicates that industry’s contribution will be 86% of the total investment. The International Energy

Agency’s forecast of investments required to satisfy growing energy demand continues to mount, set at $20 trillion by 2030.

We are well aware of the challenges, but we also see opportunities for progress and for new markets in the move to cleaner energy, development and lifestyles. As businesses operating all over the world and in every industry sector, we urge countries and other important players to turn their brainpower and resources to finding ways to lift countries out of poverty and make progress on technologies that efficiently utilize the planet’s resources. We urge them to do so not just in the climate change negotiations, but in the World Trade Organization, the G8, and in other key discussions, to encourage technology cooperation and cleaner investments by strengthening trade regimes and other enabling frameworks.

Talks must also focus on how to lower

climate change

By Guy Sebban, Secretary General, International Chamber of Commerce Photo: Rui Vale De Sousa | Dreamstime.com

barriers for business to invest in clean technology, and how to promote public-private partnerships.

Partnerships between the public and private sectors must be significantly multiplied worldwide to increase the role of business in technological cooperation and to raise foreign direct investment by business on the massive scale that is required. Developing countries especially need these partnerships to nurture their nascent economies and societies.

Talks must focus on how to lower barriers for business to invest in clean technology, and how to promote publicprivate partnerships.

For these partnerships and investments to perform to their fullest, the right legal and regulatory frameworks must be put in place, including: open markets, strong institutions, protection of intellectual property, respect for the rule of law, and stable regulations founded on sound economic analysis.

Above all, the policies which emerge from

these forums must be flexible enough to allow business to respond in a multitude of ways. Permitting a diversity of regional, national and sector-by-sector approaches will allow business to key in on the most efficient and cost-effective ways to mitigate carbon emissions and to adapt to the fallout from climate change.

Flexibility and diversity are needed to meet the widely-varying energy needs of countries around the world. All viable energy options must remain on the negotiating table. This is not the time to rule out technologies or energy sources.

As the most representative business organization in the world, with hundreds of thousands of member companies in all sectors spanning more than 130 countries, the International Chamber of Commerce (ICC) is uniquely placed to voice business views and to help build consensus for a post-2012 international framework to effectively address climate risks.

ICC has been working for years in concert with governments and international organizations to find global solutions to climate change, whether in partnership with

other business organizations, with national governments through the G8 or the WTO, or via its privileged consultative status with intergovernmental bodies, including the United Nations.

Businesses everywhere have already made major changes in the way they operate, introducing new products, services and processes that help reduce greenhouse gas emissions.

The challenges ahead are complex. The opportunities are many, but only if we cooperate closely and carefully structure policies that respect national and regional priorities.

Society can find solutions and prosper while addressing climate change, but only if we keep an open mind, allow ideas to come forward, and get countries and businesses to work together.

managinggrowth | 21

ADVERTISEMENT FEATURE

the art of

THE DEAL People aren’t negotiating in the same way!

“Hi tech” affects us all, not just computers but electronics and diagnostics, meaning we have to adapt our business strategies and negotiation techniques. Can you get your car serviced as easily as you used to? I had a friendly neighbour with a tool kit, now I have to go to a VW garage with specialised diagnostic equipment!

If our company gets the lowest price won’t we get the best deal? The inclusion of more value-added services has accelerated the shift from a straightforward manufacturing economy to a service one. This means negotiation has shifted from price to value. One of the cornerstones of better value is looking at deals in terms of total cost.

I let the sales and purchasing people do all the negotiating! Negotiation is not something undertaken exclusively by sales and purchasing departments. We all negotiate, internally with company colleagues and externally with people in other organisations.

How do I handle competitive negotiators? There are broadly four types, or modes, of negotiation. ‘One-win’ negotiations are hostile and highly competitive. By contrast the cooperative or ‘both-win’ mode means both parties arriving at a mutually beneficial agreement. Organisational negotiations are those we conduct internally, within the business or team.

Personal negotiations are far less open as they often contain hidden agendas. All four modes are used in every negotiation, like driving a car on a journey. The skill is knowing how, and when, to change.

Five Key Skills • plan and prepare in advance.

• aim higher to do better.

• know how to change type of negotiation when necessary.

• recognise and use power.

• remain objective and stay calm under pressure.

Top Tips to Seal a Better Deal • avoid first concession on a major issue.

• don’t set your initial offer too close to your objective.

• give yourself enough time to negotiate.

• don’t assume you know what the other party wants.

• never accept the first offer that meets your objectives.

For more information on improving your negotiation seminars visit www.karrass.co.uk.

Karrass Worldwide Ltd. Discovery Court, 551-553 Wallisdown Rd, Poole, Dorset BH12 5AG. Tel +44 (0) 1202 853210 Fax +44 (0) 1202 853212 Email info@karrass.co.uk.

Freephone in the UK on 0800 007 6938

© Photo: Dmitriy Shironosov | Dreamstime.com

22 | managinggrowth

customs control

Robert Verrue,

Director-General of the Directorate General Taxation and Customs Union of the European Commission, discusses the importance of the

AEO

Authorised Economic Operator a proof of high security standards

H

istorically, the main role of the customs was perceived as being the collection of customs duties and indirect taxes at import. Numerous developments in commercial policy and the development of e-commerce on the one hand and the threat of terrorist attacks and the role of organised crime on the other hand, have altered the environment in which Customs operates.

Today, customs are facing new challenges: they must ensure the smooth flow of trade whilst applying necessary controls and guaranteeing protecting the security and safety of the European citizens.

24 | managinggrowth

Š Photos: John Wollwerth & Janpietruszka | Dreamstime.com

The AEO certificate and its advantages Therefore, the European Commission proposed in 2005 to create the European Authorised Economic Operator (AEO) status which would be recognised in the 27 Member States: reliable traders complying with high quality and security standards would benefit from facilitation with regard to customs controls relating to safety and security and/or from simplifications provided for under the customs rules.

The AEO concept has just entered into force on 1 January 2008. Our aim is to ensure a safer and more secure end-to-end supply chain whilst allowing compliant traders benefiting form trade facilitation measures throughout the Community.

customs control In the conception phase, the Commission and the Member States wished a very flexible system in order to allow that every operator could take advantages in the AEO status. It was clear that not every operator would be interested in benefiting from every customs simplifications and every customs control facilitations either because he focuses his activity in one specific area where only one simplification is needed or because the investment cost to comply with criteria is disproportionate to the benefits he could gain from it.

Therefore, traders have the possibility to opt for different AEO certifications, depending on their needs: AEO can be granted for customs control facilitation measures (“secure” AEO) or for easier admittance to customs simplifications or for both.

The most attractive certificate combines both customs control facilitation and easier admittance to customs simplifications. The “secure” AEO certificate almost corresponds to the certificate combining measures.

“Secure” AEO has to comply with general basic requirements, but also with specific security standards and requirements (for example, preventing unauthorized access to his premises and the loading area).

General basic requirements are: • proven financial solvency, • appropriate record of compliance with customs requirements (the applicant, and some other persons working at or for the applicant, should not have committed a serious infringement or repeated infringements of customs rules over the last 3 years preceding the submission of the application) and, • satisfactory system of managing commercial and, where appropriate, transport records, which allows appropriate customs controls. The applicant AEO must maintain an accounting system which facilitates audit-based customs control and must allow the customs authority physical or electronic access to the customs and, where appropriate, transport records. Electronic access is not a pre-requisite to comply with this requirement.

“Secure” AEOs will benefit from lots of trade facilitations all over Europe. They will get priority treatment for controls and be also subject to fewer controls as they are considered as secure partners by customs and as their compliance and reliability have been thoroughly checked when the AEO certificate was given.

Once they will be implemented in 2009, AEOs will also be allowed to submit less data for the pre-arrival/departure declaration.

An AEO who wishes to benefit only from easier admittance to customs simplifications

has to comply with the general requirements mentioned above but does not have to comply with security requirements. In addition, he has to comply with any specific conditions for the simplifications he wishes to use.

The main advantage of this latter is that simplifications obtained in one Member State can be easily extended in another Member State: the customs administration of that Member State will only examine the criteria that have not yet been checked when the AEO certificate was issued. Customs will thus not need to duplicate checks and simplifications will be given quickly.

It is apparent from the above that the basic requirements for being granted AEO status are the same, whether to be used for purposes of easier admittance to customs simplifications or for security facilitations. It is, therefore,

Developing mutual recognition arrangements with our major trading partners is of absolute necessity for EU companies to improve their competitiveness

very easy to combine the two aspects or to extend the authorisation to the other area; the only additional criteria then to be fulfilled and checked will be those needed for the specific additional requirements.

There is no legal obligation to become AEO. However, we expect that being recognised as an authorised economic operator will, in itself, constitute an advantage for the operator, as the operator will be considered as complying with strict criteria; we therefore expect that many economic operators will put some pressure on their providers and partners so that AEO would in the long term have interest to work with other AEOs. The more AEOs are involved in the supply chain, the more secure the supply chain is. The status of the AEO will thus become more and more attractive for economic operators.

Towards mutual recognition with our major trading partners We are convinced that developing mutual recognition arrangements with our major trading partners is of absolute necessity for EU companies to improve their competitiveness. This will result in faster clearance at borders and

avoid the need to go through several different administrative procedures to meet similar criteria in different countries. We are therefore promoting our standards in our customs agreements, including China, the US, Norway, Switzerland, Japan …

With regard to the US, we have already begun to work jointly with the US customs authorities towards mutual recognition of the US ‘Customs-Trade Partnership Against Terrorism’ (C-TPAT) programme and the EU ‘Authorised Economic Operator’ (AEO). At the last meeting of the EU-US Transatlantic Economic Council on 9 November, we agreed on a roadmap in this regard, which includes short and medium term political, administrative and legal measures to achieve an agreement on the modalities of mutual recognition by 2009.

With China, we are currently working on a pilot project between the EC and China on smart and secure trade lanes. The objective of this co-operation is to achieve mutual recognition of our security standards and of the AEO status. Discussions on mutual recognition and conditions for mutual recognition have started on 25/26 October 2007. First exchanges are very promising and we are very confident that we would achieve success in the mid-term future.

How to get an AEO Certificate?

The Commission does not expect that traders will have to put in place a great number of additional measures to get an AEO certificate. Most companies have in place the appropriate security requirements, for example to prevent illicit access to their premises or for insurance purposes. Furthermore, the criteria to comply with are flexible enough to be of interest of as many operators as possible and therefore were designed taking into account the features of companies; A small company consisting of 15 employees working in a small building where it is visible who enters/leaves the building wouldn’t need a video-camera or a security officer at the entrance. In a big company where 150 employees are working in three different buildings and where trucks regularly deliver and fetch goods, there is obviously a need for a security officer at the entrance who checks identities of people/trucks entering and leaving the premises.

For those interested in applying for an AEO certificate, I would advise visiting our website where all necessary information (contact points within national administrations, criteria to be fulfilled…) is available, including an elearning course: http://ec.europa.eu/taxation_customs/ customs/policy_issues/customs_security/ index_en.htm

managinggrowth | 25

AEO

an enviable opportunity?

26 | managinggrowth

Š Photo: Melissa King | Dreamstime.com

customs control

customs control

The aim of AEO is fundamentally to ensure a secure customs supply chain and there can be nothing wrong with that objective. A suitable review can uncover some startling benefits.

T

he plotters in Brussels are always meddling in regulatory affairs - much like the UK government you may say - and scarcely a day goes by without a raft of new regulations for businesses to address.

At first glance, the Authorised Economic Operator (AEO) changes brought forward in EU Council Regulation 648/2005, appear no less cumbersome. Robert Verrue has, elsewhere in this publication, helpfully outlined the thought and rationale behind the introduction of the scheme and summarised the benefits that companies should be able to enjoy. It all seems a panacea for tackling international supply chain risk.

chain incorporating robust customs controls - a “kite” mark concept. This has nothing whatsoever to do with better clearance procedures or cost reductions even though the methodology and approach used by a trader to apply for AEO should highlight any deficient working practices within the business concerned. One could of course argue that this latter aspect is one that companies should be doing already if they have exposure to Sarbanes Oxley, Cadbury et al.

But there is a problem. Written for a wide audience, the article falls short on clarifying what, if any, real benefits a trader could expect from undergoing the AEO assessment and audit and does little to highlight how much work is potentially involved in gaining approval. For a UK trader, the current customs environment delivers many benefits. The UK already has fast import/export clearance procedures, low consignment examination rates - reputedly the lowest in the EU at under 0.1% - a variety of favourable trade regimes that the AEO scheme does little to enhance, a strong emphasis already on system based controls and an intelligent based risk assessment approach for selected audit.

This stands in major contrast with other member states. Accordingly, whilst Mr Verrue’s article was written for publication throughout the EU, some of the messages therein are clearly more appropriate elsewhere. I have personally attended several UK Customs seminars where the stated “benefits” have been critically received and even the presenters have acknowledged that any helpful benefits of an AEO authorisation may not emerge for some time.

It is therefore increasingly clear that UK traders will need to apply for AEO status because it will eventually become a condition of doing business with the major players in international trade and that ripple in the trading stream will spread ever wider as time goes by. Indeed, one major UK plc announced at a freight conference last year that, by a given date, it would only work with AEO approved logistic and forwarder companies or those that were substantially along the way to securing approval. If this mentality already exists then it is only a matter of time before the majority of key players look to impose comparable conditions.

Apart from achieving approval as a potential requirement of doing business there are two other points worth a mention.

Firstly, any international business should be up to speed with the latest available system developments in import and export clearances as they can save you time and money. So, knowledge equals increased profit. Secondly, the AEO assessment (done by you) and audit review process (done by Customs) need not be viewed as an unwelcome intrusion into your affairs but as a means to determine best practice and to analyse whether the business is doing things correctly. The thorny point is how to go about it but don’t forget that your rivals may already be applying and will be eager to portray themselves as a sound, robust trading partner.

In light of this, why should a UK trader be attracted to AEO? Well, they should consider it an opportunity simply because AEO approval will increasingly be seen as a necessary endorsement of a secure supply

The aim of AEO is fundamentally to ensure a secure customs supply chain and there can be nothing wrong with that objective.

A suitable review can uncover some startling benefits. In one meeting we had last

year to begin an AEO application process, the sales staff were unaware that some of their product was sourced outside the EU and purchasing were equally unaware that the company had some major export markets outside the EU for these same goods.

Matching the two identified at least £65k in duty savings under inward processing relief arrangements and all that remained was to work out the best way to control and manage the scheme and to determine which type of application would best dovetail with commercial operations. This underlines a key theme within the AEO process which is effectively axiomatic: maximising customs compliance results in the minimum duty payable as knowledge of the customs supply chain is crucial to understanding your duty obligations. By getting all these things right then the correct, minimum, amount payable can be identified and pursued.

For most companies, the key question will be “What shall I do now?” The answer to this depends partly on your trading circumstances e.g. size of company, but also on how important international trade is to your business. If you decide that AEO is a necessary approach, you should consider taking outside advice where possible and learn from experiences elsewhere at a practical level. Others have been through the review already and there is already a good deal of valuable experience from which crucial lessons can be learnt. To the newcomer, the application process may look daunting but appropriate investment now will produce a sound return. My advice is to commit to the process and submit to the inevitable. Many aspects within the application are probably relatively easy to meet; others may need some work, but if handled correctly, they are achievable. Finally, be careful to tell the full truth; Customs already know more about you than you probably think!

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

managinggrowth | 27

business education

RESEARCH in business education Research has long been problematic in the world of business education.

Gordon Shenton sets out how the EFMD EQUIS Accreditation system now tackles the issue.

28 | managinggrowth

© Photo: Markz | Dreamstime.com

R

esearch has always been a difficult issue for business studies. The vocational nature of these studies, the lack of clear disciplinary boundaries and the deep-rooted suspicion in some academic circles that the various subfields are not “scientifically” based have long been handicaps. It has never been easy to find a consensus on how research should be defined or on what should be considered acceptable research output. The need to prove that business studies are a serious academic discipline has pushed the profession towards over-investment in research aimed essentially at other academics through publication in refereed academic journals, laying business schools open to criticisms that they are producing mountains of obscure and irrelevant research. This is particularly true in America where the tenure and promotion system is based essentially on academic publication though a similar drift has probably been occurring in Europe. On the other hand, there is a recognition that research must serve other purposes and other constituencies, that it must, in some more direct way, be useful to students, companies and managers though this carries with it the risk that it may be deemed unworthy of academic consideration. The debate has recently crystallised around the spurious opposition between “rigour” and “relevance”. This long-standing debate within the management education profession on the role of research in business schools has, therefore, always been a particularly thorny issue for accreditation bodies. In the definition of their expectations, in the formulation of their criteria and in the way in which assessments are carried out in practice they will inevitably influence the behaviour of business schools. They must be seen to stand behind the principle that the quality of a school’s teaching staff is linked to the quality of their intellectual activity. However, they must avoid the pitfall of defining research too narrowly and thereby sending out the message that only publication in academic journals will be seen as serious research. Given this state of affairs, it is particularly significant that both EFMD and AACSB International have recently taken strong positions on the role and nature of research in business education in an attempt to clarify the debate for the schools they evaluate. A draft report of the AACSB International “Impact of Research” task force is currently being circulated for comments. If the recommendations put forward by the task force receive sufficient approval, they will presumably be written into the accreditation standards.

Earlier this year, official approval was given to the new EQUIS Stand-

business education

ards and Criteria document after almost two years of discussion within the membership. The chapter on research is the result of extensive revision and now stands as a major statement of the EQUIS approach to this activity. In addition to its primary function as a framework for assessing research in the accreditation process, the chapter is also intended to provide more general guidance to business schools in defining their strategy in this area. It can be seen as an EFMD position paper on research in business education. Given the dominance of the academic model in America, AACSB has perhaps a more difficult task to convince business academia that there is a need for a broader definition of research and a shift from the measurement of output to the measurement of impact. However, EQUIS shares the same concern in Europe and the rest of the world, although the context is substantially different. There is greater diversity among university systems across the 40plus countries of the European continent. For example, many of Europe’s best-ranked business schools are not formally within the university system and are far more market oriented; the tenure system is not always so constraining; and language barriers in many cases make it impossible for faculty members to publish in the so-called “top” international journals, which are mostly American.

Nonetheless, European institutions are feeling the same pressure to conform to the academic model and need reassuring that the accreditation bodies do not expect them all to behave like “research-driven” US business schools. The principle that research should have an impact is firmly written into the EQUIS Standard at the beginning of the chapter on research: The School should regularly produce original contributions to knowledge that are effectively disseminated. These should demonstrably make an impact on one or more constituencies that are strategically important for the successful development of the School: academic peers, management professionals, students, etc. Research activity itself is classified into three catego-

ries – academic research, practiceoriented research and pedagogic development and innovation –to reflect the fact that intellectual production in business schools covers a wide spectrum of outputs and that there is a need for broader, more flexible definitions. It is explicitly stated that within each category output will be assessed by its impact on the relevant constituency: the international academic community in the case of academic research, business practitioners for practiceoriented research and educational practitioners in pedagogical development and innovation. The criteria are constructed around the principle that assessment must take into account a number of variables which, taken together in a given mix, determine any particular school’s research policy. First, there should be clarity about the purposes of research. At the most basic level, it is an activity that enables faculty members to keep A university business school will probably place greater emphasis on academic research, while an independent business school serving a corporate market will most likely seek professional relevance in its research effort

abreast of their discipline, to improve their teaching and to advance in their profession.

The qualification of the faculty as a whole depends on as many members as possible having some form of productive intellectual activity. Doctoral research is a means of qualifying aspiring teachers for entry into the profession. Another fundamental requirement is that research should feed into a school’s teaching programmes. The ability of a school to transform its research activity into renewed programme content is a key success factor in portfolio management at all levels, whether at undergraduate level or in executive education. Next, research activity contributes to the practice of management by defining new tools and techniques, by helping managers to improve their performance or by broadening their understanding of issues that affect decisions. Research in a university environment is designed to enrich the collective body of knowledge and understanding within the academic profession. It may be intended to fulfil the observatory function of critically tracking an industry, a market, an enterprise category and so on either independently or in liaison with a government agency or other organisation. A related purpose is to allow a school to serve as a forum for public debate on issues that are of concern to society at large. Finally, the in-

managinggrowth | 29

business education tellectual activity of certain faculty members may be geared towards a sole emphasis on teaching will not qualify. The expectation is that all the creation of new instructional methods and materials or towards schools that are accredited will be able to demonstrate that they are new course design. This multiplicity of purpose is mirrored in the diver- productive in some areas of the intellectual activity spectrum described sity of formats for the dissemination of faculty members’ intellectual above, that there are processes in place for the management and monproduction aimed at a variety of different audiences: articles in aca- itoring of the research agenda and that they allocate time and resources demic journals, articles in practitioner journals, conference presenta- to support faculty members. It isfurther expected that schools will have tions, monographs, studies, reports, textbooks for students, books for an explicit, publicly stated strategy and policy regarding research. At one managers, books for other academics, chapters in books, case stud- extreme, this may only be a commitment to the principle that research is ies and instructional software. A table at the end of the research chap- an individual concern and that it cannot be managed centrally. But even ter sets out accordingly a typology of research in such cases, recruitment policy, workload alThe pursuit of accreditation should and development activity, categorising the oblocation, evaluation and reward processes pronot lead schools to set jectives of the intellectual activity, the audience vide a context in which research can prosper. In unrealistic objectives as regards their research for whom its relevance must be measured and most schools, the research effort itself requires profile. Their resource the dissemination vehicles (articles, books, case some planned guidance in the form of targeted base in terms of faculty and funding may not studies and so on). Whereas most accredited specialisations, centrally managed research be sufficient to support schools will have some production in all three centres, an encouragement to pursue collabotheir aspirations areas, the main focus or the particular mix will rative research and so on. This is particularly depend very much on the type of school, the profile of its faculty, the true of the many schools around the world that are currently striving to funding available, the markets that it is serving and the strategic choic- upgrade their research potential, often from a situation in which research es that have been made. A university business school will probably was given a low priority. However, a word of caution is in order: the purplace greater emphasis on academic research while an independent suit of accreditation should not lead schools to set unrealistic objectives business school serving a corporate market will most likely seek pro- as regards their research profile. Their resource base in terms of faculty fessional relevance in its research effort. Whatever the mix, EQUIS will and funding may not be sufficient to support their aspirations. It is enbe looking for evidence of productive intellectual activity with measur- couraging that EFMD and AACSB International, from their different perable outcomes. The key measures of quality in all three types of re- spectives, are seeking a more balanced approach to the assessment of search will be the relevance and impact on the different audiences, research in business schools. The emphasis on relevance and impact constituencies or stakeholders that a school is serving, as well as its coming from both sides of the Atlantic and the common desire to bring contribution to teaching quality. However, it should be emphasised research closer to practice are strong messages for the management that a purely vocational or the exclusively practice-oriented school with education profession.

The smart way to achieve an

© Photo: Idrutu | Dreamstime.com

S

Executive MBA

taying one step ahead of the rest in your career is a very difficult thing to achieve in today’s world. Just when you think you have done everything required; graduated from university, found a job, worked hard and been promoted, you realise you now require an MBA to progress any further. What’s more? You discover that acquiring an MBA involves the small problem of leaving your job for two years and sacrificing your salary, then paying tens of thousands of pounds in tuition fees.

An Executive MBA may provide a healthy compromise. The part time modular way to an MBA is tailored to fit around your professional commitments. This allows you to maintain your salary, keep progressing at work and yet benefit from the knowledge, networking and career development granted by an MBA. Also, as the programme involves less contact hours than a full time MBA the tuition fees can be as much as 50% less expensive. Employers hold Executive MBAs to be equal to or more valuable than full time MBAs

30 | managinggrowth

because of the classes tend to be more experienced and there is a unique aspect to the learning. Director of Corporate Education, Tore Hellebo, explains how the Executive MBA works at the world’s oldest business school, ESCP-EAP. This programme was ranked as one of the best in the world for career development and internationality by the Financial Times 2007: “Our part time modular MBA is tailored to fit around the professional commitments of our participants. In fact, a key aspect of the learning is sharing with other experienced professionals and then implementing the skills and knowledge immediately in the work place.

This practical element leads to a greater understanding of the key areas of business that the MBA covers.”

If you would like to find out more obtaining an Executive MBA information is available on the Association of MBAs website www.mbaworld.com or email Magda Newman at mnewman@escp-eap.net with any questions.

business education

T

he American University, Girne - Cyprus was founded in 1985 and had a first class of 200 students, studying business management. In the intervening years it has grown in a measured way to have an enrollment of nearly 6,000 students with six faculty, many departments; two special schools, plus a robust

the american university girnE - cyprus

graduate school.

It has taken very focused measures to manage this 26-fold growth in just twenty-two years. For the first 19 years, growth maintained a constant pace of 10% per year. Then in 2005-06 there was a sudden surge of 20%. The result was a quick shift of focus by management to establish the required infrastructure for this increase. In the following two years, this rate of increase has been maintained with aggressive marketing in the international sector.

The university now has a goal of reaching an enrollment of 10,000 students by the year 2010 and it seems to be on-track to realize this goal. Added infrastructure requirements will be met. All capital improvements have been funded with loans from commercial banks, backed-up exclusively from operating surpluses from student fees.

There has been modest government support.

The university was founded by its Chancellor Mr. Serhat Akpinar, as an outgrowth of his Master’s thesis. His aim was to be the pioneer in establishing higher education as a strong new sector for the local economy. Based on the early successes of the GAU model, there are now a total of 7 institutions of higher learning in the Turkish Republic of Northern Cyprus. These will have a total of 65,000 students by 2010.

Around 70% of this total will be students from mainland Turkey, 10% will be from the Turkish Republic of Northern Cyprus and the remaining 20% will be international students. The entire sector far outweighs all other sectors in terms of contribution to the national economy.

Turkish Republic of Northern Cyprus is a small country, based on an island economy in the far Northeast of the Mediterranean Sea. The scope for further growth in this environment must be based on the development of international cooperation agreements on a World-wide basis. Once again, GAU has been a pioneer in establishing such arrangements. Currently it has active cooperation and articulation agreements with ten universities in Europe and North American. It has further agreements with another 40 universities in the Asia-Pacific, South Asia, Central Asia, Africa and Eastern European regions. The GAU graduation certificate (Diploma) is widely accepted by employers and governments in all of these regions. Very consistent work continues to expand our natural catchment area to all of the countries in these regions.

The Turkish Republic of Northern Cyprus has established itself as a knowledge Zone, within the European context. The future is bright as we move toward our silver anniversary. The second 25 years promises more change as we embrace the latest teaching technologies and methods.

Recently GAU has been established as the part of the official selection of 1,000 Best Business Schools selected by the Scientific Committee of EDUNIVERSAL. The management of change in higher education is both a matter of vision and a matter of day-to-day commitment to excellence. In all of our work we seek dedicated faculty, staff and students to ensure that levels of quality are maintained and improved. Ensuring a smooth operation is never easy, but with dedication and foresight we believe that we are well on the way to achieving our goals.

managinggrowth | 33 Photo: Hdconnelly | Dreamstime.com

the key reason for obtaining a quality

MBA John Fernandes, President and CEO of the AACSB International-The Association to Advance Collegiate Schools of Business, explains why the MBA is the most sought-after degree in the world.

T

he benefits provided by manageProgram Diversity ment education to both organizaThe good news for students and employers is tions and society are closely linked. that there is a quality business education proManagement education empowers gram that can meet the needs of almost anyemployees and business enterone, anywhere in the world. The most important prises to grow the success of their development in business education has been business in many ways. When a business enterprise the incredible diversity that has emerged from is growing and profitable, it becomes a magnet for an unprecedented expansion in global demand. more success, attracting the best talent the market Prospective business students have a wide arhas available. This success is replicated day-in and ray of program options. To earn a Masters in Busiday-out and is the reason why the demand for the ness Administration (MBA), students can choose MBA - whether in full or part-time programs - remains from programs that are full-time, part-time, geared strong. And it is the reason that the MBA remains the toward executives, and completely or partially most sought-after, successful degree in the world. online. There are MBAs for those with manageAccording to a recent report by AACSB Interment experience or without and there are alternanational, “Over the course of the last hundred tives that combine business with study for other John Fernandez, President & CEO of years, business has been a driving force in shapprofessional degrees, such as law and medicine.

AACSB International ing society and the catalyst behind extraordinary Individuals interested in enhancing their knowleconomic growth and opportunity. Business has spurred job creaedge in a particular business discipline now can choose among tion, generated wealth, and improved the economic prospects for many concentrations as part of their MBA or select from a growgrowing and increasingly diverse populations.” Management taling number of more specialized master’s programs. MBA programs ent and practices have been integral to the success of nations in are available in almost every country in the world with costs ranga global economy and quality schools of business have played no ing from less than €10,000 to more than €100,000 at the most small part. They have educated generations of leaders capable of highly recognized schools when living expenses are added to tuiprofound global achievements. Business students of today are tion costs. Individuals enrolled in full–time programs also have the taking heed—they seek nothing less than to change the world. added cost of foregone wages during this period of unemployment.

34 | managinggrowth

© Photo: | Pablo Eder | Dreamstime.com

business education

business education However, management education does not need to be fulltime, or even degree-based, to be empowering. Many business schools offer programs for executives, entrepreneurs, or other working professionals to strengthen their skills sets in a flexible format that permits immediate, on-the-job application.

These shorter, focused programs often are supported by the school’s most talented faculty, many of whom have significant experience in working with or consulting for business enterprises.

The needs, interests, and demands of future business students vary considerably depending on culture, educational background, family circumstances, location, financial capability, and aspirations.

When faced with such a wide range of choices, future business students should begin by carefully evaluating their objectives, as well as constraints. For example, entrepreneurs may find it impossible to relocate to a residential program, or to devote their attention full-time to business studies. In such cases, it might make more sense to pursue an MBA or executive education program online or on a part-time basis. Or, they may feel better served by a shorter course intended to enhance a specific skill, but want the value that comes from pursuing that non-degree education within the robust environment of a university business school. On the other hand, those who are considering a career change, or who want to maximize their opportunity to network with future international contacts, might receive more value pursuing an MBA as a fulltime student at a specific geographic location.

Earning an MBA can pay off handsomely according to a series of studies by the Graduate Management Admission Council® (GMAC). Recruiters say that 2007 MBA graduates can expect to earn a base salary of $85,000, which exceeds other graduate program salaries by almost 20% and undergraduate salaries by nearly 100%. Among schools accredited by AACSB International, GMAC studies have shown the annual return on investment across all programs to be nearly 20% and, for part-time programs, which are generally less costly, the annual return on investment is a significant 68%.

Despite the individual payoff from a business education, prospective students should be advised that it is not just about salaries and career advancement. The real value of an MBA, or any business program, comes from the business leadership, knowledge, skills, and values it seeks to develop in its graduates. And by developing management talent and improving management practices, MBA education provides value to organizations. Indeed, companies that take intellectual capital development seriously continue to find ample returns from their direct investment in business schools through recruitment and tuition support.

The Accreditation Difference If the good news about the incredible diversity in programs is that there is a program to meet the needs of anyone, the bad news is that these programs vary widely in the quality of education provided. Prospective students should look first for programs offered by accredited business schools. Currently, 554 schools in 31 countries have earned AACSB International accreditation, which is regarded internationally as the gold standard among business schools. Nearly 40 of these schools are located among 9 countries within Europe. A current list of AACSB-accredited institutions can be found at www.aacsb.edu. Another source for information is www.mba.com, which is managed by GMAC. Each year, corporations spend millions on MBA programs to de-

velop their next generation of leaders, which is why more and more companies are paying attention to the product they buy. When choosing an MBA program for yourself or your employees, it is critical to understand what accreditation is and why accreditation matters.

Accreditation Matters But it definitely gets confusing. That’s why a growing number of companies are specific about accreditation requirements when supporting management education for employees. Not all accreditation is equal.

A business school accredited by the right agency can definitely make a difference in the quality of the MBA, and hence the student’s upward mobility and income potential. However, a degree that is given by a non-accredited school or one that has questionable accreditation can actually derail an MBA graduate from the fast track and hurt his or her chances for employment elsewhere. In short, accreditation from the wrong agency can be as bad or worse than no accreditation at all.

Accreditation for business schools is a rigorous, quality assurance process that involves thorough reviews of an institution’s programs and policies. This assures corporations and employees alike that the business schools they choose will be among the best.

Institutional accreditation by a legitimate accrediting body ensures the highest standard of achievement and commitment to quality and continuous improvement through a comprehensive peer review. AACSB International is a specialized, professional accrediting organization for business programs, including MBAs, and the accreditation carries international recognition as the highest symbol of quality that a business school can achieve.

Quality Matters It matters to Intel, Fed-Ex, Lockheed Martin and Telephone Data Systems, which are just a few of the companies that have become more conscious of what they are paying for and what they are getting in return. It matters to employees, too, because as The Chronicle of Higher Education reported and Intel discovered, employees with MBAs from AACSB-accredited schools were more likely to get promoted within the company.

Today, due to a recently implemented organization-wide policy, Intel employees know they can only receive tuition reimbursement for attending business classes at institutions accredited by AACSB International. In this way, Intel knows that its employees have received the highest quality management education.

Remember: Accreditation is designed to protect students, schools, and employers. It ensures that a school has met rigorous standards and that it holds its faculty to high standards as well. A competent and comprehensive MBA program has highly qualified faculty involved in theory, pedagogy, and practice.

There is a wide variety of management education programs out there. And if the convenience of an online or part-time program is appealing, be assured that convenience does not have to come at the expense of quality. In fact, online MBA programs are offered by over 50 AACSB-accredited schools around the world.

An eager student, hungry for knowledge, will extract every bit of information and put it to use on the job. And it is up to both the company and the employer to carefully evaluate the benefits, style, fit, faculty and course offerings of an education provider. Accreditation is an important part of that assessment. It will ensure a maximum return on investment for the company and success for the student for many years to come.

managinggrowth | 35

business education

Learning in the 21st Century

A successful 21st century university is a student-centred institution, unconstrained by time and place, that operates simultaneously in a local and global context. It should measure and communicate its progress, and continually renew its commitment to students, community and the economic competitiveness of the country, says Gordon Freedman, Vice President, Education Strategy, Blackboard

C

olleges and universities are confronted with new types of students who are younger and more technology-driven, as well as older and more career-driven.

They are facing unprecedented competition, aggressive accountability demands and a view of operating in a global context. In such scenarios, education leaders increasingly realise that in order to achieve 21st century education they have to take a more market-oriented, student-centred and businesslike management and accountability approach, while preserving their academic mission, focus and values.

Recently, Blackboard embarked upon a survey to learn from higher education leaders about their greatest challenges in achieving the goals of 21st century education. Blackboard was surprised at the consistency of the answers given to the changes needed in higher education relating to: student engagement, institutional accountability, revenue generation and globalisation.

Student engagement The challenge concerning student engagement involves much more than academics – it’s about how prepared students are for college-level work (not well-prepared in our public colleges and universities) and about whether they have the study habits to stick out.

The best indicator of college student satisfaction is their perception of how the environment supports both their academic and social needs. Universities and colleges require a keen understanding about remediation issues, retention rates and the expectations of a diverse student population. They need to provide timely and efficient student services; ensure faculties modernise to benefit from advances in technology and make meaningful lifelong learning connections to achieve student engagement.

Institution accountability Funding bodies, trustees and accrediting bodies are now more concerned than ever before about the improvement in graduation rates. These bodies want to equip students with the necessary skills to compete in today’s workforce on a global scale.

To meet these demands, education leaders agreed that technology will play a key role in delivering the information required by these bodies. They also realise such information has to be shared with students and their families.

Managing the nature and quality of student learning outcomes, maintaining continuous improvement and providing a consistent flow of evidence can no longer be ignored.

Revenue generation Developing new revenue sources looms large as funding from government flattens, and competition from new students increases.

Therefore, universities and colleges are considering creating new online programmes and courses that can both increase enrolment and help facilitate the use of physical space more efficiently. Simply put, the leaders had been very active in using online learning to extend the campus footprint and relieve pressures on the physical campus.

Additionally, the ability to provide a wider range of services on campus has become a universal need.

Overall, institutions are looking for ways to develop innovative, business-oriented, student and community-spirited activities to generate new revenue.

Globalisation Globalisation is another major issue which education leaders cannot ignore or acknowledge as one of their greatest challenges. It is widely recognised that those institutions that forge deeper international partnerships present a more competitive profile for attracting and retaining both faculty and stu-

dents. In many cases, institutions are moving ahead of student demands with an understanding that having a global perspective is an essential element for future success and relevancy.

Meeting the challenges In seeking to meet these challenges, all of the education leaders interviewed were clear about encouraging the development of an overriding framework to drive their institutions to be more market-oriented and businesslike, while preserving their academic integrity and focus on student learning.

Their methods and solutions for accomplishing such a goal tended to fall within three organisational structures: transformational/comprehensive, transitional and incremental.

Transformational/comprehensive This requires the entire campus to come together in a reinvention process guided by a clear vision and strategic planning. Arizona State University’s New American University initiative is an excellent example of how a very large institution can reinvent itself. As a result the New American University now states it does not measure itself by the academic credentials of its new undergraduates but has created an environment where researchers, while pursuing their scholarly interests, also consider the public good; one whose students, faculty and staff transcend the concept of community service to accept responsibility for the economic, social, cultural and environment vitality of the communities they serve.”

Transitional This requires actions that re-orient some elements of the institution while stopping short of a large-scale reorganisation. At Capella University, for instance, President Michael Offerman explains the institution’s economic mindset as one that focuses on making in-

managinggrowth | 39

business education

vestments as opposed to reducing cost per learner and unit operating costs.

Incremental These are individual solutions designed to address a specific issue or set of challenges in one or more aspects of campus life. A good example can be found at Quinnipiac University, which realised that moving its Q-CARD cashless transaction system to include more off-campus businesses results in a dramatic increase in overall transactions, thus generating new revenues.

Leadership and progress Our research and interviews also reveal that there are tough barriers to consider when moving a university or college along the process of discussion, then agreement, and finally action.

Many of the education leaders we interview say that they have a number of staff who oppose, and are threatened by, change. Others are disconnected with the mindset and behaviour of students. Our survey reveals that to prevail under such circumstances, many leaders tend to follow a three-stage pattern

40 | managinggrowth

of progress: rethink, engage and adapt.

Rethink In almost every case where top-down change occurs, a rethinking or study process is implemented in which old methodologies are catalogued, new problems are defined, a reconceptualisation of issues is created and a change-implementation process is initiated.

Such processes may be led by the president or provost and typically involve the appropriate campus constituencies, driven by a committee or group appointed to survey the issues at hand.

Engage Change will not happen without engaging faculty, staff, administrators and outside assistance in a process driven by campus constituencies and not dictated by campus leadership. To engage people at this level requires the development of an environment where faculty, staff and administrators see change as an absolute necessity.

Adapt Institutions need to be flexible, nimble and

adaptive to the ongoing process of organizational change, and capable of refocusing efforts to achieve qualitative and quantitative results.

Without these capabilities, change is only tactical and difficult to achieve. With an adaptive capability and process to support it, change is part of the mission of the institution and is an expected part of improving campus life.

Our conclusion – embracing change with technology During our research, it became very clear that education leaders fully embrace the notion that change must occur along the lines of financial, organisational, service, and education improvement and accountability.

To enact change requires bold action and a clear vision that entails using technology and organisational change wisely. All of the education leaders expect to rely increasingly on technology solutions to help solve problems, create greater levels of engagement, and to become more efficient, as well as more performance and evidence-oriented. www.blackboard.com

business education

I

t is fashionable in business circles to talk about the unprecedented and dramatic pace of change these days. The world is changing, we say, more dramatically and faster than ever before, businesses are more complex and the challenges facing business leaders are greater than ever. No one can argue that change is all around us, but neither should we assume that this is somehow a new phenomenon. Organisations have always had to respond to change and to deal with complexity in some form.

Challenges have always existed, they simply change over time and, granted, some of today’s challenges are significant. What are these challenges and what do the current trends in business mean for people development and talent management at the senior level in organisations?

There is certainly a sense of insecurity in corporations about the future both in terms of the economy and business development.

Large corporations in mature markets are struggling to grow. Fierce price competition from Asia (particularly China) is driving margins down and this is certain to continue. Innovation and entrepreneurship are required in this new climate – the traditional business models and text book responses are unlikely to have an impact. Chief Executive positions are not so desirable – it’s a high risk job and there has been a trend in CEO firings in recent years - in fact the average term for a CEO in Europe today is said to be less than five years. Chief Executives, aware of the pressure to deliver results or to face dismissal, are necessarily focused on short term targets just to stay in post. At the same time, talented professionals are being snapped up by competitors offering higher salaries and significant opportunities for development and promotion.

Against this backdrop – insecurity at the top, new competition, globalization and the war for talent, companies are looking for

42 | managinggrowth

THE MODE Jeanette Purcell examines the support from business schools to deliver management education that meets their needs and provides them with the people and skills to address the challenges. What role does the MBA play in helping employers select, develop and retain top talent? It is acknowledged by most successful businesses that training on the job and in-house development programmes are not sufficient to guarantee the complex mix of skills and knowledge required at the top. Such businesses demand senior level people who possess a high standard of business education, combined with relevant experience and management skills developed in a practical context.

The modern MBA, still recognized as the leading international business qualification, is enjoying something of a comeback to meet this demand. The qualification, now over 100 years old, has stood the test of time because of its ability to evolve and adapt, to keep pace with the needs of business and to maintain its relevance and value to individuals and their employers. The MBA is positioned as a post-experience qualification and this is its key strength when compared to other

educational programmes. MBA students are expected and encouraged to bring different work experiences to the course, to share them and apply them to different business contexts. The course offers a powerful mix of structured learning and the practical application of knowledge and skills. For employers of MBAs, this is the most compelling feature of the qualification.

Higher education provision is expanding rapidly and new high growth markets for the MBA are emerging in China and India where there has been a recent explosion in the growth of business schools. A range of MBA programmes is on offer across the world, catering for a diverse and well-informed student market. Today’s MBA students are in a position to demand value for money, greater variety, more flexibility, and a quality education which is recognised and valued by employers.

In this highly competitive market, business schools are striving for differentiation, focusing on their strengths and areas of expertise to distinguish their programmes from the standard formats. At the same time innovation in design, delivery and marketing is an

ERN MBA e benefits of obtaining an MBA important activity for business schools who are exploiting technology for the purposes of teaching, communication and the provision of additional services to customers. There is also a move towards international alliances between higher education institutions.

These arrangements help to strengthen a business school’s appeal, to share world class faculty, to raise the school’s global profile and to provide a truly global experience for students.

Of course in this climate the pressure on business schools to achieve standards of excellence in programme content and delivery is intense. There is little doubt that the survival of business schools and their MBA programmes will depend ultimately on the quality of their offerings and their outputs – and this is what accreditation by the Association of MBAs aims to ensure.

The Association, established in 1967, represents a membership of 9,000 MBA students, graduates, business schools and organisations, all with an interest in postgraduate management education. Over 140 business school members have achieved accreditation by the Association and the

© Photo: Galina Barskaya | Dreamstime.com

business education

organisation is widely recognised as the international standard for the MBA. Accreditation is the in depth and rigorous validation of MBA programmes by a panel of independent experts. The process involves the external scrutiny of faculty, curriculum, assessment standards and student services.

Those who meet the Association’s standards (and many don’t) are awarded accreditation for a period of up to five years, after which time the process of inspection, review and validation is repeated. Accreditation is not to be confused with rankings. Rankings and league tables of schools and programmes, published by the media, will give an indication of the relative positioning of certain institutions. However, rankings do not represent the range of offerings from business schools, they are based on specific business school activities and rely on information submitted by the schools themselves. Rankings do not compare with the in-depth process of accreditation. It is therefore essential to check that that any business school you are considering is accredited by the Association of MBAs. The MBA has changed and so have MBA

students. The stereotypical 28 year old male studying a two year full-time MBA before going into consultancy no longer represents the norm. In general, MBA students are in their 30s, more experienced and working in a variety of roles across all employment sectors. And the full-time MBA programme, whilst still popular, is no longer regarded as standard. In fact perhaps the most significant trend in recent years is the introduction of more flexible learning options. Part-time MBA programmes and ‘blended learning’ (involving a mix of face-to-face interaction and online learning) are on the increase.

Many of these programmes are accredited by the Association of MBAs and meet the same high standards as the traditional fulltime course.

Coverage of all the core business functions continues to be fundamental to the MBA – a sound knowledge of accounting and finance, marketing, operations, human resources and strategy is crucial. But these subjects are increasingly presented in an integrated way and in a global context.

A series of electives, delivered in addition to the core modules, will allow students to specialise according to their own interests or chosen career path. Electives will include subjects such as mergers and acquisitions, international finance and e-business. Leadership development (including communication, people skills, entrepreneurship and ethics) is becoming a key part of the programme.

And additional language skills – rather than an optional extra – are likely to become a requirement for more MBAs in the future. So the focus of the modern MBA is on developing leaders in a global business environment – not teaching people to be operational managers.

The challenges for businesses are many and the search is on for people at the top who can provide leadership, direction and innovation in the face of risk and uncertainty. The MBA, delivered by the world’s best business schools, continues to provide the solution.

Jeanette Purcell is Chief Executive of the Association of MBAs, the international quality standard for the MBA, providing membership services to students and graduates, business schools and employers. See www.mbaworld.com for more information.

managinggrowth | 43

subscription

subscribe to managing growth

call +44 208 777 8355 subscribe and enjoy Keep Up to date with managingGrowth, bringing you expert insights, news and opinions To subscribe to managingGrowth for one year for a special price of ₏16 please email editor@managingrowth.com

44 | managinggrowth

inward investment

Noble Knights or Conspiring

Dragons?

By Kai Hammerich, President, World Association of Investment Promotion Agencies (WAIPA), Director-General, Invest in Sweden Agency (ISA)

O

46 | managinggrowth

© Photo: Wessel Cirkel | Dreamstime.com

© Photo: Arthur Matkovskiy | Dreamstime.com

ver the last few months, insecurity about the direction of the world economy has kept investors and policymakers awake at night.

The questions linger. Is the US already in recession? What will be the fallout in Europe from the excesses of American subprime lending? Are China, India and other emerging economies now powerful enough to take on the role of economic engine for the rest of the world?

I willingly confess that the upcoming developments on the international investment scene are equally hard to predict. Despite early warnings of a dramatic slowdown in cross-border deals due to the credit crunch last summer, foreign direct investment (FDI) – of which M&A accounts for 70-80 percent globally – remained buoyant and reached an all-time high in 2007. Preliminary figures from the Geneva-based UN body Unctad show that international investment climbed almost 20 percent from US$1,300 billion in 2006 to more than US$1,500 billion, with two-thirds going to developed countries and

inward investment

the remaining third to developing countries.

Same but different We can now see quite clearly the geographical pattern of FDI that has resulted from the latest global investment upturn, starting in 2002/03.

Much in the pattern is familiar, but there are strong undercurrents favoring emerging economies like India, China, Russia, the Gulf region and many other developing countries. The US remains the world’s largest national recipient of FDI, while the European Union still defends its position as the major regional destination for global investors (many of which are European).

Asia is gaining ground rapidly, though FDI to the region in 2007 increased somewhat less than the global average. Latin America continues to underperform, while oil and mineral-rich economies in West and Central Asia enjoy the fruits of the natural resources boom. Inflows to Africa are at record levels, though much can be done to improve the continent’s performance. The overall increase in international investment in 2007 follows a 40 percent hike between 2005 and 2006.

So what will happen next? Will FDI continue its strong showing, unaffected by the expected slowing of the world economy? The answer is certainly no, since global FDI levels are clearly linked to the economic cycle.

But there may well be parallel developments where some countries and regions lose, while others continue to attract large-scale investments. Countries where FDI volumes depend heavily on M&A activity (mainly developed countries) may be more affected by a downturn than countries where FDI is mostly investment in new capacity (mainly developing countries). The rush for natural resources, which has been the main driver of investment in Central Asia, parts of Latin America and Africa, will continue in the years ahead. And policymakers in individual countries may influence the inflows, not only through a general improvement of the investment climate but by hands-on activities and interventions including deregulation, privatization and investment promotion.

‘

It is beyond doubt that sovereign wealth funds as a group could soon become one of the most important holders of stock and sources of FDI.

The many faces of finance The sustained high volumes of global investment mainly rely on cash-rich companies that are in an expansionary mood after years of strong earnings. But a broader explanation must take into account a relatively new phenomenon – the emergence of financial operators as important sources of FDI. During the last decade venture capitalists, private equity firms, mutual funds and other private financial operators have stepped up their activities to become important global direct investors (implying acquisition of at least 10 percent of the equity in an investment). They are making inroads into territory that was previously an exclusive hunting ground for industrial investors.

A few figures help to illustrate the rapid development that is taking place. In 2002, private financial operators were involved in just over 500 cross-border acquisitions with a total value of US$45 billion. Five years later they made 900 acquisitions for US$160 billion, corresponding to almost 20 percent of total global acquisition value. A rough estimate would hand private financial operators a 1012 percent share of global FDI in 2006.

The increasingly important role of private financial operators in FDI has raised concerns about their influence on long-term growth and prosperity in the host countries. We know for sure that access to domestic or foreign venture capital helps companies in the startup

and early expansion phases to realize their potential and contributes to their future success. The concerns rest rather with private equity firms and notably their strategies for restructuring mature companies and putting them up for sale. Such strategies are claimed to be designed to maximize sales revenue at the time of exit, but they may not be to the benefit of the companies’ long-term survival. Politicians, unions and other interest groups point to the fact that private equity investments are made over shorter periods of time than would be the case for industrial investors. On a personal note, I find more convincing the objection that private equity firms are less transparent and communicative in accounting for strategies, operations and results than their industrial counterparts.

Although the jury is still out on the long-term growth and prosperity effects of private financial operator FDI, evidence is building that private equity firms on the whole contribute to increased dynamism and efficiency in the business community, in both home and host economies. A recent and comprehensive study published by the World Economic Forum (The global impact of private equity, 2008) shows the development of private equity-held companies in terms of governance, innovative capacity and employment to be mainly positive.

’

The sky’s the limit The size and impact of private financial operator FDI may, however, soon be dwarfed by that of the government-controlled sovereign wealth funds created to invest the foreign currency reserves of major oil producers and other exporters. Some estimates suggest that sovereign wealth funds at present hold an estimated US$2.5 trillion in assets, a figure that may increase to US$12-15 trillion by 2015.

To put these figures in perspective, the combined assets of the US mutual fund industry today amount to US$10 trillion, while global stock market value at its recent high was in the range of US$50 trillion. It is beyond doubt that sovereign wealth funds as a group could soon become one of the most important holders of stock and sources of FDI. Sovereign wealth funds are not new creatures. Kuwait Investment Authority, which recently helped banking giants Citigroup and Merrill Lynch back on their feet, was established as long ago as 1953, while Abu Dhabi

managinggrowth | 47

inward investment Investment Authority (Adia) was founded in 1976. Traditionally, they have invested in lowrisk assets like government bonds, but in tune with rising profits and surplus from oil exports they have started to diversify their investments into less liquid assets with a higher expected return.

Road to protectionism My view is that the emergence of sovereign wealth funds as global direct investors does pose a problem to the international community. At this year’s World Economic Forum conference (January 2008) the issue of sovereign wealth funds was hotly debated. Representatives of governments which have sovA mixed crowd ereign wealth funds rightly complained that Sovereign wealth funds also differ in character they were being accused of things that have and objectives. Some of them are very much not happened. Regrettably, however, the calls like traditional managed funds, where investfor increased openness were not taken seriment is through portfolio holdings only. One ously by these governments. The complaint example is Norway’s oil revenue fund – the of inadequate transparency is a legitimate one Government Pension Fund – which does not that must be considered, just as the call for hold more than a 5 percent share in any of the increased openness in private equity must be 3,000-4,000 companies that it has invested addressed by the financial community. in. The same goes for Adia, which did not acThe secrecy in terms of the investment quire more than a 5 percent share of Citibank strategies and business objectives of soverwhen it invested in the US financial services eign wealth funds is not only a worry to govcompany in 2007. It has an explicit policy of ernments but also a source of concern for the passive ownership outside the boardroom. workings of the financial markets. A possible But there are also way forward would be to elaboGovernments with funds like Singapore’s rate and implement a code sovereign wealth Temasek, which is an of conduct. Norway’s oil fund funds must heed the active owner and strives could serve as a benchmark calls for increased where possible to chanfor openness in the industry. openness and transnel foreign technology The fund reports to the Norand know-how to Sin- parency. Doing so will wegian parliament on all imporgapore. Some sovereign tant matters, such as revenue, ease the worries of wealth funds have also investment strategies, return, developed nations. started to show interest risks and costs. An annual in buying shares in private equity firms. Examreport containing extensive information is ples are Adia’s investment in Apollo Managemade public. ment (US) and China Investment Corporation’s investment in Blackstone (US).

Finding a balance The increasing influence of sovereign wealth Given the right circumstances, private equity funds is viewed with increasing nervousness in firms and sovereign wealth funds should be the OECD countries. The concern stems from important contributors to global investment the lack of transparency and the fact that the and a dynamic world economy. But they funds often have their home base in countries – and I am now mainly referring to sovereign with authoritarian rule. The investments, it has wealth funds – could also by their sheer exbeen claimed, could be used for political and istence provoke a rise in new protectionism even military purposes, especially if the funds that would cause considerable damage to are allowed to invest in strategically important international economic relations. There is an companies and sectors. urgent need for dialogue. Developed country There is a fine line here between carefully governments should accept that it is percomposed, legitimate measures and outright fectly legitimate for developing countries to protectionism. Individual countries differ in their invest and diversify surpluses from export approach. Germany and France have proor foreign currency reserves into assets with posed that the European Union should reguhigh returns. For their part, governments late which sectors sovereign wealth funds may with sovereign wealth funds must heed the invest in. The UK has indicated that it will avoid calls for increased openness and transtaking measures against sovereign wealth parency. Doing so will ease the worries of funds, at least in cases where the respective developed nations. countries keep their home markets open to the Financial operators are going to exert a same type of foreign government-controlled growing influence over FDI in the future. This investment. The US has through its Commitshould be good news. We must now make tee on Foreign Investment (CFIUS) declared sure that this mainly positive development that the investing country’s openness will be an does not produce a protectionist backlash as important criterion in the evaluation of foreign this would roll back many of the achievements governments’ acquisitions of US companies. of the last few decades.

‘

’

48 | managinggrowth

inward investmen Managing Growth offers a full and comprehensive inward investment review.

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

cyprus - page 58 Macedonia - page 52 bulgaria - page 62

Macedonia

FDI Explained Political system Parlimentary Democracy Skopje

Total area

25,713 km2

Population

2.1 million

Currency

Macedonian Denar

GDP Growth

3.2%

GDP

$6.2bn

Inflation

3.2%

GDP per Head

$3,042

2006

C

Capital city

2005

In the years after the Second World War global FDI was dominated by the United States, as much of the world recovered from the destruction brought by the conflict. The US accounted for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of OECD countries. FDI has grown in importance in the global economy with FDI stocks now constituting over 20 percent of global GDP.

Year of EU entry tbc

2004

Foreign direct investment (FDI) is defined as “investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. The FDI relationship, consists of a parent enterprise and a foreign affiliate which together form a transnational corporation (TNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The UN defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.

2004: €120 million 2005: €75 million 2006: €250 million FDI Growth

50 | managinggrowth

nt roundup

In association with

2006

2004

2005

Bulgaria

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

Year of EU entry 2007

2004: €2.74 billion 2005: €3.10 billion 2006: €3.6 billion

Political system Republic

FDI Growth

C

Capital city

Sofia

Total area

111,000 km2

Population

7.8 million

Currency

Lev

GDP Growth

5.8%

GDP

$42bn

Inflation

3.3%

GDP per Head

$5,604

Cyprus

Year of EU entry 2004

C

Total area

9000 km2

Population

0.7 million

Currency

Euro

GDP Growth

3.8%

GDP

$21bn

Inflation

4.3%

GDP per Head

$23,672

2006

Nicosia 2005

Capital city

2004

Political system Republic

2004: €750 million 2005: €900 million 2006: €1,125 million FDI Growth

managinggrowth | 51

© Photo: Ljupco Smokovski | Dreamstime.com

inward investment

Macedonia New Business Heaven in Europe

An EU candidate country, with full NATO membership expected at the following summit, Macedonia has much more to offer than its breathtaking natural beauty, prehistoric landmarks, and unrivalled hospitality.

A

n EU candidate country, with full NATO membership expected at the following summit, Macedonia has much more to offer than its breathtaking natural beauty, prehistoric landmarks, and unrivalled hospitality. The country is rapidly advancing on the path of political and economic reforms towards strengthening its democratic society and its open market economy. The result is political and macroeconomic stability providing much room for growth.

Economic policy has been at the core of government initiatives, with attracting foreign direct investment at the top of the priorities.

Following an ambitious economic program the government has managed to boost economic growth, with a GDP growth rate of about 5% in 2007. The performance of the Macedonian economy is also expressed through a low inflation rate of less than 2% on average over the past ten years, fiscal

discipline confirmed by the international financial institutions and a well-functioning coordination between fiscal and monetary policy. The World Bank has ranked Macedonia as the fourth best reformer worldwide, in particular due to the government’s tax cuts and reforms in tax procedures, as well the regulatory guillotine project.

Headed by a markedly pro-business government whose top priority is attracting foreign direct investments, Macedonia is boldly distinguishing itself from its surroundings with its unmatched attitude towards FDI and the set of business and investment incentives it offers.

“We have designed a comprehensive economic program in order to improve the business climate in the country,” says Zoran Stavreski, deputy prime minister in charge of economic affairs. “We have introduced a very simple and direct approach to major policy decision-makers and have significantly shortened the administrative pro-

cedures for the investors. Additionally, we have streamlined the regulations in order to cut the red tape.” Stavreski co-ordinates a solid institutional framework involved in attracting foreign direct investments, which includes two FDI ministers and a dynamic investment promotion agency, Invest Macedonia.

The European Commission recently commented: “In June, the authorities started to implement the ‘regulatory guillotine’, involving a significant reduction of redundant legislation, introduction of the ‘silence is consent’ principle’, lowering of fees in a number of areas and simplification and shortening of a number of procedures.” The Commission’s Progress Report on Macedonia published last November also underlined Macedonia’s sustained macroeconomic stability, a reduction of the trade deficit, a payback of foreign debt and an increase in official reserves.

Three multilateral and two bilateral free-

managinggrowth | 53

inward investment trade agreements provide for duty free access to a market of 650 million customers from the EU member states, the EFTA and CEFTA countries, as well as Turkey and the Ukraine. A crucial factor for attracting foreign investors is Macedonia’s strategic location in the center of South-East Europe, at the crossroad of Corridors VIII and X. Since Macedonia is less than a day’s drive to central Europe and Turkey and because of its well-developed transport infrastructure the investors in the country enjoy one of the lowest transportation costs for their products and product components.

Transport experts have calculated that, for example, it takes a maximum of one day to truck 20 tons of goods from Macedonia to Turkish plants in Gebze at a cost of around €1,000.

In addition to the most attractive tax package in Europe (flat tax rate of 10 percent on corporate and personal income, and zero percent on reinvested profit), Macedonia prides itself with its abundant, highly skilled and very competitive labour force. The average gross salary in 2007 was €370. Viktor Mizo, CEO of Invest Macedonia, says; “excess capacity and low average wages put the country in an excellent position to capitalize on leading manufacturers’ quest for new and reliable locations to expand or relocate their business. Central European economies already suffer from over-investment and outbound labor migration, while economies further east lack the stability essential for business activity.”

Additionally, Macedonia’s universities and other educational institutions are willing to provide customized training programs to match the requirements of incoming investors. For instance, the Department of Mechanical Engineering in Skopje helped to train 165 students in Java and C++ in anticipation of demands from Johnson Controls, which began pilot production of highend electronic components in Macedonia last December.

The presence of Societe Generalle, T-Mobile, Johnson Controls, Siemens and numerous other companies clearly indicates a highly favourable business climate. As Bernard Koenig, first general manager of

54 | managinggrowth

Ohridska Banka, part of the Societe Generale group, puts it, “Societe Generale will participate in the development of the banking system and in the economic growth of Macedonia, which is showing real opportunities thanks to its natural resources, its skilled and available manpower as well as its perfect location on the crossroad of two important European corridors.” Also, Dr. Hans Peter Schutzinger, Chairman of the Supervisory Board of Porsche Bank has

expressed his satisfaction with Porsche’s work in Macedonia. “Out of all Eastern European countries, here we had the best and fastest start up of our business.”

Additionally, Chairman and CEO of Johnson Controls, John Barth, has praised the support and commitment of the Macedonian government on multiple occasions.

Johnson Matthey, the UK-based world leader in the manufacture of catalysts announced last November its final decision to invest in one of the technological-industrial development zones in Macedonia with a mega ‘state of the art’ manufacturing facility for the production of catalysts. According to Colin Jaffray, Director of Strategic Planning at Johnson Matthey, the initial investment in the Macedonian plant will be approximately €55 million and it will have the capacity to

produce 4 million catalysts per year. With more and more international automotive components producers finding the Republic of Macedonia an ideal location for setting up their European manufacturing bases, the country is replenishing its role as an automotive components supplier which it played in Former Yugoslavia. The country is particularly suitable for the manufacture of high value-to-weight labor-intensive products such as safety systems, electronic components, precision plastic products, aluminum and zinc die-casting and grey iron casting components.

To further facilitate FDI inflow into the country, in addition to the general incentives, the government has introduced special incentives for the companies operating within the four technological-industrial development zones (free economic zones). The investors within the TIDZs are entitled to a 10-year corporate income tax exemption and to a rate of five percent for the personal income tax during the first five years. They are exempt from payment of VAT and customs and excise duties for goods, raw materials, equipment, and machines. The zones entail complete infrastructure that enables a connection to natural gas, water, electricity, and access to a main international road network.

Macedonia’s most immediate priority is to join NATO and then to access the European Union. The economy is at the top of the government’s agenda, as it relates to further improvement of the business climate and increasing the standard of living for the citizens. Reforms in the judiciary and the cadastre are almost complete. Mizo says: “We are committed to bringing investments which will create new jobs. We will maintain the stable macroeconomic situation with low levels of inflation. We are also deep into a fierce fight against corruption, which has resulted in a significant drop in the CPI. The regulatory guillotine project is in an advanced stage. We are transforming bureaucracy into business-cracy.” Also in the top priorities of the government is the further improvement of the educational system in order to create skilled staff for the companies that will be coming to Macedonia in the future.

inward investment

cyprus

© PhotoRyuivst | Dreamstime.com

A

poised for serious growth

stable economy driven by diverse, hard working and hosdrive sustainable growth. Between 2004, with the entrance to the European pitable people operating in a favorable, euro based, busiUnion, and 2006, FDI grew by approximately 36%. The recently launched ness environment, with one of the lowest tax regimes in and now operating Cyprus Investment Promotion Agency (CIPA), has a the EU combined with a strategic island location in the threefold mandate: to: actively attract FDI to Cyprus, advise the governMediterranean, 300 days of sunshine and ment and advocate necessary reforms to further stimulate FDI, centuries of art and culture, perhaps and provide aftercare services to existing investors. constitute the best possible description, in one Specifically, and in line with the Lisbon strategy breath, of one of the up-and-coming memand government strategic growth goals, CIPA bers of the EU: Cyprus, which assumes aims to attract and retain FDI in high value the EU presidency in 2012. added, technologically advanced ReWith the dawn of 2008, Cyprus search, Development & Innovation joined the European Monetary (R&D&I). Disciplines such as high Union almost seamlessly, levertech and knowledge intensive inaging a robust economic perdustries including pharmaceutiformance marked by banner cals and bio–tech and renewkey indicators: annual ecoable energy resources are also nomic growth rate of 3.8% in high on the list. Specifically, real terms, inflation at 2% and The Cyprus Research Promounemployment at of 3.8% and tion Foundation, collaborathighlighted by the commiting with several organizations ment to sustainable growth. A including the Cyprus Research key advantage of using the euro Center for Energy, Environment is price transparency: with no exand Water which works closely change rate risk or costs, prices with the Massachusetts Institute are transparent across the Eurozone, of Technology and the Cyprus Interfostering competition and lower prices national Institute for the Environment in the medium to longer term. In addition, and Public Health which cooperates with Moody’s, with the changeover to the Euro, Harvard University, focuses on promoting Hasan Beach, North Cyrpus upgraded the sovereign credit rating for Cyprus research, development and innovation (R&D&I); one notch up, from ‘A1’ to ‘Aa3’ with a stable outlook. increasing the quantity and quality of Cypriot-based reAccording to Global Finance Magazine and CitiGroup’s Emergsearchers; and building knowledge-management systems to aid the ing Markets 2007 Report, Cyprus is classified as a ‘hot’ economy, defined exchange of best practice, both regionally and globally. Furthermore, in adas an economy where the conditions are right for serious growth. Within dressing environmental and energy needs, an energy center comprised of a Europe, the report ranks Cyprus in the top ten most competitive emerging liquefied natural gas (LNG) receiving/storing/re-gasification terminal intendmarkets in the world, after Malaysia, Chile, Tunisia, Thailand and India. The ed for electricity production and a terminal for the storage and handling of same report ranks Cyprus the fourth least corrupt emerging market behind oil products, including liquefied petroleum gas (LPG) and bitumen is under Chile, Uruguay and Botswana. way. Cyprus will be able to hold sufficient reserves that will allow 90 days The growth is being generated by a very well educated, multilingual workof continued consumption, in line with European directives. New investforce, where 44% of Cypriots between the ages of 24-29, hold university ment opportunities exist in the energy conservation and renewable energy and post-graduate degrees. Cypriots also enjoy a high standard of living: In sources. The Cyprus Action Plan calls for doubling of renewable energy terms of per capita income, estimated at EUR 17,000 and Cyprus is classisources (RES) contribution to the country’s energy balance from the present fied by the World Bank among the high-income economies.

4,5% to 9% in 2010 and increasing RES generated electricity consumption The taxation system provides one of the lowest taxation indices for comfrom 0% to 6% by 2010. panies in the EU, and the status of the Holding Company in Cyprus has ‘With CIPA we aim at promoting and positioning Cyprus as an internabeen characterized as one of the most attractive worldwide. In 2007, almost tional business and R&D&I competitive regional hub, connecting the Eu29,000 new companies were registered. With the launch of the One-Stop ropean Union with the Eastern Mediterranean, the Gulf but also acting as Shop, new local and foreign business set-up procedures have been siga bridge between the Asian emerging economies and Europe’ says, Mr. nificantly accelerated. The tax system, in conjunction with excellent legal, Sotiris Sotiriou, the CIPA Director General. financial and professional services and an extensive network of double tax treaties, provides an EU based business platform to South east Europe, the Marina Theodotou, Director of Business Development & Operations Middle East and even Asia.

Cyprus Investment Promotion Agency With all such key components favorably in place, Cyprus is indeed serimtheodotou@cipa.org.cy www.cipa.org.cy ous about attracting, even more actively, foreign direct investment (FDI) to

56 | managinggrowth

inward investment

Cyprus

A serious contender among holding company jurisdictions

C

yprus is emerging as the most favoured holding company jurisdiction in Europe. Until recently, when investors considered the setting up of a holding company for the purpose of holding their investments around the world, they would look no further than the traditional holding company jurisdictions in order to achieve tax efficient repatriation of profits.

Cyprus modernised its tax legislation to the highest OECD standards in preparation for membership of the European Union. Since joining the EU it has become one of the most attractive locations for the setting up of holding companies, heralding the start of a new era for holding company jurisdictions.

THE CYPRUS HOLDING COMPANY A Cyprus Holding Company offers the following tax advantages:

EU Accession The tax reforms that took place in 2003 together with Cyprus’ accession to the European Union in 2004 have played an important role in the development of Cyprus as a truly international business centre.

Cyprus has a market economy and no restrictions on capital movements. It offers excellent legal, financial and professional services, good infrastructure, a skilled, highly-educated workforce, a transparent and reliable legal and financial system, low taxation (including the lowest rates of corporation tax and VAT in the EU) with double tax treaties and a lack of bureaucratic inertia. These provide a favourable environment for international business to thrive, and the international business sector has become the backbone of the Cyprus economy. Since 1 January 2008 Cyprus has been a member of the Eurozone, further enhancing its attractiveness as an investment destination.

The accession of Cyprus to the EU had a profound effect on the number of international companies setting up business on the island. This has been the key factor in the surge in the number of new company registrations in Cyprus in the last four years. Indicative of this is the fact that new company registrations have more than trebled, from 9,080 in 2003 to in excess of 29,000 in 2007. This increased confidence is the result of the stability that EU membership provides, combined with a modern, business-friendly tax regime and business environment as a whole.

The following tax advantages offered by Cyprus are among the reasons why the island is rightly regarded today as the ideal holding company jurisdiction in the EU, and among the best in the world.

The reference to “directly or indirectly” in the legislation allows a “drilldown” approach to be taken to multi-tier investments so that if somewhere along the investment chain the activities are of a trading nature, the dividend will be exempt from tax in Cyprus. Thus dividends received from an intermediate holding company will not be treated as investment income if they are derived directly or indirectly from business income (non investment income) earned by the subsidiaries.

58 | managinggrowth

Full exemption from tax on dividend income received from investments If a Cyprus resident company owns 1% or more of the share capital of a foreign corporation, any dividends it receives from the investment are exempt from tax, provided only that: • Directly or indirectly more than 50% of the activities of the paying company result in non-investment income; or • The paying company is subject to tax at a rate of no less than 5%.

No withholding tax on distribution of profits irrespective of the country of residence of the recipient or the existence of a double tax treaty No withholding tax applies to payments of dividends to non-residents irrespective of whether the recipient is a body corporate or an individual, the country of residence or the existence of a double tax treaty. In fact no withholding tax applies to interest, royalties or any other payments to non- residents. This removes any doubt about recovery of the tax and also benefits cash flow.

Full exemption from capital gains tax and income tax on the disposal of securities Full exemption from tax is granted on the gains from the disposal of securities irrespective of whether the gain is considered to be of a capital or revenue nature. Securities, as defined in the law, include shares, debentures, government bonds, founder’s shares or other securities of companies or other legal persons which have been incorporated in Cyprus or abroad and options thereon. The only exception is private companies holding real es-

inward investment tate in Cyprus. This exemption enables a Cyprus holding company to dispose of its investments with no tax cost in Cyprus.

No capital gains or income tax on the liquidation of participations The liquidation of foreign investments held by a Cyprus holding company does not give rise to any taxes in Cyprus. Assets (including, in certain circumstances, foreign real estate) that have scope for significant capital appreciation may be placed in a Cyprus corporate wrapper and sold without any liability to tax on the gain.

No capital gains tax or income tax on the disposal of the shares of the Cyprus holding company The disposal of the shares of a Cyprus holding company will not result in any taxes in Cyprus whether or not there is a double tax treaty in place, provided the Cyprus holding company does not own real estate in Cyprus.

No capital gains tax or income tax on the liquidation of the Cyprus holding company No capital gains tax, income tax or any other taxes arise on the liquidation of a Cyprus holding company owned by non-residents, irrespective of the method of liquidation.

No capital taxes or net worth taxes during the life of the Cyprus holding company There is no annual capital or net worth tax in Cyprus.

Use of Cyprus’ wide double tax treaty network which provides for reduced withholding tax rates on dividends received from treaty countries Cyprus has a wide treaty network with over 40 countries, including all the principal Western European countries, most Eastern European countries, the USA and the emerging economies of India and China. Generally, these treaties provide for reduced rates of withholding tax on dividends, interest and royalties paid out of the treaty country, or the avoidance of double taxation in the case where a resident in one of the treaty countries derives income from the other treaty country.

Use of European Union Directives Cyprus is a full member of the European Union. Consequently and provided the required conditions are satisfied under the local legislation of the relevant EU country, any payment of dividend, interest or royalties from any other member state will be free of withholding tax based on the provisions of the EU Parent/Subsidiary and Interest and Royalty Directives.

Unilateral tax credit relief Relief for taxes paid abroad is granted by the Cyprus tax authorities whether or not there is a double tax treaty with the country concerned. If the respective income is subject to tax in Cyprus, full credit for the foreign tax paid is allowed against the Cyprus tax liability. Where a treaty is in force the treaty provisions apply if they are more beneficial to the taxpayer.

There are debt-equity restrictions, no thin capitalization rules and no minimum holding period Debt-equity/thin capitalization rules There are no debt-equity restrictions in Cyprus and a company may, therefore, be financed in any proportion of debt to equity.

Minimum holding period There is no minimum period for which an investment must be held in order to qualify for the tax exemptions on dividend income and the disposal of shares.

Other Taxation Considerations Cyprus Holding Companies and VAT Companies whose main purpose is to hold investments are not obliged to register for VAT and may not register voluntarily. This applies when the main business activity is the acquisition and holding of participations in other companies without taking part in the management and administration of these companies either directly or indirectly. In many cases this may be an advantage as the VAT reverse charge provisions will not apply. Furthermore, since Cyprus’s VAT rate is the lowest in the EU, irrecoverable VAT is not likely to be a significant cost.

Reorganisations Cyprus has fully adopted the EC Merger Directive and transactions falling within the definition of a reorganisation are exempt from corporation tax, capital gains tax and transfer fees. The reorganization provisions are extended to non EU countries and apply to both domestic and cross border mergers. Reorganisation includes merger, division, transfer of assets and exchange of shares, involving companies which are resident in Cyprus and/or non-resident companies.

Advance revenue rulings and prior approval procedures The Commissioner of Income Tax provides advance interpretations of the law when requested, giving assurance over the tax implications of proposed transactions.

The benefits of using a Cyprus Holding Company are summarised in the diagram below: overseas investor 0% cyprus company

d ce

x ta

te ra

du

re

0%

companies in countries with DTT

0% companies in the eu

0% companies in countries with zero tax

The EU Difference The Cyprus holding company provides an ideal environment for holding companies, offering freedom from tax on dividends and capital gains from investments, the use of double taxation agreements and other international investment agreements and, since accession to the EU, the benefit of all EU Directives. This unique combination gives a number of attractive planning opportunities and allows tax advisers to use Cyprus in a variety of international structures to effectively reduce the total tax burden of their clients. Cyprus may be used not only as an effective jurisdiction for routing investments within the European Union by third country investors but also as a portal for investment outside the European Union, particularly into the rapidly growing economies of Central and Eastern Europe, India and China.

It is therefore not surprising that since EU accession, Cyprus has been described by many commentators as ‘the gateway of Europe’. managinggrowth | 59

Š Photo: Darko Dozet | Dreamstime.com

inward investment

chrysses demetriades & co law office

UNDERSTANDING THE EMERGING INVESTMENT OPPORTUNITIES IN

Christos Mavrellis,

is a lawyer, Senior Partner of Chrysses Demetriades & Co. Law Office, former Minister of Communication and Works and of Finance of the Republic of Cyprus.

C

yprus, during the last three decades has developed into a respectable and well recognised centre for the structuring and channelling of international investments into Europe as well as for investments into central and eastern European countries, the former CIS countries and other parts of the world.

The main factors which have contributed to the success of Cyprus as an international business and financial centre have been the favourable and advantageous tax regime of Cyprus companies, especially when such companies are used to hold investments abroad, the extensive network of Double Tax Treaties, the standard of banking services and the high level of professional serv-

60 | managinggrowth

ices offered by lawyers, accountants and other service providers.

The Cyprus legal system is based on English Law and the common law and is applicable in Cyprus as it was applied in England by the High Court of Justice prior to August 1960, when Cyprus gained its independence from the Crown.

The Cyprus Companies Law is almost a copy of the English Companies Act of 1948 but it has recently gone through a number of amendments for the purposes of harmonisation with EU Directives Regulations. The fact that Cyprus Law is well understood by the international law firms and the banking sector worldwide has contributed to the success of Cyprus.

The main features which make Cyprus a favourable tax regime are the low corporation tax (10%), the exemption from Cyprus Tax of any dividends payable by a Cyprus company to a non-resident shareholder as well as the extensive network of Double Tax Treaties which in most cases allow the extraction of dividends from foreign countries at low or in some cases nil withholding tax. Furthermore Cyprus Tax Regime in conjunction with the application of the Double Tax Treaties affords possibilities to extract from other countries royalties and interest at low or nil withholding tax and

by application of the domestic law of Cyprus the overall tax exposure is substantially reduced or sometimes eliminated.

Currently the Cyprus holding company is regarded as the best vehicle to channel investments in other countries especially in Russia, Ukraine and Central Europe as well as in EU countries due to the fact that full participation exemption is offered to such holding company in Cyprus if such company holds in a foreign company at least 1% of the issued share capital of such foreign company and such foreign company’s income is not by more than 50% passive investment income or the income of such foreign company is taxed in the foreign country at rates in excess of 5%.

Cypriot companies have been used recently for listing in foreign stock exchanges, including the AIM and the London Stock Exchange, for the purpose of raising substantial capital which in turn is channelled for investment in foreign countries. Experience has shown that the fact that Cyprus Law is based on English Companies Act has proved an advantage as investment bankers, lawyers, nominated advisors and others involved in the listings find themselves in known territory and are facing no difficulties in adopting

inward investment the relevant prospectuses, information, memoranda etc.

Cyprus currently has over 36 Double Tax Treaties, with various countries, which include almost all the countries of the European Union, Russia and almost all the countries of the former Soviet Union, the United States and Canada, China, India, South Africa, Singapore, Mauritius, Seychelles, Serbia and Montenegro, Thailand, Syria, Egypt etc.

In all the treaties which Cyprus has, capital gains from the disposal of securities in the other contracting country, are liable to tax only in the country of residence of the person, physical or legal, who disposes such securities and if such a person is a company managed and controlled in Cyprus the disposal of such securities in the other contracting country ends up with no tax in such other country and no tax in Cyprus as no tax is imposed on gains realised on the disposal of securities. Full or substantial advantages may also result through the use of Cyprus companies with respect to taxation of dividends, interest, royalties and other types of income. Shipping profits also as a rule are taxed in the country of

(vii) exemption of business profits from taxation in foreign Treaty countries under certain conditions; (viii) full exemption of shipping profits from tax in Cyprus and by application of treaties in other countries as well; (ix) exemption of profits from the provision of shipmanagement services from income tax and application of moderate tonnage tax.

Since 1963, when the Cyprus Merchant Shipping Laws were introduced, Cyprus has developed as a well respected international ship registry and there were times at which it was holding the third position worldwide with 24m tons in its registry.

Cyprus companies which are resident of Cyprus for tax purposes are subject to corporation tax at the rate of 10% on their net profits. However, dividends received by a Cyprus company from its participation in foreign companies, on condition that the Cyprus company holds at least 1% of the share capital of the foreign company are not subject to any tax in Cyprus unless the profits of the foreign company, out of which dividends are paid to a Cyprus company, are by more than

structuring of their investments come from various countries of the European Union, the United States of America, Canada, Russia, India, the Arab world, Russia, Ukraine and generally from all over.

Cyprus foreign companies are welcome in Cyprus as they are regarded from all political parties as important contributors to the economy of the country offering substantial contribution to the revenue as well as employment opportunities and transfer of know-how and expertise to the island. The Government of Cyprus has recently established Cyprus Investment Promotion Agency (CIPA) in order to promote and attract foreign investment in Cyprus as well as the development of international business. Cyprus companies establishing offices on the island are free to employ personnel from other EU countries and, following certain procedures, they can also employ staff from third countries as well. Cyprus has a very high standard of education and ranks amongst the first countries in the world in numbers of university graduates, compared to its population.

The standards of professionalism are very high and all users of Cyprus as the basis for their op-

residence of the operator of ships thus leaving room for effective tax planning.

The main advantages for tax planning through the use of Cyprus companies are: (i) extraction of dividends from foreign countries with low or nil withholding tax in such foreign countries and in most of the cases with no tax in Cyprus; (ii) payment of dividends from Cyprus to nonresident shareholders with no tax in Cyprus; (iii) structuring of loans and group financing through the use of Cyprus companies achieving reduced or no withholding tax on interest in foreign countries but insignificant tax burden in Cyprus; (iv) exemption of capital gains realised on disposal of securities in foreign countries or in Cyprus with no Cyprus tax and in most of the cases with respect to Treaty countries with no capital gains tax in such countries either; (v) disposal of real property in foreign countries without capital gains tax in Cyprus; (vi) exploration of inventions, patents and other intellectual property rights with reduced or no tax in foreign countries and under certain conditions with no tax in Cyprus;

50% passive investment profits and the foreign company is not liable to tax in the country of its residents at the rates in excess of 5%.

Cyprus at present has under its flag ships with a total tonnage of 16m tons. The number of ships flying the Cyprus flag has decreased mainly due to the embargo which Turkey, contrary to international law and in breach of its undertakings and commitments towards the European Union, continues to impose.

The Cyprus ships trade all over the world without any other restrictions or limitations and the Cyprus Registry has recently been removed from any black lists in which flags of convenience are included.

It is important to note that Cyprus has also developed as the largest third party shipmanagement centre of the world with some of the most important third party shipmanagement companies established on the island, mainly operating out of Limassol, managing between them over 2000 ships flying the Cyprus or foreign flags.

The presence of such important shipmanagement companies on the island has contributed to the introduction of advanced know-how and expertise.

Currently, the users of Cyprus entities for re-

erations find it easy to recruit suitable personnel in Cyprus at reasonable cost.

Cyprus has at present two public universities and a number of private universities which attract students not only from amongst the local population but also from all over the world. Candidates for the Certified Accountants qualifications can do their apprentice in Cyprus where all the big international audit firms operate and they can qualify without having to spend time in the UK. Schools at all level of education teaching in English and other foreign languages are available thus helping expatriates who work in Cyprus for international companies to provide education to their children without the need of having them in boarding schools abroad. At present Cyprus encourages international universities to establish regional branches in Cyprus and it appears that interest has developed in this respect.

Another area which is promoted by the Government of Cyprus is that of health and investments in this field are welcomed.

CYPRUS

The Nicosia Office: PO Box 22187 Nicosia 1520 Tel:  357-22-765565 Fax: 357-25-765849 E-mail:  info@demetriades.com Web: www.demetriades.com

managinggrowth | 61

Ivan Vazov Theatre, Sofia. © Photo: Mlan61 | Dreamstime.com

Invest in Bulgaria now Why Bulgaria?

Financial & political stability • The lowest operation cost in Europe • Low levels of tax rates: 10% corporate income tax (lowest in EU together with Cyprus): 0% for manufacturing companies in areas with high unemployment • Equal treatment of foreign and domestic investors • Well educated and highly skilled labour force • Governmental support to priority investment projects • Bulgaria a linkage between Europe and Asia • Favourable climate

The South-East gateway to the EU

IBA Services: Macroeconomic data on Bulgaria • Legal advice • Data on operational costs • Regional information related to economy, unemployment data, availability of skilled labour force, education level, infrastructure, industrial zones • Offering investment Sites • Individual administrative services to the investors • Identification of potential suppliers, contract manufacturing or joint venture partners • Creating linkages with central and local governments • Creating linkages with branch chambers and other NGO’s

INVEST BULGARIA AGENCY 31 Aksakov Street, 1000, Sofia, Bulgaria Tel: +359 2/9855500 • Fax: +359 2/9801320 Email: iba@investbg.government.bg Web: www.investbg.government.bg

inward investment

Bulgaria

Europe’s attractive investment location With the proximity to new, unsaturated markets, and the country’s logistically strategic location in South Eastern Europe, Bulgaria continues to attract a number of new investors. Dr. Stoyan Stalev, CEO of InvestBulgaria Agency highlights the reasons for this expanding interest.

B

ulgaria is one of the oldest European countries with 20-century-old history and traditions. Modern Bulgaria is perceived as a stable and progressive Eastern European country. Its strategic geographical location is at the crossroads of four European transport corridors, connecting Western and Northern Europe with the Eastern and Southern part of the continent. Bulgaria is also known for its picturesque nature and rich cultural heritage.

The country is among the youngest members of the European Union. EU membership has raised the general awareness of the country and increased the interest of foreign

investors. The great potential represented by the free access to the single European market (the biggest market in the world), the proximity to new, unsaturated markets, and the country’s logistically strategic location in Southeastern Europe have recently attracted a number of new investors.

INVESTMENT CLIMATE For the last four years Bulgaria has been leading most European economies in terms of economic growth, achieving over 6% in real GDP growth per annum. This pace of development was also kept in 2007. Foreign Direct Investment (FDI) continues to be a key driver of the economic growth. Growing investments and export have been the major

contributors to the economic development of the country. The challenge ahead is to maintain the GDP growth rate and support it by an adequate level of FDI and export.

Macroeconomic and political stability is already in place in Bulgaria. The legislation has been harmonized with EU standards.

The fiscal policy of the government is one of the most attractive in the Union. Corporate income tax is 10%, i.e. the lowest in EU. As of 01 January 2008, 10% flat tax on personal income was introduced. Due to the fact that Bulgarian currency is pegged to the Euro (EUR1:BGN1.95583), there is no currency risk in doing business in Bulgaria. Since 2000, Bulgaria’s credit rating has been raised over 25 times and now the

managinggrowth | 63

inward investment

country enjoys investment-grade rating by major credit-rating agencies, such as Fitch, Japan Credit Rating, Standard & Poor’s and Moody’s.

Bulgaria can offer highly qualified and multilingual labour force, well-motivated, flexible and loyal to the employer. 22% of the population hold university degrees.

A high percentage of the workforce have completed general secondary or vocational education. Many Bulgarians have a strong background in IT, engineering, medicine or economics. Workers’ aptitude and reasonable labour cost are considerable incentives for foreign companies to invest in Bulgaria. Moreover, this is the country with the lowest operational cost in Europe.

The people are tolerant and friendly to foreigners and, last but not least, Bulgaria offers excellent climate, natural scenery, food and hospitality.

For all these reasons, Bulgaria is considered a good investment destination. With USD 5.1 billion FDI attracted in 2006 and more than USD 7.0 expected for 2007, Bulgaria ranks first in Europe in terms of FDI to GDP ratio (16.4% for 2006). This recordhigh inflow represents more than a quarter of the FDI stock (around USD 27 billion) for the whole 18-year transition period. 60% of these investments – around USD 16 billion, were accumulated during the past thee years only. This proves that Bulgaria’s EU membership is a strong motivation for the entrepreneurs; their confidence in the country is increasing, which positively affects the investment process. We expect this level of investment to be preserved in the years to come.

There are many new fields for business development in Bulgaria. So far, manufacturing has attracted the lion’s share of invest-

64 | managinggrowth

Dr. Stoyan Stalev CEO, InvestBulgaria Agency

ments (25% of the FDI stock) followed by finance (21%), trade (15%) and real estate (16%) – the latter being considered the fastest growing sector in the country, with 2006 FDI inflow amounting to EUR 1,262 million.

The biggest investor countries are Austria (16%), followed by the UK, the Netherlands, Greece, and Germany, most of the investors being drawn to the country by shared reasons: to maintain or increase their market share, to deliver new products, to reduce costs, and to stretch R&D budget, but most important of all − to develop knowledgebased industry, as well as to find new and genuine talents.

BUSINESS SECTORS OF HIGHEST POTENTIAL Electrical and mechanical engineering, electronics and manufacturing of miscellaneous auto parts are areas where Bulgaria has traditions, offers skills at reasonable cost, as well as reliable suppliers and subcontractors. Greenfield operations, acquisition of existing companies, joint-ventures and contract manufacturing in these business fields are considered profitable.

For the last three years, BPO operations, mainly for IT support and administrative and financial services, have been rapidly expanding in Bulgaria due to the talent pool

with good language skills and the competitive real estate prices.

In the power engineering sector there are investment opportunities in: a new nuclear power plant, modernization and construction of new thermal power plants, hydro power plants, wind parks and solar plants.

Modernization and development in this sector is a governmental priority.

INVESTMENT LEGISLATION The Investment Encouragement Act regulates the terms and procedures of investing in Bulgaria. According to this law, certified investors are getting a comprehensive package of information services, speeded-up administrative servicing, as well as infrastructure support and assistance with real estate “titling” issues. Investors could also get certain benefits under the Corporate Income Tax Act, the Value Added Tax Act and Encouragement of Employment Act on meeting certain conditions. In addition, investors in Bulgaria could use the EU Structural Funds to further support the execution of their investment projects.

InvestBugaria Agency is a Government Agency with a mission to attract investments, assist project setup and ensure successful project development resulting in new jobs, as well as exports and know-how transfer for the Bulgarian economy.

We kindly invite you to explore the possibilities for doing business in Bulgaria and the investment opportunities in the country by visiting www.investbg.government.bg.

We would also like to warmly invite you to visit Bulgaria − EU’s new and hot business destination.

Welcome to Bulgaria, your business partner in New Europe!

conference management

L

Didier Scaillet, Vice-President of Global Development MPI, talks about the global success of Meeting Professionals International

ast year the American president of a small but prestigious international association was visiting Italy looking for a location for their annual conference in Europe. Over a long lunch in Florence, his host mentioned her membership of Meeting Professionals International (MPI).

The effect was gratifying. “I need look no further” he said, “ I will bring the meeting here and I want you to run it for us.”

Reputation is important in any industry, but in a people - based business such as event organising, it is crucial.

Meeting professionals, conference organisers, - call them what you will - are, almost by definition, people people. Not only do they bring humanity together in large numbers but they also recruit and lead tams of disparate talents to achieve their objectives.

It was in the early 1970s that a bunch of Americans, recognising the potential of a ‘meetings industry’ then in its infancy, founded MPI: an association of planners in this specialist field. Before long, the providers of conference facilities and services were clamouring to join and for the past 30 years MPIs membership has been roughly divided equally between those who plan and organise events and those who support them in their endeavours. It is a mix that works to the benefit of all involved.

The planners, representing associations and companies of every size, are kept

66 | managinggrowth

mpi

Meeting the needs of mode

abreast of new locations and venues, of supplier services such as caterers and carriers, speakers and technology support.

And those suppliers enjoy access to the professionals who carry their organisation’s conference cheque book.

And those cheque books represent considerable budgets. It has been estimated that the meetings industry in Europe is worth in the region of Euro.150 billion, but it is hard to be exact. Certainly, conference budgets are, generally, increasing although they are subject to wider economic pressures.

MPI is a family of many talents. At meetings and on-line, representatives of FTSE 100 companies and global corporations mingle with members of the convention bureaux of cities such as London, Las Vegas and Hong Kong. Conference organisers from international associations socialise with marketing executives from the major hotel chains. Government meeting planners serve on committees with IT providers and airline reps. Photographers, designers, A-V experts, caterers, museum staff, freelance organisers and florists are all to be found in membership.

MPI’s aims are clear: to support professional development through education, to encourage discourse between members, globally, and to raise the profile of the meetings industry - especially among governments at every level.

And, like so many successful organisations, MPI has, for many years, faced the

pleasant challenge of managing continuous growth. From being very North America-centric up to the 1980s, it now boasts 2000 members in Europe and representation in Japan, Singapore, Korea, South Africa and the Middle East. World-wide the membership is 23,000 and growing.

The association not only encourages the formation of geographical chapters (there are now 68) but also the creation of communities of interest - connected by the web - where members can share data, contacts, opinions and market intelligence.

It is a model that encourages connectivity and dialogue on many levels.

Growth in the voluntary sector demands a high degree of ‘buy in’ from the members who are paying their subscriptions but MPI has managed to achieve this by involving them in decision-making at every level of the organisation. It also works hard to facilitate business between members so that they see tangible rewards for membership. (and are able to convince their finance directors of its benefits!)

Although the main headquarters is in Dallas, Texas, the organisation has an office in Luxembourg to look after members and chapters in Europe, the Middle East and Africa as well as in Singapore for Asia-Pacific.

From the EMEA office is run an annual European conference (this year: London, in April) attended by about 600 industry professionals, and a meeting in Dubai (also in April), which is a new venture. Such events,

rn business

© Photo: Yuri Arcurs | Dreamstime.com

conference management

while offering educational programmes for all levels of experience, primarily provide a platform for intensive networking and the creation of reliable business relationships.

These are the life blood of this industry.

At grass roots level, the human need for face to face interaction is satisfied by the association’s chapters which arrange monthly social and educational events in their towns and cities. Chapters vary in size (Chicago has 1,100 members, Norway around 60). In Europe, most chapters are country based - there are 11 - and their activities take place mainly in their capital cities. Contact details and event calendars can be found on their websites which can be accessed via the MPI website: www.mpiweb.org Because, both association and corporate meetings increasingly cross national borders in the search for new experiences, MPI particularly encourages cultural interchange and understanding. Chapter exchanges and alliances are fostered and members have access to a range of tools and materials that help them operate in unfamiliar environments.

The business of meeting planning is extremely dynamic, change is endemic, driven by globalisation, technology, economics and demographics. No planner can afford to repeat past successes without raising the bar or injecting fresh ideas. For this reason MPI is seen by its members as a valuable forum for monitoring trends and networking with their professional peers from

other jurisdictions and industry sectors.

Corporations are increasingly regarding meetings and events as a vital part of their communication mix and research shows they are now spending more money on this than on above-the-line advertising. A trend that looks set to continue.

In the last few years, as meetings management has become more structured and professional, MPI has recorded a trend for companies to integrate their event planning departments into their procurement departments. A European study of this phenomenon and its impact was published by MPI in 2007 and is available via the website.

In fact the association publishes a number of reports, surveys and papers every year of which the most widely read is ‘Future Watch’ which this year, for example, looks at the influence of internal organisation, technology and changing priorities on the function of meeting planning.

(For further details see sidebar) These and other educational initiatives are funded not from member subscriptions, but by the MPI Foundation, a charitable trust that solicits funds from the industry and disburses grants to worthwhile educational projects.

As the largest international association in the events industry, MPI has taken on a leadership role to develop what is known in many parts of the world as the ‘MICE’ industry (Meetings, Incentive travel, Conferences and Exhibitions).

In particular the association is helping young professionals in central European countries to expand their horizons. This is part of a Europe-wide initiative to attract students into the event management business. To this end, alliances have been created between MPI and several European universities where meeting planning courses are run. Members act as visiting lecturers and spend time familiarising students with the pleasures, perils and demands of the profession.

From being a rather neglected and misunderstood ‘administrative’ occupation a few years ago, the profession now enjoys considerable prestige in organisations where face -to -face communication is rated as important. The experienced inhouse meeting planner is increasingly being seen as the resident authority on how to create the environment and conditions for optimum communication between an organisation and its publics.

But not all companies can afford the luxury of an events department so the independent sector has witnessed huge growth in recent years. These ‘Profes-

sional Conference Organisers’ (PCOs) - individuals and agencies - are now bringing high levels of professionalism to the business. Some specialise in particular industries such as pharmaceuticals or financial services, others dedicate themselves to a small number of associations. Some play the field, organising meetings for any client anywhere. Very few of them, in Europe, are not members of MPI. Despite the march of technology and the efficiency (and cost effectiveness) of remote methods of communication, no-one believes that the need (and desire) of individuals to congregate in a shared space will ever diminish.

With this in mind, MPI is making a major contribution to helping business meetings achieve their objectives by encouraging professional development and the dissemination of best practice.

But in the final analysis, in the meetings business, it is relationships which create successful events and it is for relationships that members join (and remain) with MPI.

MPI’s FUTURE WATCH - 2008 In this year’s study, MPI asked planners to report on the trends internal to their organisation, such as: • Workload • Budgets • Shifting organisational goals and strategies • Centralisation of the planning function • Use of virtual, or webcast, meetings and the current and future involvement of planning departments in those activities Planners, suppliers and meeting management and service professionals were asked to report on the more global trends expected to impact the industry: • Various factors impacting the cost of doing business, such as the cost of oil and gas and general inflation • Possible economic downturn or recession • Increasing globalisation of both client- and supplierside organisations Finally, respondents were asked to identify trends in how planners, suppliers and meeting management organisations might work together in tomorrow’s marketplace. Topics include: • The technologies planners will seek in 2008 and the availability of solutions • Tomorrow’s outsourcing – what will be outsourced and to whom?

• Where suppliers’ clients reside, whether within our outside the organisation • The successes and challenges of preferred vendor programs and the involvement of procurement departments in the purchasing process • The steps suppliers are taking to build loyalty among their planner clients and what planners would prefer • Location of meetings across the regions of the world and types of venues

managinggrowth | 67

conference management

Algarve essential

Portugal’s sunny southern region is perfect for conferences and incentives

I

f you compile a checklist of the essential elements that make up an ideal conference and incentive destination, then the Algarve would seem to have it all.

Easy access? A little over two hours’ flying time from most European cities, a wide choice of airlines and departure points, and quick transfer times from Faro airport to the Algarve’s major hotels, towns and resort complexes.

Superb weather? With mild winters, hot summers tempered by Atlantic breezes, and warm and sunny shoulder seasons, the south of Portugal is a perfect year-round location for business and pleasure.

Quality accommodation? From five-star luxury courtesy of leading local and international brands to world-renowned golfing resorts, and from chic boutique hotels, historic pousadas and sumptuous all-suite developments to comfortable mid-range properties, the Algarve is capable of matching any event requirement or budget.

Meeting and exhibition facilities? In addition to its hotels, the region also boasts a wide range of top-class venues for conferences, conventions, business meetings, workshops, exhibitions, product launches, awards ceremonies, sporting events and cultural gatherings.

Activities and incentive ideas? Take your pick: from golf, tennis and a host of watersports to sailing, hot air ballooning, aquatic shows, vineyard tours and jeep safaris, there will always be something to keep your delegates occupied outside of the meeting room. And with over a hundred miles of superb beaches and the wide open spaces of the Monchique mountains to choose from, delegates certainly won’t find themselves suffer from claustrophobia.

Appeal The appeal of the Algarve doesn’t stop there. Looking for a destination with a rich history and culture, and plenty of variety? For social activities, convention add-ons or partner programmes, the Algarve

68 | managinggrowth

has bustling, atmospheric towns and picturesque villages, Moorish castles and Baroque mansions, and a lively and thriving arts and entertainment scene, from museums and galleries to restaurants, casinos and a vibrant nightlife.

Modern infrastructure? New motorways and an excellent network of local roads make getting around this varied but compact region easy. Trains, boats and planes are other transport options, from yachts and cruise ships to helicopters and light aircraft.

conference management

In fact, the numbers really do add up in the Algarve in more ways than one. Try these as an example.

Professional assistance? Experienced and inventive destination management companies and other business service providers, from audio-visual suppliers to ground handling companies, will ensure your event goes off without a hitch.

Value for money? Portugal is one of the most inexpensive countries in western Europe, ensuring budgets covering every aspect of your event, from hotel accommodation and room hire to food and drink, will stretch a long way, without compromising on quality.

4000 - the size in square metres of the multi-purpose Portimao Arena, a vast domed structure with retractable seating used for a variety of business, cultural and sporting events including shows, concerts, sports tournaments and exhibitions.

1000 - the seating capacity of the new Pavilhao do Arade in Parchal, near Lagoa, the Algarve’s first stand-alone conference and exhibition centre. With an additional 1000 square metres of exhibition space, it is also suitable for concerts, cultural events, product launches and fashion shows.

300 - the average number of days of sunshine a year.

104 - the number of beaches, two for every week of year, from sheltered dunes and rocky coves and bays to wide open stretches of near-virgin sand.

32 - the number of golf courses, including some of the most prestigious names in the sporting world such as Quinta do Lago, Vale do Lobo, Penina, Alto and Vilamoura.

22 - the average temperature, in degrees centigrade, in October.

15 - the number of five-star hotels, with more to follow soon.

11 - the number of marinas, including the modern purpose-built facilities at Vilamoura, Albufeira, Lagoa, Portimao and Vila Real de Santo Antonio. New marinas are also scheduled to be built soon in Faro and Ferragudo.

6- the number of Michelin stars awarded to the region’s restaurants.

1- your choice as to where you should hold your next conference or incentive event - The Algarve!

www.algarveconvention.com • www.visitalgarve.pt managinggrowth | 69

city focus - copenhagen

copenhagen a great place to do business

T

he inhabitants of Copenhagen are due to several surveys said to be the happiest in the world and when visiting the Danish capital it is easy to see why.

Copenhagen has got it all; More than 17,000 hotel rooms, a broad range of meeting facilities, wide horizons, many cultural offers and on top of it all it is

easily accessible.

Copenhagen is according to the UIA one of the most popular convention destinations in the world, and furthermore it serves as a significant growth centre for international business. With its location at the entrance of Scandinavia, its highly developed infrastructure, its environmental focus and substantial urban development Copenhagen offers a wide selection of possibilities for the convention participants and the business industry as a whole.

Copenhagen is placed in the centre of the most densely populated areas in Northern Europe and in one of the most affluent and dynamic regions. 9 million people live and work within a radius of 300 kilometres from Copenhagen, and the city has developed into the economic centre of the region. As the natural gateway to the Scandinavian market, Copenhagen offers an attractive and strategic location in a high quality business environment Copenhagen is an accessible and a very compact city. Situated no more than 13 minutes away from the airport by rail Copenhagen is very easy to get to and very easy to get around. With a highly developed and efficient infrastructure, and with most hotels, meeting facilities, restaurants, cultural attractions and entertainment venues situated in the city centre it is possible either to walk or use the public transportation and getting around both quickly and safely.

Copenhagen has become an important growth centre for international companies. Today, more than 2,200 foreign companies are located

70 | managinggrowth

Images courtesy of visitcopenhagen.com

in Copenhagen and a high number of those have chosen Copenhagen as their entry to the Scandinavian market. In 2004, Copenhagen was ranked third European city after London and Paris in attracting corporate headquarters. Moreover, the Copenhagen area is developing into a hub for technology-based companies, especially within pharmaceuticals, chemicals, biotech and IT and telecommunications.

Copenhagen is a green city with lots of parks and if you arrive during summer you will see people swimming in the sea, canals and harbour around the city, thanks to the clean water. But also when it comes to the meeting industry Copenhagen can be seen as a pioneer country within the environment. According to a recent survey undertaken in the fall of 2007 by CVB Wonderful Copenhagen 97% of all the meeting venues and hotels in Copenhagen take measures of one kind or another to reduce their overall environmental impact.

Even though Copenhagen during the last year has experienced a rapid growth within the hotel industry and several new larger hotels such as a 382-room Hilton hotel and 395-room Marriott hotel have opened, the city is not resting on the laurels. During the next couple of years Copenhagen will expand even more and with the opening of a brand new conference venue in down town Copenhagen in connection with a hotel complex consisting of three new hotels offering 1300 rooms, the development continues. Furthermore Ă˜restad a brand new part of the city located only five minutes from the airport is expanding its capacities heavily during the next couple of years. Out of the total expansion of 4,200 rooms expected in the city within the coming four years 2,550 will be in Ă˜restad. Among them will be the 800 rooms hotel to be built in conjunction to Bella Center Scandinavia’s largest congress and conventions venue, which can hold up to 20,000 congress participants.

For more information click on www.visitcopenhagen.com/press

business fun

a wry look at

business

The Law of Unexpected Consequences

O

nce upon a time there was a Swiss who lived and worked in a Geneva bank. He wasn’t particularly out of the ordinary. He worked competently, had risen to captain in the Swiss Army, then a useful stepping stone in society, and dutifully carried out his annual training each year. His business career progressed satisfactorily, and with luck, time, and the odd heart attack, a Chairmanship of the board beckoned. However, an Englishman called Michael had arrived as a junior director in the bank bringing with him a substantial injection of capital. He was tall, good looking, and with an air of hidden menace under a layer of irresistible charm and old-fashioned good manners, that ensured he had all the female staff eating out of his hand, including the senior PAs, who often wield discreet but great power, and can make or break a manager. Try as he might, the Swiss had been unsuccessful in this respect in the past. Thus giving him another reason to resent the intruder. Much worse than this, he drove a Maserati. The Englishman’s initial contract was for a six months trial period, and if he stayed, he presented a threat to the banker’s board room ambitions. So he took every opportunity to undermine the Eng-

lishman. One morning, Michael who tended to live life to the full, arrived late for the first board meeting of the day immaculately dressed and equipped with a hangover. The Swiss seized the opportunity to issue an embarrassingly public reprimand. Being a firm believer in the principle that you never get angry but even, Michael made enquiries amongst the Banker’s enemies in the building of which there were many, and soon discovered the existence of the mistress installed in a company flat in a fashionable part of Geneva. He parked his Maserati outside the lady’s garage door. Arriving deliberately late for the next day’s board meeting, producing a flurry of excuses. ‘I do humbly apologize for being late - got very drunk last night, - don’t even remember where I left my car, except that it was outside the door of some girl I met, gave dinner to and bedded.’ Shortly afterwards, the Swiss received a telephone call from the mistress; she could play the fishwife with the best of them! She was incandescent with rage because someone had parked a red car against her garage door and she had to take a taxi to work; and why wasn’t there a ‘No Parking’ notice on the garage door? The Englishman’s contract was not extended beyond the six months trial period. History does not relate whether the mistress remained in the flat.

Illustration: www.benovision.co.uk

managinggrowth | 73

editor’s choice

Living

Luxury Each issue, we unearth some of the most luxurious places to stay on the planet, for business or pleasure.

EDITOR’S CHOICE

© Michael Currie | Dreamstime.com

T

he historic hotel was built in 1913, allegedly at the instigation of King Frederik VIII. With stunning views of Tivoli Gardens and City Hall, relax in sumptious surroundings filled with decades of warm and personalised service. The a la carte, fine dining restaurant serves delicious food of Scandinavian produce as well as modern international cuisine in classical surroundings. This is a perfect place for a romantic dinner for two or special anniversary, but also welcoming and warm for the sole businessman on the move. Experience the world famous Library Bar that offers Copenhagen’s best cocktails, served in a room of traditional décor and exclusive ambience from a forgotten time. On Saturdays enjoy live jazz to complete the experience. Stay in one of Plaza’s 93 charming and classically decorated rooms with easy access to the absolute centre of Copenhagen. The experience certainly leaves you wanting to visit again.

74 | managinggrowth

Bernstorffsgade 4 1577 København V, Denmark Tel: 3314 9262 Fax 3393 9362 www.ProfilHotels.dk