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SUCCESS STORIES: LARRY ELLISON

WORLD’S RICHEST SPORTS CLUBS

gbm august 2012

global business magazine

Sound and Fury

Will Bonus Regulation Lead to Stable Markets?

tax & transfer pricing

ip, patent & trademark law

luxury city hotels

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The world’s capital market

The London Stock Exchange Group is Europe’s leading diversified exchange business, incorporating Borsa Italiana and the London Stock Exchange. With over 400 member firms trading and more than 2,600 companies quoted across its markets, the Group operates the largest and most liquid equity marketplace in Europe. The London Stock Exchange’s Primary Markets team put UK and international companies in touch with one of the world’s deepest pools of global capital. Our markets are home to companies from all over the world, ranging from start-ups to some of the world’s largest corporations. For further information, visit www.londonstockexchangegroup.com


INsIDe This Month:

international tax & transfer pricing

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luxury Brand series luxury city hotels

Business Talk Despite banks being under pressure to benefit consumers and society as much as employees, there’s still a great deal of media coverage on the ‘inventive’ ways they are getting around the regulations in place. We take a closer look at banking compensation packages to date, and ask whether the proposed pay controls are likely to have any effect. While banking may be facing uncertainty, another industry is reaching its zenith – the world of hospitality. In our Hospitality, Food & Beverage Sector Report 2012, we find out about European regulations around food products; why it’s important to promote employment growth; and the reality of alcohol beverage licensing in the USA. The pharmaceutical industry is also facing interesting times. IP Law looks at the importance of intellectual property rights; the new avenues for challenging patents in the USA; and the challenges faced enforcing pharmaceutical patents in China. Moving onto a completely different kind of research, our Forensic Accounting Introduction uncovers how the world’s largest anti-fraud organisation remains at forefront of fraud-fighting trends. Staying firmly on the subject of leading the way, who better to profile this month than America’s third richest man? Meet business magnate, co-founder of Oracle and recent purchaser of Hawaiian island Lanai – Larry Ellison. From impressive human endeavour – to the wonders of technology – this month we look at the automotive industry. We examine the challenges faced by the globalisation of vehicle production; get a first hand account from the manufacturing leader of Belgium; and find out how Italy is adapting to the current climate.

coVer story

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ip, patent & trademark law in the pharmaceutical technology & drugs sector

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Our Tax & Transfer Pricing focus tackles tax planning and investment opportunities in Ireland; investment laws in Nigeria; the benefits of the Austrian Holding Tax Regime; and the transfer pricing system in Ecuador.

success story -larry ellison

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Popular American business magazine Forbes has released the latest list of the world’s richest sports clubs. We give you some of the (unexpected) highlights.

trip adVisor

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automotiVe sector report

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forensic accounting with the acfe

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deal directory

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Finally, our Luxury Brand Series goes around the world in search of city hotels that are as much a destination as the metropolis they’re in. After all, there’s nothing quite like being in the centre of it all.

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The opinions expressed in GBM do not necessarily reflect those of the editors, publishers or their agents. The information provided in GBM is general and may not be applied to a specific situation. GBM does not purport to provide legal or other professional advice and takes no responsibility for actions taken on the basis of information provided herein. Legal advice should always be sought before taking any such action. Laws and government policies are constantly changing and accordingly GBM takes no responsibility for the accuracy or currency of the information provided herein. If you require particular information you are advised to consult with the article’s author or seek legal advice.

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August 2012 • Global Business Magazine • 3


sound & fury - will Bonus regulation lead to staBle markets

Sound & Fury Will Bonus Regulation Lead to Stable Markets? The financial crisis of 2007-08 had many causes, but one of the leading frailties in the banking system was the structure of executive pay. Bonus structures in investment banks across Europe promoted short term profits at the expense of long-term stability and encouraged high-risk behaviour. Bonus-chasing also leads to outright criminal activity, as the Libor ratefixing scandal shows. The European parliament is attempting to engineer bonus structures so that bankers are rewarded for acting in their – and our - longterm best interests. But is it possible to create a bonus structure that rewards stability and patience? Or do we need a radical new way of regulating investment behaviour?

An incentive for a crisis Bank remuneration packages typically consist of a large variable component – the bonus – and a smaller fixed component that comprises salaries, pensions and other benefits in kind. In 2007 the average bonus in the investment banking industry was two-and-a-half times higher than the average fixed salary and benefits. Bonuses were tied to current performance and, according to Jean-Pierre Danthine, professor of economics and finance at the University of Lausanne, this incentive structure in investment banking was instrumental in bringing about the financial crisis. “Key decision makers were not provided with the right incentives to carefully analyse and balance the possible consequences of the risks they agreed to take,” he said. A risk-taking culture was endemic, according to analysis by Professor Kern Alexander, senior research fellow in financial regulation at the Centre for Financial Analysis and Policy, University of Cambridge. “Major weaknesses in corporate governance at UK banks and financial institutions contributed significantly to the financial crisis,” he said. “Specifically, the structure of bank compensation at UK banks created incentives for senior managers and traders to book short-term profits based on taking excessive risks that not only weakened the bank’s medium and long-term prospects but also increased systemic risk in the financial system.” Beyond this, the bonus structure at a number of investment banks led to the recent Libor rate-fixing scandal as the famous “Bollinger” email shows. “That culture can breed these kinds of behaviours,” Bob Barbato, professor of ethics at the Saunders College of Business told the Daily Beast. “When you dangle incentives in front of people, they find a way to get them. They’re like the squirrels in my backyard: they’ll find any way to get the food.”

Control the bonus, control the banker? Since the crisis, European and member-state regulators have been looking for ways to rebalance the incentive structure in investment banks (see Box 1). The European Parliament adopted the third Capital Requirements Directive (CRD III) last year, which enacts some of the strictest bonus regulation in the world. Further proposals being discussed in the European parliament this summer seek to limit the ratio of bonus to fixed remuneration to 1:1 or 2:1 for all senior staff at EU-based banks, wherever they are in the world. The rules will also 4 • Global Business Magazine • August 2012


apply to EU-based staff of non EU banks. Despite concerns that these regulations would damage Europeanbased banks and their ability to recruit, the Financial Times describes resistance to the plans as “tepid”. A senior lobbyist who spoke to the Financial Times in June said, “It’s dawning on many banks that this is game over… Many are now resigned to the 1:1 ratio.” The UK’s Financial Services Authority (FSA) has already made changes to the regulatory regime with the Financial Services Act (2010). This legislation sought to link bankers’ pay to more effective risk management. The new legislation authorised the FSA to define a bonus structure that should incentivise longer-term stability. The FSA also has sweeping powers to dissolve contracts that don’t comply with these rules, and to “[recover] any payments made, or other property transferred” if bonuses don’t comply with their guidelines. The European Financial Stability Forum published its Principles for Sound Compensation Practices in April, 2009. These principles are: - Effective governance of compensation: 1. The firm’s board of directors must actively oversee the compensation system’s design and operation. 2. The firm’s board of directors must monitor and review the compensation system to ensure the system operates as intended 3. Staff engaged in financial and risk control must be independent, have appropriate authority, and be compensated in a manner that is independent of the business areas they oversee and commensurate with their key role in the firm. - Effective alignment of compensation with prudent risk taking: 4. Compensation must be adjusted for all types of risk 5. Compensation outcomes must be symmetric with risk outcomes. 6. Compensation payout schedules must be sensitive to the time horizon of risks. 7. The mix of cash, equity and other forms of compensation must be consistent with risk alignment. - Effective supervisory oversight and engagement by stakeholders: 8. Supervisory review of compensation practices must be rigorous and sustained, and deficiencies must be addressed promptly with supervisory action. 9. Firms must disclose clear, comprehensive and timely information about their compensation practices to facilitate constructive engagement by all stakeholders. Box 1: the European response to the regulatory failures that precipitated the crisis

The FSA guidelines implement the European requirements on bonus structure laid out in CDR III, which insists that 50% of bonuses take the form of shares in the institution (or some equivalent instrument) and that at least 40% of the bonus be deferred for a minimum of three years, and paid on a pro-rata basis over a further three years (see Box 2). For a bonus of £100,000, a senior employee would be entitled to receive: £30,000 in cash now £30,000 in shares now £20,000 in cash to be paid on a pro rata basis between 2015 and 2017 £20,000 in shares to be paid pro rata basis between 2015 and 2017 For bonuses greater than £500,000, 60% of the total must be deferred. Box 2: how bonuses will be structured under the new rules

August 2012 • Global Business Magazine • 5


sound & fury - will Bonus regulation lead to staBle markets For some commentators, this structure doesn’t go far enough to align employee return with long-term shareholder risk. In its 2011 report, Cheques With Balances: why tackling high pay is in the national interest, the UK High Pay Commission recommended that bonuses should consist “solely of shares, the value of which is determined by the remuneration committee, with a five year initial holding period and then a timed vesting of 20% each year as the preferred option. Although other performance-related-pay options are available, we feel this is the simplest way of linking the interests of the executive to the shareholder.” The regulation of bonuses doesn’t stop at altering their structure. This year, European regulators proposed capping bonuses at a ratio of 100 to 200% of fixed salary; an idea that Financial Times city editor Jonathan Guthrie describes as “indubitably daft.” “The measure is intended as an indirect way of reducing bankers’ total remuneration, on the assumption that base salaries vary within predictable limits,” he wrote in an editorial last month. “Bad assumption. Investment banks would increase salaries for key staff to circumvent the ratio. That would reduce their ability to cut costs prudentially when deals were scarce and trading thin.” Banks have already begun to hedge against the proposals by shifting remuneration to fixed benefits - including salaries, pensions and benefits in kind - and reducing the size of bonuses. According to the Association for Financial Markets in Europe (Afme), salaries in investment banks rose 37% between 2007 and 2011. Over the same period, bonus payments fell from 70% to 45% of average take-home pay. Afme's study of 13 leading investment banks showed that bonuses had fallen faster than fixed benefits had risen, leading to a 30% fall overall in bankers' pay, but pay restraint is not the result of any regulatory effort. Shareholder sentiment has led to a reduction in pay deals because banks are performing dismally compared to other sectors. The FTSE world banks index fell by 25% in 2011, compared to the overall world index which dropped by 9%. It’s a sign of widespread shareholder displeasure that many banks’ boards have lowered executive pay this year. “If you look at the decisions that remuneration committees made for 2011 performance, then overall CEO pay in the banking sector is markedly lower than in 2010,” Tom Gosling, a partner at PwC, told the Financial Times. “Whether it has fallen enough to satisfy public opinion is a separate question.”

Fixed Salaries, fragile foundations? While disappointed shareholder expectations are driving pay packages lower, the contribution of fixed remuneration to the running costs of the big investment banks is still rising. While the European reforms were supposed to increase stability, this raises a real possibility that the shift away from bonuses could backfire. "A cap on bonuses could trigger another round of salary increases, which would be a huge mistake as it would add to banks’ fixed costs,”� said Kian Abouhossein, an analyst at JPMorgan Cazenove told the FT in May. If banks react to the bonus cap by increasing their fixed costs then risk will rise even as overall pay rates fall. This is because institutions will lose some of the flexibility they have to respond to market conditions by varying remuneration. In an open letter to members of the European Parliament, Afme warned that banks with high fixed salary costs are at risk of "dangerous losses" if profits fall. The move to a tighter salary: bonus ratio would, the association said, be responsible for "reintroducing fragility to the European banking system.” This critique – that the plans will expose the investment banking sector to higher systemic risk – is one of several technical criticisms levelled at the plans. Experts suggest compensation packages will become harder to scrutinise and that shareholder interests will be harmed by the switch to shares-based remuneration in Europe. “The increased the use of shares and equivalent instruments as part

6 • Global Business Magazine • August 2012


of variable remuneration may affect the bank’s ability to comply with regulatory capital requirements,” said Prof. Alexander. “Moreover, increased use of shares in variable remuneration may also significantly dilute existing shareholders, which may affect shareholder rights under EU company law.” The new rules have had the effect of limiting or reducing transparency in compensation practices in the financial sector. “The regulation of remuneration in the financial sector has contributed to increasing complexity in compensation packages,” he went on. “This has resulted in a situation where only relatively few individuals with technical insight are able to understand what an executive is being paid.” Overall, it seems, the new regulations will weaken shareholder control. Furthermore, the regulations do little to address the underlying cause of the risky behaviour of investment banker, according to a critique published by the European Parliament’s directorate general for internal policies. Despite this critique, global leaders issued a communique calling for the “full and consistent implementation of [these] policies in order to support a stable and integrated global financial system and to prevent future crises,” at the G20 summit in Mexico this June. The Global Financial Markets Association (GFMA) responded by urging caution. "As G20 ministers continue to implement the reforms necessary to ensure a robust global financial system, we would urge them to thoroughly assess the impact on economic growth of the numerous initiatives underway in several jurisdictions” they wrote in an open letter. “The GFMA is concerned about proposals to set legal caps on variable compensation since it believes that attempts by legislators to set a maximum ratio between fixed and variable compensation intrudes on the important role of shareholders to determine key questions on pay and commercial strategy."

Reviving an old approach – empowering the shareholder While it seems inevitable that the reforms of bonus structures and ratios will come into force over the coming months, the key to regulating risk taking may lie elsewhere. Shareholders should be exercising greater influence on pay, experts claim, and many analysts agree that shareholders are being marginalised by these reforms when they should be further empowered. Jonathan Guthrie blames shareholder lethargy for the recent disconnect between pay and performance. “Investment bankers already enjoy enviable protection from downturns, given that a large proportion of their pay is supposedly variable. Barclays Capital trimmed remuneration just 14 per cent in 2011. Pre-tax profits fell 32 per cent. Operating profits tumbled 54 per cent at Royal Bank of Scotland’s investment bank. Staff costs fell only 9 per cent,” he wrote. “Shareholders face a fight to wrest back control of investment banks from their employees. A fixed bonus ratio would hamper this.” If pay is to fall into line with performance, shareholders need to exercise their rights and responsibilities with greater diligence. According to Professor Alexander, “shareholders failed to provide adequate stewardship over bank senior management and risk-takers by allowing them to be compensated based on short-term revenue, rather than longer-term profitability… Shareholder stewardship requires not only an alignment of interests between shareholders and senior executives and risk-takers, but also an alignment between shareholders and other stakeholders in society, such as customers, depositors, and employees.” Perhaps the answer lies as much in influencing the behaviour of shareholders as it does in changing the pay-structure of bankers. The Walker Review on corporate governance in UK banks and other financial institutions, issued by the UK Treasury Department in 2009, concluded as much: ‘if shareholders took a closer and more broadlybased interest in remuneration, the regulatory pendulum would not need to swing so far.’

August 2012 • Global Business Magazine • 7


international tax & transfer pricing

International Tax & Transfer Pricing Personal migration as an International Tax Planning Tool “If you can’t stand the heat, get out of the kitchen,” said Harry S Truman, ex-President of the United States in 1942. I would say the same nowadays with regards to tax, both to individuals and corporate entities – “If you can’t stand the tax laws, emigrate”. Tax planning through redomiciliation is, in my opinion, the theme of international tax planning in the 2010s. In this article I highlight the issues relating to personal tax residence and those considerations that apply when thinking about moving abroad. Emigration is often considered the ultimate form of individual tax planning as it may uproot the person’s entire life, put relationships at strain and cause substantial expenses. Nevertheless, many choose to emigrate to lose their residence status and achieve tax benefits. For example, a UK non-domiciliary who has resided here for 17 out of 20 continuous years will be “deemed” domiciled in the UK and his death will trigger a substantial UK inheritance tax charge. A solution lies in periodic loss of UK residence — that is in any 20-year period there must be at least four full tax years of non-residence. Conversely, one may immigrate to obtain favourable treatment only available to residents. For example, the UK resident Chelsea-dwelling ex-wife of a Russian oligarch may receive a share of their Moscow flat and shares in a Russian company as a part of their divorce settlement. If she then decides to sell the flat and the shares, she will pay Russian income tax on gross proceeds at more than twice the rate available to residents. Therefore, she may be advised to become a Russian tax resident in the year of the subsequent post-divorce sale to avoid excessive taxation.

the approach to determine the residence concept. A simple day count is seldom considered by itself and is often complemented by other tests. Some look at exact facts, such as whether the person has a house and family in the country: Others are nebulous and look at the person’s state of mind and future intentions. The following is an attempt to split these factors into several broad categories, which must not be considered in isolation. Day Count In some countries simple day counting constitutes the sole method of determining residence. Cyprus and Russia, for instance, deem resident a person who stays there for 183 days in any year. Notably, while Cyprus allows an individual to be treated as a resident only following their arrival, in Russia the person is deemed resident during the whole year in which they acquired such status – a subtle yet an important difference. Seeing that a resident pays taxes on their worldwide income and gains, they may want to receive earnings before coming within reach of tax authorities of their destination State. Conversely, the US practices a rather Jesuitical approach to day counting. An individual should be treated as a resident of the US for any calendar year or part of a calendar year if he meets the ‘substantial presence’ test. Broadly, the test looks at the cumulative number of days spent in the country in the previous years, which is calculated according to a convoluted formula. Permanent Home

Residence is what typically links an individual to a State and subjects them to domestic tax liability on their income and gains. However, tax liability may also be affected by a person’s ordinary residence, citizenship, domicile or deemed domicile. For example, a Green Card holder who leaves the US will continue paying tax on their worldwide income. As a countermeasure, they may seek to establish a permanent home in a country with which the US has a double tax treaty and become resident there. They can also relinquish US citizenship. However, such people must be aware of a quasi-‘toll charge’ imposed on wealthy individuals who have in the past ten years relinquished their US citizenship or given up ‘long term’ US residence.

Other States deem resident a person who keeps a living place on their soil. For example, a person will be resident in Austria if they own or are entitled to use an apartment or a hotel room for over six months in a year. If the person permanently resides outside Austria for more than five years but also keeps an apartment in Austria, they will be under an unlimited tax liability in those years in which they used the apartment for more than 70 days. However, a person who owns or occupies a house in Portugal on 31st December may be found resident during the same year, regardless of the number of days spent in the country, provided that the tax authorities can demonstrate that person’s intention to reside in that house permanently.

Jurisdictions differ in how a person acquires or loses their residence but there is remarkable similarity in

Centre of Vital Interests

8 • Global Business Magazine • August 2012


Often residence is based on whether a person maintains their centre of vital interests in a State, although there is a marked difference in the interpretation of what constitutes ‘vital interests’, namely whether they are economic or social. Normally, greater importance is attached to the latter, although in their absence the former will often be considered. France, for example, deems resident a person whose centre of economic interests is there; Spain also looks at where a person has their main centre of business or professional activities or economic interests, while the Netherlands dispenses with day counting altogether and looks at where the person’s centre of personal interests is situated, which includes a permanent home, family and their economic ties. Switzerland also looks at the evidence of a person’s centre of vital interests, such as where their family lives and children go to school etc. ‘Intention to Settle’ Many States consider individual’s subjective intentions, which may tip the balance towards finding the person resident, even if their period of physical stay in the jurisdiction is insubstantial. For many years, the UK has been a prime example of this approach with its very broad case law definition of residence, which is, ‘to dwell in one jurisdiction permanently or for a considerable time; to have one’s settled or usual abode in one jurisdiction; to live in a particular place.’ Happily for tax practitioners, the present uncertainty will end with the introduction of a statutory residence test in April 2013. Similarly, a person settling in Australia or France with their immediate family may become resident there from the arrival date, despite that person’s subsequent extended absences from either country. Resolving Conflicting Residence Claims A person may unwittingly satisfy residence conditions of more than one State and be liable to double (or triple!) taxation on the same items of income. Conflicting residence claims are settled by tiebreaker provisions of the applicable double tax treaties. Broadly, these give the attachment of an individual to one State a preference over the attachment to the other State through applying a series of criteria. The first preference is given to the State in which the individual owns or possesses a home where they stay permanently — not only for short durations. If the individual has permanent homes in both or neither State, preference is given to the State where that person has their centre of vital interests, with which the personal and economic relations of the individual are closer. The next criterion is the length and frequency of the person’s stay in each State — their habitual abode. This applies if either the person has permanent homes in both States, or they don’t have a permanent home in either State. As in both cases it is impossible to determine where their centre of vital interests lies, regard is given to the sum of visits to the territory of a particular jurisdiction, including stays in hotels over a substantial time period. If none of the above factors demonstrate the person’s closer connection to a particular State, they will be deemed resident in the jurisdiction of which they are a national. However, if they are a national of both or neither State the conflict must be resolved through the jurisdictions entering into negotiations – the mutual agreement procedure.

Usually tax treaties take precedence over domestic laws and the tiebreaker clause establishes a clear hierarchy of succeeding residence tests and brings certainty to individual tax planning. Unfortunately tax treaties are not always a panacea for the problem of double taxation. Some like the treaties between the UK and Jersey and Guernsey do not contain tie-breaker clauses – the person seeking to lose UK residence must satisfy requirements of the UK law. In other cases, domestic courts in each state may interpret terms of the tiebreaker clause differently, which can result in double taxation. Exit Taxes and Residual Taxation Rights

Roy Saunders International Fiscal Services Ltd 44 Southampton Buildings London WC2A 1AP Tel: +44 (0) 203 368 6968 info@interfis.com www.interfis.com/ www.itsapt.com/

Some jurisdictions, including several EU States, impose exit taxes on persons who become non-resident. Others retain residual taxation rights towards their departing citizens or former long-term residents. For ten years, Germany retains limited taxation rights vis-à-vis worldwide income of its citizens who were resident there for five out of ten years immediately preceding departure, and who have moved to a low tax country having retained economic ties with Germany. Italian citizens who have been removed from the Resident Population Registry and have moved to a State or territory not included in a published ‘white list’ remain residents unless proof to the contrary is provided. Similar lists are maintained by Portugal and Spain. The US is also famous for taxing its departing Green Card holders. Conclusion There are numerous examples showing that moving from one State to another, or staying out of a particular jurisdiction in preparation for a transaction or as a means of life-time financial planning, constitute an important tool in the international tax planning arsenal. Unfortunately the boat of an elaborate strategy may run aground amidst the sands of uncertainty, sometimes surrounding residence criteria of jurisdictions involved in the move. This is true in circumstances where a person wants to lose their residence or not to acquire it, especially once it has been lost. In this case only a tax treaty can provide certainty; its tiebreaker clause (if it exists) regulating conflicting residence claims. This just goes to demonstrate the complex nature of residence planning – and that’s just the tax planning side. Therefore, the final recommendation before departure must be to test the water first. Chartered accountant Roy Saunders created his own niche international tax practice in 1971, and has lectured around the world on tax issues. His bestknown work International Tax Systems and Planning Techniques (ITSAPT) is still the only reference book written by one person to cover the tax legislation of more than 30 countries. August 2012 • Global Business Magazine • 9


ausTRIa

international tax & transfer pricing

International Tax Planning with an austrian company At the gateway between East and West, Austria is a perfect hub for making investments into foreign countries tax efficient. In order to be able to obtain the benefits of the Austrian Holding Tax Regime, there is no need for a special purpose company. However, any Austrian corporate entity – a GmbH (company with limited liability), an AG (stock corporation), or Austrian permanent establishments of European corporate entities – can benefit from the Austrian Holding Privilege.

interest payments to offshore companies are not exposed to any withholding tax at source.

What are the Key Features of this Austrian Holding Regime?

The Foreign Subsidiary

Domestic Holdings Intercompany dividends paid between two Austrian companies are tax exempt in the hands of the receiving Austrian company. Therefore, capital gains arising from the sale of shares in an Austrian corporation held by another Austrian corporation are taxable, and are due at the standard flat corporate tax of 25 %. Any financing costs connected with the acquisition of the shares held are fully tax deductible. Foreign Holdings Provided that the Austrian company holds at least 10 % of the shares of a foreign corporate entity, comparable to an Austrian GmbH, for at least one year any dividends received by the Austrian company and any capital gains resulting from the sale of the shares of the foreign corporation are tax exempt in Austria, regardless of whether there is a foreign treaty. This tax exemption is also valid if the foreign subsidiary of the Austrian company is located in a non-tax treaty country or in an off-shore jurisdiction. No Debt-Equity Ratios or Thin Cap rules Austria does not apply thin capitalisation rules or debtequity-ratios, which would limit the deductibility of interest payments. Therefore, Austrian corporations can leverage the acquisition of foreign shareholdings or any other investments. Interest is fully tax deductible and can compensate any other income which is achieved by the Austrian corporation. Furthermore, as there is no withholding tax on interest paid to foreign lenders, regardless of location even

The Austrian ‘Check-the-Box’ System An Austrian corporation can make capital gains taxable if it wishes to do so. The Austrian company just has to ‘check-thebox’ in its tax return and can select for which participation any capital gains resulting from a sale should be taxable. Any dividends received stay taxexempt. Austrian law does not know CFC-legislation or similar regulations. Nevertheless it is important to know how income achieved by a foreign subsidiary has an impact on the tax situation of the Austrian parent company. Provided that the Austrian corporation holds shares in a foreign entity, which achieves passive income, the sale and the dividends when paid to the Austrian company are then taxable. The mere holding of such corporations does not trigger any taxes.

by foreign subsidiaries can be offset from the domestic tax base of the Austrian company holding shares in such a subsidiary, provided that the Austrian company holds more than 50 % of the shares of the foreign subsidiary. However, these foreign losses have to be exposed to taxes in the hands of the Austrian corporation when the foreign entity is using these losses as a loss carry forward, to compensate its own tax burden. Although losses from the foreign subsidiary can be set off from the tax base of the Austrian parent, dividends paid by such a foreign entity are tax exempt. The Tax Treaty Network Taking into consideration that Austria has a far reaching treaty network (currently 89 treaties) including countries like Barbados, Belize, Estonia, Hong Kong (2011), Liechtenstein, Luxembourg, Malta, San Marino, Switzerland, Singapore, UAE and Cyprus – just to name a few – each has their own interesting tax regime. It is of course a fact that these open a bundle of tax planning opportunities.

What is Seen as Passive Income?

Dual Resident Companies

The Austrian tax authorities categorise income as passive if income is achieved by the foreign subsidiary, and the overall tax burden of this subsidiary is not more than 15 %. This includes: interest income; royalty income; and capital gains achieved by selling shareholdings of less than 10 % in other corporations. Dividends are also tax exempt if they result from rental income (considered to be active income) – even if the foreign subsidiary is not subject to tax.

Provided that the management of the foreign parent company is located in Austria, any corporate entity, regardless of where domiciled, has access to the Austrian holding system.

However, it is important to know, that if the foreign subsidiary achieves profits from buying and selling securities, treasury bonds or stocks, this is considered to be active income and therefore any dividends paid to the Austrian company and any capital gains achieved by the Austrian company are tax exempt. An example of dividends and capital gains is demonstrated in the diagram to the right.

Austrian companies are quite often used to obtain royalty income from foreign sources. Austria has such a large number of tax treaties, and a large number of these treaties providing for a zero withholding tax rate levied upon royalty payments to or from Austrian

This would be the case when a BVI company is holding shares in a Russian or Ukrainian company but the managing director of the BVI company is resident in Austria. Obtaining Royalty Income via Austrian Companies

Dividends and capital gains are TAX EXEMPT IN AUSTRIA.

BVI Ltd.

Dividends and Capital Diagram The Foreign Subsidiary Making Losses Due to the new group taxation system, any losses suffered

10 • Global Business Magazine • August 2012

Rental Income Local Tax: 0

BILANZ-DATA Wirtschaftstreuhand GmbH Erich Baier, MBA, LL.M. (Int’l Tax Law) TEP Certified Tax Advisor Schwarzenbergstraße 1-3/14a 1010, Vienna, Austria Tel: +43 1 516 12 Fax: +43 1 516 12 14 baier@austrian-taxes.com www.austrian-taxes.com

companies. However, in the case of other treaty countries, the withholding tax rate is significantly reduced, ranging between 3 % and 10 %. Only in some cases is it 15 %. Austrian Trading Company An Austrian Company can serve perfectly as an agent for an off-shore principal and profits resulting from the trade of goods are then exposed to an effective tax bracket of only 2 % to 5 %. Summary Combining a large treaty network with a perfect holding regime, together, results in the possibility to obtain binding rulings from the Austrian tax administration. This makes Austria a perfect place for holding companies and further tax planning activities. Erich Baier, MBA, LL.M. (Int’l Tax Law) TEP Certified Tax Advisor

Austrian Holding

Cayman Islands Ltd

Panama Ltd

Vanuata Ltd

African Factory

Consulting Income Local Tax: 0

Runs a Hotel Local Tax: 0

Active Income Local Tax: 0


LIechTeNsTeIN

Intellectual Property in Liechtenstein and Beyond Substance Matters Substance matters in most transactions should remain sustainable, especially in international structures and in the area of intellectual property law. The Principality of Liechtenstein concluded a customs union with Switzerland in 1923 and this peculiarity is upheld in the area of patent law. Liechtenstein does not have an own patent office or own patent law. Instead there is a treaty with Switzerland concluded in 1978 and modified in 1994 regarding the protection of inventions rights, which allows registering patents with the Swiss Federal Institute for Intellectual Property (IGE) in Berne, and they are valid in both countries. Neither country can be designated individually. Moreover, the European Patent Convention permits filing in a single step with the European Patent Office in Munich, to obtain protection valid in thirty European states including Switzerland and Liechtenstein. This means that Liechtenstein’s government has understood the importance of intellectual property and put it on the forefront of its political and economic agenda. Intellectual Property Rights In the taxation of Intellectual Property Rights (IPR), Liechtenstein took innovative steps by designing a new tax law in 2010. The reformed tax law introduces a 12.5% flat tax corporate rate with up to 80% permissible deductions on profits from Intellectual Property (IP), reducing effective local tax on IPR to 2.5%. This is due to an enhanced view of Liechtenstein regarding the definition of what IP means. In 2011, the EFTA Surveillance Authority reviewed the new practice and decided that it is viable and includes no state aid. Liechtenstein has been a member of the European Patent Organisation since 1980. This means that the reformed tax law supports research and development of patents, which include trademarks, models, patents and utility models, to foster the advancement of this branch of industry, which already now contributes more than 8% to the GDP of Liechtenstein. Kaiser Partner Kaiser Partner is an award-winning wealth management group and private bank head-quartered in Liechtenstein, with roots dating back to 1931. Comprising a leading trust company, a Private Bank specialising on asset management, an SEC registered investment advisor exclusively in Zollikon-Zürich/ Switzerland, a family office and a funds administrator, the group is equipped to manage the wealth affairs of individuals and families from Europe, the EEC, Russia, Asia, the Middle East, Latin America and from the United States of America. While Kaiser Partner operates out of Switzerland and Liechtenstein, the group is capable of creating solutions for practically all aspects of wealth including intellectual property, in collaboration with its growing network of like-minded wealth and tax specialists internationally. However, what makes us unique is down to our approach. Kaiser Partner’s mission is to help our clients to preserve and manage their wealth, using it to make the most positive impact, for them, for their families, for their communities and for the world at large. We realise that whilst everything on our earth is interconnected, we must make it our priority to

understand and engage with the causes of change, and formulate dynamic strategies to harness its power in the most positive and influential way. The fundament of our approach rests on four main values: Big Picture Understanding We are a knowledge company. We invest in understanding, not just the world of our clients but also the world as a whole. We take the time to discuss what we’ve learned and to evaluate what it means. Every decision we make can be linked directly back to our big picture understanding.

Dr. Ariel Sergio Goekmen, LL.M., TEP Partner Kaiser Partner arielsergio.goekmen@kaiserpartner.com More information on www.kaiserpartner.com.

Perpetual Innovation We are an inventive company. We believe that the tools required to successfully manage wealth should constantly be adjusted so that they are optimised to the changing world. We look at traditional systems in new ways, and are happy to go outside the norm in search of a better way. Taking Responsibility We are a caring company. We take responsibility for our actions just as we expect our clients to be cognisant of the broader role their wealth plays. We believe that sustainability and responsibility are no longer a ‘niceto-have’ but a ‘must-have’. Being Brave We are a pioneering company. We act on our intelligence and our beliefs independently from the collective approval of our industry. Safety can no longer be achieved by flocking together but by standing for what’s right and appropriate for the times. Next Steps Kaiser Partner aligns its interests with those of its clients. Thanks to the combination of a leading trust company with a bank, we are able to design many solutions as required by the tax advisors. It is important to note that Kaiser Partner follows the belief of group genius, this means that we act as a platform where the best people and experts – be they internal or external, from the banking industry, the trust industry or any other industry as needed – come together at one table to design the best solution for the situation the client would like to resolve. Solutions must be sustainable and great emphasis is put on their durability and viability. Therefore, we invite you to use our knowledge, our experience, our values and approach, and walk the journey together with us to mutual success.

August 2012 • Global Business Magazine • 11


Nigeria

international tax & transfer pricing

Relevant Tax Laws When Doing Business in Nigeria The need to be aware of the relevant tax laws when doing business in any country cannot be underestimated. Businessmen who want to maximise profit, yet stay within the confines of the legal and taxation framework, need to be well informed. This article gives an overview of the necessary tax laws relevant when investing in the Nigerian economy. However, it is neither specific to any particular sector in which the prospective businessman may wish to invest, nor is it an exhaustive list of the taxes that may become due with regards to various transactions. In Nigeria, taxes are administered at the various levels of government-federal, state and local government. Federal taxes are administered through the Federal Inland Revenue Service (‘FIRS’); State taxes are administered by the Internal Revenue Boards of respective States; and the various councils administer local government taxes.

Ireland

The main focus of this article is on the taxes imposed by the federal government, which include the Companies Income Tax at 30%; the Petroleum Profit Tax at 85% of the chargeable profits for companies engaged in petroleum operations, and 50% for oil companies which operate under production sharing contracts; Value Added Tax at a flat

Tax Planning & Investment Opportunities in Ireland The number of businesses locating in Ireland over the past decade has increased enormously, with major multinationals basing their international operations here and foreign individuals starting businesses – some helped by state aided International Start-Up Funds, targeted at investor-ready overseas entrepreneurs. There are a number of features of the Irish tax regime that have been, and remain, critically important for Ireland in attracting and retaining international investment. These include a standard 12.5% tax rate for trading business profits; a tax efficient Holding Company regime whereby sales of subsidiary companies can be exempt from tax; effective tax exemption on foreign dividends and branch profits; attractive R&D regime and Intellectual Property structures; no thin capitalisation or controlled foreign corporation provisions; an extensive tax treaty network; and generally, no outbound withholding taxes provisions. In our most recent Budget, a range of measures were maintained and introduced to help international business. The three-year Corporate Tax Exemption for new start-up companies has been extended for the next three years, and the R&D tax credit regime has been improved – particularly for SME’s. A ‘Special Assignee Relief Programme’

12 • Global Business Magazine • August 2012

rate of 5% of all invoiced amounts of taxable goods and services; Education Tax chargeable on all companies registered in Nigeria at 2% of assessable profits as contribution to Education Tax fund; Capital Gains Tax for residents of the capital territory, Abuja and corporate bodies) at 10% of chargeable gains; and Personal Income Tax of certain citizens at different rates. Nigeria has signed tax treaties with a number of countries.The impact of respective taxes may be reduced where Nigeria has a Double Taxation Agreement (DTA) with the country in question. The countries with which Nigeria has DTA are the UK, France, Belgium, Pakistan, Canada, Czech Republic, Philippines and Romania. Relief from double taxation under Nigeria’s tax treaties is through ‘tax credits’. The tax credit mechanism is such that the tax payable in Nigeria on profits of a Nigerian Company being remitted into the country is reduced by the amount of ‘foreign tax’ paid abroad. The converse is equally true where an overseas company receives profits from abroad. Babalakin and Co is proficient in providing professional legal services on all global taxrelated issues. A value driven and integrated commercial law firm, we are involved in general commercial practice with core areas of specialisation in Litigation, Arbitration &

was introduced to attract key people to Ireland, encouraging the expansion of businesses and the creation of jobs. A Foreign Earnings Deduction was also announced for individuals who travel abroad developing markets for Ireland. To try and boost the crashed Irish property market, a number of measures have been taken, such as a relief from Capital Gains Tax for properties purchased after 6 December 2011 until the end of 2013. Where held for a period of at least seven years, the gain attributable to that specific period will be exempt from Capital Gains Tax for both individuals and corporates in respect of both residential and commercial purchases. Indeed, since its announcement, we have worked with and advised a number of overseas investors who are of the opinion that this relief means, along with current market prices and further reductions in stamp duty, that now is the time to invest in Irish property. When considering an international tax planning initiative, the use of Ireland is a key component. Ireland has consistently and continually let it be known on the international stage that it will steadfastly maintain low tax rates for international investors. Malone & Co have assisted many overseas businesses and individuals in setting up their operations in Ireland, by providing advice on all business, taxation and financial matters,

ADR; Corporate, Commercial & Compliance; Taxation; Energy & Extractive Industry; Transportation (Aviation & Marine); Real Estate, Infrastructure & Construction; Corporate Finance, Banking & Securities. Abodunde Are specialises in Corporate, Commercial & Compliance, as well as Litigation and Taxation. She is also a Chartered Accountant.

Babalakin & Co. Abodunde Are Associate Tel: +234-1-2718800-4 ahare@babalakinandco.com www.babalakinandco.com

as well as accountancy/audit, nominee, employment/VAT, office/telecoms rental and banking/administration services. We promote ourselves by providing a cost-effective solution to setting up in Ireland, and by offering a more personalised and complete option to all Irish compliance needs and requirements. For further information or assistance on any aspect of doing business or investing in Ireland, please contact Damien Malone.

Malone & Co Damien Malone Principal Tel: 00353 87 6859474 Email: info@maloneaccountants.ie www.maloneaccountants.ie


south america

Brief Introduction to Transfer Pricing On 29 December 2007, a law was published in the Official Gazette, introducing the transfer pricing system in Ecuador. The objective, as in other countries, is to procure that transactions between non-arm’s length parties resemble transactions between arm’s length parties. This is in order to deter any tax evasion resulting from fictitious transactions and breach of the principle of economic reality – the tool used by the SRI (Internal Revenue Service) on several occasions for assessing tax differences. The arm's length principle has been in force in the local market since 1 January 2008. In exercise of its tax-assessing powers, the SRI may establish differences in favour of the national treasury by applying the criterion of comparability between transactions. In accordance with the law, two or more transactions can be compared when there are no differences between the main financial characteristics significantly affecting the price of goods or services, or the profit margin. Consequently, the SRI may employ several methods and, in the case of significant differences, it may make an official tax observation against the taxpayer.

financial and legal analysis on reference pricing, in application of the methods of comparability. This reassures the company that its investments are not impaired by a tax assessment for any alleged violation of reference pricing rules. The parameters to be taken into account for such purposes are: (i) the characteristics of the transaction; (ii) an analysis of the functions and activities carried out for the transaction; (iii) the contractual terms; (iv) the financial or market circumstances; and (v) the business strategies. This new transfer pricing system is the direct result of the vertiginous evolution of the Ecuadorian tax regime over the last 15 years. Established in 1956, our law firm has created a tax department formed by professional experts well versed in taxation matters, capable of tackling the tax challenges faced by companies in order to satisfy clients’ tax needs. This has resulted in satisfied clients, protected investments, and a longstanding reputation in both local and international spheres as a leading firm in the Ecuadorian market.

Misael Ruiz Senior Associate Bustamante & Bustamante Law Firm José Rafael Bustamante Espinosa Senior Partner Tel: (593) 2 256 2680 jrbustamante@bustamante.com.ec www.bustamanteybustamante.com

brazil

However, when deciding on which project to invest in, a company needs to rely on a

Brazil – Interesting Investment Vehicles for Non-Residents In recent years, Brazil has seen significant advances in terms of economic stability. This is as a result of two main actions that have been taken by the government, namely the implementation of an inflation target system, and the adoption of a tighter fiscal discipline. As these advances attract new foreign investors to the country, here is a summary of the different types of investment funds available. FII – Real Estate Investment Fund This is a closed-end real estate vehicle including – besides property – certain assets and securities. As the FII is not a legal entity for Brazilian tax purposes, it is not generally subject to corporate income taxes (IRPJ and CSSL), or gross revenue taxes (PIS and COFINS). FIP-IE – Infrastructure Private Equity Investment Fund This fund was originally introduced to foster investments in the areas of energy, sanitation, water and transportation. However, it is now applicable to other areas that are deemed a priority to the Federal Revenue Branch. From a tax perspective, the FIP-IE is not subject to taxation on revenues and capital gains arising from its own transaction.

FIP-PD&I - Investment Fund on Participation in Intensive Economic Production, Research, Development and Innovation This fund was created in order to encourage the raising of funds for investments in economic production, research, development and innovation. It also brings tax incentives such as a 0% rate of income tax levied on capital gain, realized by individuals on the disposal of the fund quotas, traded or not on the stock market.

if certain conditions are met, such as when the foreign investors are not residents of, or domiciled in, a country defined by the Brazilian law (Law n. 11.727/08) as a tax haven or privileged jurisdiction. Therefore, as funds are quickly becoming the predominant vehicles for investment in Brazil, it is more essential than ever to develop a proper plan to invest in the country.

FIP - Brazilian Private Equity Fund A FIP is, essentially, an investment fund formed to acquire shares, debentures, subscription warrants, and other securities, that can be converted or exchanged for shares in public or private corporations. The FIP is not a legal entity for Brazilian tax purposes, not being generally subject to corporate income taxes (IRPJ and CSSL) or gross revenue taxes (PIS and COFINS). The taxation is fully concentrated at the level of the quota holders upon the liquidation of the fund, or any disposal of the quotas. One of the principal benefits of a FIP is the favourable tax treatment afforded to its foreign investors, especially with regards to the reduction of the withholding tax rate from 15% to zero percent (0%), when the earnings are paid to a beneficiary resident/ domiciled abroad. However, it only applies

Manoela Floret Vinci Andrade Advogados Associados Manoela Floret Vinci Author manoela@andrade.adv.br Fábio Martins de Andrade Senior Partner fandrade@andrade.adv.br www.andrade.adv.br Tel.: 55 11 3704 3710 Fax.: 55 11 3704 3711

August 2012 • Global Business Magazine • 13


H&P Trust Group Poststrasse 6, 6300 Zug Switzerland Tel: +41 41 729 63 63 Facsimile: +41 41 729 63 64 Cees Jan Quirijns ceesjan.quirijns@henleyglobal.com Fréderique van Gelderen frederique.vangelderen@henleyglobal.com is only 7.83%. Special tax privileges at federal level include the participation relief and favourable taxation of certain activities.

Switzerland’s Prominent Role Within Tax Planning Structures

For many years, Switzerland has been used in sophisticated tax planning structures. However, for most companies the decision to move to Switzerland is made by the combination of the low taxes, the quality of life, the central location, the highly qualified but flexible work force, and the strong position of the Swiss brand ‘Made in Switzerland’ which still represents high quality and reliability. Swiss Companies When establishing a company in Switzerland, you opt for a limited liability company (GmbH/Sàrl) or a stock corporation (AG/SA). While the minimum share capital for an AG/SA is CHF 100’000, and a GmbH/Sàrl requires a minimum capital of CHF 20,000, there are no provisions regarding maximum capital. A Swiss company needs at least one Swiss resident director, however, if certain conditions are met, it can choose not to be audited. Shareholders of an AG/ SA are not listed in the public register, but those in a GmbH/ Sàrl are. Furthermore, the annual accounts of Swiss companies are not deposited in a public registry. Relevant Aspects of the Swiss Tax System As a result of Switzerland’s federal structure, corporate income taxes are due at three levels – federal, cantonal and communal. Depending on the canton of domicle, the tax burden may show significant differences, with each canton setting their own tax rates.

Cantonal/Communal Income Tax The cantonal/communal tax rates are progressive and vary between 8% and 20%, depending on the canton/municipality of domicile. Therefore, the place of domicile should be considered carefully, although most cantons grant special tax privileges, which are confirmed in tax rulings. International Tax Environment A federal withholding tax of a 35% is levied on all distributions made by Swiss companies. However, in case a tax treaty is applicable and certain conditions apply, a reimbursement of excess Swiss withholding will be granted. The possibility also exists to apply for a special procedure, circumventing this deduction at source. The EU Parent-Subsidiary Directive and the EU Interest and Royalty Directive also apply to Swiss entities, effectively reducing Swiss withholding tax on distributions to EU parent companies to 0%. Switzerland does not levy withholding taxes on royalties, service fees and inter-company interest payments. A 35% withholding tax on interest payments is only applicable to certain debt instruments issued by a Swiss resident lender. Not surprisingly, as a result of the above-mentioned tax aspects, many international operating businesses decide to use Switzerland within their tax planning structures. At the H&P office in Zug, we are best positioned to advise and assist you in all matters regarding doing business in, amongst others, Switzerland.

Federal Corporate Income Tax The effective federal tax rate 14 • Global Business Magazine • August 2012

South africa

switzerland

international tax & transfer pricing

Carl May May and Company 4th Floor, 5 St. George’s Mall, Cape Town, 8001 PO Box 3459, Cape Town, 8000 Tel: +27 (0) 21 4251500 Fax: +27 (0) 86 503 0518 carl@mayandcompany.co.za

South African Transfer pricing South Africa has new transfer pricing rules which became effective on 1 April 2012. These rules are contained in section 31 of the Income Tax Act No. 58 of 1962. The new provisions applies to • Any transaction, operation, scheme, agreement or understanding that had been directly or indirectly entered into between a non resident and a resident, a non resident and a PE of another non resident in South Africa, a resident and PE of another resident outside SA and between a non resident and a CFC • And if that operation, transaction, scheme, agreement or understanding is not at arms length and • That operation, transaction, scheme, agreement or understanding results in or will result in a tax benefit. The taxpayer is obliged to adjust the transaction to arms length if the section applies. The adjusted amount is deemed to be a loan unless it is paid before the end of the year of assessment. A deemed interest accrues until the loan is repaid. There are no separate thin capitalisation rules. All thin capitalisation transactions will also be adjusted to arms length transactions in the same way as any other transfer pricing transaction. It should be noted that these provisions do not apply to South African headquarter companies. If one wants to avoid transfer pricing rules, it would be wise to operate from a South African headquarter company. The Income Tax Act does not specify any documentation to be

kept to substantiate arms length transactions. However, according to the old South African Revenue Services practice note 7, taxpayers transacting in this manner must have a transfer pricing policy which needs to be updated regularly and must be readily available if SARS requests it. In addition the taxpayer 1. Must use an appropriate transfer pricing method. SARS is in the process of writing a new practice note in relation to transfer pricing. 2. Must show that the prices are market related and must be substantiated by comparison to prices charged by independent parties. 3. Certain documentation must be retained to justify the methodology. According to SARS’s explanatory memorandum, the reason for the change is three fold; firstly the old regime was causing structural problems and uncertainty because the literal words focused on isolated transactions as opposed to arrangements driven by profit motive. Secondly, the old regime preferred one method, comparable uncontrolled price (CUP) as compared to other more practical transfer pricing methods. Lastly, the old regime emphasized price as opposed to profits and this was not in line with international tax treaties articles which emphasises profits rather than price. May and Company is an eminent firm of South African tax specialists, accountants and auditors. Its tax and managing partner Carl May can be contacted on telephone number +27 21 425 1500 or e-mail carl@ mayandcompany.co.za.


August 2012 • Global Business Magazine • 15


ip, patent & trademark law in the pharmaceutical technology & drug manufacturing sector

ip, patent & trademark law in the pharmaceutical technology & drug manufacturing sector

Intellectual Property Bar Association and Pharmaceutical Litigation The Intellectual Property Bar Association is the specialist bar association for barristers practising in intellectual property law in England and Wales. The Association was originally founded in 1972 under the name the ‘Patent Bar Association’, with the objective of discussing matters of special interest to the Patent Bar of England and Wales, passing resolutions and making recommendations in relation thereto, and generally to represent the interests of barristers specialising in the patent and trade mark fields. In 1996, the name of the Association was changed to the Intellectual Property Bar Association, to reflect the fact that it represents barristers practising in intellectual property generally. There are currently over 100 members of the Association.

16 • Global Business Magazine • August 2012


Many members of the IP Bar graduated in sciences before being called to the Bar and some also have PhDs. This is proved invaluable in the effective crossexamination of scientific expert witnesses in pharmaceutical patent cases. Only a small percentage of an IP barrister's time is spent on non-contentious work, as the nature of intellectual property is that it generates a large amount of contentious litigation. Much of the junior practitioner's time is taken up with making and preparing for applications for interim injunctions and other interim relief, involving a great deal of paperwork, as well as appearances in court. However, Queen’s Counsel tend to do less interim work and take on more full actions, which can be extremely complex and lengthy. Members of the IP Bar appear principally in

the High Court and above. At first instance, patent and registered design cases are heard before specialist Patent Judges. Specialist Patent Judges were first introduced in this country in 1949. They have proved an outstanding success, providing a quicker and cheaper procedure together with a more reliable and predictable outcome. Other IP cases (e.g. trade marks, passing off and copyright) are brought in the general Chancery Division, although they are also frequently heard by one of the specialist Patent Judges. Since September 1990, there has been an alternative specialist forum for lower value patent and design disputes, namely the Patents County Court. The court’s special jurisdiction was expanded in 2005 to include registered trade marks, including

August 2012 • Global Business Magazine • 17


IP, Patent & Trademark Law in the Pharmaceutical Technology & Drug Manufacturing Sector

Community trade marks. Appointed in October 2010, the present Judge of the Patents County Court is an IP specialist, His Honour Judge Birss QC. Since Judge Birss’ appointment, the Patents County Court has undergone a program of reform intended to reduce the cost of IP litigation, thereby providing a forum particularly suitable for resolution of the IP disputes of individuals and SMEs. The Patents County Court is situated in the newly built Rolls Building in Fetter Lane, where it sits alongside the High Court Patents Court and the other courts of the Chancery Division. Members of the IP Bar also appear in the UK Intellectual Property Office (formerly the Patent Office), the European Patent Office in Munich and the UK Trade Marks Registry. They also assist with cases in the Community Trade Mark and Design Office in Alicante, Spain. European Union law has had a significant impact on IP law, and members of the IP Bar also regularly appear in the Court of Justice of the European Union (‘the CJEU’) and before the General Court. Like all barristers who are in private practice members of the IP Bar are instructed principally by firms of solicitors. However, there is also a long tradition at the IP Bar of being instructed directly by Patent and Trade Mark Attorneys. Several members of the IP Bar also accept instructions direct from the public. Many intellectual property disputes have an international element. In particular, pharmaceutical actions are often brought simultaneously on equivalent patents in several jurisdictions, or an IP licence agreement having effect throughout the world may be governed exclusively under English law. In such cases, barristers and solicitors work closely with lawyers from many different jurisdictions. It is also occasionally useful for members of the IP Bar to be able to take instructions direct from foreign lawyers. This may be done, firstly, where the work relates to matters or proceedings essentially arising, taking place or contemplated outside England and Wales, and is to be substantially performed outside England and Wales; or secondly, where the lay client carries on business or usually resides outside England and Wales, provided that the instructions emanate from outside England and Wales, and the work does not involve the barrister in providing advocacy services. IP barristers have also given expert evidence as to issues of UK law – particularly

18 • Global Business Magazine • August 2012

in the United States. Members of the IP Bar in private practice are, of course, in sole practice, but they are grouped in several ‘Chambers’ for administrative purposes. A barrister’s Chambers is not a firm, and barristers in a particular Chambers are not in partnership together. Each barrister practises independently of the others and profits are not shared. It is because of this independence, barristers in the same Chambers may appear on opposite sides of the same case and, due to the specialised nature of the field, this frequently occurs in pharmaceutical cases. Obviously, members of the IP Bar Association may appear in any given case either for the pharmaceutical originator or for the generic competitor, and the Association does not lobby or represent the interests of any particular sector. The IP Bar Association keeps in reasonably close contact with those concerned with reforming the law of intellectual property, mainly at the UK Intellectual Property Office, the Department of Business, Innovation and


Henry Carr QC Chairman, IP Bar Association, 11 South Square, Grays Inn, London WC1R 5EY

Skills (BISS), and the Patents Court Users Committee. Both procedural and substantive law changes are frequent in this area, and the IPBA sees the representation of the views of members of the IP Bar to those responsible for such changes as very important. The IP Bar Association has recently been heavily involved in discussions concerning the proposal for the Unified Patents Court. Evidence was given on behalf of the Association to the European Scrutiny Committee. This evidence stressed fundamental problems with the EC proposal, in particular in relation to the inclusion of Arts. 6-8 and the delays consequent on

references to the CJEU in patent cases; and the dangers of a pan-European injunction being granted in a single member state prior to consideration of the validity of the patent. The IP Bar Association, in co-operation with representative bodies of solicitors and Patent Attorneys, campaigned for the Central Division to be located in the UK. The result was that the part of the Central Division, which includes pharmaceuticals and human necessities, is to be located in London.

August 2012 • Global Business Magazine • 19


ip, patent & trademark law in the pharmaceutical technology & drug manufacturing sector

chINa Leveraging Patents in Competition with Generics in China China is the third-largest pharmaceutical market in the world (after the U.S. and Japan). The total pharmaceutical sales in 2012 are estimated to be in the range of circa $75 billion to circa $85 billion. About 88% of the drugs sold in China are generic. The remaining 12% are branded drugs – either patented or off-patent. Patented drugs account for merely about 3% of the total market. Patented drugs and off-patent, branded drugs are together expected to have a compounded annual growth rate of about 25%, whereas generic drugs are expected to grow at half that rate. As off patent branded drugs will be eventually replaced by generic drugs, patented drugs therefore represent a real growth opportunity for multinational pharmaceutical companies. With about 7,800 patents suits having been filed in 2011, China is the most litigious nation in terms of patent disputes. This dwarfs the number of patent suits filed in the United States, which hovers around 3,000 per year. On average, patent infringement damages in China are rather low – generally less than $50,000. However, the outliers are significantly higher – there have been several multimillion-dollar damages awards in China. What is more significant is that the rate of permanent injunctions exceeds 90% in a number of key jurisdictions in China. This compares favourably with the United States – after the U.S. Supreme Court decision in eBay in 2006, the rate of permanent injunctions in the United States has been about 75%. While the overall patent litigation landscape in China is patentee-friendly, enforcing pharmaceutical patents faces several challenges. Firstly, preliminary injunctions (‘PIs’) in complex patent cases are difficult to obtain, as the Chinese Supreme Court has repeatedly urged restraint in granting PIs in such cases. Secondly, the accepted trigger point for an infringement action is at a generic's launch. China has the Bolar exemption under which any act towards obtaining regulatory approval for a patented medicine or device does not constitute patent infringement. Thirdly, pharmaceutical patents may be subject to higher standards of enablement and written description when a generic company challenges the patents. Accordingly, the win rates for pharmaceutical patent cases are lower. For all of these reasons, the first line of defence against generic competition is to leverage one’s patent portfolio to prevent the approval of a generic drug by the State Food and Drug Administration of China (‘SFDA’).

20 • Global Business Magazine • August 2012

China has a patent-linkage system on the books. Under the SFDA regulations, it will not approve any drug application if a Chinese patent would be infringed. However, China does not have the equivalent to the Orange Book listing as in the U.S., and the SFDA does not have special expertise for dealing with patent-infringement issues. As such, the SFDA relies on what appears to be an ad hoc mix of patentee monitoring, applicant self-reporting, and its own analysis – sometimes coupled with expert consultation for patent-linkage enforcement. Generally speaking, the SFDA does not approve a drug or an indication if such approval would infringe the respective compound or indication patent. Polymorph patents, or simple formulation, patents can sometimes be effective in blocking a generic approval. However, process patents are generally ineffective. If a company successfully obtains an SFDA approval and launches a generic drug, patent litigation is the only practical option for a brand pharmaceutical company to battle the generic company. Selecting the best court in which to litigate is important, with both Beijing and Shanghai good venues for pharmaceutical patent cases. Suing on the


right patent is equally important. Compound and formulation patents are preferred over other types of patents. While the accepted trigger point for filing an infringement action is at the launch of a generic, patentees should test the case as to whether a generic's pricing approval is an acceptable basis for a filing a PI request where a compound or formulation patent would be infringed. Patentees should also seek a court order in a patent infringement action to request the SFDA to cancel the infringing drug approval.

Anecdotal evidence shows that the overall win rate in pharmaceutical patent cases is about 50% or slightly less. Considering that most of the asserted patents in such suits are secondary patents, the chance of success is not too low. It should be noted that process patents have not fared well in litigation, with the win rate for process patents about 20% or lower. This is primarily due to the fact that China does not have discovery, except in evidence preservation, which is similar to the French saisie-contrefaçon. The recent Chinese Supreme Court’s judicial guidance on patent litigation has broadened the use of burden shifting in determining whether a

process patent has been infringed. If properly implemented by the Chinese lower courts, win rates for process patents could improve significantly. Therefore, process patents may become more valuable in the future, even if they have had limited effect to date. In summary, compound patents have been effective in preventing generic approval in China, whereas secondary patents have had a mixed result. Innovative pharmaceutical companies should therefore build a complete patent portfolio (comprising compound patents and secondary patents) in China, as it is the basis for blocking generic drug approval and the subsequent battle with generic companies. Regular monitoring of generic drug applications should be carried out. The relevant patent information should then be timely communicated to the SFDA if there is a generic application. Patent infringement litigation should also be meticulously planned in advance. It should never be initiated as a knee-jerk reaction to a generic launch. If all of these strategies are followed, innovative pharmaceutical companies are more likely to win against generic competition in China.

Allen & Overy LLP, Shanghai Benjamin Bai Partner and Head of China IP Practice Tel: +86 21 2036 7001 Benjamin.Bai@allenovery.com www.allenovery.com

August 2012 • Global Business Magazine • 21


IP, Patent & Trademark Law in the Pharmaceutical Technology & Drug Manufacturing Sector

india Salient Features of the Legal Metrology act The Legal Metrology act repeals and replaces both Standards of Weights and Measures Act, 1976 and Standards of Weights and Measures (Enforcement) Act, 1985. With the advent of technological advancements it had become necessary to review the enactments and get rid of the anomalies as well as to keep the regulations pragmatic to the extent required for protecting the interest of consumers. Pursuant to such a thought, the Legal Metrology Act was passed. The ambit of the act includes manufacturers, importers and exporters of commodities, consumerables, weights and measures. When compared to the earlier acts, Legal Metrology Act has been made stricter 51 98 with 97 10as less number of loop holes as possible. 51 98 97 10 The legislators have increased 51

98

97

10

the penalty by atleast twice while at the same reducing the imprisonment period with the provision of Nomination of Director. This has done with the current legal system in mind. To deter the wrongdoers from repeating offence twice, the legislators felt that fine is a better weapon than imprisonment. Along with this a few new offences have also been added to the list. The authorities created under the act, unlike under the old act, have been assigned specific jurisdiction and powers. The legislators have made sure that no sort discrepancy should crepe into the system and at the same time ensured that the officers perform their duties in a timely and honest fashion.

(b) In case of more than one product is packed together, generic name of the commodity contained, name, number and quantity of the each product shall be mentioned on the package.

Certain mandatory provisions for making following mandatory declarations on the packages of the pre-packed commodity or on label securely affixed thereto on the package are as follows:

(e) In case the size of the product is relevant, the dimensions of the commodity or commodities contained in the package.

(a) Name and address of the

manufacturer, or name and address of the manufacturer and packer, or in case of imported package, the name and address of the importer. In your case it shall be name of Importer.

(c) The net quantity. (d) The month and year in which the commodity is manufactured. (d) The retail sale price of the package.

(f) Every package shall bear the name, address, telephone

Anand and Anand Safir Anand Senior Partner (Trademarks) Tel: +91-120-4059300 safir@anandandanand.com www.anandandanand.com

number, e-mail address, if available, of the person/ office who can be contacted in case of consumer complaint The new act seems to be better organized with regard to the compliances by the companies working in various fields than the old act. Every industry has been dealt in a different schedule of the act. But a thorough knowledge would be required of the act and the rules to abide by all the compliances required under it.

ANAND AND ANAND ANAND AND ANAND ANAND AND ANAND B-41, NIZAMUDDIN EAST B-41, NIZAMUDDIN EAST NEW DELHI-110013 NEW DELHI-110013 B-41, NIZAMUDDIN EAST phone: +91 120 40 59 300 NEW DELHI-110013 phone: 40 056/058 59 300 Fax: +91+91 120120 42 43 Fax: +91 120120 42 43 E-mail: email@anandandanand.com phone: +91 40 056/058 59 300 E-mail: email@anandandanand.com Website: www.anandandanand.com Fax: +91 120 42 43 056/058 Website: www.anandandanand.com E-mail: email@anandandanand.com

Languages Website: www.anandandanand.com English Languages English Languages Other offices English Chennai, Mumbai, Noida Other offices Chennai, Mumbai, Noida Other offices Number of lawyers 80 Chennai, Mumbai, 62 Noida at this office Number of lawyers 80 at this office 62 Number Contactsof lawyers 80 at this Anand, office 62 Pravin Safir Anand, Debjit Gupta, Contacts Binny Kalra, Archana Shanker Pravin Anand, Safir Anand, Debjit Gupta, Contacts Binny Kalra, Archana Shanker Pravin Anand, Safir Anand, Debjit Gupta, Binny Kalra, Archana Shanker

IP3650 Leading Innovating Inspiring IP3650 Leading Innovating Inspiring IP3650 Leading Innovating Inspiring 22 • Global Business Magazine • August 2012

Patents Patents

CATEGORIES OF WORK CATEGORIES OF WORK

Tax advice on IP matters

CATEGORIES OF WORK Tax advice on IP matters

Patents Designs Designs

Tax advice on Packaging lawIP matters Packaging law

Designs Litigation and dispute resolution Litigation and dispute resolution

Packaging Advertisinglaw law Advertising law

Litigation and dispute resolution Trademarks Trademarks

Advertising law and enforcement Custom recordal Custom recordal and enforcement

Trademarks Copyright Copyright

Custom and enforcement Domain recordal name disputes Domain name disputes

Copyright Antitrust/competition Antitrust/competition

Domain name disputes Investigations Investigations

Antitrust/competition Compliance/regulatory Compliance/regulatory

Investigations Sports law Sports law

Compliance/regulatory Agreements and commercial exploitation of IPcommercial licensing and Agreements and franchising exploitationlaw of IP licensing and Agreements and commercial franchising law exploitation of IP licensing and franchising law

Sports law entertainment law Media and Media and entertainment law Media and entertainment law


geRmaNY Intellectual Property in the Pharmaceutical Sector Studies suggest that only 0.1 % of all experimental compounds reach the clinical trial phase, and that only one out of 5,000 experimental compounds will eventually get a marketing authorisation as a drug. However, even a marketing authorisation does by no means guarantee the economic success of a drug. It is fair to say that the R&D and other investments to be made in the pharmaceutical industry are huge, while the chances for a return on investment are vague. Against the economic background, it becomes clear why intellectual property rights are of paramount importance in the pharmaceutical industry. Intellectual property law regimes are, however, in constant change and the changes do in particular affect creation and invention driven industries such as the pharmaceutical industry. To give just a few current examples: Most countries of the European Union are currently in the process of creating a uniform patent system which is expected to lead to significant cost savings in the registration process, and will simplify patent enforcement. The European Union is also reforming its trademark law system, which is also happening in China. Besides the important legislative changes, compulsory patent licenses are currently a hot topic in the industry. In March this year, the Indian Patent Office granted its first-ever compulsory license to a generic drug manufacturer (Natco Pharma Ltd.), allowing it to manufacture and sell a generic version of Bayer Corporation's patented cancer drug Nexaver in India. Because of that decision, pharmaceutical companies all over the planet now fear that compulsory patent licenses will become a more common tool in the pharmaceutical sector. However, a closer look shows that the decision was based on unique circumstances of the particular case. Taking this into account as well as the, generally speaking, high obstacles for compulsory patent licenses, it is fairly unlikely that the decision rendered by the Indian Patent Office will lead to a wave of compulsory licenses being granted. What should cause even more concern than the very few compulsory licenses granted worldwide, is the constantly increasing relevance of anti-trust law for intellectual property rights in the pharmaceutical sector. Anti-trust law in particular affects patent license and technology transfer agreements, the options to enforce patents and other intellectual property rights, as well as the possibilities to settle intellectual property right disputes. The sanctions that can be imposed by anti-trust authorities are drastic. AstraZeneca for example is still fighting

before the European Court of Justice (case C-457/10) to at least reduce a cartel fine of more than 50 million Euros imposed by the European Commission in connection with patents and marketing authorisations for the anti-ulcer drug Losec. The recently published opinion of European Court of Justice's Advocate General, however, suggests that there is not much hope for AstraZeneca. Meanwhile, in addition to the fines imposed by anti-trust authorities, most anti-trust laws allow third parties to claim damages from anti-trust law infringers. Certainly more than just an economic nuisance, is the ongoing counterfeiting and product piracy affecting the pharmaceutical industry and, even more importantly, the patients. While the European Union like many other countries has addressed at least parts of the problem (recently by the EU Directive 2011/62/EU on the prevention of the entry into the legal supply chain of falsified medicinal products), a lot remains to be done by individual right holders in order to protect their valuable intangible assets. The latest official numbers published by the European Commission on 24 July 2012 state that of the almost 115 million product seized by the EU customs control in 2011 due to suspected violations of intellectual property rights, 24% were medicinal products. Besides legislative changes and authority caused debates there are also other, more silent trends such as arbitration. While arbitration has been a common dispute resolution tool in corporate law disputes for decades, arbitration proceedings are recently becoming more popular in intellectual property disputes. Compared to a regular civil court proceeding, arbitration proceedings improve the options to enforce a decision on a global scale and provide the possibility to solve matters in a more quiet way without media coverage. Another example for a silent trend – especially since the turmoil of the financial markets started – is the use of intellectual property rights as security for loans. The importance of intellectual property rights is also demonstrated by the fact that the expiration of patents is often the driver of M&A activities in the pharmaceutical area. The Pfizer/Wyeth transaction, with a value of about US$ 68 billion, took place against the background of the reported expiration of more than a dozen important Pfizer patents until 2014, including the patent for Pfizer's mega blockbuster Lipitor.

Contact Marc L. Holtorf Königsallee 59 40215 Düsseldorf Germany Tel.: +49 (0)211 4355 5467 Fax: +49 (0)211 4355 5600 Email: marc.holtorf@cliffordchance.com

also increasingly more difficult, especially on an international basis. There is no doubt that the management of intellectual property rights is a top priority for pharmaceutical companies and each company should have a strategic approach. Still, it is surprising how many pharmaceutical companies are not even clear about their intellectual property rights portfolio, keep intellectual property rights at high costs for no business reason, and fail to (sufficiently) protect their intangible core assets, especially on an international basis. In addition to sound advice and a clear international strategy being of utmost importance, a well-managed intellectual property rights portfolio can in many ways help create opportunities and substantially support the economic success of pharmaceutical companies. Based in Düsseldorf, Germany, Marc L. Holtorf is partner in the global Healthcare, Life Sciences & Chemicals Sector Group of Clifford Chance. He is an expert lawyer for intellectual property (a protected title in Germany), lecturer at the University of Düsseldorf, and expert of the China IPR Small and Medium Enterprise Helpdesk.

Even the few examples above demonstrate that the protection, enforcement and exploitation of intellectual property are becoming increasingly more important, but August 2012 • Global Business Magazine • 23


IP, Patent & Trademark Law in the Pharmaceutical Technology & Drug Manufacturing Sector

USA Post-Grant Review Proceedings at the U.S. Patent Office: Alternatives to Patent Litigation A patent system that inspires public confidence should provide opportunities to challenge issued patents by means other than time-consuming litigation in courts. To that end, the America Invents Act introduced two important new avenues for challenging patents in the United States Patent and Trademark Office (‘PTO’) – post grant review (‘PGR’) and inter parties review (‘IPR’). PGR and IPR will be conducted before a newly created tribunal called the Patent Trial and Appeal Board (‘PTAB’), and are meant to provide more expeditious and less costly alternatives to district court litigation for the resolution of patent disputes. Because these new proceedings have the potential to significantly alter the patent dispute landscape in the U.S., patentees, licensees and their competitors would be well-advised to familiarise themselves with PGR and IPR before they become available. In particular, it is important to understand the similarities and differences between PGR and IPR, and the ways that both differ from traditional patent litigation. Availability of PGR or IPR PGR is available only for patents having an effective filing date after 16 March 2013, and any petitions must be filed within nine months of the patent’s issue date. Potential patent challengers should actively monitor their competitors’ patent applications to avoid missing this nine-month window. IPR will be available as of 16 September 2012. Petitions for IPR may be filed later than nine months after a patent has issued, or upon termination of a PGR. Grounds for Review Any party other than the patentee may petition the PTO for PGR or IPR. The petitioner must request cancellation of one or more patent claims and set forth the basis for cancellation.

Grounds for review in PGR proceedings are broad and include invalidity based on statutory subject matter; ‘prior art’ (e.g., sales, patents or printed publications); double patenting; indefiniteness; and lastly, failure to meet the patent statute’s ‘written description’ or ‘enablement’ requirements. Grounds for review in IPR proceedings are limited to challenges based on prior art patents or printed publications.

John D. Murnane and Christina Schwarz Fitzpatrick, Cella, Harper & Scinto 1290 Avenue of the Americas New York, NY 10104-3800 Tel: +1 212 218 2100 Fax: +1 212 218 2200 jmurnane@fchs.com

Fees PGR and IPR petitions must be accompanied by filing fees. The PTO has proposed fees starting at $35,800 for PGR and $27,200 for IPR. While these fees are high, PGR and IPR proceedings may be significantly less expensive than traditional patent litigation. Threshold to Initiate Review The PTO Director determines whether to institute review, and will institute PGR if it is ‘more likely than not’ that at least one of the challenged claims is unpatentable, or the petition raises a novel or unsettled legal question. IPR requires a ‘reasonable likelihood that the requester would prevail with respect to at least one of the claims challenged.’ Discovery and Briefing In both PGR and IPR proceedings, parties may conduct discovery and submit briefs arguing their positions, but discovery is limited compared to traditional litigation, and occurs in a sequential fashion, with only one party taking discovery at a time. Decision Maker PGR and IPR proceedings will be decided by the PTAB, whose members have technical backgrounds. For some, this may be preferable to a district court judge or a jury, particularly in cases involving technically complex issues. Either party may request an

24 • Global Business Magazine • August 2012

oral hearing before the PTAB. However, live testimony is not permitted. Burden of Proof In PGR and IPR proceedings, patent challengers must establish patent invalidity under a ‘preponderance of the evidence standard,’ which is lower than the ‘clear and convincing evidence’ standard that applies in the district courts. Claim Construction In PGR and IPR, claims are given their ‘broadest reasonable construction’ in light of the specification. As the district courts do not apply this standard, it is foreseeable that claims will be construed broadly for PGR and IPR, but more narrowly in district court litigation, including later-filed infringement proceedings. Decision The PTAB must render a decision in a PGR or IPR within 18 months from the time the proceeding is initiated. In contrast, district court proceedings are typically longer, although the length of the proceedings is unpredictable, and depends upon the judge and jurisdiction where the action is instituted. The PTAB’s decision may be appealed to the United States Court of Appeals for the Federal Circuit.

Estoppel If a PGR or IPR proceeding results in a final written decision, a petitioner cannot bring a PTO, district court or ITC proceeding ‘on any ground that the petitioner raised or reasonably could have raised.’ For PGR this includes all grounds of invalidity, while for IPR it is limited to validity challenges based on prior art patents or printed publications. Patent challengers must consider many factors in assessing whether to initiate PGR, IPR or a district court action. Selecting the most appropriate forum will require a thorough analysis of the advantages and disadvantages of each in light of the specific facts of the matter. Patentees should proactively undertake appropriate analyses and be prepared to defend against patent challenges as soon as PGR and IPR become available. These new proceedings will move quickly and favour well-prepared parties, as there will be little time to develop strategies and no room for error. John D. Murnane and Christina Schwarz Mr. Murnane is a partner and Ms. Schwarz is an associate in the New York office of Fitzpatrick, Cella, Harper & Scinto, an intellectual property law firm.


uK

PeRu

Cost Effective Management of European Patent Applications

Intellectual Property: More than Just the Law in a Strong Economy

The current economic climate has focused the attention of many pharmaceutical and healthcare companies applying for patents at the European Patent Office on ways to effectively manage costs. Here are three top tips for cost-effective management of European patent applications.

In the last few years, Peru has shown a remarkable economic growth, with foreign investors viewing the country as an attractive business destination. However, due to the regulation in all areas, it is important to be well assisted in legal issues – particularly in IP law where the competition and intellectual property authority is characterised by abundant and specialised decisions.

Have Realistic Expectations Many European applicants have unrealistic expectations about the scope of protection that can be obtained for a European patent application. Whilst it is important to have a clear idea of the amount of the protection that will be required from a European patent application, in order to achieve commercial goals, a realistic view of what can be achieved in practice is invaluable in managing the cost of the application process. Whilst a European patent that confers broad protection can potentially exclude competitors from an entire field, such protection is likely to be hard to obtain, and the dogged pursuit of broad protection may involve numerous, possibly fruitless, legal exchanges with the European Patent Office. The additional commercial value of the broad protection may not offset the time and expense of these legal exchanges. By contrast, a narrow scope of protection, which is focused on specific products or processes, may be obtained more quickly and easily, whilst still providing secure protection for the commercial activities of a business. A focused and well-directed patent application is likely to be much cheaper to pursue granting than a broad, all-encompassing application. Avoid Procrastination The patent application process is driven by a series of deadlines for action, which are set by the European Patent Office. Although many of these deadlines can be extended, the regular extension of deadlines

Mewburn Ellis LLP Nick Sutcliffe Partner Tel: +44 (0) 1223 420383 nick.sutcliffe@mewburn.com www.mewburn.com

can have a dramatic impact on overall costs. Unless there is a specific business reason to justify extending a deadline, it is better to avoid delay and take the appropriate action by the initial deadline. Whilst this may mean initiating the process of planning and preparing the necessary action at an earlier stage, the cost savings over an entire portfolio of applications can be considerable. Select Countries Carefully There is considerable scope for reducing European patent costs by judiciously selecting the European countries in which protection is actually required. The cost of protection varies greatly between countries, depending on the translation requirements and level of annual renewal fees of the individual countries. Significantly, the cost of protection in a country is not always related to that country’s commercial importance. A shrewd appraisal of the countries in which protection for a particular invention is most valuable, combined with an awareness of the costs involved, can lead to considerable savings. Further tips and advice on the effective management of European patent applications can be obtained from Mewburn Ellis LLP.

Peru has new regulations regarding pharmaceutical establishments and sanitary supervision. In addition to this, there are special rules regarding advertisement that, together with IP law, need to be considered in a global context. In this scenario, it becomes important to combine solid theoretical knowledge and practical expertise with a business-oriented perspective. Benites, Forno & Ugaz is a Peruvian law firm best known for its acclaimed criminal and litigation areas. However, it is also fast becoming a strong player in the field of IP law, competition, consumer protection and adverting law, mainly because of the presence of senior associate, Gustavo Rodriguez Garcia. A young lawyer with a master degree on IP Law, Rodriguez Garcia combines his experience as a former professional from the Peruvian authority, with his growing experience in the private field. He has also taken additional studies in economy and consumer law, intellectual property management and technology, as well as innovation management.

Benites, Forno & Ugaz Gustavo M. Rodriguez Garcia (Senior Associate) Email: gmrodriguez@bfu.pe Telephone: 051-1-6159090

& Ugaz in the legal market, has resulted in important victories before the Peruvian competition and IP authority. The law firm is now a big player in this area. In the context of a good economy, investors should therefore seek adequate legal assistance in order to not only reduce contingencies and secure investments, reputation and brand recognition, but to facilitate the entrance in the market. Benites, Forno & Ugaz offers its clients a comprehensive service of vigilance for trademarks, including recommendations for the appropriate consolidation of the intellectual assets and assistance in all kinds of legal procedures. The law firm recently participated in the first controversy regarding biosimilars in Peru.

Rodriguez Garcia holds various teaching positions in Peruvian universities and has written numerous papers for both national and international law reviews. He has also published two books on trademark law, combining theory with his practical take on the issue. His presence combined with the overall strength of Benites, Forno

August 2012 • Global Business Magazine • 25


IP, Patent & Trademark Law in the Pharmaceutical Technology & Drug Manufacturing Sector

Brazil

Venezuela

Brazil's Pharma Issues of Concern

The Application of the 1955 Industrial Property Act in Modern Times

Article 229-C of Patent Law 9279, as amended by Law 10196 (2001) empowers the National Health Surveillance Agency (ANVISA) to conduct a mandatory review of pharmaceutical patent application with the purpose of conceding or not prior approval. ANVISA's role in reviewing pharma applications remains less than transparent and has brought about an increasing backlog in the issuance of pharma patents. The conflicting opinions on patentability issues between the Patent & Trademark Office (‘PTO’) and ANVISA, has led to approximately 150 patent applications undecided. In October 2009, the Brazilian Federal Attorney General (AGU) rendered Opinion No. 210, ruling that ANVISA should limit its examination from a public health perspective, and that the Brazilian PTO is the only entity with jurisdiction to examine patentability issues. The AGU rendered a further opinion in January 2011 stating that ANVISA should not refuse to grant approval of pharma patent applications on the grounds of patentability requirements. However, apparently, AGU's opinions are not binding, the Federal Government has created an Inter-Ministerial Working Group (‘the Group’) comprising of representatives from the Ministry of Health, Ministry of Development, Industry and Foreign Trade, ANVISA, Brazilian PTO and the Attorney General of the Republic, to ultimately resolve the issue. The Group published a final report that was approved via Ordinance No. 1065 of 25 May, 2012. The final report proposes that pharma patent applications should first be forwarded to ANVISA for approval. In the event ANVISA approves the application, it will be returned to the Brazilian PTO for further evaluation. The significant changes are that the work-flow has been inverted, and that if ANVISA refuses to grant prior approval, the application will be shelved and the decision published in the Official Bulletin. Notwithstanding the hurdles

Daniel Advogados Rana Gosain-Senior Partner (55 21) 2102-4205 rana.gosain@daniel.adv.br Rio de Janeiro Av. República do Chile, 230 3º floor - Centro Rio de Janeiro/RJ - Brazil CEP 20031-170 Tel: (55 21) 2102.4212 Fax: (55 21) 2524.3344 São Paulo Rua Joaquim Floriano, 413 13º floor - Itaim Bibi São Paulo/SP - Brazil CEP 04534-011 Tel.: (55 11) 2103.9107 Tel/Fax: (55 11) 2103.9124

in the pharma IP sector and the ongoing concern over the backlog of pending patent applications at the Brazilian PTO, the Brazilian Government has recently adopted plans to boost national industrialisation in Brazil. For example, the ‘Plano Brasil Maior’ was adopted in August 2011 as a general plan aimed at fostering industrial development of the country. Problems arise to the extent that the plan's specific measures foresee such instruments as indirect subsidisation or fiscal exemptions benefitting specific manufacturing sectors. In parallel with the industrial policy, the Ministry of Science and Technology (MCT) is designing the second edition of the action plan on Science, Technology and Innovation for the period of 2011-2014, which includes measures to expand R&D in Brazil. It is expected that during this period the Brazilian PTO will benefit from long promised reforms to become efficient. In December 2011, the President of the Brazilian PTO published a paper detailing multiple projects, with the objective of harmonising its practice with that of developed countries.

26 • Global Business Magazine • August 2012

On 17 September 2008, an official notice from the Director of the Servicio Automono de Propiedad Intelectual (SAPI)(SAPI) – the Venezuelan government office in charge of all matters involving copyrights, trademarks and patents – was published in the Ultimas Noticias local newspaper and the Industrial Property Bulletin Nº 496. It stated that the application of Decision 486 regarding the Common Intellectual Property Regime (which has regulated the Intellectual Property system to the present day) to be inappropriate, consequently imposing the application of the former 1955 Industrial Property Act. While the grounds for issuing this official notice were based on Venezuela's decision to denounce the Cartagena Agreement on 22 April 2006, it is important to demonstrate how the 1955 Industrial Property Act is scarcely applicable in regulating the matter. This is because the reality of the present times – technology innovations and current international standards – renders such an act obsolete. Furthermore, there are important considerations to be made in order to fully understand the damage that would be caused to society if the 1955 Industrial Property Act was actually applied. Firstly, reference is made in the act to the Introduction Patent, which grants in favour of an individual introducing certain unknown technology into the country. However, such technology may be known overseas, regardless of whether such individual is an inventor or not or a successor thereof. Secondly, there is also a problem of concepts in the 1955

Leonardo R. Uzcátegui P. Lrup@uzurma.com M. Uzcátegui & Asociados P.O.Box 6106 Caracas 1010-A - Venezuela. Phone: (58 212) 693-5012 Fax: (58 212) 693-6857 / 976-8966 info@uzurma.com www.uzurma.com info@uzurma.com

Industrial Property Act that was nonexistent in Decision 486, which allows the possibility of patenting discoveries, i.e. such knowledge already present in nature but the existence of which was unknown to man. At present, no requirement is contained in the act that the invention should be innovative – as in, it should be the solution to a certain technical problem, obtained as a result of genius work and skill, and technical knowledge (the so called inventive level). This has serious implications on the patenting of living beings present in nature, as one of the reasons for which all, or part of, unknown living beings cannot be patented is that they are discoveries and not inventions – that is, they already existed in nature. Man’s intervention is nonexistent as they were only found, which does not constitute an invention (Diamond vs. Chakrabarty, U.S.A.). However, the 1955 Industrial Property Act does not ban the patenting of living beings, which allows for the possibility of an individual to be the title-holder of the life of discovered or created beings.


south africa Spoor & Fisher Guides the Way through the Product Regulatory Maze Genetically modified organisms and cosmetics may seem worlds apart, but they are among the products that fall within a complex regulatory framework created by South African legislation. Stakeholders in various industries – especially those in the fields of pharmaceuticals, foodstuffs, agricultural products and cosmetics – must negotiate a legislative labyrinth when bringing their products to market. In many cases, more than one Act is involved in the relevant regulatory framework – further complicating the situation. Expert advice can help to simplify and expedite the process by ensuring compliance with all relevant regulations. As a boutique intellectual property law firm, Spoor & Fisher offers specialised services covering the complete IP environment. Initially established in 1920’s South Africa, and then in Jersey during the 1970’s, it has since become a successful firm of over 80 lawyers and intellectual property specialists, supported by 220 paralegal and administrative staff. Any aspect of intellectual property can be dealt with by a practitioner having extensive experience in the particular field, allowing a truly ‘one stop’ service to be offered. To this end, Spoor & Fisher has assembled a highly experienced team of IP specialists, whose legal and technical knowledge offers comprehensive and detailed coverage of the legal, scientific and industrial environments.

Our team can provide advice on products regulated by the following Acts: Medicines and Related Substances Control Act No. 101 of 1965; Act No. 15 of 1997; Fertilisers, Farm Feeds, Agricultural Remedies and Stock Remedies Act No. 36 of 1947; Foodstuffs, Cosmetics and Disinfectants Act No. 54 of 1972; Trade Metrology Act No. 77 of 1973; Liquor Products Act No. 60 of 1989; Liquor Act No. 59 of 2003; and Standards Act No. 8 of 2008. This includes legal advice relating to product registration, data protection, exemptions, labelling requirements, and validation of promotional materials. We also have particular skills where it comes to technical and IP aspects of this legislation. As mentioned earlier, Spoor & Fisher covers all aspects of intellectual property law including: patents; trademarks; copyright and designs; related litigation; commercial transactions; due diligence; and portfolio management. Our Trademark department has specialist teams dealing with anti-counterfeiting and ambush marketing, while the Patent department has experts in biotechnology; chemistry and pharmaceuticals; mining and mechanical inventions; nanotechnology; electronics; and computer softwarerelated inventions and business methods. Other areas of practice include Copyright, Registered Designs, Commercial IP, IP Valuations, Domain Names, Litigation and Plant Breeders’ Rights.

Spoor & Fisher David Cochrane Partner Tel: +27 12 676 1001 d.cochrane@spoor.com www.spoor.com

August 2012 • Global Business Magazine • 27


success stories - larry ellison

28 • Global Business Magazine • August 2012


larry ellison: founder of oracle The story of Larry Ellison is such a classic rags-to-riches tale, that if it were written as fiction and taken to a Hollywood producer, it would doubtless be rejected for being too corny. Ellison was born in the notoriously rough Bronx region of New York, during the Second World War, in August, 1944. Ellison was the son of an unwed Jewish nineteen year-old mother, Florence Spellman, who became pregnant to an Italian-American air force pilot, who was subsequently drafted to a foreign location before being informed that he was the parent of the unborn Ellison. When Ellison contracted pneumonia at the age of nine months, Spellman concluded that she was unable to adequately care for him, and he was ultimately adopted by Lillian Spellman Ellison and Louis Ellison; an aunt and uncle who resided in Chicago. Ellison did not meet with his mother again for another forty-seven years.

From these humble beginnings, Ellison became a bright student, but was not apparently committed to an existence in academia; quitting the University of Chicago after one term, and moving to North California to work for the Amdahl Corporation. In 1977, Ellison decided to branch out from his workaday existence, forming the company Software Development Laboratories (SDL) with fellow Silicon Valleybased software engineers, Bob Milner and Ed Oates. The company resurrected a project to design a database for the CSA which Ellison named Oracle, a project he’d originally been asked to work on while employed by the Ampex Corporation, as the three software engineers saw the huge commercial potential in being the first corporation to commercially licence a relational database. The program was inspired by a technical article in an IBM journal. SDL completed this project two years ahead of the proposed schedule, in 1979, although in the meantime they’d changed their name to Relational Software Incorporated, which would later change again into simply Oracle, in 1982. Throughout the 1980s, the company Oracle was focused on improving the functionality of its eponymous program. Numerous revisions followed, as well as some of the biggest technical breakthroughs which are considered de rigueur in database programming today, such as the ability to allow a single query to access data in multiple locations. Oracle the company also developed its size and scale, with the corporation entering the rating agency Standard & Poor’s 500 Index for the first time in 1989. Oracle faced its first challenge in 1990. After, according to the corporation itself, nearly doubling sales year-on-year throughout the eighties, the company faced serious financial problems. Accounts vary as to the cause of this crisis, but one of the most prominent explanations is that Oracle’s marketing personnel had become too ambitious and self-serving, booking the value of future licence sales before they were guaranteed, and then claiming bonuses on that basis, before the sales had actually materialised. In response, Oracle laid off 10% of its workforce. However, at the same time, due to the removal of trade barriers and steady lowering of the Iron Curtain, Oracle formed its first East European subsidiary, which sold products to the likes of Czechoslovakia,

Hungary, Poland and the Soviet Union. The major competitor of Oracle at this time was Sybase. However, the focus of corporate strategy at Sybase on corporate mergers effectively hamstrung the company, and diverted focus away from its core database technology. Sybase sold the rights to this technology to Microsoft, who now operate it under the tradename SQL Server. After this, another database manufacturer, Informix, overtook Sybase and became the main rival to Oracle. However, after a crisis at the end of the 1996-97 financial year, the CEO of Informix, Phil White, was imprisoned. After the ultimate absorption of Informix by IBM in 2000, the road was clear for Oracle to become not only the market leader, but the dominant corporate database manufacturer. By 2002, the confidence at Oracle was reflected by Ellison’s release of the “Unbreakable” advertising campaign, intended to showcase the security functionality of the by now ninth release of their flagship program. Ellison had also briefly served as a director of Apple, but resigned at this time due to his heavy workload. Today, due to its vast worldwide software sales throughout the corporate sector, and steady accumulation of corporate assets through acquisition and merger, one of the most recent and high-profile of which being the corporation’s acquisition of Sun Microsystems, Oracle is the world’s thirdlargest software producer by revenue, behind only the giants of IBM and Microsoft. Its total revenue in the 2011-12 financial year was $37.1 billion. According to the most recent Forbes Global 200 list, Oracle is the world’s 109th biggest corporation, with the company comfortably ranked inside the top fifty in the world in terms of profit and market value. An indication of the ambition of Oracle was indicated in February, 2012, when the company began aggressively purchasing companies to place Oracle in a strong position to be a dominant player in the forthcoming ‘cloud’ technology. Such is the success of the corporation that Ellison himself is ranked sixth in the Forbes’ list of the world’s top billionaires, and third in the United States, with an estimated personal worth of $36 billion. In 2012, Ellison made a purchase of a $500 million Hawaiian island, Lanai, which led to speculation that this was now the world’s most expensive island. Not bad for an adoptee from the Bronx who never met his father.

August 2012 • Global Business Magazine • 29


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DB Climate Change Advisors is the brand name for the institutional climate change investment division of Deutsche Asset Management, the asset management arm of Deutsche Bank AG. I018636 (08/10).Change The services described in thisname advertisement are provided by Deutsche Bank AG ordivision by its subsidiaries in accordance appropriatearm local and AG. IDB Climate Advisors is the brand for the institutional climate change investment of Deutscheand/or Assetaffiliates Management, the assetwith management of legislation Deutsche Bank regulation. © 2010 Deutsche Bank AG. 018636 (08/10). The services described in thisname advertisement are provided by Deutsche Bank AG ordivision by its subsidiaries in accordance with appropriate local and AG. IDB Climate Change Advisors is the brand for the institutional climate change investment of Deutscheand/or Assetaffiliates Management, the•asset management arm of legislation Deutsche August 2012 Global Business Magazine • 31 Bank regulation. 2010 Deutsche Bank AG. 018636 © (08/10). The services described in this advertisement are provided by Deutsche Bank AG or by its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. © 2010 Deutsche Bank AG.


trip adVisor

Destinations to enjoy an evening out Travelling the world and exploring new destinations can be an expensive experience, particularly when enjoying an evening out. Here, TripAdvisor presents the top five most affordable and top five most expensive cities, based on the combined costs for two of one night in a four-star hotel, cocktails, a two-course dinner with a bottle of wine, and return taxi journey. “These destinations are some of the most popular in the world, offering gastronomy, nightlife and great accommodation,” commented Emma Shaw, TripAdvisor spokesperson. “But how does the cost of an evening out add up for each? We’ve worked out which destinations your money will go further in when enjoying an evening out.”

destinations to enjoy an evening out most expensive:

most affordable: 1. Hanoi, Vietnam Steeped in history spanning more than a thousand years, Hanoi offers rich culture and beauty like no other. Enjoy the Old Quarter famous for its artisans and merchants selling a plethora of goods including fine silk. As one TripAdvisor traveller said, “I loved the bustling narrow streets. It is a city filled with friendly people.”

2. Beijing, China One of the most populous cities in the world, Beijing remains an epicentre of tradition in China. Featuring the vast palace compound of the Forbidden City, which was once home to emperors and dynasties, visitors can marvel at the imperial collections of Chinese art and scenic gardens. As one TripAdvisor traveller said, “We had such a good time overall in Beijing. The people, the food, the sights and the cultural experience were fantastic.”

3. Bangkok, Thailand Known in Thailand as the “City of angels”, Bangkok is one of the world’s tourist hotspots boasting historical venues such as the Grand Palace and Wat Arun. This is the ideal city for travellers looking for seemingly endless choices, from the cuisine, markets and galleries.

As one TripAdvisor traveller said, “Bangkok has so much to offer. There are plenty of things to see and do, and the shopping is another story.”

4. Budapest, Hungary Hungary’s capital, Budapest is a beautiful city featuring an extensive list of World Heritage sites and stunning architecture such as the neoGothic Parliament. The city is particularly interesting for art lovers due to the 223 museums and galleries waiting to be explored. As one TripAdvisor traveller said, “Budapest is amazing. It is a stunning city with fascinating historical sites, museums, art galleries, quirky things to do, delicious wine and good restaurants.”

5. Kuala Lumpur, Malaysia Home to the tallest twin buildings in the world, the Petronas Twin Towers, Kuala Lumpar offers wide shopping variety, including 66 shopping malls and designated market areas for locally manufactured products. As one TripAdvisor traveller said, “We have been to KL twice and just love the shopping, the beautiful food and the great people.”

32 • Global Business Magazine • August 2012

1. London, United Kingdom A leading global city in tourism, media, fashion and the arts to name a few, London is a metropolitan city like no other. As the host of the 2012 Olympic Games this summer, it is the first city in the world to host the Games three times. As one TripAdvisor traveller said, “I love London for its fabulous and fascinating history, and also the theatres, the parks and the shops.”

2. Oslo, Norway Featuring a large and varied number of attractions, such as the Munch Museum which houses the Edvard Munch masterpiece, “The Scream”, and over 20 theatres, Oslo is a cultural hub. As one TripAdvisor traveller said, “We had a fabulous time in Oslo and we are dying to go back. The views were stunning and the people were lovely.

3. Zurich, Switzerland Located in central Switzerland, Zurich is among the world’s largest financial centres. Travellers can enjoy the sights and explore the Lindenhof in the old town, which is the historical site of the Roman castle and the Roman Imperial Palace.

As one TripAdvisor traveller said, “Zurich is a lovely city to visit – there are good shops, good restaurants, but the mountains and fantastic scenery are what make Switzerland unique.”

4. Paris, France Home to the “Axe historique” (historical axis) which runs along world-famous landmarks and monuments such the Arc de Triomphe and the Louvre, Paris is an exciting city of history, art, fashion and gastronomy. As one TripAdvisor traveller said, “Paris is without question one of the most beautiful cities in the world. I love strolling along the ancient streets smelling the aroma of fresh bread and hot crepes.”

5. Stockholm, Sweden Known for its beauty and architecture, Stockholm is home to the National museum, housing Sweden’s largest collection of art comprised of 16,000 paintings – it is a city not to be missed. As one TripAdvisor traveller said, “Stockholm is a beautiful city - so much history, architecture, and ambience.”

For more information on, visit www.TripAdvisor.co.uk


luxury Brand series – luxury city hotels

luxury cit y hotels

LUXURY BRAND SERIES

34 • Global Business Magazine • August 2012


Sofitel Agadir Thalassa Sea & Spa Agadir, Morocco MOROCCO'S NEW STANDARD IN WELL-BEING The new Sofitel Agadir Thalassa Sea & Spa sits in the heart of one of the most beautiful bays in the world. This splendid destination is dedicated to total well-being, celebrating the benefits of nature with a special blend of thalassotherapy and traditional Moroccan beauty rituals. Designed by Moroccan architect Jamal Laamiri Alaoui and French interior decorator Didier Rey, the location itself inspires serenity and relaxation. These men have combined their expertise, cultures and unique insights to create a refreshing haven which was built using the traditional techniques of local craftsmen yet remains contemporary in its design. Through the use of black and white tones and luxurious materials, they have created a lovely wellness-promoting atmosphere that pays tribute to modern style as much as it does to Moroccan culture. All communal spaces, restaurants and rooms have been designed so that all guests can enjoy their stay at the pace that suits them, thereby achieving a deep sense of wellbeing and tranquillity. With its colours, cosy atmosphere, unobstructed views of the ocean, shaded private terraces and "eating

well to live well" cuisine, everything here helps create an unforgettable and timeless experience. Its sea water spa is an integral part of the hotel and the experience it provides. It includes two treatment centres for thalassotherapy and spa treatments, all set within an extremely pure environment adorned in pristine white. Here exceptional sea-derived active ingredients are used by Sofitel Agadir Thalassa Sea & Spa experts trained in the latest hydrotherapy treatment techniques. It is a place where attention and enjoyment reign, in which individual needs and assistance are highly valued to deliver gentle yet effective treatments targeting fitness, physiological wellness and body slimming. Sofitel Agadir Thalassa Sea & Spa is the brand's second location in Agadir Bay. It joins the Sofitel Agadir Royal Bay Resort, which opened in 2004. These two refined, exotic destinations are located only three hours from Europe's major capitals, and offer luxurious oases dedicated to revitalisation and relaxation.

and is surrounded by over 2,000 rose bushes. The Moroccan way of life is immediately felt through an abundance of flowers, fountains, black Zellij tiles and white roses. Thalassotherapy Institute Located at the edge of the Atlantic separated by only a narrow fringe of sandy beach, the thalassotherapy centre is an essential part of the hotel. The hotel spa interior was designed by Didier Rey. His vision included a sleek and pristine white space that promotes total relaxation for the spirit in a healthy "detoxing" environment. Sofitel Agadir Thalassa Sea & spa Baie des Palmiers, Cité Founty P5, secteur touristique Commune de Bensergao 80010 AGADIR MAROC TEL : 00212 5 28 38 80 00 Fax : 00212 5 28 38 80 01 H5242@sofitel.com

The magic begins as soon as you enter Sofitel Agadir Thalassa Sea & Spa. With the ocean in the background, a long driveway runs along a 100-metre long Andalusian pond August 2012 • Global Business Magazine • 35


luxury Brand series – luxury city hotels

Sofitel So Mauritius A TIMELESS LUXURIOUS EXPERIENCE In the heart of the Indian Ocean, imagine a fragrant Eden on the shores of the Indian Ocean. Mauritius has preserved its natural treasures and offers an unforgettable experience at a cultural crossroads. A prime destination for scuba diving, the island is also a golfer’s paradise, with superb golf courses framed by purple mountains and overlooking the crystalline waters of the Indian Ocean. A luxuriant garden of flowering hibiscus, paradise of exotic colorful birds. On the south coast of Mauritius, Bel Ombre is a tranquil haven exemplifying the island’s natural character. Sophisticated and sincere, with brilliant green sugarcane fields, lengthy white beaches, and turquoise water offering striking panoramas. Delicate flavors, typical warm-hearted Mauritian welcome and elegant service, heady fragrances of plants fresh from the garden in this exceptional environment, in the heart of a 34-acre landscaped park, Sofitel So Mauritius welcomes you into a fragrant, luminous tropical paradise highlighted by modern architecture and fine materials. AN EXTRAORDINARY ENCOUNTER BETWEEN TWO CREATORS Imagined by Thai architect Lek Bunnag, the 92 Suites and Villas are intimately nestled within luxuriant Eden-like gardens. Architect Lek Bunnag has designed a radiant venue that celebrates the magnificence of nature and brilliantly blurs barriers between indoors and out. Exclusive creations and collections by Kenzo Takada superbly highlight the purity of Lek Bunnag’s modern décor. Inspired textiles, decorative objects, tableware, and beach accessories contribute vibrant touches of color to this immaculate paradise. Discover the incomparable tropical delight

36 • Global Business Magazine • August 2012

of outdoor bathtubs and showers. Savor the tranquility of a private patio and indulge in the luxury of contemplation, drawing energy from the sight of flourishing vegetation and brilliant tropical flora. Designed on a human scale, totally original in style, this is more than a new concept; it’s a unique sensory experience. Thai architect Lek Bunnag and fashion designer Kenzo Takada; two talents concerted creativity and “savoir faire” to conceive a hotel that is fundamentally different and unique. A NEW VISION OF CONTEMPORARY LUXURY IN THE HEART OF NATURE Exoticism, relaxation, wellbeing, comfort and 5-star service in incomparable surroundings are assured at Sofitel So Mauritius, a hotel that personifies a new vision of contemporary luxury set in a lush natural landscape. This new SO address comes to meet the demands of a sophisticated clientele who appreciate authenticity and refinement. Advancing and confirming brand values symbolizing the

French art de vivre. In the most protected region of Mauritius, bordering a 520-metre white sand beach, this eco chic resort offers 84 Suites Prestige - 60 square meters in size, 6-100 square meter Beach Villas and 2-230 square meter Beaulieu Villas, hidden away in the luxuriant tropical vegetation. Suites and Villas are all detached and single storey to ensure complete seclusion, with individual gardens, outdoor bath tub (and private pools for the villas), patios with open air showers, and superlative comfort with highest quality amenities (Sofitel “MyBed” concept with king-size bed, dressing room, separate toilets, mini-bar, Espresso machine, Complimentary Wifi, LCD TV as well as 24hour personal butler service) and much more. ENTER A WORLD OF REFINEMENT SET BESIDE THE LANGUID WATERS OF THE INDIAN OCEAN La Plage Making sublime use of local ingredients, the


inspired chef has created imaginative tapas and aromatic main dishes. Chic, relaxed, and facing the lagoon, La Plage is the ideal place for memorable meals. Flamboyant In the center of the hotel grounds, overlooking the infinity pool, Le Flamboyant celebrates contrasts: French dishes and Mauritian spices, an intimate atmosphere in a wide open space, modern shapes using traditional wood and stone. Striking décor is enhanced with exclusive Sofitel So Mauritius tableware by Kenzo TAKADA. Le Takamaka Trendy and chic, Le Takamaka is the perfect place to indulge in sweet or signature and molecular cocktails and other fantastic drinks. Sleek design and a laid-back atmosphere. The fine art of French-style living has been subtly enhanced by the rich local culture, resulting in a unique and intense celebration of all the senses.

Sofitel So Spa offers poetic, naturally rejuvenating treatments enriched with local fruits and spices. Organic beauty products and harmonyinspiring pleasures by Clé des Champs, French organic cosmetology innovator. Revitalizing hibiscus flower treatments and unique Céline Claret-Coquet gold needle anti-age acupuncture. Come to So SPA for natural pleasures and deep benefits. At So Fit, work out with state-of-theart fitness equipment in lush tropical surroundings. Enjoy the alluring infinity pool, snorkeling, golf, tennis, and scubadiving.

Bastien Blanc Area Manager Indian Ocean Tel : +230 605 5800 Fax : +230 615 1049 H6707@sofitel.com Royal Road, Beau Champ, Bel Ombre, Mauritius

To ensure your kids also have the time of their lives, So Kids offers creative and funfilled activities designed just for them. Discover or rediscover Mauritius in a new way, at a resort where modern design enhances natural paradise. Sofitel So Mauritius - Contact Details

August 2012 • Global Business Magazine • 37


luxury Brand series – luxury city hotels

The Halkin London, UK When The Halkin first opened in 1991, it was thought to be the first design-led boutique hotel in Europe, providing a perfect balance of service and style. 20 years on, the hotel has become the benchmark for contemporary hotels around the world.

seamlessly into its Belgravia surroundings. Once, inside, the supremely contemporary and innovative design of Italian architects, Laboratorio Associati of Milan, has created a hotel where every detail is tailored for the sophisticated traveller.

Conceived and created by Christina Ong, The Halkin is internationally regarded as one of London’s most sought-after address. Nestled in a quiet residential street in London’s exclusive Belgravia, the hotel provides a home away from home with luxurious guest rooms, Asian style service and fabulous dining at the hotel’s award-winning Thai restaurant, nahm.

The concept at the heart of the hotel’s design was the ‘Expansion of Space’, a sensation which can be experienced throughout The Halkin. Above the light and airy lobby soars an atrium ceiling decorated with a mural ‘skyscape’, created by the Italian painter Valentino Vago. The lobby is open-plan in design and flows seamlessly into the hotel’s bar on the left and reception on the right, while ahead is the entrance to nahm.

With its fantastic location close to Hyde Park Corner, the luxury shops of Knightsbridge and Mayfair, The Halkin allows guests to easily immerge into London’s rich culture. The Halkin is a purpose-built hotel – but the property’s Georgian-styled façade of weathered bricks, Portland stone and arching windows gives little away, blending 38 • Global Business Magazine • August 2012

Nahm is the acclaimed restaurant from celebrated Australian chef David Thompson. nahm opened in July 2001 and serves innovative Thai cuisine. The restaurant is light and airy with arched windows, wooden slatted screens, red and gold walls and well-

spaced seating. There are just 41 guest rooms and suites at The Halkin, all generously proportioned and individually designed and decorated. These are reached from a striking corridor of black, corrugated-wood panelling which flows in a powerfully sculptural curve on each level. All rooms are furnished to superlative standards in an uncluttered and elegant style which uses pale cream fabrics and warm Pomelé Sapele veneers. Exceptionally comfortable beds are fitted with Egyptian cotton sheets and sumptuous goose down pillows. Many rooms have separate seating and dressing areas, and all offer luxurious marble bathrooms with deep tubs, separate walkin showers, anti-mist mirrors and plentiful COMO Shambhala amenities, exclusive to COMO Hotels and Resorts. Suites on the fifth floor feature stunning, high curved ceilings that follow the arch of the barrel-vaulted roof, and large dormer windows allow light to


flood in. A 49sq metre gym offers the latest in Life Fitness exercise equipment including two treadmills, a cross trainer, two exercise bikes, various hand weights, a bench and stretching area. Guests have also the opportunity to enjoy in-room COMO Shambhala spa treatments or to use the facilities of the Metropolitan London, a short five minute walk away.

The Halkin Halkin Street London SW1X 7DJ halkin.como.bz Direct Reservations: Tel: +44 (0) 20 7333 1059 Fax: +44 (0) 20 7333 1100 US Toll Free: 1 888 HALKINH res@halkin.como.bz August 2012 • Global Business Magazine • 39


luxury Brand series – luxury city hotels

Sofitel Vienna Stephansdom Vienna, Austria The Sofitel Vienna Stephansdom is an outstanding 5 Star luxury hotel, ranking amongst Austria's very best addresses. An avant-garde masterpiece, the Sofitel Vienna Stephansdom is far more than an average luxury hotel; it is an artwork that blends its sculpture into the multi-faceted city of Vienna. Built by Pritzker awarded French architect Jean Nouvel, with splendid views over the Gothic cathedral that lends it its name, the hotel is the embodiment of the 21st century and one of Vienna's most outstanding modern constructions. The building stands out, thanks to its puristic design and its contrasting works of art, which include the colourful ceilings by the Swiss artist, Pipilotti Rist, and the vertical garden by the French landscape architect, Patrick Blanc. This artistic impulse has produced 182 elegant guestrooms and suites all employing the single colour of their façade – black, white or gray – for every surface and piece of custom-designed Nouvel furniture. Each room has been given a distinctive signature by subtile wall drawings of French graphic designers Alain Bony and Henri Labiole. While artfully conceived, these rooms with their panoramic views also feature highspeed internet access, Nespresso machines, Bose Wave music systems and iPod docking stations, giving a new dimension to the sense of wellbeing and luxury. The first choice for special business events or celebrations, the Sofitel Vienna Stephansdom features nine flexible conference/banqueting rooms for up to 130 people, all flooded with daylight and equipped with modern audiovisual technology. This inspired meeting concept makes every event and every business meeting a memorable one. Even before you start you will see what five-star service means, with a private planner who is available around the clock to help you plan and develop customised concepts. Nothing is left to chance, to ensure your event produces the desired results. Offering a sensorial experience of luxury and wellbeing, the elegant day spa So SPA 40 • Global Business Magazine • August 2012

has space for five treatment rooms including private steam rooms, a top-of-the-range fitness area, two hammams and whirlpools with panoramic views, and several spa lounges where guests can relax and admire the wonderful vista over the Stephansdom. There is also a gourmet menu designed to fit everyone’s needs and create an individual experience. From Japanese facials – to Oriental massages and Indonesian body scrubs with the cosmetic partners Cinq Mondes and Carita – the So SPA offers a broad range of unique beauty rituals and wellness treatments. It is the 18th floor at the top that is the crowning glory of this artwork hotel. Here, high above the city, is the Le LOFT restaurant, bar & lounge, where Raphael Dworak serves the best of French and Austrian cuisine. Based on the concept of Alsatian master-chef, Antoine Westermann and with a rating of two Gault Millau Chef's Hats, Le LOFT is the perfect setting for a memorable gourmet experience. In addition to its luxurious and contemporary décor, the Sofitel Vienna Stephansdom also offers that distinctive 'bit extra' in terms of service and caring for its guests. Each one of our guests experiences the french ‘art-devivre’ blended with a perfect service known as 'Cousu Main' – french for tailor-made service. The Sofitel Vienna Stephansdom is a modern way to experience the enduring beauty of the opulent capital. Within walking distance to the city center, the luxury hotel is an easy 15-minute ride from the Vienna airport via the CAT (City Airport Train). Furthermore, it is the most comfortable address to explore the medieval city by foot, bus, tram, underground or boat.

Sofitel Vienna Stephansdom Praterstrasse 1 1020 Vienna, Austria Tel: (+43) 1/906160 Fax: (+43) 1/906162000 h6599@sofitel.com www.sofitel.com/Vienna


August 2012 • Global Business Magazine • 41


luxury Brand series – luxury city hotels

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Sofitel Munich Bayerpost Munich, Germany FRENCH ETIQUETTE IN THE HEART OF MUNICH Once the Bavarian Royal Post Office occupied this magnificent building, which dates back to the time of the founders in the heart of Munich. Today, the luxurious Sofitel Munich Bayerpost’s historic rooms offer a unique combination of history and modernity. Since August, 2004, this jewel in the crown of Munich’s high-end hotel offer, has impressed visitors with its avant-gardiste architecture and sumptuous design. Guests benefit from incomparable hospitality, combining Bavarian good humour and French etiquette. The motto of the Sofitel brand ‘Life is Magnificent’ pervades the atmosphere in this hotel and is applied by all of its staff. Located in the very heart of Munich, just a stone’s throw from the central train station and pedestrian areas, this hotel makes the perfect base for discovering the city on foot or for doing a spot of shopping. Munich architects, Fred Angerer and Gerald Hadler had the listed building redeveloped in the Italian High Renaissance style- a building which housed the Post Office until 1993- in order to update the initial design with spacious surfaces and high ceilings. The north wing gave way to a new and impressive construction housing almost half of the 339 bedrooms and 57 suites, and whose 42 • Global Business Magazine • August 2012

upper floors afford views over the Alps. Designer Harald Klein designed the interior room lay-out. In 2009, the Sofitel began a new chapter in its history by fully renovating its largest suites, thus setting new standards for hotel design, way beyond the frontiers of the Bavarian capital. Harald Klein offered each suite a particular theme, reflected in the choice of colours, materials, furniture, paintings and decorative objects. In each room he has created a unique and exceptional atmosphere, offering guests different stories and feeding their imagination. The lobby, installed beneath a glass roof, illuminated with orange lighting, offers the hotel a sunset over the Alps. The natural materials including stone, precious wood and leather are magnificently combined with glossy, chrome and glass surfaces. The reception area is found in the centre of the building, with its 27-metre ceiling. A unique lighting concept plunges it into different colours, producing a myriad of ambiances and atmospheres.

When it comes to dining, the Sofitel Munich Bayerpost offers several formulas, adapted to every occasion. ‘Sophie´s Bistro’ is the perfect location for lunch on the go, the ‘ISARBAR’ is a nice place in which to enjoy a relaxing pre-dinner drink, while the ‘Schwarz & Weiz’ restaurant is perfect for sampling a gastronomic dinner. Diners can benefit from an adapted setting and a tantalising culinary concept; reflecting all the grace and etiquette of the French luxury brand. Sofitel Munich Bayerpost Bayerstrasse 12 80335 Muenchen Germany Tel: +49 (0) 89 599 48 0 Fax: +49 ( 0) 89 599 48 1000 Email: h5413@sofitel.com URL: www.sofitel.com


Park Hyatt Paris-Vendôme Paris Standing in a league of its own, the 156-room and 43 Suites Park Hyatt Paris – Vendôme is ideally located in the heart of Paris, on the famous Rue de la Paix, a short stroll from Place Vendôme, the Opera House and the luxury boutiques on Faubourg St. Honoré. This 5-star Palace is a real diamond of contemporary luxury and Parisian classicism. Its building used to be one of the most famous fashion houses in Paris, the Maison Paquin, in 1891. The façade of this prestigious setting is a pure example of Haussmanian style. As soon as the client enters the hotel he will be immediately soothed by an elegant interior and a peaceful and warm atmosphere. Our rooms, all perfumed with Blaise Mautin’s fragarances, are made out of the most luxurious materials such as mahogany and oak, Parisian limestone in the bathrooms and huge walk-in closets. Our presidential Suites will make your stay magical: enjoy an in-suite SPA, in other words a spa bathroom within the Suite with a hot tub (balneotherapy), a hammam shower and a massage area. From the terrace of these suites clients can admire the Vendôme column and the top of the Eiffel Tower. Our starred gastronomic restaurant, le Pur’, is an open-plan kitchen in a sumptuous setting, where our guests can enjoy a delightful meal cooked by our Chef Jean-François Rouquette and his team. This chef from Aveyron joined the team in October 2005 after spells at the Crillon and Taillevent. He believes in authentic cuisine with a distinctive touch of French gastronomy. Guests can have breakfast, brunches and lunches at les Orchidées, our restaurantlounge that lies at the heart of the hotel, in which prevails the soft colours of the Orchids and of Frombolutti’s painting.

with about 200 masterpieces exhibited between the colonnades, in the bar… Already at the entrance, guests are greeted by impressive and friendly statues in the hall by Roselyne Granet, and are surprised at the touches of eccentricity with Ed Paschke’s paintings. Park Hyatt Paris-Vendôme is a distinctively luxurious Palace: its subtle mix of contemporary design and Parisian classicism creates a harmonious and intimate atmosphere where guests simply feel at home. Park Hyatt Paris-Vendôme 5 rue de la Paix 75002 Paris, France www.paris.vendome.hyatt.com

An elegant bar welcomes our guests for a special chilling-out moment with our barman Yann Daniel’s tasty and original cocktail creations. For a sunny lunch our elegant terrace will enable you to enjoy the peacefulness of a private park in the heart of Paris’ fashion area. Our intimate Spa will alleviate you after a long day shopping and visiting: we have a whirlpool area, a hammam, sauna, gym fitted with the latest high-tech equipment and treatment booths, including one designed for couples. Our Spa also holds Martine De Richeville’s exclusive treatments for men and women to reach wellness and enhance one’s figure and which results are incredibly efficient. Suite 101 is John Nollet’s famous hairdresser’s where guests recline on the stylish meridienne sofa or private terrace while having their hair washed in total comfort, transforming the ritual of a haircut into something extraordinary. The art is an essential element in our hotel,

August 2012 • Global Business Magazine • 43


luxury Brand series – luxury city hotels

Conrad Dubai UAE The Conrad Dubai – Taking Luxury to Another Level From the speed of the elevator – the 553 rooms – to the largest event venue with natural daylight in Dubai – the imposing 54-storey Conrad Dubai hotel offers everything that is synonymous with the worldwide brand – and more. The Location An inspiring destination for the most refined leisure and business traveller, Conrad Dubai is strategically located in the heart of Dubai's financial and shopping district, within easy reach of the international airport, the Dubai Mall, the world’s biggest shopping mall, and the world’s tallest tower – Burj Khalifa. The Rooms With pampering rain showers and the latest in-room wireless technology, the stylish modern design rooms and suites provide all the comfort you expect, with subtle sophistication at every turn. Each one of the luxuriously appointed rooms has breathtaking views along the shining facades of Sheikh Zayed Road, or out to the sparkling waters of the Arabian Gulf. The Grounds Indoor luxury integrates with outdoor tranquility, as guests can enjoy a heavenly 5,500 m2 open landscape pool surrounded by desert garden palms, succulents and grasses overlooking the Arabic Gulf, a children’s wet play area, and an exclusive pool bar corner. Conrad Dubai is not just a hotel; it is an experience. The Dining Whether you want fine dining or a relaxed cocktail and snack, at Conrad Dubai you can choose from seven contemporary restaurants 44 • Global Business Magazine • August 2012

and bars, including a South American supper club, a Steakhouse & Grill, and a modern, funky outside lounge with a bohemian feel. Whether for work or leisure, our refined cuisine and impeccable service promises a stand-alone experience that you will never forget. The Spa One of the best and largest spas in Dubai, Conrad Spa is a destination of tranquility, offering a wide variety of signature treatments in a picturesque setting. The 2,000 sq. area features eight multi-purpose treatment rooms; two couple suites offering hydro baths; guest consultation rooms and relaxation lounge; a thermal lounge with experience shower, an ice experience, a sauna and steam room and a hydro and relaxation pool with sunken loungers. A state-of-the art gym offers Technogym®, while an outdoor terrace garden and yoga pavilion elevate up to higher spheres. The Spa provides the perfect environment so you achieve the desired results. The Event – Business or Pleasure Luxury design and flawless personalised service makes Conrad Dubai the perfect location for every kind of event, whether you are planning a wedding, a conference, or even – thanks to a car-fitting lift – a car launch. The hotel has the largest naturally lit pre-function space in the city, two spacious ballrooms with capacity for 1,630 people theatre-style, car parking for 1,000 cars, and a panoramic pool deck. Given the size and sumptuous surrounds, Conrad Dubai is the ideal venue for Arabic or Indian weddings. It is also a perfect choice for your work event, with a fully equipped Business Centre that offers you the space and the scalability to tailor the surrounds to your

specific requirements. With 14 different meeting rooms, comprehensive audio/ visual equipment, and numerous elevators, whatever you had in mind, the hotel has both the resources and the vision to ensure a seamless event. Conrad Dubai, PO Box 115143, Sheikh Zayed Road, Dubai, UAE www.conradhotels.com


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August 2012 • Global Business Magazine • 45


hospitality, food & BeVerage sector

The International Hospitality, Food & Beverage Sector in 2012 The hospitality industry consists of businesses that provide food, beverages and/or accommodation services. These include restaurants, pubs, bars and clubs, hotels, guesthouses, bed & breakfasts, contract catering, and hospitality services. The sector is a hotbed for innovation and entrepreneurship, with the vast majority of hospitality enterprises being of micro (fewer than ten workers), small (fewer than 50) and medium-size (up to 250 on the payroll).

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At a global level, for research and statistical purposes, the hospitality industry comes under the wider definition of the travel and tourism industry, one of the world’s largest industries. The travel and tourism sector consists of accommodation services, food and beverage services, retail trade, and transportation services, as well as cultural, sports and recreational services. In 2011, this industry collectively contributed 9% of global GDP, or a value of over US$6 trillion. It also accounted for 255 million jobs. Over the next ten years, it is expected to grow by an average of 4% annually, taking it to 10% of global GDP or some US$10 trillion. By 2022, the World Travel & Tourism Council (WTTC) anticipates that it will account for 328 million jobs, or one in every ten jobs on the planet. 2011 was also one of the most challenging years ever experienced by the global travel and tourism industry. Yet despite political upheaval, economic uncertainty and natural disasters, the WTTC says that the industry’s direct contribution to world GDP grew by nearly 3% to US$2 trillion, and directly generated 1.2 million new jobs. Rising household incomes in emerging economies – not only the BRICs (Brazil, Russia, India and China) but increasingly across the rest of Southeast Asia, Africa and Latin America – are anticipated to continue to fuel increased leisure demand. Similarly, growing international trade – particularly from emerging markets – will sustain business travel demand and the expansion ambitions of global hotel chains.

Institute of Hospitality Trinity Court 34, West Street Sutton Surrey SM1 1SH United Kingdom Tel: +44(0) 20 8661 4900 philippe.rossiter@instituteofhospitality.org www.instituteofhospitality.org

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hospitality, food & BeVerage sector

Investors in hotels and resorts include developers, institutions, private individuals, owner/operators, private equity firms and real estate investment trusts. Jones Lang LaSalle Hotels, a global real estate services firm focused exclusively on hotels and hospitality, publishes a bi-annual Hotel Investment Sentiment Survey. According to the latest survey published in May 2012, the intention to buy assets is currently at its highest point in the last five years. The three most in-demand locations to buy hotels are Stockholm, Hawaii and Copenhagen, while at the other end of the spectrum, Spanish resorts are at the top of the sell list, followed by hotels in Cairo, Riyadh, Casablanca and Lisbon. The most sought-after destinations to build brand-new hotels are Seoul, Jakarta, Hangzhou, New Delhi and Mumbai. When choosing where to invest therefore, the first two countries/ regions in the International Monetary Fund’s list of the fastest growing in 2012 will not surprise anyone: China (8.2% growth) and India (7%): However, the third one might – sub-Saharan Africa at 5.5%, which puts it ahead of Brazil (3%), Russia (3.3%) and well above the global average of 3.3%. Geoffrey White, chief executive officer of investment company Lonrho, describes Africa as the ‘last frontier’ and in a similar position to Asia 30 years ago in terms of economic development. Global hotel chains such as Accor, IHG, Hilton Worldwide and Radisson are contributing to a recent spurt in the supply of branded international bedrooms in Nigeria, Gabon, Côte Ivoire, South Africa and Angola. The attractions of investing in Africa include its young population of nearly one billion people, and a consumer market forecast to reach US$1.6trn by 2020. There is also the fact that average demand is suffering much less than in the West from the effects of the credit crunch, since high levels of borrowing were not commonplace in Africa before the global economic crisis. According to Ernst & Young’s Tracking Global Trends Report (2011), by 2014 the emerging markets will have overtaken the developed economies when measured by share of total global GDP. Yet, even in Europe, laid low by the credit crunch and governmentimposed austerity measures, the hospitality industry has a positive story to tell. Between 2008 and 2010, a period when sectors such as banking and construction contracted, hospitality provided around 200,000 people with new jobs across the European Union (source: Eurostat). Incidentally, Europe remains the largest

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tourism destination in the world with a market share of around 50%, representing some 475 million international arrivals. The hospitality industry is also very labour intensive, which means that growth has a strong employment impact. Between 2003 and 2007, EU employment growth, for example, was over 21% in the hospitality industry, compared to about 6% in the whole economy. At a time when unemployment rates are running high in many parts of the world particularly amongst the young, it is therefore ironic that hospitality businesses often struggle to fill vacancies. The sector offers a variety of roles to match the needs and skills of individuals. There are more women than men working in the sector (55% and 45% respectively) and nearly one-third of employment contracts are for part-time positions, providing flexibility to those who need to balance family and work commitments. Wilhelm Luxem, managing director of the Excelsior Hotel Ernst, a five-star property in Cologne, Germany, observes: “In our labourintensive sector, many jobs are low-skilled and filled by economic migrants. Instead of taking social security payments, we give them jobs and the opportunity for self-esteem and integration. From the Government’s point of view, it is intelligent to promote employment growth in the hotel and catering sector.” However, the hospitality workforce is not just made up of chefs, waiters and receptionists, but can also require a wide range of professionally-qualified personnel in areas such as technology, sales and marketing, human resources, revenue management, and real estate – a fact too often overlooked. Furthermore, its low barriers to entry make hospitality a sector with the ability to fast track those who show talent and ambition. There are plenty of examples of major players in the industry who started their careers washing pots or waiting on tables. One such figure is Sir David Michels, the current president of the Institute of Hospitality (‘the Institute’), who as a youth was fired from a waiting job for mistakenly pouring Brown Windsor soup into coffee cups. This comical mishap had no bearing on his subsequent rise up the corporate ladder, however, which culminated in his engineering of the remarkable £4b merger of Hilton International and Hilton Hotels Corporation in 2006. Sir David’s presidency coincides with an exciting time for the international professional membership organisation for individual managers and aspiring managers working in hospitality, leisure, travel and tourism. From students to ‘captains of industry’, members of the Institute of Hospitality are found at every level and in every discipline. The organisation’s international scope makes it truly unique, with members in more than 100 countries across the world. The Institute of Hospitality’s important role as an awarding body with its specially designed suite of management qualifications, as well as the range of support services it offers to individuals and businesses, means that it is opening the door to employment opportunities for its members, and assisting the global hospitality industry in facing the challenges of the 21st century. Philippe Rossiter FIH is chief executive of the Institute of Hospitality.

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hospitality, food & BeVerage sector

The Different Legal Challenges Faced by The Food Industries

Ulf Grundmann Co-Head Food and Beverage Sector Group Bird & Bird LLP Ulf H. Grundmann Rechtsanwalt/Partner Bird & Bird ulf.grundmann@twobirds.com Direct +49 (0)69 74222 6232 Tel +49 (0)69 74222 6000 Fax +49 (0)69 74222 6011 Bird & Bird LLP Taunusanlage 1 60329 Frankfurt am Main Germany twobirds.com

The food and beverages industries have experience with the highly legally regulated frame. Currently, the European Commission is reviewing a lot of regulations regarding labelling, advertising and distributing food products. Furthermore, we face different debates with regard to IP rights – in particular patents and trade marks. The ‘hot topics’ can be seen in the EU Regulation 1169/2011 (‘the Regulation’) as being labelling and information; the sector inquiry in the food industries by Cartel Offices; and the scientific opinions of EFSA regarding ‘general function’ claims. One of the interesting debates refers to the trade mark ‘Red Bull’. The European Commission Adopts Proposed Legislation on Food Information to Consumers On 06 July 2011, the European Commission adopted a proposal on the provision of food information to consumers. This lead to Regulation (EU) 1169/2011 dated 25 October 2011. The core of the revision will be that nutrition labelling becomes mandatory. Nutrition labelling on foods is regulated by Directive 90/496/EEC and currently, under EU legislation, nutrition labelling is optional, although it becomes compulsory when a nutrition or health claim is made in the labelling, presentation or advertising of a foodstuff, or when vitamins or minerals are voluntarily added to foods. The revision will also overhaul Directive 2000/13/EC and its national implementations setting out general labelling requirements for all foodstuffs. This Directive sets out compulsory information that has to be included on all labels, such as the name of the product, the list of ingredients, the use-by date, and any special conditions of use. In addition to general legislation, there are certain labelling rules for certain food groups (e.g. meat), and specific measures including labelling provisions for certain foods and substances (e.g. beef, fish, chocolate, dietetic foods, food supplements and fortified foods etc). Overall, general provisions for food labelling remains the same under the new Regulation.

GERMANY

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Major alterations will be the following: nutrition labelling will become mandatory; allergen labelling will be extended to non-prepacked food; to ensure legibility, mandatory information will be printed in a minimum size (1.2 mm) with significant contrast between writing

and background; food containing caffeine carrying warnings relating to pregnant and/or breast feeding women, and children; the country of origin or place of provenance labelling will become mandatory for meat (fresh, chilled or frozen), not only of beef but also of swine, poultry, sheep and goat; there will be stipulation for clearer labelling of imitation/substitute foods; and all ingredients present in the form of engineered nanomaterials must be clearly indicated in the list of ingredients, with the names of such ingredients followed by the word ‘nano’ in brackets. Under the Regulation, front-of-pack nutrition information will become mandatory for nearly all pre-packaged processed foods. This labelling must include energy, fat, saturated fat, carbohydrates, with specific reference to sugars and salt content of the product, expressed in terms of per 100ml/100g or per portion. In addition to this, the amount of these elements in relation to the reference intakes must be indicated. Operators can choose to include additional nutrition information on the front of pack, on the condition that it does not detrimentally affect the visibility and legibility of the mandatory information. As before, and in line with the Nutrition and Health Claims Regulation No 1924/2006, information also has to be provided to support any nutrition or health claim made in relation to a product. Also, in line with the Regulation, on the addition of vitamins and minerals and certain other substances to foods, nutrition information has to be provided if vitamins and minerals have been voluntarily added. In order to avoid the common problem of essential information being too small or obscured on food labels for the consumer to easily read, the Regulation states that mandatory information must be printed in a minimum size (1.2 mm), with a significant contrast between the writing and the background. Voluntary information (e.g. slogans or claims) must not be presented in a way that adversely affects the presentation of mandatory information. However, exceptions are granted if the surface of the packaging or container is too small. Currently, the presence of allergens must be clearly indicated on all pre-packed food sold in the EU. However, 70% of anaphylactic shocks occur when people are eating out, and people with allergies need to have information to protect themselves,


regardless of whether the food is packaged or not. Therefore, the Commission has proposed the extension of mandatory allergen labelling to non-pre-packed food, including food sold in restaurants and other catering establishments, asking for allergens to be displayed or be available at the request of the consumers. There is an EU list of identified allergens which must be labelled, including peanuts, milk, fish and mustard.

of their products, their business strategies, and their switching options in case of delisting. According to press articles, some manufacturers required further explanations in respect of the questionnaires. In particular, the issue regarding manufacturer's switching options in case of delisting was considered to be rather sensitive. This is because switching to the production of retailer-brands is an option for only a few manufacturers.

The aim of the Regulation is to modernise and improve EU food labelling rules, so that consumers have in a legible and understandable manner, the essential information they need to make informed purchasing decisions. In particular, the legal framework is becoming more and more complex for the food industry. Whether the Regulation improves EU food labelling remains to be seen when theory is put into practice. It can currently be said that EU food labelling becomes even stricter as more information on food packaging becomes mandatory. At this point, adopting the Regulation on food information to consumers at least grants transitional periods between three (for general provisions) and five (for nutrition labelling) years. This should leave sufficient time for the food industry to implement changes accordingly.

The second step of the sector inquiry – expected to take place early 2012 – will be focused on the question whether leading food retailers in Germany enjoy competitive advantages vis-à-vis their competitors; what such advantages are based on, and what the corresponding competitive impact will be on the sales markets. According to the FCO, this analysis will be based on a representative sample of products of the food and beverages sector.

The Federal Cartel Office Investigates the Food Retail Sector On 15 September 2011, the German Federal Cartel Office (FCO) launched the market investigations for its food retail sector inquiry and sent questionnaires to 21 food retailers and about 200 manufacturers. The initial deadline to answer the questionnaires was due on 31 October. The sector inquiry focuses on the competition on the purchasing markets for food and beverages and is conducted in two steps. In the first step, the FCO will analyse the structure of these markets in Germany. In this context, several larger categories of goods and a number of specific random products will be scrutinised. These random products comprise canned vegetables, milk, butter, refrigerated (milk) coffee beverages, ketchup, frozen pizza, roasted coffee and sparkling wine. The FCO did not exclude that further products may be included at a later stage. According to the FCO, data also obtained in past merger control proceedings will be used in the sector inquiry in order to get a clear picture of the market conditions in the food retail sector. The questionnaires the FCO dispatched in the first phase depended on the recipient. The questions to food retailers were focused on their assortment policy, i.e. on the breadth and depth of their product range. Manufacturers, on the other hand, were questioned about the turnover allocation

Andreas Mundt, the president of the FCO, is quoted as saying: “By now the four large retailers in Germany hold about 85% of the sales market. In view of this high concentration we have to take a closer look at the power relations between retailers and manufacturers.” However, the current sector inquiry did not serve the purpose to merely confirm the FCO's current view of the market. According to the FCO, the sector inquiry is justified by the public interest in the concentration process in the food retail sector, and the power relationships between retailers and manufacturers. The inquiry's aim was to bring more objectivity to the debate concerning the countervailing power. For this purpose, deep market knowledge and an objective data base was a mandatory precondition. Also, according to Andreas Mundt, the sector inquiry will also deliver a reliable basis to the legislator for the discussions concerning the upcoming amendment to German competition law. The EFSA has Finalised the Assessment of the ‘General Function’ Claims Health Claims have increasingly been used by the food industry, both as an information tool for the customers and as a marketing tool intended to advertise the specific merits and health or nutrition interests of products. On a EU scale, the use of such claims is ruled by Council and Parliament Regulation (EC) No 1924/2006 of 20 December 2006, on nutrition and health claims made on foods. The Regulation aims at the harmonisation of the rules applicable to nutrition and health claims, with a view to ensure the free movement of goods within the community, as well as a high level of protection for consumers. Such harmonisation implies the assessment of the existing claims from a

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hospitality, food & BeVerage sector

scientific perspective, and an authorisation procedure for new claims. Pursuant to the Regulation, nutrition and health claims must notably be based on and substantiated by generally accepted scientific evidence and be well understood by the average consumer. The Regulation entrusts the European Food Safety Authority (EFSA) with the assessment of the claims. Only those claims that successfully pass the scientific assessment by the EFSA are to be authorised for use in the Community.

drink producers, and referred a preliminary question to the Court of Justice of the European Union (‘ECJ’). The subject of the case is whether the sign of The Bulldog infringes the trade mark of Red Bull.

The EFSA recently announced that its Panel on Dietetic Products, Nutrition and Allergies (NDA panel) has finalised the assessment of ‘general function’ health claims, with the publication of 35 evaluations. It is worth noting the EFSA has assessed 2758 foodrelated general function health claims since 2008. The expression ‘general function health claims’ refers to the claims referred to in Article 13(1) of the Regulation, i.e. the health claims other than those referring to the reduction of disease risk and to children's development and health. These types of claims include claims concerning the role of a nutrient/substance in growth, development and the functions of the body; psychological and behavioural functions; slimming and weight control or reduction of hunger, and increase of satiety or the reduction of available energy from the diet. They do not include claims related to children's development or health or disease risk reduction, which are covered by Article 14 of the Regulation. The outcome of the EFSA assessment was favourable for about one in five claims reviewed, whereas in the other cases the information provided did not allow a relationship between the food and the claimed effect to be established. Various reasons justified the unfavourable assessments, such as: the lack of information to identify the substance on which the claim is based, for example, claims on ‘probiotics’, or on ‘dietary fibre’ without specifying the particular fibre; and the lack of evidence that the claimed effect is indeed beneficial to the maintenance or improvement of the functions of the body, for example, food with ‘antioxidant properties’ and claims on renal ‘water elimination’ etc. The Bullring Battle Continues On 3 February 2012, the Dutch Supreme Court deferred its decision regarding the trade mark conflict between the two energy

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Red Bull's energy seemed to be depleted when the District Court of Amsterdam ruled on 17 January 2007, that there was no trade mark infringement by The Bulldog. However, Red Bull regained its sparkle after the Court of Appeal in Amsterdam ruled that the sign used by The Bulldog and Red Bull's trademark were sufficiently similar for the public to make a connection between them and that The Bulldog, riding on the coattails of Red Bull's well-known trade mark, had taken unfair advantage of Red Bull's reputation. Subsequently, The Bulldog appealed to the Supreme Court. Even though the Supreme Court has stayed the proceedings, it became clear that the Court of Appeal had failed to consider various factors in its ruling of February 2010. The Supreme Court ruled that the Court of Appeal was mistaken not to consider The Bulldog's argument that the distinctive character of the element ‘Bull’ (which was considered the more distinctive part in Red Bull's trade mark) had lapsed or at least strongly diluted because Red Bull gave out a license to a company producing energy drinks under the name ‘Bullit’. Furthermore, the Court of Appeal got a slap on the wrist for solely looking at the visual similarities of the signs in order to determine whether Red Bull's trade mark and The Bulldog's sign were sufficiently similar. The Court of Appeal failed to also take into account the aural and conceptual similarities – or at least its judgment does not show that the aural and conceptual similarities had been considered – which could preclude similarity between the sign and trade mark.


Finally, The Bulldog argued that it did not infringe Red Bull's trade mark because it was using The Bulldog sign in good faith long before Red Bull registered its trade mark. As it was not clear to the Supreme Court whether bona fide use of the sign prior to the registration of the well-known trade mark could be considered a ‘due cause’ within the meaning of Article 5 paragraph 2 of the Community Trade Marks Directive, the Supreme Court referred the following question to the ECJ: If a third party already uses a sign that is similar or identical to a well-known trade mark in good faith prior to the registration of that trade mark, can such use of the sign also be considered a due cause within the meaning of Article 5 paragraph 2 of Directive 89/104/EEC? Clearly our patience is being tested to find out whether Red Bull's energy was well spent or whether their wings will be clipped.


hospitality, food & BeVerage sector

R.J. O’Hara Flaherty & O’Hara, pc 610 Smithfield Street, Suite 300 Pittsburgh, PA, USA 412-456-2005 rj@flaherty-ohara.com www.flaherty-ohara.com

Why Liquor Isn’t Quicker In Business Transactions: How Alcohol Beverage Licensing in the U.S. – a Nationwide Patchwork of Regulations – Can Bog Down Deals Even though American poet Ogden Nash (1902 – ‘71) quipped in a poem over 60 years ago that “liquor is quicker,” when it comes to liquor being involved in business transactions it is clearly not the case. In fact, U.S. transactions involving the purchase of licensed businesses typically take substantially longer to close than the purchase of similar businesses that do not sell alcohol. Sorry, Mr. Nash. U.S. business transactions involving the sale of alcohol are still victimised by Prohibition, which banned all sales of beverage alcohol to consumers between 1920 and 1933. This was only repealed through the sort of compromises inherent in politicking and lobbying, resulting in a patchwork of dizzying regulations across 50 states. Upon the repeal of Prohibition in 1933, the licensing of retail sellers of alcohol in the U.S. was delegated to the individual 50 states and the District of Columbia. This means every state requires some form of license for a business to be permitted to sell alcohol (including beer, wine and spirits) at retail to the public, whether for on- or off- premises consumption. Furthermore, every state is free to approach licensing in its own, unique way. In fact, many states have further delegated the administration of liquor licensing to the county or municipal level, in whole or in part (please note: state and local licensing agencies are referred to herein as ABC Boards – short for ‘Alcohol Beverage Control’ Boards). However, this has resulted in Pennsylvania requiring only one license for a restaurant, while Missouri requires three licenses for the same restaurant. All state and local ABC Boards conduct investigations into three principal areas upon receipt of applications for liquor licenses: 1, the identities and backgrounds of the buyers; 2, the source of funds used; 3, the characteristics of the premises and history of operations of the existing owner. These three 54 • Global Business Magazine • August 2012

areas of investigation are discussed in reverse order below. It is easy to dispense with the third area of inquiry, because hang ups and delays only occur if the existing owners have allowed certain key permits to expire such as occupancy or health permits, or they have failed to pay their taxes. The second area of investigation – the source of funds – can often cause irritation for buyers because they are convinced that their loan or other financing documents are unique or so special or proprietary that they cannot be disclosed. Regardless of the fact that the buyer would prefer not to disclose the identities of its lenders or its investors or preferred shareholders, the bottom line is that at a minimum some form of summary of the financing will be required in virtually every state, or the license will not be issued. However, it is the third area of investigation – the identity of the buyer / new owner - that causes the greatest heartburn and the longest delays, especially in multi unit purchase transactions. ABC Boards are required by state law to investigate who owns the liquor licenses in their jurisdiction because alcohol is regarded as a potentially dangerous commodity. In part, this means that ABC Boards must make certain that new owners have no connection to organised crime, and no criminal history themselves – another carry over from the days of Prohibition when all liquor establishments were run by criminals. And finally, the ABC Boards must make certain that all new owners have no prohibited ‘Tied House Evil’ connections. The greatest legacy of Prohibition is that cross ownership between the three tiers of the alcohol industry is virtually prohibited. The alcohol industry, like many industries, is comprised of three well-defined tiers – the manufacturing tier, the wholesaling / distributing tier, and the retailing tier. However, in the U.S. transactions between the tiers of the alcohol industry, including one’s ability to simultaneously own interests in more than one tier, are very highly regulated and closely scrutinised. Decades ago, where the owner of a restaurant or bar (called a Public House), was financially ‘tied’ to a manufacturer or wholesaler by virtue of loans, for example, allegedly ‘evil’ things would occur. People would be more likely to be over served and become public drunkards, regulars would become indebted to the

USA

taverns, which would serve only limited selections of products, and the taverns would be more likely to become unruly etc. Out of this, the phrase ‘Tied House Evil’ was born, establishing paranoia and a fear of relapse that still continues to this day. ABC Boards must determine whether any of the individual owners of a licensed business hold such prohibited interests. The exact degree of ownership disclosure depends on the location of the licensed business and the structure of the ownership. Some states arbitrarily cease their investigations at two or three levels above the licensed entity; others investigate only entities or people who hold over a 5% or 10% interest in the licensee. There are also those states that do not stop their investigation until they reach individuals or publicly traded companies. Furthermore, private equity fund structures and other vehicles managing the investments of third parties, who or which have virtually no operational involvement in the licensee, do not automatically insulate the investors from disclosure. Therefore, those interested in purchasing businesses that hold liquor licenses in the U.S, need to understand ownership structure, degree of disclosure, possible investigatory delays, and the possible impact on the timely closing of their transactions. That is why liquor is not quicker in business.


Skadden, Arps, Slate, Meagher & Flom LLP

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Skadden’s Brussels office handles merger control, cartel, abuse of dominant position and state aid issues. We advise clients on investigations before various agencies and in litigation, including enforcement proceedings, before European courts. Our lawyers assist businesses and governments on regulatory and liberalization issues, and we work closely with clients to design, implement and monitor worldwide antitrust compliance programmes. Our focus is on EU competition issues raised by mergers, acquisitions and joint ventures, and we are highly experienced in dealing with EU institutions and member state authorities.

Skadden’s Brussels office was recognized as one of the top firms in the area of European Union and International Competition by Chambers Europe 2011 and The Legal 500 2011. ‘This US M&A powerhouse has a highly respected competition and antitrust practice operating on both sides of the Atlantic.’ Chambers Global 2011 ‘An extremely strong player in the US and worldwide.’ Chambers Europe 2011 ‘Delivers an excellent service.’ The Legal 500 EMEA 2011

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automotiVe sector report

automotive sector report

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the auto industry: the perspective of globalisation Since 1919, OICA, the International Organisation of Motor Vehicle Manufacturers (‘the Organisation’), has been headquartered in Paris. The Organisation’s membership comprises 37 national or regional automobile trade associations, including all major automobile manufacturing countries – effectively covering the entire motor vehicle industry all over the world. The Organisation has permanent committees who conduct activities in the fields of technical affairs, communication, and industry statistics. In addition to this, their Exhibition Committee coordinates international motor shows. Today, globalisation of vehicle production is a fact, with cars, trucks or buses produced in almost 50 countries. However, if we look at the history, this globalisation has been gradual. In fact, in the very early days of the automobile, the production was concentrated in America, before starting in Europe around 1920. World production was basically concentrated in both Europe and America until the late fifties, when it moved across to Asia. Here, it has grown from low numbers to accounting for half the total production in the world.

The growth is expected to continue in countries where the current rate of motorisation is low and where purchasing power is increasing. China for example, even with a more modest growth than in the last few years, is expected to remain by far the largest market. However, in mature markets, such as Europe or the US or Japan, OICA expects at best a very modest growth in the next years, taking into account the already very high rates of motorisation.

What is interesting to note is the evolution of the last 60 years, with a sharp increase in production worldwide concentrated in a rather short period of time: In fact, the total production has multiplied by more than eight – from less than ten million in 1951 to slightly more than 80 million in 2011. Most of this increase is down to production in Asia, which has gone from less than 200,000 in 1951 to more than 40 million in just 60 years – a multiplication of more than 200.

This increasing globalisation of production and markets also brings a number of challenges – the main ones being urbanisation, mobility, environment, safety, and of course the foreseeable depletion of oil resources. At the same time the auto industry must operate in a context of very high economic uncertainty.

Wherever you go, vehicles are produced everywhere and they are sold everywhere. This globalisation is not restricted to the production – it is also in the emergence of new markets such as China, India, Russia, or South America, as well as in the continuous movement of goods between the various regions of the world. The emergence of a new middle class in these markets is clearly the result of an increase in GDP per capita, whether or not adjusted to purchasing power parity. It certainly plays a key role in the globalisation of the markets. Furthermore, these trends are expected to continue; the World Bank for example, estimates that the worldwide middle class will grow from 430 million people in 2000 to 1.15 billion by 2030 – in other words, almost a tripling.

United Nations data shows that in 2008, more than half of the world’s population lived in urban areas. This number is expected to increase from five billion in 2030, to more than six billion in 2050. The size of the cities is growing exponentially as well; estimations are that by 2025, China will have 221 cities with more than one million inhabitants – compared with only 35 such cities in Europe today. In principle, cities offer a more favourable setting for the resolution of social and environmental problems than rural areas. Cities not only generate jobs and income, they can deliver education, health care and other services more efficiently than less densely settled areas, simply because of the advantages of scale and proximity. On the other hand, this growing urbanisation also creates new challenges, such as how to ensure a sustainable mobility while transport demand continues to increase.

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automotiVe sector report

One needs to bear in mind that mobility and economic growth cannot be dissociated; neither can mobility and personal wellbeing. There should therefore be no doubt that mobility is an absolute must for any society. Road infrastructure/vehicle manufacturers partnerships will undoubtedly be needed to help solve the congestion difficulties. Efficient Vehicle-to-Vehicle (V2V) and especially Vehicle to Infrastructure (V2I) communication systems may help in avoiding congested itineraries ahead, as much as possible. However, such systems will need investment for their installation. A better management of the existing road infrastructure as well as driver education could be efficient tools, if we take into consideration that many traffic jams can be attributed, for instance, to the poor traffic lights' synchronisation and to the driver behaviour itself. Missing links in the road infrastructure are also clearly needed, as is better road traffic management systems – key elements of any transport policy. Demands in all countries for more safety and better environment protection will not diminish – quite on the contrary. Looking at the situation from an environmental perspective, drastic reductions of the pollutant emissions have been achieved and progress is continuing. As an example, a modern European truck now emits 86% less NOx and 95% less particulates, compared to a truck from the early 1990s. It also takes 100 modern cars to emit as many polluting elements as one single car made in the 1970s. With similar success achieved in other world regions, basically the main source of vehicle pollutant emissions is attributable to existing old fleets. Therefore, a fast replacement of (sometimes very) old pollutant vehicles with newer, much cleaner ones would strongly reduce road transport pollutant emission. In addition to this, the fuel efficiency of modern vehicles has been drastically improved, with an increasing number of very fuel-efficient vehicle models being put on the market. Billions of Euros are invested every year in the further improvement of internal combustion engines, and in the research and development of new propulsion systems – from alternative fuels, hybrids and battery electric cars – to fuel cells and hydrogen, to name just a few. Depending on the local situation, there are clearly a wide variety of technical scenarios. ‘Conventional’ combustion engines using liquid or gaseous fuels will still continue to play a major role for the near-to mediumterm. When looking at the various fuel types under consideration, there are still a large variety of possibilities, including alternative biofuels or even synthetic fuels. Other new

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types of propulsion will also gradually come up, most likely first in niche markets because of the costs of these technologies. However, as market penetration increases, these technologies will become more affordable for a wider size of the market, and may well in the end constitute a large part of the transport in urban or sub-urban areas. When it comes to road safety, data proves that the achievements in reducing the number of traffic fatalities cannot be denied – far from it. This is even more obvious when comparing these figures with the number of vehicles on the road or the distances travelled. At least some of these achievements are attributable to vehicle technical improvements, whether in terms of passive safety (reducing the consequences of a crash) or active safety (avoiding the crash or at least reduce its severity). Advanced Driver Assistance Systems are now available such as collision mitigation or even collision avoidance systems, lane departure warnings and even lane keeping systems. Vehicleto-vehicle, and vehicle-to-infrastructure communication technologies are also coming. Ultimately the goal is to develop vehicles that do not crash, and the vehicles of the future will contain at least some degree of automation, resulting even in fully automated vehicles. All in all, how road transport will look like in the future is unknown. However, what is clear is that the demand for mobility of persons and goods will continue to increase. This mobility brings a number of challenges and needs to remain sustainable. For these reasons, a new paradigm is needed, grouping both private and public stakeholders in the transport sector. Vehicles of the future will obviously face increasing product sophistication. On the other hand, the environment in which these vehicles will operate will need to be adapted to the challenges, whether in terms of fuel infrastructure, or of road infrastructure and its efficiency. Stable and coherent public policies will also need to be put in place to accompany the further development of mobility. And, last but not least, the drivers and the consumers will have a key role to play.


Yves VAN DER STRAATEN OICA Secretary General and Technical Director 4, rue de Berri 75008 Paris FRANCE 01 43 59 00 13 yvanderstraaten@oica.net

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automotiVe sector report

germany

innovation, sustainability and risk management in the automotive sector – from a legal perspective Later on this year, a worldwide top ten German automotive supplier will be hosting a ‘supplier dialogue’ on innovation, sustainability and risk management. Last year, a German OEM hosted a similar conference for its automotive suppliers. Innovation, sustainability and risk management are obviously the hot topics currently driving the automotive sector in Germany – still one of the most important markets in Europe and elsewhere. But what exactly does this mean from a legal perspective? Innovation While innovation inevitably leads to new technologies, automotive players work hard to investigate them. Electro mobility, hybrid cars, and increasingly, the use of complex IT systems in cars, are discussed amongst the automotive experts. In other words, the automotive world meets new industries. What has been ‘automotive meets energy’ for the last few years has now become ‘automotive meets IT’. In both cases, innovation through the development of new technologies means that the automotive sector is facing new risks. This is obvious from a product liability perspective. Can you imagine a car without a driver but also without any safety risks? Product recalls are standard practice in the automotive industry. Traditionally OEMs have been responsible for such recalls, but under both German and European regulations, their suppliers will increasingly have legal responsibilities in this respect. Going forward, it will be very interesting to see how this will be managed. In the past, the automotive world has seen a lot of joint ventures: between suppliers; between suppliers and OEMs; between OEMs; and even between players from different sectors. Now the automotive world is seeing some joint ventures that fail. Surprise surprise, can you believe that there may be a dispute as to who should be the owner of an innovation? However, this is not the only issue about joint ventures as they are very complex – probably even more complex than acquisitions. Unlike an acquisition, a joint venture is not about disposing of a subsidiary or a business unit; a joint venture is about cooperating and working together with your partner in mutual trust for quite some time. It is like a large cooperation agreement, only much more complex. Deadlock situations, exit strategies – even

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operational questions – are often heavily underestimated. To what extent shall the joint venture partners supply the joint venture? To what extent shall distribution be restricted when dealing with competitors of the joint venture partners? Entering into a joint venture is one thing; performing the joint venture is an entirely different matter. We have seen joint venture deals signed without any clear operational plan. Furthermore, there are still many automotive players out there who do not have any joint venture experience, but are seriously investigating a joint venture scenario. While there is generally nothing wrong about this, you need to be prepared from a legal perspective. Sustainability Sustainability is important: It makes your company feel better: It makes the consumers feel better: It is a real selling argument. Nowadays almost everyone wants to drive in a ‘green car’ with ‘blue efficiency’ or the like. What about a car with ‘yellow power’ (having solar reflectors on the roof), or ‘red motion’ (analysing red traffic lights and thus guiding the driver efficiently through the traffic)? Do not get me wrong; I am not pretending to be a technical or a marketing expert. My point is rather that the regulators – particularly in Europe and the U.S. – also have some ideas on sustainability. Environmental regulations are increasing, and the automotive world is trying to cope with these new legal challenges. Again, traditionally the OEMs have to deal with environmental regulations, but increasingly suppliers are also wondering if, and if so to what extent, they are affected by these regulations. We have recently seen a case in the automotive industry where it was clear that a new liquid be used for a particular component. It was clear to everyone in the automotive world: OEMs, (first tier) system


Hogan Lovells International LLP Patrick Ayad Partner Tel: +49 89 29012 216 Fax: +49 89 29012 222 patrick.ayad@hoganlovells.com www.hoganlovells.com

suppliers and (second tier) suppliers selling such liquid. It was also clear to the VDA – the most important automotive association in Germany. However, it was not clear to the European and German regulators. So while everyone was developing, producing and marketing on that basis (the new component was even officially introduced at the IAA – the most important international automotive show in Germany), business people and lawyers were fighting hard to have the liquid approved from a legal perspective. Lobbying took place on all sides, but lobbying is always difficult if you have to do it afterwards. Risk Management This is where officially the lawyers come into play. Managing business risks without appreciating the legal implications has become difficult, or shall we say challenging? I recently heard a speech by a CEO of a worldwide leading automotive supplier. He referred to the good old days, a world with handshake deals, a world without lawyers – what a great world. Point taken. But you should not – at least in all cases – blame it on the lawyers. Players are increasingly complaining about the rough times in the automotive sector. Although a supplier would usually not litigate against an OEM, you can feel the growing tension between suppliers and OEMs. Traditionally, the rule was easy: if you have an OEM, you have a deal, as they still rule the automotive world. However, times have somewhat changed. Single source and the like have revealed a certain dependency of the OEMs on the suppliers. Also, economic and financial crises have shown that times are unpredictable. Lately, the automotive players have somehow dealt with this, mainly by way of negotiations. For lawyers, the rule is also easy – if you have a contract, you have a deal. However, in many cases lawyers have great difficulties identifying the contractual arrangements between automotive players, simply because there are no (written) contracts in place. If you review the documentation, you will typically find quotations, revised quotations, nomination letters, price estimates and volume forecasts, both binging and nonbinding, and many emails – each confirming different understandings of the parties. This

may have worked well in times of handshake agreements, but it has become more and more difficult these days. If times are rough and unpredictable, legal arguments will become stronger, and litigation will become more likely. In any case, establishing effective dispute resolution is crucial. There is also another aspect to this. Do not forget the new entrants into the automotive sector, both from other sectors and other countries. In other sectors such as the chemical or energy sector, clear contractual documentation is good practice for proper risk management. More importantly, players from the emerging markets in the BRIC countries are expecting such documentation. For example, while Russian players are known to be formalistic anyway, written arrangements are very important for Chinese players. This is particular true as Chinese players would like to have a clear understanding about the rules in the German or European automotive sector. But how can they understand the rules if they are written nowhere? Recently, a Chinese automotive company was interested in acquiring a German automotive company, but was very confused to learn the due diligence results, namely that there was no proper documentation with important suppliers and customers regarding commercial conditions and IP rights. Believe it or not, this was eventually the deal breaker, as the Chinese player was not willing to pay for handshake agreements which may have worked well in the past, but which may possibly not work with someone you do not know well. Conclusion The automotive industry is great – simply because cars are great. We continue to look forward to new technologies and breath taking innovations. We all believe, and hope, that the automotive sector is further developing and prospering, but at the same time need to carefully consider the legal implications. While the automotive sector is not as highly regulated as in other sectors, such as aviation or pharmaceuticals, regulations are definitely increasing. Finally, risk management should also be taken seriously from a legal perspective. You had better think about this in advance in order to avoid an accident.

August 2012 • Global Business Magazine • 61


automotiVe sector report

italy

italians and their cars: endless love

Italy is and remains one of the most loved countries, where many would love to spend a long relaxing vacation taking advantage of the unique mix of history, art, cuisine, opera, design, fashion and wine – everything you could ever hope to have. Among the ones who appreciate the Italian ‘savoir vivre’ I must mention automobile fans who, when in Italy, want to breathe some of the good and fresh air that created the fascination of speed in Enzo Ferrari and Ferruccio Lamborghini in the heart of Emilia, and seek inspiration from the pure style of Nuccio Bertone, Sergio Pininfarina and Giorgetto Giugiaro in the land of Piedmont. Alfa Romeo, Bugatti, Ferrari, Lancia, Lamborghini, Maserati are all names that make the heart skip a beat, not only to car lovers but to anyone who, just by looking at most of these cars, appreciates how a powerful and adrenalinic engine can be dressed in the most beautiful and timeless style. Italians love to drive and love to take care of their own cars. With a population of more than 60 million we are the ones owning more cars in Europe – over 37 million in fact, according to the most recent data available from the Italian Automobile Club (December 2011). Never mind if most of these cars are the beloved iconic ‘small cars’. Despite all that, the Italian automotive industry is facing a very challenging time. This is not only due to the acute crisis on the sell side (even though the ‘car’ is still a priority in the budget of an Italian family) but because, according to the Italian Association of Automotive Suppliers (ANFIA), most of the Original Equipment Manufacturers (OEMs) and car part producers are now looking at foreign opportunities in a strong effort to make their businesses more international and efficient, and not only (or anymore) with the aim of delocalising production. As a lawyer, I won’t dare to offer any perspective on such internationalisation moves, either from an industrial point of view or a financial one. However, I can share some guidelines about the complexity of an internationalisation process based on my professional experiences, which might be

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some help for players who want to undertake a similar venture. The Country Factors One of the most complex aspects an entrepreneur who is willing to make such a move should consider is the country factor. The choice of a country usually assumes X factors like significant savings in terms of costs of production and market opportunities locally or in nearby countries. In addition to this, many growing countries have been implementing free zone arrangements and ad hoc government grants, which can be provided in case of investments made by foreign OEMs or main suppliers. In order to benefit from such arrangements, foreign investors are most commonly asked to enter into framework investment agreements, which provide for a series of undertakings and obligations that have to be respected. Such agreements need to be carefully negotiated, especially when it comes to the exact scope of such obligations, and the timing of the access to the benefits. Remedies for breaches or termination for such agreements, as well as investment exit strategies also need to be carefully examined and negotiated. Governing laws and dispute resolution mechanisms are also of utmost importance. Moreover, there will be a local due diligence to be made in relation to any other local laws or regulations, which comes into play with respect to all the activities interjecting with local players (administrative authorities, suppliers, utilities, workforces, etc.). The Local Partners Where there is no local government direct stimulus, teaming up with local players is often the main road to follow in order to facilitate the establishment in the market and any interaction with all the local elements (authorities, suppliers, union etc.). It also makes sure that the steep learning curve that a foreign entrepreneur needs to face, both


Andrea Novarese Latham & Watkins C.so Matteotti, 22 20121 Milan andrea.novarese@lw.com Tel: 0039 02 3046 2000 Fax. 0039 02 3046 2001

from a cultural and entrepreneurial point of view, does not quickly become a negative gravity exercise. In such cases it is of the utmost importance to enter into investment agreements with local partners where both the governance and exit strategy (in terms of option, drag along and tag along rights) are clearly and efficiently regulated. Other main areas of concerns are the effective control of the local business, the tax aspects, and any local export/import duty in connection with machinery and supplies to be imported as well as the production to be exported. Any license arrangement regarding technology, know how and trademarks shall also be carefully considered, in light of the effectiveness of any action aimed at protecting such assets, and/or rights in case of breaches or attempts to challenge such rights. How to Finance the New Venture In addition to equity commitments, any foreign investment also requires bank financing. With respect to the latter, the first and most obvious option is to examine the willingness of multilateral agencies and development banks to finance an investment in their countries of operations. Therefore, contacts shall be developed with organisations like IFC (part of the World Bank), the European Bank for Reconstruction and Development, the Asian Development Bank, the Inter-American Development Bank and the European Investment Bank etc. All these organisations are usually able to examine the proposed investment in a timely fashion, through teams with country experience and industry expertise. In addition to this, some of these multilateral organisations are sometimes willing to take minority stakes in special purpose vehicles, which are established for the relevant investment. Needless to say that any financing and/or participation by a multinational organisation has unique visibility and political clout at a local level. Participation of local banks for commercial credit lines is also an option worth exploring. The Domestic Support

by Italian companies. When they do so, the financing is usually made available at the level of the Italia parent, or to the foreign entity through the local branches (or subsidiary bank), but with some form of undertaking from the Italian parent. On the other hand, Italian automotive enterprises that are considering starting foreign operations can seek for insurances on political risks and financial support (in terms of guarantees to be granted in their interest and in favour of lenders) by special institutions like SACE, which provides similar services to Italian companies tackling emerging markets. In addition to this, the Italian Government has established and currently controls an organisation aimed at enhancing the development of Italian companies abroad (SIMEST), which can enter into the share capital of the foreign vehicles (up to 49% of their share capital), and provide some form of financing/grants for case studies and other financial costs connected to such investments. One Final Note There is no doubt that in modern times entrepreneurs need to look for new markets and new opportunities – indeed, this has been the case throughout all our history. However, I strongly believe that the heritage of the Italian automobile culture is, and remains, strongly connected to many intangible elements typical of my country, and that any internationalisation venture could not be successfully developed without such passion, vision and talent. In this respect, I would like to mention the words of a visionary entrepreneur, Andrea Pininfarina: “In a world so sensitive to economic success, creativity wins its battle over economy because only those who continuously innovate while creating can eventually be successful” Andrea Novarese, Partner, Latham & Watkins Andrea Novarese is a finance partner in the Milan and Rome offices of Latham & Watkins. He is Global Co-Chair of the Automotive Industry Group.

With few exceptions, Italian banks are not inclined to directly finance foreign operations

August 2012 • Global Business Magazine • 63


automotiVe sector report

Belgium

deloitte Belgium interview: the automotive sector Could you please introduce yourself and your services specific to the automotive sector in Belgium?

How do products need to be adopted with regards to future development in this sort of sector?

I’m the automotive leader for Belgium.

It is very clear that everyone has seen an evolution towards smaller cars. But selling small cars at small prices in countries like India and learning how to make money out of those sales will even more important to be successful globally.

How would you describe the situation of the automotive industry in Europe? The current situation in Europe is very difficult and there is an overall significant regional sales decrease with sometimes double digit decrease in some countries. We only see recovery in the time around three years – and not before – we are in a situation where sales are going down, while structural production is at overcapacity. In other words, the demand is not in line with the offer, and this factor is pushing European companies towards a difficult financial situation. This situation is also different for the mass producers than the premium brands as they are having a worse time. Shrink to grow and solving the equation product mix and market mix will be the key to success in the coming years. What are the megatrends? Megatrends refer to the desires and needs of the consumer, which are not only going to significantly reshape the automotive industry in the coming years, but the manufacturing industry as well. The three main mega trends are consolidation, globalization and innovation

Building cars having in mind quality, green, safety and technology will be key. Two examples are : • The mobility of tomorrow will not be the mobility of today, so it is inevitable it will significantly reshape the automotive industry. • The way you will by and own cars will also be different in the future : if you ask young people, they are not in the mood to own a car – they are in the mood to use all means of transport and only rent a car when they need it. This is what is going to totally reshape the industry. What you think about the recent US experience – can you shed some light on that matter? If you looked at the situation a couple of years ago, you would recall that the big three faced very difficult time in the past. Since then they have been doing pretty well and have slashed their capacity, closing plans to align car production with demand. If you compare this in Europe, everyone knows we are in a state of structural overcapacity. What are your forecasts for the growth of the industry? While the outlook is very gloomy, at the same time the automotive industry is a very exciting industry and will remain that way. Nobody should underestimate the importance of the automotive industry, but a major investment is needed to get it ready for the car of the future. Competition must play its role and demand needs to be in line with production.

Desomer Eric Partner | Manufacturing leader Deloitte Consulting Tel/Direct +32.497.596.391 edesomer@deloitte.com www.deloitte.be

64 • Global Business Magazine • August 2012


NYSE EuroNExt –

HELPING COMPANIES KEEP UP WITH A CHANGING WORLD NYSE EURONEXT IS ONE OF THE LEADING FINANCIAL MARKET OPERATORS IN THE WORLD, WITH EXCHANGES IN THE UNITED STATES AND EUROPE: THE NEW YORK STOCK EXCHANGE, NYSE EURONEXT, NYSE AMEX AND NYSE ALTERNEXT. THESE EXCHANGES CATER TO COMPANIES OF ALL SIZES AND FROM ALL SECTORS. NYSE EURONEXT IS THE WORLD’S MOST LIQUID STOCK EXCHANGE GROUP, HANDLING OVER ONE-THIRD OF GLOBAL TRANSACTION VOLUMES. FROM THE OUTSET OF THEIR LISTING, COMPANIES GAIN ACCESS TO A SECURE MARKET, STATE-OF-THE-ART TECHNOLOGY, MADE-TO-MEASURE ADVICE AND THE WORLD’S BROADEST INVESTOR BASE. IN 2005, TO OFFER EUROPEAN SMALL AND MID-SIZED COMPANIES ADDITIONAL FINANCING OPTIONS AND ACCELERATE GROWTH, NYSE EURONEXT CREATED A MARKET TAILORED TO SMALL AND MID CAPS – NYSE ALTERNEXT – WHICH MET WITH IMMEDIATE SUCCESS. NYSE EURONEXT OFFERS LISTED COMPANIES HIGH VALUE-ADDED ADVICE ON HOW TO RAISE FINANCING ON ITS EXCHANGES. IT ALSO PROVIDES A HOST OF SERVICES, INCLUDING EXPERTLINE (AN INTERACTIVE PLATFORM BASED IN THE CENTRALISED EUROPEAN MARKET SURVEILLANCE ROOM), A DEDICATED WEBSITE, A QUARTERLY NEWSLETTER (LISTINGS EXCHANGE) AND TRAINING IN BEST PRACTICES THROUGH FREQUENT REGULATORY AND FUNCTIONAL WORKSHOPS.

NYSE EuroNExt NYSE ALtErNExt NYSE NYSE AMEx Welcome to the exchanging world of NYSE Euronext. http://europeanequities.nyx.com MyQuestion@nyx.com

©2012 NYSE Euronext. All rights reserved. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of NYSE Euronext. NYSE Euronext and its affiliates do not recommend or make any representation as to possible benefits from any securities or investments, or third-party products or services. Investors should undertake their own due diligence regarding securities and investment practices. This material may contain forward-looking statements regarding NYSE Euronext and its affiliates that are based on the current beliefs and expectations of management, are subject to significant risks and uncertainties, and which may differ from actual results. August 2012 • Global Business Magazine • 65


world’s richest sporting cluBs

manchester united Remain World’s Richest sporting club Following an underwhelming season in which they missed out on the Premier League title on goal difference, and disastrously exited the Champions League before the knockout stages, Manchester United’s hierarchy had reason to celebrate, as according to Forbes’ annual listing of the world’s richest sports clubs, they remain emphatically ranked first. United’s overall value of US$2.23 billion ranked them above Spanish rival Real Madrid, who placed second on the list, with a market value of US$1.88 billion. Numerous new corporate deals contributed to United’s result. The Manchester club signed a $31 million per year shirt sponsorship deal with the British insurance giant, Aon, which replaced their previous deal with beleaguered US insurer, AIG. The club also has a notable deal with the world’s biggest sportswear manufacturer, Nike, and last year became the first club to sign an exclusive deal for the sole sponsorship of training equipment. The deal with DHL Express, thought to be worth in the region of $61 million, has seen United players feature heavily in DHL’s television advertising. With Spanish champions Real expected to spend heavily in the transfer market again this summer, the news will likely focus attention on the Glazer family who own and run the Manchester club, particularly in the light of a perceived lack of transfer activity and the recent decision to float United on the New York Stock exchange, apparently to offset £423 million worth of debts accrued in the American family’s purchase of the club. Madrid’s fierce rivals, FC Barcelona – who like United failed to land either a domestic league title or European trophy last season – will doubtless be delighted to have risen significantly from last year’s position of just inside the top thirty to eighth this year, passing many of their European competitors in the process. Barcelona recently adopted a shirt sponsor, The Qatar Foundation, for the first time in their history. Other soccer clubs to feature in the top fifty are Champions League runners-up, Bayern Munich, in 11th, Italian giants, AC Milan, in 27th, and Champions League winners, Chelsea, in 45th. Interestingly, none of the English, Italian or German champions – Manchester City, Juventus and Borussia Dortmund, respectively – featured in the top fifty,

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although with governing body UEFA’s Financial Fair Play rules due to come into force, huge spending City in particular will hope to feature next year. The remainder of the the Forbes list is, unsurprisingly, dominated by US sports franchises. The New York Yankees baseball franchise have increased their revenue by $150 million, to be tied for third overall on the list with the Dallas Cowboys football team with a market value of $1.85 billion. The Cowboys perennial position as one of the richest sports clubs is secured thanks to the NFL’s largest stadium, worth $100 million per annum in premier seating alone. The top ten also features the Los Angeles Dodgers baseball club, and gridiron franchises Washington Redskins – the world’s highest valued gridiron team, despite finishing bottom of the NFC East division for four consecutive seasons – New England Patriots and New York Giants. Another American owned British soccer team, Arsenal, completes the top ten. Elsewhere, every single one of the NFL’s thirtytwo franchises,

including the Glazer owned Tampa Bay Buccaneers in 29th place, have made the list. Including the Mets and the Yankees, there are seven baseball franchises in the top fifty, and two US basketball outfits also made the list, with the Los Angeles Lakers climbing thirteen places from last season to rank 35th. The Lakers value of $900 million was a 40% increase from last year, largely due to a $200 million television deal that the franchise struck with Time Warner. The only two teams to feature in the list that are neither soccer club nor American are the two Formula One motor racing giants, Ferrari and McLaren. Ferrari, ranked 15th overall, increased their value to $1.1 billion, as they renewed their annual sponsorship deal with Spanish bank, Santander. The mood of disappointment at McLaren over the recent poor performance of their car, and the uncertain future of their star driver, Lewis Hamilton, may not be improved greatly by the news that their value fell by 2% over the last twelve months.


$1 Billion

$1.5 Billion

$2 Billion

#1 Manchester United

$2.23 billion

#2 Real Madrid

$1.88 billion

#3 New York Yankees

$1.85 billion

#3 Dallas Cowboys

$1.85 billion

#5 Washington Redskins

$1.56 billion

#6 Los Angeles Dodgers

$1.4 billion

#6 New England Patriots

$1.4 billion

#8 Barcelona

$1.31 billion

#9 New York Giants

$1.3 billion

#10 Arsenal

$1.29 billion

#11 Bayern Munich

$1.23 billion

#12 New York Jets

$1.23 billion

#13 Houston Texans

$1.2 billion

#14 Philadelphia Eagles

$1.16 billion

#15 Ferrari

$1.1 billion

#16 Chicago Bears

$1.09 billion

#17 Green Bay Packers

$1.09 billion

#18 Baltimore Ravens

$1.09 billion

#19 Indianapolis Colts

$1.06 billion

#20 Denver Broncos

$1.05 billion

#21 Pittsburgh Steelers

$1.02 billion

#22 Miami Dolphins

$1.01 billion

#23 Carolina Panthers

$1.0 billion

#24 Boston Red Sox

$1.0 billion

#25 Seattle Seahawks

$997 million

#26 San Francisco 49ers

$990 million

#27 AC Milan

$989 million

#28 Kansas City Chiefs

$986 million

#29 Tampa Bay Buccaneers

$981 million

#30 Cleveland Browns

$977 million

#31 New Orleans Saints

$965 million

#32 Tennessee Titans

$964 million

#33 San Diego Chargers

$920 million

#34 Arizona Cardinals

$901 million

#35 Los Angeles Lakers

$900 million

#36 Chicago Cubs

$879 million

#37 Cincinnati Bengals

$875 million

#38 Calvin Johnson #39 Atlanta Falcons

$844 million $814 million

#40 McLaren

$800 million

#41 Minnesota Vikings

$796 million

#42 Buffalo Bills #43 New York Knicks #44 St. Louis Rams

$792 million $780 million $775 million

#45 Oakland Raiders

$761 million

#45 Chelsea

$761 million

#47 Jacksonville Jaguars

$725 million

#48 Philadelphia Phillies

$723 million

#49 New York Mets #50 Texas Rangers

$719 million $674 million August 2012 • Global Business Magazine • 67


forensic accounting with the ACFE

Forensic Accounting The Value of a Fraud Fighter in 2012 Organisations around the world lose an estimated five percent of their annual revenues to fraud, according to the Association of Certified Fraud Examiner’s (ACFE) Report to the Nations on Occupational Fraud & Abuse (‘the Report’). Applied to the estimated 2011 Gross World Product, this figure translates to a potential total global fraud loss of more than $3.5 trillion. These findings, among others, were compiled from a survey of Certified Fraud Examiners (CFEs) who investigated fraud cases between January 2010 and December 2011.

68 • Global Business Magazine • August 2012


According to ACFE President and CEO James D. Ratley, CFE, the latest findings continue to validate statistical trends from previous ACFE reports. “As in previous years, what is perhaps most striking about the data we gathered is how consistent the patterns of fraud are around the globe and over time.” In the introduction to the 2012 Report, Ratley writes: “We believe this consistency reaffirms the value of our research efforts and the reliability of our findings as truly representative of the characteristics of occupational fraudsters and their schemes.” In today’s economic climate, companies are forced to ask themselves, “Who is helping to protect my company and clients from the devastating impact fraud can have?” That is where the ACFE comes in. As the world’s largest anti-fraud organisation and premier provider of anti-fraud training and education, the ACFE boasts more than 60,000 members worldwide, spanning 150 countries. They represent a global community of individuals from the private and public sectors and in organisations of all sizes. From entry-level fraud examiners to top-level executives – forensic accountants to IT professionals and those transitioning from one line of work to another – all make up the diverse membership of the ACFE. What sets ACFE members apart from the crowd? Through unparalleled live and online training, seminars and educational tools like webinars, publications and newsletters, ACFE members stay at the forefront of fraud-fighting trends. Networking opportunities available through ACFE chapters, conferences and seminars, as well as social media, also give members an edge on the latest anti-fraud prevention techniques and education. Equipped with knowledge, tools and connections, members are then able to stay one step ahead of the fraudsters. Many ACFE members hold the distinction of Certified Fraud Examiner (CFE), a credential denoting proven expertise in fraud prevention, detection and deterrence. CFEs around the world are not only trained to identify the warning signs and red flags that indicate fraud but to help protect the global economy, by implementing processes to prevent it from occurring in the first place. It is because of the diligence and contribution of CFEs from all over the world that the data compiled and presented in the Report to the Nations is even possible. In the 2012 study, the ACFE received information on nearly 1,400 cases of occupational fraud, which provided a tremendous data set with which to work.

“It is a testament to the dedication of our members that they are willing to give their time and share this information not for any personal gain or notoriety, but simply to contribute to our growing understanding of occupational fraud and to support the anti-fraud community,” says the Report’s co-editor, John Warren, J.D., CFE, ACFE VP and General Counsel. Key Findings from the ACFE’s Research Fraud schemes are extremely costly. The median loss caused by the occupational fraud cases in the study was $140,000, with more than one-fifth of these cases causing losses of at least $1 million. Schemes can continue for months, or even years, before they are detected. This was found in the study, with the frauds lasting a median of 18 months before being caught. Tips are key in detecting fraud. Occupational fraud is more likely to be detected by a tip than by any other method, with the majority of tips coming from employees of the victim organisation. Occupational fraud is a global problem. While findings differ slightly from region to region, most of the trends in fraud schemes, perpetrator characteristics and anti-fraud controls are similar, regardless of where the fraud occurred. High-level perpetrators do the most damage. The median loss among frauds committed by owner/ executives was $573,000, by managers – $180,000, and by employees – $60,000. Small businesses face increased risk. The smallest organisations in the study suffered the largest median losses, as they typically employ fewer antifraud controls than their larger counterparts, which increases their vulnerability to fraud. The Report also details findings such as how organisations were affected based upon industry; how the implementation of anti-fraud controls affected exposure to fraud; the breakdown of fraud statistics by geographical region; and lastly, the most common behavioural traits observed among fraud perpetrators. Such information is particularly noteworthy to forensic accountants and other anti-fraud professionals, who are charged with detecting and investigating instances of suspected fraud. By educating themselves on trends in occupational fraud, forensic accountants can more effectively identify warning signs of fraud, assess fraud risks, evaluate anti-fraud initiatives, and protect organisations’ assets from would-be thieves.

Andi McNeal, CFE, CPA, ACFE Research Director About the Association of Certified Fraud Examiners The ACFE is the world’s largest anti-fraud organisation and premier provider of anti-fraud training and education. Together with more than 60,000 members, the ACFE is reducing business fraud worldwide and inspiring public confidence in the integrity and objectivity within the profession. For more information about the ACFE, visit ACFE.com.

August 2012 • Global Business Magazine • 69


deal directory

deal directory glanbia acquires us Beverage manufacturer and co Packer aseptic solutions Inc On 26 July 2012, Glanbia, the international nutritional solutions and cheese Group, announced that it had acquired Aseptic Solutions Inc (‘ASI’), USA, for a total consideration of US$60 million. The acquisition is funded through Glanbia’s existing banking facilities. Founded in 2004, ASI is a manufacturer and co-packer of nutritional and dietary beverages including vitamin shots, protein shakes and 100% natural fruit juices. The business operates from a state-of-the-art facility in Corona, California and employs 175 people. Its technology is designed to manufacture a better tasting and longer lasting product, and allows the processing and packaging of liquid foods to be safe, fresh and flavourful without the use of preservatives, serving customers in both the Retail and multilevel Marketing sectors. The acquisition of ASI is aligned with Glanbia’s nutritionals growth strategy and will strengthen Glanbia Nutritional Ingredient Technologies by expanding its end-to-end solutions capability as an ingredients supplier, formulator and end product manufacturer. Aseptic Solutions capability is focused on key high growth trends in nutritional markets for sustainable, natural foods with nutrient integrity. The acquisition enhances the Glanbia portfolio by complementing and enhancing existing ingredient solution capabilities. For more information, visit www.www.glanbia.com.

hms group PLc acquires 75% of apollo goessnitz gmbh On 20 July 2012, HMS Group (‘HMS’), the leading pump manufacturer and provider of flow control solutions and related services in Russia and the CIS, announced that it had entered into agreement to acquire 75% of Apollo Goessnitz GmbH, a worldwide operating manufacturer of centrifugal pumps and system equipment, located in Goessnitz

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(Thuringia), Germany. The main products of Apollo Goessnitz GmbH (Apollo) are primarily used for specific applications in oil refining, offshore and onshore upstream, thermal power generation, as well as chemical plants and water utilities. Managing Director (CEO) of HMS Group, commented: “Due to strong prospects for construction and modernisation of oil refineries and petrochemical plants in Russia and the CIS, we set a goal to significantly enhance our current position in these attractive market segments. I’m pleased to say that Apollo Goessnitz GmbH is the well-established and rapidly growing international company with focus on manufacturing of API and DIN pumps for these particular industries. On top of this, Apollo’s business strategy of developing R&D and engineering expertise, particularly in offshore applications, is a great value for us as we’ve been always focusing on providing technically advanced integrated solutions for our customers.” Lothar Wagner, Managing director of Apollo, commented: “We have been looking for a partner that would be able to provide us with an opportunity to drive future growth with a leading platform in attractive and growing markets in Russia and the CIS. As the strategic partner, HMS has all the necessary resources to develop new products and solutions. We’ve analysed the track record of HMS’ integration of the acquired companies and I’m convinced that the development as a part of HMS Group will prove to be successful. Our management team intends to remain with the business and looks forward to the opportunities arising from this deal.” For further information, visit www.grouphms.com.

good energy group PLc aIm admission, Placing to Raise £4 million & cessation of Trading on the PLus market Good Energy Group PLC (‘the Group’), owner of Good Energy Limited, the UK’s

leading 100% renewable electricity supplier, announced on 25 July 2012, that further to the announcement made on 10 July 2012, the Group has made an application for admission to trading on the AIM Market of the London Stock Exchange plc (‘AIM’) and announces the withdrawal from trading of the Group’s ordinary shares on the PLUS Market (‘PLUS’). The Group also announced that it had conditionally placed 4,705,882 new ordinary shares of 5 pence each at a price of 85 pence per share (the ‘Placing Shares’) to raise gross proceeds of £4 million (the ‘Placing’). The Group intends to use the net proceeds of the Placing to continue and accelerate: the development of the Group in marketing and brand awareness – the development of new partnerships with national membership organisations and increase in local and national advertising to improve brand awareness; trading – the further development of the Group’s trading platform and credit lines to enable its trading team to improve trading margins across all technologies; and asset development – the expansion of the Group’s asset development portfolio including onshore wind and large scale solar projects. The Directors of the Group now believe it is an appropriate time for the Group to seek admission to AIM, with its concurrent withdrawal from the PLUS Market, as part of the continued development of the Group and the Board’s belief of the increasing need to seek access to institutional investors to help continue the growth of the Group as the UK’s leading 100% renewable electricity supplier. For further information, visit www.goodenergygroup.co.uk.

completion of acquisition of stake In china’s unconventional gas Revolution Leyshon Resources Limited (‘the Company’) announced on the 25 July 2012, that it had signed a definitive share sale and purchase agreement for the acquisition of Hong Kong Company Pacific Asia Petroleum Limited (PAPL) which holds a 100% interest in the


Zijinshan Production Sharing Contract, located on the eastern fringe of the prolific Ordos Gas Basin in Central China. Application has been made for the 10,000,000 new ordinary shares to be issued pursuant to the acquisition to be admitted to trading on AIM. Admission is expected to occur on 31 July 2012. Leyshon has acquired PAPL from Houston based CAMAC Energy Inc for a consideration of US$2.5 million in cash and the issue 10,000,000 fully paid ordinary shares. Managing Director Paul Atherley commented: “The Ordos Basin is the beating heart of the world’s fastest growing major economy and is one of the best places in the world to be exploring for gas right now. Any commercial discovery will be hooked into one of the major arterial pipelines that cross the basin. We are particularly excited about PAPL commencing drilling on one of few remaining blocks on the basin’s eastern flank – an area that has seen spectacular recent discoveries.” Further announcements will be made when the exploration programme is finalised, followed by the commencement of drilling, along with updates on the progress and results from the drilling and testing programme. For more information, visit leyshonresources.com.

medicX fund Limited: acquisition of 31 completed medical centres On 23 July 2012, MedicX Fund (‘MedicX Fund’, ‘the Fund’ or ‘the Company’), the specialist primary care infrastructure investor in modern, purpose-built, primary healthcare properties in the United Kingdom, announced that, consistent with its plans to continue to grow its portfolio, it had

completed its most significant acquisition to date of a portfolio of 31 completed and fully let primary care medical centres. David Staples, Chairman of MedicX Fund, said: “Having already acquired 13 properties since 1 October 2011, we are delighted to have closed this corporate acquisition of a further 31 completed and fully let purpose built primary care medical centres. Total committed investment since 1 October 2011 is now £144 million, which takes the amount of committed investment in the Fund’s portfolio to £392 million. These investments will enable the Fund to fully draw down its existing debt facilities and utilise the equity proceeds raised earlier in the year, reducing any cash drag impact on returns. Following this acquisition, approximately 2% of the UK population will be registered in GP practices within buildings owned by the MedicX Fund. The portfolio continues to perform well and the Company continues to deliver a good level of return for its shareholders.” For more information, visit www.medicx.com/.

acquisition of Land holding company in Papua New guinea On 23 July 2012, New Britain Palm Oil Limited (‘NBPOL’, the ‘Group’ or the ‘Company’), one of the world’s largest fully integrated producers of sustainable palm oil, announced the acquisition of 100% of Vitroplant Orangerie Bay Limited (‘Vitroplant’), a land holding company in Papua New Guinea, for a cash consideration of US$4,432,500. Vitroplant – to be renamed Orangerie Bay Plantations Limited – holds 99 year state leases located in Central Province, adjacent to the Company’s estates in Milne Bay, covering a total area of 5,351

hectares with environmental permits issued from the Department of Environment and Conservation for oil palm plantation development. NBPOL is a large-scale integrated industrial producer of sustainable palm oil in Australasia, headquartered in Papua New Guinea (PNG). It has over 78,000 hectares of planted oil palm estates, over 7,700 hectares of sugar cane and a further 9,200 hectares of grazing pasture, (some of which will be converted to oil palm); twelve oil mills; two refineries, one in PNG, and one in Liverpool, UK; and a seed production and plant breeding facility. For more information, visit www.nbpol.com.pg.

stagecoach group PLc: completion of acquisition from coach america On 23 July 2012, Stagecoach Group plc announced that, further to its announcement on 18 May 2012, certain of its subsidiaries (together, ‘Stagecoach’) have completed the acquisition of businesses and assets from Coach America, Inc. (‘Coach America’ or ‘the Sellers’). As previously announced, nine businesses and related assets and liabilities have been acquired for a cash consideration of US$134.2m. The consideration will be potentially adjusted based on the working capital of the acquired businesses, and US$3.0m of the US$134.2m consideration is being held in escrow pending the finalisation of any working capital adjustment. In addition, in its announcement of 18 May 2012, Stagecoach confirmed that the Sellers had the option to sell certain coaches to Stagecoach for a cash consideration of up to US$25.6m.To date, Stagecoach has acquired a

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further 12 coaches for a cash consideration of US$2.9m and the Sellers retain the option to sell vehicles to Stagecoach for the balance of the potential cash consideration (i.e. up to the US$22.7m). For more information, visit www. stagecoach.com.

united Drug Plc acquires share capital of Pharmexx gmbh United Drug plc (‘UD’ or the ‘Group’), a leading international provider of services to healthcare manufacturers and pharmaceutical retailers announced on 26 July 2012, that it had reached agreement to acquire the entire issued share capital of Pharmexx GmbH (‘Pharmexx’), from Celesio AG, a leading international trading company and provider of logistics and services in the pharmaceutical sector, for €35 million. Employing over 2,300 people, Pharmexx operates in 18 countries across Europe, North and South America, and the acquisition clearly establishes UD as one of the leading global contract sales outsourcing companies. The net assets being acquired are €8.3 million, and on completion the business will be integrated into the Group’s Sales, Marketing & Medical division. €28.7m of the consideration is payable in cash on completion, inclusive of the net cash and other liability items being taken over. The acquisition will be financed from UD’s internal resources and existing debt facilities. Speaking about the acquisition today, United Drug’s Chief Executive, Liam FitzGerald said: “We are delighted to announce the acquisition of Pharmexx. The acquisition is a major step forward in our ambition to become the leading global provider of contract sales outsourcing services to the pharmaceutical industry. It is also another significant milestone in the development of United Drug into a truly international provider of outsourced services to healthcare manufacturers.” For more information, visit www.united-drug.com.

aegis media expand Digital scale in china with strategic Investment in Leading search firm Pinzhong On 26 July 2012, world leading focused media and digital communications group Aegis Group plc announced it had committed to a strategic investment in local Chinese search marketing company, PinZhong (‘PZoom’). Aegis Group’s investment in PZoom is RMB 24 million (£2.4 million). The partnership with PZoom is in line with Aegis Group’s strategy of acquiring businesses in faster-growing regions and which add

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digital capability and reach, in this case in particular in China’s second tier cities. Aegis Group’s digital performance marketing network, iProspect, will create a trading and development alliance with PZoom in order to bring more scale and breadth of services to existing and prospective Aegis Media clients in the fast growing digital performance marketing segment. By formalising a partnership with PZoom, Aegis also expects to extend client opportunities to its other global network brands of Carat, Vizeum and Isobar. Nick Waters, CEO, Aegis Media Asia Pacific said: “Building scale and competitiveness in both search and performance marketing in China is a priority for Aegis. By identifying and investing in a proven brand like PZoom we will contribute significantly to our quest for growth in this space.” For further information, visit www.aemedia.com.

anglo american agrees to acquire majority Interest in Revuboè metallurgical coal Project in mozambique On 24 July 2012, Anglo American plc (‘Anglo American’) announced it had agreed to acquire a 58.9% interest in the Revuboè metallurgical coal project in Mozambique (‘the Revuboè project’) from the Talbot Estate for a total cash consideration of A$540 million (approximately US$555 million). Anglo American is one of the world’s largest mining companies, is headquartered in the UK. Anglo American’s portfolio of mining businesses spans bulk commodities – iron ore and manganese, metallurgical coal and thermal coal; base metals – copper and nickel; and precious metals and minerals – in which it is a global leader in both platinum and diamonds. The company’s mining operations, extensive pipeline of growth projects and exploration activities span southern Africa, South America, Australia, North America, Asia and Europe. Cynthia Carroll, Chief Executive of Anglo American, said: “The acquisition of a majority interest in Revuboè is in line with our strategic commitment to grow our global metallurgical coal business, to supply our customers from each of the key metallurgical coal supply regions of Australia, Canada and Mozambique. Revuboè is located in the most attractive area of Mozambique’s Moatize coal basin and has a number of infrastructure development options. We look forward to working with the Government of Mozambique and our joint venture partners to progress this exciting prospect.” For more information, visit www.angloamerican.com.

New acquisition by ORh spa Brainspark (‘Brainspark’ or ‘the Company’), the AIM listed international investment company, announced on 25 July 2012, that its subsidiary, ORH SpA (‘ORH’), a hotel management company and travel agent, had acquired 100 per cent of the Long Haul division of Alba Tours srl (the ‘Long Haul Business’), for a consideration of €100,000, payable in cash, along with some additional commercial agreements. The Long Haul Business is an Italian based travel company which focuses on a number of popular Mediterranean resorts, as well as East Africa, the Indian Ocean (including the Maldives and Mauritius) and the Caribbean (including an exclusive arrangement in the Dominican Republic with the outstanding Bayahibe resort). ORH’s long term strategy is to become Italy’s leading aggregator of long-haul destination holidays and, following the opening of its new resort in Mozambique, it now provides access to 13 out of the 14 long-haul destinations provided by Italy’s three charter airlines, making it the first Italian tour operators to provide such diversity. This acquisition confirms ORH’s dominant position in the Italian travel industry within its key markets of the Mediterranean and East


Africa, as well as strengthening its holding in the Caribbean, following the acquisition of Un Altro Sole in May 2012. ORH continues to take advantage of the current poor economic conditions by seeking similar acquisition opportunities, which will improve its product into the market. Alfredo Villa, Executive Chairman of Brainspark, commented: “ORH continues to perform well despite poor market conditions in Italy. Through this and future acquisitions, we hope to quickly establish ORH as the industry leader in Italy for Mediterranean and long-haul holidays.” For more information, visit www.brainspark.com.

British Land acquires the clarges estate, mayfair for £129.6 million On 25 July 2012, British Land entered into a corporate agreement to purchase Clarges House, 6/12 Clarges Street and 82/84 Piccadilly in Mayfair, based on a property price of £129.6 million. The site is located on Piccadilly overlooking Green Park, and is close to the Ritz and Bond Street. The acquisition is expected to complete in November 2012.

British Land intends to redevelop the entire site to create a landmark mixed-use scheme. On completion, the acquisition of the Clarges Estate will add further to British Land’s central London development programme. Tim Roberts, Head of Offices at British Land, said: “I am excited by this unique opportunity to buy nearly an acre of land in Mayfair, where we can leverage our financial and development expertise to add value. The scale of development will create a landmark building and will further enhance British Land’s presence in the West End. On completion, the acquisition of the Clarges Estate will add further to British Land’s central London development programme. Covering both offices and residential schemes, our 2.3 million sq ft of committed developments includes: a new 700,000 sq ft building for UBS at 5 Broadgate; The Leadenhall Building, a 610,000 sq ft tower, in London’s insurance district; and a 500,000 sq ft mixed use office and residential scheme at our Regent’s Place estate in the West End, along with a number of stand-alone residential developments. Since the beginning of 2009, we have completed 143,000 sq ft of residential developments in London, with a further 200,000 sq ft due to be completed by the end of 2013. The acquisition

of Clarges House will add to our prospective residential pipeline.” For more information, visit www.britishland.com.

cupid plc: acquisition of french Online Dating company Cupid plc (‘the Group’) the online dating company, announced on 24 July 2012, that it had acquired 100% of the French online dating company Assistance Genie Logiciel (‘AGL’) for a total consideration of €3.7m which was payable on completion of the transaction. The acquired business trades principally in France and operates with a subscription billing model which includes the following brands: Amour.com (traditional dating), SeRencontrer. com (serious dating), and Ulla.com (casual dating). AGL was created in 1986 and was an online content pioneer with content initially delivered across telephone lines, and then later moving onto the web. Bill Dobbie, CEO of Cupid plc, commented: “The AGL business is a highly complementary addition to our current French portfolio, allowing us to become one of the largest French online dating businesses. In addition, we see the potential

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to expand at least one of the French brands into other international markets”. Cupid plc listed on AIM in June 2010 and is a leading provider of online dating services. It has also built significant and growing revenues in 15 countries, offering a wide variety of online dating services, allowing members to interact with each other and access the content available on the Group’s websites. These websites are intended to appeal to dating users of diverse ages, cultures and social interest groups. The Group’s most heavily visited websites include www.cupid.com, www.flirt.com, www.benaughty.com, www. girlsdateforfree.com and www.datetheuk. com. The Group also promotes the niche brands www.datingforparents.com, www. indiandating.com and www.maturedating. co.uk. For more information, visit www. cupidplc.com.

enteq strengthens Directional Drilling Product Lines with acquisition of m&R Industries, Ltd. and Pro-flow fabrication Technologies, Ltd. Enteq Upstream plc, the oil & gas field services company, announced on 23 July 2012, that it had acquired, through its indirect wholly-owned subsidiary, Enteq KMS LLC, substantially all of the business and assets and some of the liabilities of M&R Industries, Ltd. (‘M&R’) and Pro-Flow Fabrications Technologies, Ltd. (‘Pro-Flow’) for an initial

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consideration of US$11.5 million. M&R, using the trading name KMServices (‘KMS’), and Pro-Flow, manufacture and sell specialised parts and products for Directional Drilling and Measurement While Drilling operations. M&R and Pro-Flow together employ 72 staff at their Houston facilities in Texas. The components and products supplied by KMS and Pro-Flow will complement the highly technical equipment supplied by XXT which was acquired by Enteq in May 2012. These acquisitions will share a common customer base, primarily consisting of North American focused oil & gas field service companies. The components and products supplied by KMS and Pro-Flow will complement the highly technical equipment supplied by XXT which was acquired by Enteq in May 2012. These acquisitions will share a common customer base, primarily consisting of North American focused oil & gas field service companies. Enteq now intends to invest in M&R and Pro-Flow, expanding their facilities and broadening their product range. The combined, unaudited annualised revenues for M&R Industries with Pro-Flow for the year ending 30 April 2012 were approximately $15.2 million, with EBITDA of $2.4 million and profit before tax of $2.0 million (adjusted for ongoing costs). Enteq has also acquired from the vendor of M&R the 5-acre site with 29,940 sq ft of industrial facilities in Houston, Texas, from which the M&R and Pro-Flow businesses operate for a cash consideration of $2.3 million, which will be satisfied from the Company’s existing resources. For more information, visit www.enteq.com.

eDc announces acquisition in Iraq On 24 July 2012, Eurasia Drilling Company Limited (‘EDC’ or the ‘Company’) the leading onshore and offshore drilling service provider in the CIS, announced that it had acquired two onshore drilling rigs in Iraq, with a commitment to purchase a third. All three rigs are currently under contract or being tendered to international customers. To ensure uninterrupted operations, EDC intends to retain the existing management and operational staff and support facilities. Dr. Alexander Djaparidze, EDC’s Chief Executive Officer, commented: “This acquisition is a strategic breakthrough for EDC as it marks our first move outside of Russia and the CIS and is an important step toward our goal of becoming a truly global drilling contractor. By acquiring rigs in Iraq EDC now has a platform for growth in the expanding Iraqi and Middle Eastern oilfield services markets.” EDC is the largest provider of onshore drilling services in Russia, as measured by the number of meters drilled, providing onshore integrated, well construction services and work over services. In addition, the Company provides offshore drilling services in the Caspian Sea. The Company offers its onshore integrated well construction services and work over services to local and international oil and gas companies primarily in Russia, and its offshore drilling services to Russian and international oil and gas companies in the Russian, Kazakh and Turkmen sectors of the Caspian Sea. For more information, visit www.eurasiadrilling.com.


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Global Business Magazine - August 2012