Università degli Studi di Bergamo

International business

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1. INTERNATIONALIZATIONFrom pyramid to network management

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International managementManagement : looking for managers with international culture and national sensitivity

As from when do you are a manager

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InterdependencyAsian crisis, impact on Luxembourg investment funds....

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1.Gains from international trade

Less advanced countries to compete with technologically more advanced countriesFears in industrialized world to loose employment to cheap labor countries

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South-South and North-NorthCompetition no longer essentially North-South

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The right placeProducing more at the right place with the right men

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1.Gaining from internationalizationTransfer of technology (AIRBUS-CHINA)

Cheaper and wider variety of goods, lower inflationInducing competition, spurring productivityImprovements in transport and telecomsImpact on incomes per person according to OECD Job opportunities for flexible executives 8

1.International trade policy

Relative prices and supply

Cheap labor and exploitation

Boycott less effective than active “meddling”

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Three principles of Cesare Romiti

Flexible strategiesSound managementEffective control

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2.Law of comparative advantageDavid Ricardo’s principles today without clear advantages known

At what we are best in the high technology era

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1.Regionalism and discriminationNAFTAAPEC (Asia –Pacific Economic Co-operation Group)Mercosur (now with Venezuela…)ASEANEU« Building blocks towards global free trade »

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1.Free trade areaBarriers to intra group trade removedEach country remains free to determine its own trade policy with regard to non membersExample :EFTA : Norway, Iceland, Switzerland, Liechtenstein

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2.EXPANSION OF MARKETS : THREATS AND OPPORTUNITIES

Not to ignore countries with emerging economies (Croatia, Macedonia, Montenegro…)

The Chinese at work… all over Africa (Angola, Mozambique, Algeria…) in construction of buildings, roads, pipelines with their own workforce : they introduce prices with Chinese (lower) and with local workers ( more expensive)

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2.Risks ahead

Outbreak of trade protectionism

Sharp rise of oil prices (demand in China…)

Terrorism and lack of safety

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2.Critical size and internationalizationRequired level of production (optimal level) often exceeds the absorption capacities of the national market (Croatian trams)

Need to discover new marketsMutual advantages of cooperation between industrialized and less developed nations (a new beverage..) 16

2. Intra-company international trade1/3 of world trade ( products and services) is intra-conglomerate businessImportance and vast differences between multinationals (US, Japan, Italian, German, French, British… ( links with home country mentality, culture, social relations (see comparisons in San Pedro Sula)

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Excessive remunerationsTo be respected corporations, boards, doctors, notaries have to behave in a respectable way, not on the basis of “legal stealing” when there is no longer a link between remuneration and merit

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2. Gains from international tradeSpecialization leading to higher productivityBetter communications networksJudging only when aware of circumstancesThe beauty of combining forces and skills

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2.Economies of scaleDanger of gigantismKeiretsu (alliances) to keep companies flexibleBrand policy (ING all over the world)The costs of marketingCost of research preventing pharmaceutical companies to succeed when too small

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GALILEO contra GPSEU national vanities and paranoid national security (the Americans could cut off GPS signals!) …Immense budget of 3,6 Billion€ and already need for more 2Mio€ !GPS now available for free !Galileo not ready before 2014 !based on taxpayers’ money, the intention was to be a couple of meters more accurate…

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3. ETHICAL ISSUES

BoycottChild labor“Trade not aid” ! (lobbies) (apple growers contra oranges)Chinese in Africa: no interference in Soudan…Fair wages : Middle East circumstancesBanks and the subprime crisis

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Securitization misusedBanks in search of liquidityThe trick found : collateral debt obligationsRisks not disclosedInvestors miled

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3.Fears of losing jobsRisk to see well paid workers to loose their jobs (Bolkestein)

Why robotize and pay unemployment compensation afterwards (with less control in metro stations and car parks)

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3.Combat poverty“The” goal of the World Bank

Perverse effects of subsidized exports of agricultural products in some cases, for other countries food supplies to stop starvationGuinea (Conakry) to protect local grain and rice producersSomalia at the mercy of war lords

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3.Poverty : encouraging observationsHuman race was never richerBetter medical equipment

Rise of income in BRICWrite off of debts ( gifts called loans…)Technology more widely availablePopulations fleeing from poverty to richer areas

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3.Poverty : main causesCorruption (see bank accounts of corrupt leaders)White elephants

Poor managementLack of educationLack of access to marketsWomen prevented from education

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3.Ethical issuesBribes ( Transparency international)Fiscal safety and honesty of governments and citizensDoing business in totalitarian countries

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3.Aids

Production of vaccine would require involvement of a big drug companyEducation

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3.Market economy / aids vaccine

Different prices for different countries ?

The danger is that the “cheap drug” would then be exported at high prices to richer nations

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3.Transparency Int.Rated by businessmenExcept from country concerned (they could be put under pressure)Worst : Haïti (163)

Best : Finland, Iceland, New Zealand

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3.Progress and democracyIn the first period of democracy sometimes undemocratic governments (Pharaohs) Later democracy comes as a consequence of progressConsider South Korea, Taiwan, China, SingaporeFirst discipline, than democracy (principle of Singapore)Tunisia favoring safety to attract tourism

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4.OUT- AND INSOURCINGA Belgian company decided to produce in Brazil, mechanical production, need to transfer patents, got only a substantial minority share, gave its brand name, problems with staff, bankruptcy…Locals bought (cheaply) the patents and the brand and became competitors!

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4.Sourcing from low cost countriesEconomic benefits: brings down production costs, keeps companies competitive, raises profitsCustomers buy more, and more cheaply

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4.Outsourcing to IndiaWell educated, English-speakingSlow and cumbersome administrationExporters of remote services : software coders, medical record transcribers…Software engineers, banking services, accounting, lawyers, remote marketing, more and more complex services

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4.OffshoringUsing poor country labor to drive down costsTo exploit differences in productivity and resources, Economies of scale, gaining access to bigger markets, firms can spread fixed costs over more outputTrade helps to diffuse technologies

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4.Labor rigidity and job creation Appointments by politicians with almost no expertise (mother of vice prime minister of Belgium…) , central banks with politically appointed boards

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5. POSITION OF DEVELOPING WORLD

To attract FDI: reliability of management (government)Most have lost a lot of welfare due to mismanagementLeaders gained from independence, not the populations (Congo, Zimbabwe)

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5.Trade policy in developing countriesImport-Substitution industrialization (India, Gandhi)

Infant industry argument

Export oriented industrialization

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5.Inflows of capital to developing countries

Dangers with heavy inflows of short- term capital (bank lending)Expected to open more their service and industrial sectorsShould be allowed to export agricultural productsDangers of nationalization and confiscation

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5.Position of developing countries

the WTO allows them to take measures to improve standards of living : impose import restrictions, industrial countries may give them preferential treatment on imports of their products without reciprocityLooking for partners but not succeeding when safety is not guaranteed (Algeria)Educated people emigrating instead of working in their country of origin

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5.THE VIEW OF DEVELOPING NATIONS

Some hit by high oil prices, budget deficitsThe drama with African instability and tyrants in some countriesBRIC ( Brazil, Russia; India, China) growing fast but not solving poverty (electricity cuts in Russia!)Increased demand for raw materials (China) pushing prices up, also demand for machines, ships, aircrafts, equipment to boost productivity

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6. WORLD GROWTH

1. Robust consumer spending (USA)2. Corporate investments (China, India)3. Emerging markets and markets in transition

doing better

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6.Indicators of economic developmentGross Domestic Production (GDP) per head ( misleading because no reference to the cost of living, distribution of wealth, presence or not of an important middle class…)

Number of people per doctor, infant mortality, life expectancy, car ownership, educationWay women are treatedHygienic provisions (bathrooms, water

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6.Newly Industrialized Countries Asian tigers : Indonesia, Malaysia, Singapore, South Korea, Taiwan, Thailand…most of them being also Newly Exporting countries ( NEC’s) such as also the Philippines (problems with safety), Thailand, Indonesia and MalaysiaIn most of these countries : hard working, skilled labor, high domestic savings, willingness to accept foreign technological input

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6.Restructuring after Asian crises1. Liquidate weak financial institutions2. Strengthen reliable banks that maintain

credit lines to industrial corporations3. Improve banking supervision

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6.Production and innovationconsumer's demand for innovation has strong impact on innovation process entrepreneur prefers to invest in innovations for the home market first (feedback)the closer the producer is to the market, the lower the costs associated with transfer of market knowledge

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6.Productivity

Multi-factor or total-factor productivity, if workers are given better machines, productivity also a result of heavy capital spending

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7. GLOBALISATION To improve effectiveness of economiesWorking conditions vary all over the world and multinationals take advantage of disparities In a way workers are put in competition as multinationals areMore dangers, more opportunities, need for fast adaptationEffective management to be supported and esteemed

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7. Objectives of authorities with a view to put in place globalization

1. Liberalize capital movements2. Opening markets 3. Privatization4. Deregulation5. Less governmental interference6. Reasonable tax policies7. Keeping the country free from corruption

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7.MultinationalsMergers and acquisitions with the help of investment bankersHarmonization of cultures ( Trelleborg case !)

Acquiring the best ( motivated and reliable) talentsNot essentially a question of cheap laborCriticized by flocks of indoctrinated massesToo many slogans, not enough knowledge 51

7. Mergers and acquisitions Concentration in the fields of mainly banking, media, telecoms, pharmaceuticals, energyTo be able to commercialize products worldwideJoint venturesFees for investment bankers !

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7. Preparatory work ( going abroad)Internal diagnostic information on culture, economic circumstances, laws and regulationslook for the right partner, best region, political risks, other industries and suppliers, skillslegal personality to choose, headquarters, management, technical assistance…

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7. Causes of failures (abroad)No adaptation of project in course of realizationPoor marketing studyLack of funds, poor managerial skills, conflicts between partnersHiring the wrong human resources, case : SIDAPLAXCost of laying off staffDelocalization with huge costs of closing original plant

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7. Success stories abroadNissan in the hands of Renault thanks to good management and economics, efficient network of sales for both partners creating new markets for both (Clio assembled by Nissan in Central America….), better position towards banks (Nissan was in financial difficulty), flexible strategies

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7.Impact of globalizationEffects on investment, capital flows, jobs, profits, welfareMore efficiency in multinational enterprisesDeregulation also at social levels (wages, job safety), restructuring of industryNeed to offer best skills at payable labor prices

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7.Anti-globalization

Just being against business and companies pretending to fight for ecology and for social justiceOften linked to ignorance Demonstrators spending money of NGO’s

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7.World economy : fragileJapan helped by strong demand in ChinaEconomies to rebound after uncertaintiesSlump in consumer demandConsequences of excessive risks taken by banks in mortgage loan business

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7.Factors of globalizationDecline of barriers to the free flow of goods, services and capital

Development and transmission of new technologiesToo many hollow words (Lisbon declaration of the EU Commission promising the EU to become the world’s leader in technology… ?)

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8.Impact of protectionismdomestic producers can now produce profitablyprotected products more expensive for consumers government receives import leviesAirbus

Subsidies to attract newcomers who would do better to look for economically more profitable activities

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8.ANTI-DUMPINGLower prices abroad than domestically, or under cost priceMust cause substantial damageAttackers must prove there is link between the damage and the dumpingProducts or services must be proven to be identical

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8.Countervailing dutiesIf imports are subsidized by exporting countrytariffs imposed to offset value of subsidiesto protect the national industry take the interests of consumers also into account… court cases long and expensive !

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8.Import substitution policyWas pursued by a number of developing countries (India)Backfires in the longer termRetaliation by other countries

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8.Voluntary Export RestraintsLeads to a transfer of income from the consumers ( pay more for the cars) to the foreign and domestic producers ( charge higher prices)The difference with import duties is that with import duties the government receives import duties, not so with VER’s

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8.Export subsidiesNew exporters appear but are expected to be less efficient than the existing onesCost of export subsidies Taxpayer is subsidizing foreign customersNot so cost effective to create jobs, more to please lobbies of industrialistsProblems with agricultural products

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9. WORLD TRADE ORGANISATION

Pascal Lamy : General DirectorHis objective : introduce poorer and developing nations into the global world of business (his Thai predecessor helped to include farming in the process)151 countries ( next candidate probably Russia)

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9.Rules of the international economy

Strong states more capacity to influence rulesLimits even on strong states ( to avoid protests)Weaker states had to open their economies, had to liberalize, had to deregulate (forced harmonization)Reduction in the role of the state

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10.Intellectual propertyTo be protected to support scientific researchIn EU European patent office, but registration in each country with certified translations…to receive the necessary protectionThe Cortinovis case (Bergamo)

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11. FOREIGN DIRECT INVESTMENTS

Long term interest means here that the foreign direct investor is in a position to have an influence on the management of the company

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11.Foreign Direct InvestmentsGreenfield ( totally new plant )Brownfield ( foreign company acquiring an existing production facility )Having controlling influence : when at least 10% of voting rights (affiliated company)Subsidiary : as from 50%Branches : no legal personality

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11.Locational factorsTechnological developmentFactors of production, related supporting industries, influence of establishment, attitude of governmentInherited or natural factors infrastructure) and created factors ( human resources)Domestic demand (quality requirements)

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11.Geographical analysis

Economic and political stability, growth rate, inflation, unemploymentInfrastructureLocation/ transportationEcology/environmental requirements

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11.New investmentsNeed to gain access to new technology (requirement in China) , distribution channels, new marketsNeed to increase productivitySkilled labor force, services to attract car assembly to southern USA, Central Europe

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11.FDI in the world economyShifts in the relative importance of regions (Asia, USA, Brazil, Europe)Industrialized countries receiving massive FDI ( USA, UK) while one would expect emerging nations to receive the bulk of itAttractiveness of Central Europe ( car assembly e.g.)

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11. More complex products: carsToyota-PSA in Kolin (60 km from Prague):150 suppliersMost new companies around the new plant80% of the parts produced in Czech RepublicValenciennes, France: ToyotaSlovakia: most important car assembler in function of population

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12. REAL ESTATECrédit Lyonnais in France was caught in real estate / developments that went down in disasterMore volatile than often expectedSubprime disaster in USA

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13.Free trade zones (zones franches)Example of commercial zone: ColonExterritorial enclaveCan be commercial and industrialOften situated in emerging industrial countriesAdministrative solution to bureaucracy

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14. LOBBIESTo modify lawsImpact on public bodiesImpact on mentality, perception and approach of authorities so that authorities would adapt to world economy realities

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14.LobbyingSome 3000 in Brusselsbig part of it is pointlessgives some contacts to civil servants to the real world and especially the industry concernedskills and methods

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14.Pro-tariff interest groupsNational firms competing with foreign firmstrade associationsto increase industrial outputto increase employmentappeal often to national feelings

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14.Anti-tariff interest groupsConsumers, for them protectionism means smaller variety of products and higher pricesmultinationals : in favor of free tradecompanies having to import raw materials usually less well organized that the group of protectionists

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15. MONEYBillions of $ moving from country to country creating speculative opportunities that can lead to financial destabilizationHot moneyStable investors requiring transparencyUnlisted when fear for loosing control

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15.Money in a global worldGovernments experience a growing loss of monetary controlNeed for governmental policies to avoid massive capital flowsMoney got used outside the countryInternational circulation of a currency also a matter of influenceGlobal hedge funds active

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Financial criminalityYachts bought by criminal fundsReal estate

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15.Country riskRating agenciesrisk assessments based on : legal issues, political stability, attitude towards business, vulnerability ( diversification of their exports by category and geography), general future prospects, level of corruptionMacro hedge funds based on national markets

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15.Effective exchange rateweighted average of nominal bilateral exchange rates with main trade partnersfor the economy of a country, the exchange rate of one currency is more important than that of another, the level of a country’s international trade with its individual partners is a good indicator of that economic importance

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15.Monetary strategiesMarket leadership to maximize use of the national currency (international seigneurage)Market alliance: sharing monetary sovereignty in a monetary unionMarket preservation: to maintain market position of the currencyMarket follower-ship: subordinating monetary sovereignty to a stronger currency (quetzal to a certain extent)

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15.Foreign exchange marketsLiquid and volatileInter-bank + hedge funds (33% according to BIS)Largely electronic

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15.Forms of exchange rate risksTransaction riskeconomic risktranslation riskcountry risk

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15.Transaction riskThe financial outcome of a transaction may differ from the initial expectationboth exporter and importer prefer the price in their own currency, the one who can’t get it is saddled with the transaction risksolutions : forward market, options, futures

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15.Economic riskConcerns unknown future transactionsfuture exchange rates may have an adverse effect on a company’s future export revenue, on the competitive position ( due e.g. to the appreciation of the domestic currency when deals are traditionally made in that currency)

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15.Translation riskValues of the assets and liabilities on the balance sheet change on the occasion of the translation of these values in the reporting currencyespecially when a number of foreign subsidiariescan have serious impact on results

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16. RAW MATERIALSFinally (essentially for the developing world) higher prices for raw materials !Gold at 921$/ounce in London on January 31 2008

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16. Raw materials/ oil pricesPower to hurt world economyCorporate profits reduced and household incomes squeezedWhat will the OPEC countries do with their extra cash? (impact of petro-dollars on the global financial market): infrastructure projects, investments abroad (away from the Persian Gulf area)Expectations for oil : high increases of prices !!!!!

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16. Subsidized agricultural productsFor some developing nations the import of subsidized agricultural products is dramatic since it discourages local producersFor others these products are welcome and needed to fight starvation! (some would loose a lot if EU and US would discontinue their shipments of cheap and low cost food)

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16.Commercial magnetsChina ( financing living standards US), growth +/-10%India ( intellectual insourcing, world class in services + agriculture, 300 Mio with 1$ a day…), growth 7%Brazil (very demanding, in fast development, agriculture, a winner)Russia : oil and gas

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16. Central EuropeGood performers : Slovakia (car industry), Hungary, Baltic States , Poland, Slovenia, Croatia, Romania…Because : open to foreign trade, higher competition leading to higher productivity, better institutions (Warsaw Stock Exchange), legal framework protecting investors, less corruption, good politicians education levels, reasonable labor cost

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RomaniaFast growing economyRomance languageCar assemblers (successful) Beautiful capital, nice shopping centerTourismDo not mention too often the old reference to Dracula (they are tired of these jokes)

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Montenegro€ as currencyFinancial centre in the makeAluminum plantPro Western governmentNeed to choose the right partners and correspondentsA country with a nice future

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CroatiaExcellent prospects thanks to tourismHigh level of educationGood financial systemIndustries with high potential: food, pharmaceuticals, maritime business…Beautiful coast and islands

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Lebanon9 ethnical groupsSeparation between Christians and Muslims in societyDo not take too quickly side…Too much foreign interferenceExcellent financial centre, bur % of funds migrated to Cyprus….

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BelarusOpen to cooperationBuilders of shipsSlowly towards market economy“A man with a vision”Rotary just tolerated, not moreWood industry

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TurkeyInfluential capital market (FEAS)Great builders (contractors)

Multicultural society : Armenians, Kurds, Jews, Albanians, Bulgarians, Azeris…but also Turks!Afraid of islamist tendencies (Iran type)Hard working population, not so diplomatic towards neighbors (Cyprus…)

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16. ChinaImposing conditions to FDIOffer state owned undercapitalized firmsNeed to maintain management, and brand name (e.g. XUGONG) and to give the brand name world class!Must transfer technology All over AfricaIn search of raw materials

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China : disparities men-women119 men for 100 women in ChinaThat means 18 million more men than women between age 20 and 45 !

social instability

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China : environmental problemsDemonstrationsProvincial leaders appointed centrally but difficult to controlPrefer to attract investments, and to make money by selling land than to fight corruptionShould western investors worry about potential instability or ignore it ?

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China : debt crisis ?Banks with mountain of dubious debtsLoans to so called state conglomerates and infrastructure gigantic projectsSome of it foreign (Collateralized Debt Obligations)Royal Bank of Scotland owns 10% of Bank of ChinaAlso Bank of America, UBS, Goldman Sachs….

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Chinese banksProblems with internal control, credit management, education, political appointed managers and boards (as here in Europe!)Non performing loans: 900 billion $ (E&Y)Rating of Moody’s, Fitch very low !Ernst & Young also pessimistic but had to adjust their report !

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BrazilAgricultural superpower : sugar, orange juice, beef, coffee, alcohol (presence of Danone, Bunge, Nestlé, Dreyfus, Cargill), 40% of exports = agricultureInterested in liberalization of agriculture by which they would increase their exports by 34´according to WTOOnly 10% of roads paved ( Argentina 29%)

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China-Japan-UK-USUS first client of China UK, Japan, China important subscribers to US treasury bondsAll competing for raw materials (oil!) also in AfricaMost important in int. trade : D, US, Japan, China

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16. Middle East and $Saudi Arabia, Kuwait, UAE (Emirates) peg their currencies to the $Making the $ vulnerable, linking surplus countries currencies to the currency of a net deficit power, but want to reduce floating (volatility), oil prices to remain high, in fact expected to get much higher (BASF study!) so will be the surpluses but needs in ME to invest, to diversify, to increase government spending

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16. Oil and surplus countriesOPEC + Russia and Norway with high export surplusesThe more they invest the more stable their economies, the more they support their clients (EU and US)Saudi Arabia: largest capitalization of any emerging market

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16. Where are the petrodollars ?Previously mainly in banks of oil importing industrialized countriesNow some reluctance (controls, money laundering…) Companies, trusts, hedge funds, offshore financial centers, private equity, Dubai International Capital ( 1 billion $ in Daimler Chrysler!), property boom in Dubai

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16. Saudi Arabia20% unemploymentImbalances in distribution of wealthSpending on health, education, infrastructureAlso on refinery capacity, productionDiversification supporting economic development and stability

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16. Attractiveness of developing worldRaw materialsMarkets provided they agree on lowering import barriers

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16.Raw materialsOil and Gas : Turkmenistan and other –”stan”countriesNuclear energyAgriculture (coffee, cotton, meat)

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16. GoldGold (demand of China, India for both central banks and for jewelry)Fear for inflation (due to oil prices, transportation costs), of terrorismNegative returns on bonds and savings accounts, fears of $ losing value, new mines take 6 years to become profitable, EU Central banks selling less than expected

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17.InterdependenceEU relies heavily on USA market, so is Japan, NAFTA is too small for the USA industryOPEC don’t want to destroy our economiesThe new regionalism bridges the traditional division between industrialized and developing countriesAsian crisis with impact on shareholders

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18.Corporate governanceRetail and institutional investorsEqual treatment of shareholdersRemunerations at top levelTransparencyMarket abuse : misleading information and insider trading

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19. INVESTMENT BANKINGSmart staff and exciting business, especially for the intermediary, often for the target company, less often for the raider

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19.Investment bankingPlayed an important role in high tech The new economy was not everywhere a success and investment banking suffered a real identity crisisMergers and acquisitions business more difficult

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19.Credit rating agenciesMoody’s and Standard and Poor’sToo slow to spot companies' declining health Ratings are intended to look at the likelihood of default for periods longer than a yearJunk bonds as from just one “B”Newcomers Too slow to downgradeAlso partially responsible for subprime disaster (Colleteralized debt obligations)

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21. ENVIRONMENTEnvironmental dumpingDelocalization towards less demanding countriesMiningMaquiladoras sometimes with dangerous fibers ?Asbestos in ships to be treated in Bangladesh

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21.Sustainable development

Spoiling nature is not unavoidable to economic growthNeed to phase out environmentally damaging subsidiesEconomic growth creates assets to spread around, to be shared with the poorest

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21.Renewable energy sourcesWind (but little wind when very cold and when very hot)Sunlight (solar powered generation plants) in poor areas : Shell will put solar panels in thousands of rural homes in poor countries in AfricaWaves

Need to increase the share of renewable sources in global energy production, but realism needed 125

CHINESE IN AFRICASudan (China: biggest foreign investor), Tchad, Niger, Mauritania, Angola, Nigeria, Congo Brazzaville, Mali50.000 Chinese in ALGERIA : building industry (oil and gas…)!¼ of businesses in Casablanca : ChineseRaw materials: copper in Zambia, coal and gold in Zimbabwe13% of African exports to AsiaChina-Africa Business Council : created in 2004, China bought 40% of Sudan pipeline project; buys oil from Gabon, Nigeria, AngolaETHIOPIA: roads and bridges built by Chinese HUNAN HUANDA

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AFRICARising commodity pricesStrong growth in oil producing countriesUnfortunately - still high unemploymentNo poverty reduction Diseases Social and political turmoil

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Look for new partnersNew Zealand of Hayley Westenra

Australia

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AFRICA AND OILNIGERIA: exports’ growth, new refinery built by Texaco Chevron, excellent performance : pipelines, better banks, repatriated funds, oil…ANGOLA: Chinese hunting for new oil reserves; growth factor also diamonds - new diamond polishing factory built by Israelis (Lev Leviev) ALGERIA : vast reserves of funds and oil

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23.THE GLOBAL WORLDEconomic growth and distribution of wealthSocial justice and support of people and companies producing real wealthTribute to be paid to those who are courageous enough to fight poverty and those who at the risk of their lives combat those who create poverty and misery in the world

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23. ObjectivesIdentify problems and causes of crisesHow to identify crisesHow to prevent themHow to reduce the effects of crisesWhere are the opportunities and solutionsHow to solve the problemsLong and short term tactics and strategies

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Mergers and acquisitionsCost for companies and income of 1% of acquired company for investment bankIf need to raise funds : cost of say 8,5 % of raised amount !Investment banking also on line ? Even if the link client –investment bank = of essential importanceLBO’s (SIDAPLAX case), when management believes in future, synergies, integration, economies of scaleRaiders (predators) and targets

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Difficulties with M & AToo complex conglomeratesLoss of house style (FORTIS, RBS, SANT.-ABN AMRO)Processes difficult to combine (computer business)Trade unions difficult to synchronizeDiscovery of environmental problems, costs, one has paid too much…for too little research value, hidden liabilities (brokerage firms in Paris) cost of merging (banks e.g.) !Getting approval via proxy fights : case of Société Générale de Belgique : Suez against

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Impact on market priceRaiders loosing… The target (victim) gaining White knights’ activitiesHow to make the investor to appreciate the new entityCorporate governance, not for dreamersWrong assessments and propagandaSpeculative activities to be expected (de Benedetti, Suez, Mittal)Calling acquisitions mergers for the sake of psychology (NYSE/Euronext)

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Turn around policyWhen losses madeManagement problemsThreathening by supervisory authoritiesLoss of customersAction required !!!

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Crisis managemnetNew ideasrequiredManagement style no longer adapted to the world of businessNew marketsChoices of diversification or core business

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Externalization-Internalization

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Insourcing-Outsourcing

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Economies of scaleCommon central servicesCommon publicity, reduction of risksGetting the right managers (BOVIS - P&O)ResearchMarketingEngineeringAbility to borrow from banks at lower cost!

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How to make a company known

Turkish company at low prices because not known worldwideRoad shows to touch the minds of investment fundsInvestment banks as reference

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Convertible bondsWhen to offer convertible bonds (lower interest, cheaper for the company, dilution when exchanged, expecting conversion)Beware of reverse ones !!!

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P/E and Solvency

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Main actors

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Non performing loansEuphemism for bad debts

Wrong policies (NatWest -Heythrop-in Latin America)Bad judgment Solidarity between banks (Bank of Brussels case)Wait ! (patience required)

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Enterprise bondsMore in USFor listed companies generallyTo avoid dilutionTax advantagesImportance of solvency and of credit rating (Standard & poor’s, Moody’s)

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MONEY LAUNDERING

„Criminal proceeds taking on the outward appearance of legitimacy.”

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UNLAWFUL ACTIVITIES

Narcotics

Terrorism

Racketeering

Espionage

Hostage - taking

Sexual exploitation

Illegal immigration

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Unlawful activities (continued)Traffic in body organsIllicit arms traffickingSale of nuclear technologiesTax evasion (grey economy)Insider trading and market manipulationBribery

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Unlawful activities (continued)

Counterfeiting currency and productsTrafficking in stolen goodsCar theftPiracyEnvironmental crime

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Non-financial businesses and professions

Casinos (including internet casinos)

Real estate agents

Dealers in precious metals and stones

Lawyers, notaries

Trust and company service providers, providing registered offices, business addresses and accommodation

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Payment difficulties for criminals

Cash = difficult to move: street cash = 6 x weight of cocaine!Laws prohibiting payment in cash for large amountsRisks and costs of transportationSmurfing

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Cost of investigationFinancial detectives charge a commission of 50% plus traveling costsSix minutes of transfer can cost inquirers six months of investigation

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Independent directors protecting investors

No knowledge without “all ranks” information

Not always seen favorably by colleagues

By definition poorly paid

But fully responsible…

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Investment funds and companiesFrom invisible hand to invisible costsConflicts of interest: “in and out trading”Institutional investors to take their responsibilities as active shareholders

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POISON PILLS“The company should not employ measures to eliminate a takeover threat. Changes in company share capital should not violate interests of existing shareholders” (Polish Code)

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Hedge fundsVery difficult to defineLeverageHigh risks with a view to obtain high returnsNon orthodox financial instruments Other types of investmentsSome listed at stock exchangesProfitable business at the management levelShould gain first to be able to loose afterwards

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Is there a European culture ?Architecture, castles, abbeys, music throughout central and western and eastern EuropeWeak politically due to diverse opinionsNot able to defend ourselvesSaved by the USA from NazismToo often ungrateful, especially politicians

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International business meetingsNot choosing the major seat (Vlerick school professor…)Not to arrive at the last minute (the day before!)Be interested in local culture and languagesFollow the advice of locals (safety for instance)

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Gifts and friendshipFriendship is not for saleSmall gifts may sustain friendshipNo exaggeration but also adaptation to local habits

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Integrity and reputationBe seen with people of good reputationKeep your reputation of integrity (you will be less embarrassed)Avoid to meet groups that are locally unacceptableRespect others as well as other opinions provided these are respectableDo not judge without knowledge of circumstances

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Communicating with foreigners“Harold Pinter” : ‘the caretaker”“clearly” often meaning you do not manage to express clearly your thoughts“with respect” does not say you respect the other’s opinions“I’m afraid” is not saying you are afraid of anything“I insist” in English means you really mean it, otherwise you would say “may I suggest”…

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NetworksUniversitiesOld boys (“donkeys years”)Rotary, Lions, Round Table, Chamber of Commerce, Junior chamber of commerce….Embassies (not the one in Egypt of Belgium suggesting you better go to the one of the Netherlands…), “Alliance française” in Cairo , American Chamber of Commerce..Friends you learned to get to know while in Bergamo !

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