Business Success in China Resides in Learning How to Communicate with its People

"Understanding China is not about learning the law and regulations, it's about understanding the people," Randall Lewis, Vice President, International Counsel at ConAgra Foods, correctly noted during a webinar produced by LexisNexis on Apr. 27, 2016. He continued to say: "It's about learning how to communicate with the [Chinese] people and embracing a new way to view the world." The webinar, "Is Your IP China-Ready?" focused on intellectual property (IP) risk prevention in the Chinese marketplace.

Mr. Lewis, together with Dan Harris, a founding member of Harris & Moure, addressed a multitude of topics including choosing a good Chinese partner, identifying the IP assets that need protection, structuring your deal to protect your IP, conducting post-deal due diligence, drafting China contracts to protect your IP, and choosing language for arbitration, forum and the ability to seek local injunctions carved out from any arbitration clause.

Mr. Lewis expressed that "one of the most important things about China is its politics." If you do not understand Chinese politics, Mr. Lewis asserts, then it is difficult to structure a business transaction or resolve a legal dispute. Furthermore, China is a political economy where the entire country is ruled by its politics. In fact, Mr. Lewis explained, Chinese politics are embedded in all institutions including the judiciary, education, and most large companies. With respect to the Chinese government's role in business, Mr. Lewis said the government often lacks sophistication and institutional framework, and foreigners may encounter a less professional demeanor from Chinese government officials compared to what they may be accustomed to in their home market.

On the topic of choosing a business partner in China, Mr. Lewis encourages foreign businesses to identify the decision-maker of the potential Chinese partner, as well as the most powerful person within the company. He also explained that the Chinese business partner places a higher emphasis on personal relationships than a contract and "how you say something is more important than what you say."

Foreign companies should expect contract negotiations to occur over a long period of time, which foreign companies are unaccustomed to and may find frustrating. To facilitate the process, Mr. Lewis recommends establishing some targets, but not a deadline to make a decision or finalize a deal.

Interestingly, Mr. Lewis remarked that "there are two type of people you will meet in China: an older generation (loosely defined by Mr. Lewis as older than 55 or 60 years of age whom were beneficiaries of Deng Xiaoping's economic reforms) and a younger generation." More experienced Chinese business people may not read contracts before signing them, rely more on Gunaxi (addressed more thoroughly below), and be more aggressive during the negotiating process. Conversely, the younger generation is better educated, may prefer the legal process of contract negotiations, and negotiate more fairly.

Guanxi (关系), which may be described as the basic dynamic in personalized networks of influence (which can be best described as the relationships individuals cultivate with other individuals) and is a central idea in Chinese society, is integral for foreigners to achieve business success in China. While Mr. Lewis explained the importance of relationship-building with Chinese business people through face-to-face meetings, social activities such as drinking together or long dinners in order to get to know them on a personal level, Guanxi is different than corruption. The positive outcomes of Guanxi may include references of honorability or credibility; whereas, a negative outcome is when your connections may help you in an illegal way.

While many of the points Dan Harris presented in this webinar may also be found in a presentation he gave in a webinar on Mar. 30, 2016, which I wrote about in a post on this blog, there are a couple of items that are worth mentioning. First, according to Mr. Harris, many documents produced during the due diligence process in China may be fake. "We have seen fake insurance policies, fake IP registrations, fake contracts, and it just goes on and on and on," Mr. Harris said.

More concisely, according to Mr. Harris, distrust all company information. He also suggests asking people about the Chinese company you are seeking to do business with including visiting the company's office or facility. Scrutinizing the paper may also help identify whether or not the document presented by a Chinese company is fake.

And how often does the production of fake documents happen in China? Mr. Harris says it happens all the time and his firm is often required to review "at least two sets of books with one of them being fake" when performing due diligence on behalf of his clients. The production of fake documents "is very common in China."

I also appreciate Mr. Harris' point: "Structure your deal and write your contract so that the Chinese partner believes it will make more money with you than without you." This is important because of the challenge foreign companies may encounter in enforcing a contract in the Chinese court system. Moreover, Chinese companies operate differently compared to American companies. If the former believes the latter is no longer useful, the odds of the Chinese company abiding by the contract decreases, Mr. Harris explained. "It is very important for you to understand Chinese business, China's economy, and write your contract accordingly," he added.

While this post addresses just a few of the many interesting and relevant points from the webinar about doing business in China, you can view the webinar in its entirety through this website and download the presentation slides through SlideShare.

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

Do What You Set Out to Do...Push Through!

"I believe that having principles that work is essential for getting what we want out of life," Ray Dalio writes in his book on life and management principles. Mr. Dalio, Chairman and Chief Investment Officer at Bridgewater Associates, an investment firm, further says: "I also believe that to understand each other we have to understand each other's principles. That is why I believe we need to talk about them." This post looks into a few principles I apply in my life.

Mr. Dalio segments his book, Principles, in three parts: "Part 1 is about the purpose and importance of having principles in general, having nothing to do with mine. Part 2 explains my most fundamental life principles that apply to everything I do. Part 3 explains my management principles as they are being lived out at Bridgewater." He presents the purpose and desired use of this book by writing:

Above all else, I want you to think for yourself—to decide 1) what you want, 2) what is true, and 3) what to do about it. I want you to do that in a clear-headed, thoughtful way, so that you get what you want. I wrote this book to help you do that. I am going to ask only two things of you—1) that you be open-minded and 2) that you honestly answer some questions about what you want, what is true, and what you want to do about it. If you do these things, I believe that you will get a lot out of this book. If you can't do these things, you should reflect on why that is, because you probably have discovered one of your greatest impediments to getting what you want out of life.

Mr. Dalio presents the following as his most fundamental principle: "Truth —more precisely, an accurate understanding of reality— is the essential foundation for producing good outcomes." I completely agree. I can name numerous examples of when my accurate understanding of reality was essential for producing good outcomes. Equally important, however, is the fact that I am able to provide many stories of an inaccurate understanding of reality that led to the production of negative outcomes. It is these moments that I take as learning moments and opportunities to strengthen my ethical core values.

"I believe that the desire to evolve, i.e., to get better, is probably humanity's most pervasive driving force" Mr. Dalio continues: "Enjoying your job, a craft, or your favorite sport comes from the innate satisfaction of getting better. Though most people typically think that they are striving to get things (e.g., toys, better houses, money, status, etc.) that will make them happy, that is not usually the case. Instead, when we get the things we are striving for, we rarely remain satisfied." I find great enjoyment in improving my skills whether I am speeding down the slopes at my favorite ski area, learning the Chinese language or building ROI3, Inc.

In his "Summary and Table of Principles," Mr. Dalio provides more than 200 enumerated principles. I am particularly fond of principles 8-19:

8) Create a Culture in Which It Is OK to Make Mistakes but Unacceptable Not to Identify, Analyze, and Learn From Them
... 9) Recognize that effective, innovative thinkers are going to make mistakes.
... 10) Do not feel bad about your mistakes or those of others. Love them!
... 11) Observe the patterns of mistakes to see if they are a product of weaknesses.
... 12) Do not feel bad about your weaknesses or those of others.
... 13) Don’t worry about looking good—worry about achieving your goals.
... 14) Get over “blame” and “credit” and get on with “accurate” and “inaccurate.”
... 15) Don’t depersonalize mistakes.
... 16) Write down your weaknesses and the weaknesses of others to help remember and acknowledge them.
... 17) When you experience pain, remember to reflect.
... 18) Be self-reflective and make sure your people are self-reflective.
... 19) Teach and reinforce the merits of mistake-based learning.
a) The most valuable tool we have for this is the issues log (explained fully later), which is aimed at identifying and learning from mistakes.

Throughout my professional career, I have learned that success (and failure) is often associated with team that you build. Therefore, I found principles 117-127 to resonate similarly to how I approach my management style:

117) Train and Test People Through Experiences
... 118) Understand that training is really guiding the process of personal evolution.
... 119) Know that experience creates internalization.
... 120) Provide constant feedback to put the learning in perspective.
... 121) Remember that everything is a case study.
... 122) Teach your people to fish rather than give them fish.
... 123) Recognize that sometimes it is better to let people make mistakes so that they can learn from them rather than tell them the better decision.
a) When criticizing, try to make helpful suggestions.
b) Learn from success as well as from failure.
... 124) Know what types of mistakes are acceptable and unacceptable, and don't allow the people who work for you to make the unacceptable ones.
... 125) Recognize that behavior modification typically takes about 18 months of constant reinforcement.
... 126) Train people; don’t rehabilitate them. a) A common mistake: training and testing a poor performer to see if he or she can acquire the required skills without simultaneously trying to assess their abilities.
... 127) After you decide "what’s true" (i.e., after you figure out what your people are like), think carefully about "what to do about it."

And quite simply:

188) Do What You Set Out to Do... 189) Push through!

What is your reaction to Mr. Dalio's Principles? What would you add?

Aaron Rose is a board member, corporate advisor, co-founder of great companies. He also serves as editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Learning About Business Opportunities in Taiwan

Photo of the Taipei skyline:
http://ow.ly/4n5sQi

Did you know Taiwan is the tenth largest trading partner with the United States? Bilateral trade between the U.S. and Taiwan reached $67.4 billion in 2014, according to U.S.-Taiwan CONNECT. While most Americans are aware of the strong trade relations that exist between the U.S. and mainland China, many people, myself included, are unaware of the business opportunities available in Taiwan for American companies. An event sponsored by the Trade Development Alliance of Greater Seattle (TDA) explored the cross-border relations between China and Taiwan, as well as an examination of the market opportunities that exist for companies based in the Greater Seattle area. This post addresses some of the points presented during the Apr. 19, 2016 event in Seattle, Wash.

Andy Chin, Director-General of the Taipei Economic and Cultural Office in Seattle, talked about how U.S. products are well-represented in the Taiwanese market. Mr. Chin cited examples such as Boeing's long-standing relationship with Eva Airways with the former selling commercial aircraft to the latter and Microsoft's success of not just manufacturing its products in Taiwan, but commercializing its cloud-based services to the island with a population of 23 million.

Upon performing some research for this post, I learned of another dynamic between Microsoft and Taiwan such as the collaboration between Microsoft Research Asia and Taiwanese academia that "began in 2003 with a partnership between National Taiwan University, National Tsing Hua University, and National Chiao Tung University. This alliance led to programs that foster new talent, curriculum innovation, and academic exchanges. In 2006, Microsoft Research Asia extended this collaborative partnership to additional institutions, such as National Cheng Kung University in Taiwan."

Joe Borich, Senior Advisor with Nyhus Communications, said U.S. products are well-represented in the market and noted that Taiwan is a good target market for high-quality, differentiated products and commodity items. He also remarked how Taiwan possesses a comprehensive modern legal system with an independent judiciary. Lastly, according to Mr. Borich, Taiwan contains a number of excellent higher education institutions that produce graduates who are well-prepared for the challenges of working in a global marketplace.

Seattle has maintained a long and storied relationship with Taiwan including the former's sister city relationship with Kaohsiung, Bill Stafford, a Senior Advisor with TDA, explained. He also commented that Taiwan serves as a good location to export to emerging markets throughout Asia. Mr. Stafford further said economic ties between Taiwan and mainland China will continue to improve with the latter increasing its foreign investments in Taiwan over the next few years.

According to the Doing Business in Taiwan: 2015 Commercial Guide for U.S. Companies, a report produced by the U.S. Commercial Service in Taiwan, "Taiwan is a thriving democracy, vibrant market economy, and a highly attractive export market, especially for U.S. firms." Moreover, according to the report, "Mainland China (including Hong Kong) is Taiwan's largest trading partner, accounting for 26.7% of total trade and 18.1% of Taiwan's imports in 2014. The United States is Taiwan's second largest trading partner, accounting for 10.6% of total, including 10% of Taiwan's imports."

The report also provides an overview of the sectors ideal for U.S. export and investment in Taiwan. I was pleased to read: "The Taiwan authorities have identified cloud and mobile computing as the most promising sectors in the Taiwan’s computer software and service industries." The report includes business application software and Software as a Service (SaaS) in its list of Sub-Sector Best Prospects and explains "the Taiwan authorities have identified cloud and mobile computing as the most promising sectors in the Taiwan’s computer software and service industries."

On the topic of openness to foreign investment, the Doing Business in Taiwan report says:

Strategically located between Northeast and Southeast Asia, Taiwan is an important hub for regional and global trade and investment, especially in the high-technology industry. Indicative of its developed and open investment environment, Taiwan ranks in the upper tenth percentile of major global indices measuring ease of doing business, economic freedom, and competitiveness. Taiwan's investment climate has improved in recent years with expanded cross-Strait trade with mainland China and expansion trade links with other partners in the Asia Pacific region, as well as reforms to enhance protection of intellectual property rights and rationalize other investment-related regulations.

My colleagues and I at ROI3 are in the early stages of learning about the opportunities that exist in Taiwan for our SaaS solution, which provide smartphone and tablet users with the ability to learn English language skills and use of the language in business, legal, medical, aviation, and other professional settings. Do you have any advice or lessons learned of doing business in Taiwan?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

Symposium on Global Health in China

"Contribute to strengthening global health through supporting the collaboration of China in the global health arena" is one of four strategic priorities of the World Health Organization's (WHO) collaboration with China as outlined in the China—WHO Country Cooperation Strategy. I have witnessed a number of initiatives over the past few years focused on China's increasing role as a major contributor in the global health arena. Given my personal and professional interests on global health, I appreciated having the opportunity to attend the "Symposium on Global Health in China: Harnessing the Power of Universities" at the University of Washington in Seattle. This post addresses a few points made during the symposium that took place from April 5-6, 2016.

It their welcoming letter, Judy Wasserheit and Stephen Gloyd, co-chairs of the symposium, wrote: "The symposium goals is to create a forum to help define future directions for academic global health in China, and to discuss how best to facilitate university collaborations with institutions from both high and low income countries." Drs. Wasserheit and Gloyd continue to explain that "the symposium will provide our Chinese university colleagues with an opportunity to meet a wide, interdisciplinary array of faculty, students, and other stakeholders to strategically plan for future collaborations."

I was surprised to learn about China's long history of sending medical aid teams to over 60 countries and regions, with most teams being sent to Africa. In his keynote speech, "Emergence of Global Health in China: Prospects and Implications," Lincoln Chen, President of the China Medical Board, noted the first China Medical Team (CMT) was sent to Algeria in 1963.

Regarding its domestic market, Dr. Chen said, "China has increasingly equitable care that can provide a model for the developing world." However, while China is making progress in modernizing its domestic healthcare system, the speed of such progress is slow. "China is still evolving from a Soviet-style medical system to a Western-style system."

He also remarked that China "is intellectually engaged in global health issues" and as a global economic power, the world's most populous country "wants to contribute more, which shows it is taking up its responsibilities as a global power."

During the plenary panel titled "Global Health in the Chinese Context," panelists discussed how global health is defined, what global health means in the context of activities supported by China, and how Chinese universities contribute to this global effort. In remarks made by Yinou Li, Director of the Bill & Melinda Gates Foundation's China office, Dr. Li noted that China has made progress in certain areas such as reducing tobacco use through restrictions on tobacco advertising and banning indoor smoking. Moreover, she provided some insights on collaborative efforts by the Chinese government, health organizations, and universities to create advocacy campaigns in support of tobacco control measures and social marketing campaigns that aim to educate people and change attitudes about tobacco use (namely, making smoking socially unacceptable and unappealing). Success in this area could serve as a model for other emerging or developing countries.

On the topic of eradicating infectious diseases such as tuberculosis, the Gates Foundation says, "According to the World Health Organization (WHO), nearly 1 million people develop tuberculosis (TB) in China each year—more than in any other country except India. In addition to a high burden of the disease, China has about one-fifth of the world's cases of multidrug-resistant TB (MDR-TB), which is especially difficult and costly to treat." Dr. Li noted that a majority of funding by the Gates Foundation in China is allocated to supporting the efforts of the Chinese government. For example, the Gates Foundation's website explains its support of a grant to the National Health and Family Planning Commission, which focused on "developing and demonstrating innovative TB-control models that can help China further reduce the number of patients who develop TB, and particularly MDR-TB."

The Gates Foundation is also helping China control its HIV epidemic by "reaching high-risk groups with prevention programs and accurate information, testing, and efficient and effective treatment programs." This has been done, according to the Seattle, Wash.-based organization's web page on combating HIV in China, through financially supporting "the Chinese government and community organizations on a program to expand HIV prevention (through testing and interventions) among those most at risk of infection and to provide care and treatment to those infected. In some program cities, more than half of all newly detected cases were identified through our collaboration with community organizations." Again, if done efficiently and effectively, China's efforts of reducing tobacco use, eliminating TB, and controlling HIV could serve as a model in other emerging or developing countries.

In the plenary panel, "Chinese University Partnerships with Low and Middle Income Countries," panelists talked about China's efforts in improving its bilateral health cooperation and greater participation in global health work and governance. Feng Cheng, Professor and Chief Physician, Research Center for Public Health and School of Medicine at Tsinghua University said expanding partnership opportunities will facilitate the development of health technologies and quality products to contribute to global health. Such partnerships will help transfer appropriate health technologies between Chinese universities and low and middle income countries with the aim to improve global health outcomes.

I want to express my appreciation to the symposium's co-chairs, planning committee members, and organizers. While I am not a member of the academic community, I found great value in attending this symposium to learn more the benefits through the collaboration among Chinese and American universities. I plan to learn from these lessons and apply them to the efforts my colleagues and I at ROI3, Inc. are developing to promote health and wellness in emerging and developing countries through localized mobile software solutions designed for smartphones and tablets.

Aaron Rose serves as President and CEO of ROI3, Inc., a Seattle, Wash.-based company that empowers people in emerging economies through innovative, technology-based solutions. He is also the editor of Solutions for a Sustainable World.

Remedies for Business Disputes in China

Based on my experiences of doing business in China, I agree with The American Chamber of Commerce in Shanghai's (AmCham Shanghai) assertion that "China offers many opportunities for American companies looking to grow their business. However, in order to succeed in China's market, businesses must thoroughly investigate their specific market, take heed of product standards, and pre-qualify potential business partners." The independent, non-partisan, not for profit, business organization produced a webinar series focused "on planning your market entry strategy to minimize the likelihood of ending up in a business dispute with your Chinese partner." Dan Harris, a founding member of Harris Bricken, an international law firm with lawyers in Seattle, Portland, San Francisco, Barcelona, and Beijing, presented the fourth and final webinar in the series on the topic of "Remedies for Business Disputes in China." This post highlights a few points made by Mr. Harris in his presentation, "Avoiding and Winning China Disputes."

Mr. Harris, who also serves as co-editor of the China Law Blog, started his presentation by explaining the importance of choosing a good partner, which is defined as whomever you are choosing to do business with in China, and having a good contract are two keys to avoiding and winning China disputes. With respect to the former, Mr. Harris explained the importance for foreign companies to perform due diligence on the Chinese company to verify its validity. "Legitimate Chinese companies are less likely to engage in fraudulent behavior than a company that does not exist," Mr. Harris said. He warned, however, certain investigative techniques performed in the normal due diligence process in Europe or the United States may be illegal in China. Furthermore, documents produced by the Chinese company may be faked. "If you find something that seems faked, that may be a good thing since you now know what kind of company you're dealing with."

Guidelines of having a good contract with a Chinese company include having the contract in writing, one official language that is clearly delineated (ideally in Chinese if there is a chance the contract will be disputed in a Chinese court), and excruciating detail. In addition, a good contract should consider dispute resolution such as the location or jurisdiction of where the contract dispute will get resolved. Finally, a good contract should have a liquid damage clause (also known as "contract damages" in the Chinese legal system), which is defined as monetary compensation for a loss, detriment, or injury to a person or a person's rights or property, awarded by a court judgment or by a contract stipulation regarding a breach of contract.

Clarity, prevention, and enforcement are three reasons for having a good contract, according to Mr. Harris. "Drafting a good contract in Chinese will provide tremendous clarity" with respect to the expectations for all parties named in the contract. Regarding the latter two reasons, having a good contract will present an indication to the other party of your intent to sue to have the contract enforced if there is a violation of any term clearly set forth in the contract. And with respect to judicial corruption and the enforcement of contract, Mr. Harris noted that not all Chinese judges are corrupt despite the reputation otherwise.

The final point that I wish to cover is China does not have a discovery process similar to what is found in the American legal system. In the Chinese court system, one party cannot ask questions of the opposing party nor can you compel the other side to produce any documents. Mr. Harris recommended that "as you are drafting your document, you will need to be planning for which documents you will need" so that you can be victorious if you decide to litigate in a Chinese court. "On the plus side, cases can move very quickly."

While I will not address them here, I should note that Dan Harris' presentation covered arbitration options outside of China (e.g., Hong Kong, Singapore, Vancouver, and New York) as well as options within China through the China International Economic and Trade Arbitration Commission (CIETAC).

I found this presentation informative and I encourage any company looking to conduct commercial transactions in China to watch the webinar in its entirety. In future posts, I will discuss additional webinars produced by AmCham Shanghai, through its SME Center, in collaboration with the U.S. Commercial Service.

What tactics have you used to remedy business disputes in China?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

Japan's Importance in the Future of Asia

While it has been 12 years since I conducted any business transactions in Japan, I hold fond memories of my trips to the East Asia island country and warm interactions with the Japanese people. In addition, as a resident of the state of Washington, I have come to appreciate the close relationship the Pacific Northwest has with Japan. Therefore, I was quite interested in attending the "Update on Japan and Role in Asia: Japan's importance in the future of Asia" conference on Mar. 31st, 2016 in Seattle, Wash. Sponsored by the Japan-America Society of the State of Washington (JASSW), this conference brought together Japan's foremost researchers and top political minds in the areas of economics, geopolitics, and international relations to discuss the current state of the country and projections for Japan's role in Asia's future. This post highlights two of the presentations made during the half-day event, which was comprised of three excellent speakers and a panel of four highly accomplished individuals.

Daisuke Karakama, Chief Market Economist for Foreign Exchange at Mizuho Bank, served as the first speaker with his presentation, "Abenomics and the Japanese Economy." He noted that "Japan has been suffering from low growth for two decades." The country's annual average real gross domestic product (GDP) rate has fallen from 4.7 percent in the 1980s to 0.8 percent in the 2000s. Furthermore, nominal GDP in 2012 at 475.1 trillion yen was the same in 1991. And while Japan's Consumer Price Index has increased 0.3 percent annually since 1990, the Urban Land Price Index has declined by 4.4% during the same period resulting in a drop of 65 percent over the past 25 years.

Mr. Karakama then provided an overview of economic policies advocated by Japan's Prime Minister Shinzō Abe, which are commonly known as "Abenomics." The three arrows of Abenomics include fiscal stimulus, monetary easing, and structural reforms. Mr. Karakama provided some indication that Abenomics is working such as Japan's unemployment rate fell to its lowest level since 1997 at 3.3 percent, the ratio (1.17) of job offers to applicants hit an 18-year high in 2015, and the Nikkei 225 Average reached its highest level since 1994.

Certain economic indicators are getting worse during the past two years of Abenomics, according to Mr. Karakama. For example, the rate of increase real wages (year-over-year) has gone from -1.0% to -2.2%, the ratio of non-regular staff increased from 35.6% to 37.9%, and the percentage of households with no savings increased from 26.0% to 30.4%.

Photo of Tokyo and
Mount Fuji: JASSW

Japan's economic recovery is stalling, Mr. Karakama explained. One cause for the stalled recovery is weak demand for Japanese goods by China as the Middle Kingdom's economy is experiencing a deceleration. While not as high as Malaysia's 8.4 percent or South Korea's 5.4 percent, value-added exports to China represents 2.2 percent of Japan's GDP.

However, Mr. Karakama seemed cautiously optimistic about the future of Japan's economy citing a continuing trend of declining unemployment rate and a gradual increase of active job opening-to-applicants ratio. Moreover, real wage income for Japanese workers will continue to increase at a solid pace due to the rise of employment of women and seniors. He also said the following three factors the Japanese economy will achieve a growth rate of one percent in FY2015: Support from monetary policy by a continuation of monetary easing due to the moderation of inflation, support from fiscal policy through the postponement of a further consumption tax hike coupled with implementation of emergency economic stimulus measures, and support from the low price for crude oil.

Noting that Tokyo, both the capital and largest city of Japan, will host the Games of the XXXII Olympiad (2020 Summer Olympics), Mr. Karakama said Olympic-related investments will push the GDP up even further through capital investments of JPY10 trillion by four Olympic-related sectors (services, real estate, transportation & communications, wholesale & retail). As a result of hosting the Summer Olympics, Japan's growth rate will improve to mid 1% by 2020.

Mariko Kawano, Professor of International Law at Waseda University presented "Regional Security and the Law of the Sea," which addressed maritime security and maritime disputes in Asia, the role of international legal rules in maritime disputes, the settlement or management of maritime disputes and the rule of law, effective and stable utilization of marine resources in disputed maritime areas, and the importance of the regional cooperation in the process of the settlement or management of maritime disputes.

Dr. Kawano presented three basis features of the dispute in the South China Sea, which contains a crucial shipping lane and high potential of marine resources, among China, Indonesia, Japan, Malaysia, the Philippines, and Vietnam. China's claim on the basis of the so-called nine-dash line for maritime features and maritime areas (see left map), a co-existence of the claims of several coastal states, and an accumulation of unilateral acts of coastal states to manifest or enhance their claims and entitlements.

Citing an op-ed that suggests the Association of Southeast Asian Nations (ASEAN), a political and economic organization of ten Southeast Asian countries, remain neutral on the South China Sea dispute, I had the opportunity ask Dr. Kawano if she agreed with this opinion. Or should ASEAN, together with India and Japan, join in a united effort to condemn China? While she refrained from providing a direct opinion, Dr. Kawano noted territorial disputes in Africa involved the support of countries that not have a direct claim in the dispute, but had an economic interest in seeing the dispute settled in favor of the claimants.

While this conference produced excellent information about the important role Japan has played in the geopolitical arena since the end of World War II, it is still unclear what role the country will play in Asia's future. It should be recognized that Japan is the world's fifth largest economy after China, the European Union, the United States, and India. However, for Japan to maintain its importance in Asia, it must address its domestic issues such as an ageing population, improving sexual equality (where the country is bottom of the rich world in most rankings), and increasing industrial production. For now, Japan will continue to play an important role in regional security and stability.

What is your view of the future of Japan's economy? Will the dispute in the South China Sea get resolved amicably?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Due Diligence Checklist for Investing in a Business

Entrepreneurs with a startup often ask for my advice on how to seek funding from investors. I find they often fail to understand the due diligence process. To help entrepreneurs prepare for the due diligence process, I created a presentation, "Due Diligence Checklist for Investing in a Business," which is segmented into six parts: (1) General Corporate Compliance/Organizational Information, (2) Financial and Tax Information, (3) Employment and Labor Matters, (4) Business Contracts and Commitments, (5) Intellectual Property, and (6) Equipment and Personal Property.

Entrepreneur magazine, through its "Small Business Encyclopedia," defines 'due diligence' as "a reasonable investigation of a proposed investment deal and of the principals offering it before the transaction is finalized to check out an investment's worthiness; generally performed by the investor's attorney and accountant."

I hope this post will provide entrepreneurs with insights into the verification requirements investors may have when assessing the risks of investing in a business. What additional information do you recommend adding to the checklist? Do you have any recommendations or lessons learned on utilizing the due diligence process effectively?

Due Diligence Checklist for Investing in a Business from Aaron Rose

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

China's Emerging ODI Focus: Agriculture, Financial Services and Real Estate

Photo: EIU

In the previous post, I discussed a few key points from a webinar produced by The Economist Intelligence Unit (EIU) that focused on China's recent economic developments, regional opportunities and risks, overseas investment, and an overview of the EIU's Access China service. Some key points from EIU's report, China Going Global Investment Index or GGI, which was first published in 2013 and updated annually "to help Chinese investors to understand the evolving opportunities and risks ahead," are included in the webinar. The latest update to the index ranks the attractiveness of 67 major economies to Chinese firms and provides a framework to evaluate investment prospects on the country level based on 70 indicators. This post explores certain findings from the GGI for 2015, which the EIU makes available in English and Chinese through its website.

The report's introduction explains: "Since Chinese outbound direct investment (ODI) took off in 2005, annual outflows have grown at an average rate of 35% per year, reaching US$123bn in 2014" making China the world's third largest investor, only behind the United States and Japan. "China's share of global ODI stock remains small as it is still in early stage (China 2.3%, US 22% and Japan 4.5% in 2013)," according to the Organisation for Economic Co-operation and Development (OECD). "Fast growth," however, "is expected in the coming years with strong government support, which should increase China's share rapidly."

The GGI notes that agriculture ODI grows rapidly despite being in a early stage. "As China becomes a major food importer, its food security strategy requires securing sources of import." This is exemplified through WH Group's acquisition of U.S.-based Smithfield Foods, Inc., the largest pork processor and hog producer in the world, for US$4.7 billion in 2013, which is the biggest agriculture ODI to date by a Chinese company.

Additionally, according to the report, "Agricultural ODI has been diverse, ranging from small demonstration rice fields in Africa, to massive soybean plantations, processing facilities, and ports in Brazil. Adding new indicators for agriculture has gained scores for countries with abundant agricultural resources and sophisticated farming production processes, such as US (corn), Australia (beef), Argentina (soybean), and New Zealand (dairy)."

 

The EIU webinar produced on Feb. 25, 2016 said China's emerging ODI focus include financial services and real estate. These sectors, according to the GGI, "have attracted new interests from Chinese investors." Moreover, "Chinese ODI in financial intermediations was five times as much as that in real estate in 2012, but the latter sees faster growth and closes the gap quickly," which is reflected in the chart to the right.

What is causing an increased interest in foreign property by Chinese investors? The slowdown in China's domestic real estate market. "A report by MSCI, a US-based finance company, shows that global property market delivered a return of 9.9% in 2014, and that in the US was 11.6%, when the return in Chinese property market was only 7.1%," the GGI explains. Furthermore, "Chinese investors usually avoid emerging markets in this field due to high currency risks, and their favorite objectives are office buildings, retail stores and hotels, according to a 2014 study by Cushman & Wakefield, a US real estate services company. US is one of the most popular destinations for property investments."

The report recommends that in order "for Chinese ODI to keep up its momentum, firms will need to approach investment in a more sophisticated manner. In the past, Chinese investment exhibited a strong pro-cyclical pattern—firms bought natural resources when its economy was growing fast and, as a result, they found themselves often paying peak prices for commodities. A counter-cyclical approach and long-term thinking will be the key to success for future ODI."

I also support the suggestion that "Chinese investors and authorities ought to be aware of challenges lying ahead. Although more markets are opening to Chinese investors, anti-China sentiment has also been observed. Poor labor conditions and a reliance on imported Chinese workers have caused tensions in some countries, while a less-than-stringent approach to environmental management has also caused problems for Chinese companies." In addition, the report accurately states that "a failure to mitigate national security concerns has thwarted Chinese investors in some markets."

The GGI's concluding paragraph says: "This means that investors should have a well-thought-out plan before making the ODI decisions and be sensitive to the contours of the market in which they are investing. The scope for an increase in market access is limited, with bilateral investment treaty negotiations with the US and EU yet to bear fruit, and an international debate still ongoing over whether China should be given market economy status."

Finally, the report correctly advises that "Chinese companies need to focus clearly on the opportunities and risks already available. A better investment promotion regime is needed, along with diplomatic efforts."

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

China's Emerging Cities, Outbound Investment and Macroeconomic Development

The Economist Intelligence Unit (EIU), the research arm of The Economist Group for business executives, produced a webinar on Feb. 25, 2016 titled "Emerging cities, outbound investment and macroeconomic development in China," which provided an overview of recent developments in China, regional opportunities and risks, overseas investment, and an overview of the EIU's Access China service. While I recommend watching the one-hour webinar in its entirety (including downloading the PowerPoint presentation), there are a few points worth discussing in this post.

"Emerging cities, outbound
investment and macroeconomic
development in China" -- slide 5

The webinar started with explaining significant regional discrepancies in growth performance exist. For example, as represented in slide 5, the provinces of Heilongjiang, Liaoning, and Jilin in China's northeast, along with the province of Shanxi, experienced an economic growth change of less than six percent in 2015. The northeast provinces contain a large number of state-owned enterprises (SOEs), primarily in heavy industries, which are feeling an adverse impact of China's transition from an export-driven to a consumer-driven economy, as well as weaker external demand for heavy industry products by Northeast Asian countries. Another factor hurting the economy of China's northeast provinces is high unemployment and minimal wage growth continues to drag on local consumption.

Conversely, central China's Chongqing, Guizhou, and western China's Tibet experienced economic growth of more than 10 percent last year. Manufacturing output growth is resilient in central China, which can attribute some of its growth on the relocation of industrial enterprises from China's coastal regions and a stronger presence of private sector manufacturers generally. This growth is lifting levels of productivity and has experienced an improved easiness of doing business. The webinar also noted growth held up better in consumption, private-sector oriented provinces located primarily in China's coastal region despite the departure of some industrial enterprises to the central region.

"Emerging cities, outbound
investment and macroeconomic
development in China" -- slide 17

Another point the webinar covered was outward direct investment (ODI) from China is catching up with foreign direct investment (FDI) as illustrated in slide 17. While China's ODI flows reached over US$160 billion in 2015, China's share of global ODI stock was only 2.3 percent. Chinese ODI interest is becoming more diverse with targets in the services and agriculture sectors.

Moreover, according to slide 21, China's investment flows vary on a sectoral basis. For example, the top three sectors for FDI are manufacturing, real estate, and leasing and commercial services. Whereas, leasing and commercial services, wholesale and retail trade, and mining are the top three sectors for China's ODI. Emerging ODI focus include financial services and real estate.

"Emerging cities, outbound
investment and macroeconomic
development in China" -- slide 21

Lastly, for those whom are interested in doing business in China, I recommend utilizing EIU's Access China service, which is described as a "unique service designed to help your business succeed in China. It is the only single source of data, analysis and forecasts for every province, prefecture and 287 of China's largest cities."

For those of you currently doing businesses in the world's second largest economy, what market intelligence services do you recommend?

Aaron Rose serves as President and CEO of ROI3, Inc., a Seattle, Wash.-based company that empowers people in emerging economies through innovative, technology-based solutions. He is also the editor of Solutions for a Sustainable World.

Verified Credential Management for the Professional World

The previous post discussed my experience of attending the 9Mile Labs Demo Day or "Milestone9" where participating companies (cohort) present their idea to an audience of investors, mentors, executives, community partners, and the greater entrepreneurial community. 9Mile Labs is an Seattle, Wash.-based accelerator focused on enterprise or business-to-business (B2B) software and cloud technologies. In writing the previous post, I found the notes from my attendance of Milestone9 on May 14th, 2015.

The nine companies participating in Cohort IV include:

1. Camp Native -- Marketplace to list, discover, and reserve campsites;
2. Fasterbids -- Remodel pricing in seconds, saving time, saving money;
3. Kodu Care -- Kodu Care brings patient success management to mental health;
4. Mowdo -- On-demand app and pricing engine for the 74B lawn care industry;
5. Pingle -- Verified credential management for the professional world;
6. Qalendra -- Mine, fuse and structure data from multiple sources to generate predictions and insights for the travel industry;
7. SalesPrepper -- A salesperson's personal research analyst;
8. Unoceros -- We turn mobile phones into datacenter-like-instances; and
9. Variat -- Quality control solution optimized for medium-sized manufacturers with global aspirations.

While each company presented a unique solution to a particular problem, I enjoyed the presentation made by Pingle, Inc. Founded by Kristian Alcaide and RedWolf Pope, Pingle "uses a patent-pending machine learning verification engine to instantly provide credentials for professionals in maritime, construction, medical and other industries," according to an GeekWire article that includes an interview with Mr. Pope.

In his interview, Mr. Pope, who also serves as the company's chief executive officer, explained that "Pingle verifies peoples credentials, lets employers check compliance, and offers renewal options when they expire. So we facilitate communication with workers, employers and schools, but we also verify everyone and each credential, so that trust is added to the equation."

One of Pingle's value proposition is saving time as the current system of verifying credentials is a painstaking manual- and telephone-based process that may take weeks. Saving money is another value of Pingle's service as the "costs of a bad hire or expired credentials can cost hundreds of thousands of dollars," according to the company's website. Moreover, "Current tracking solutions are overly complex, costly and add more work to the HR department."

Given the challenges HR departments may have in maintaining compliance in managing and verifying the credentials of their current or prospective employees, or professionals needing to manage their credentials, there is certainly a market opportunity for a service like Pingle's.

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.