Uhy international business issue 26

International Business
ISSUE 26

2–5 7–8 9 – 12
Let’s go international The Andean Three: An China’s declared backing
– but where? economic powerhouse for for SMEs may open doors
Latin America to foreign investors

The network
for doing
business

2 UHY INTERNATIONAL BUSINESS

But places like Georgia (impressively at

Let’s go international No 9) – and other economies which have
most improved their ease of doing

– but where? business over the past year – may give an
indicator of increasingly favourable
regulatory terms for future investment.

Each year the World Bank creative, looking for places to innovate, to ‘Most improved’ economies
pinpoints statistically where in the take sensible risks, to meet new
world it is easiest to do business. challenges and to benefit from markets Top 10 ‘most improved’ economies
The bank’s analysis is used about to evolve. 2013 for ease of doing business
sometimes as a starting point to
determine where cross-border 1 Poland
development of a product or Key measures in the survey 2 Sri Lanka
service is most appropriate. Or, it ‘Ease’ of doing business is measured in
is sometimes used as evidence to 3 Ukraine
the World Bank survey by the number of
support a strong hunch that regulations applied to small to medium- 4 Uzbekistan
business success is up for grabs, sized companies (SMEs) and the ease of
barring a few barriers. 5 Burundi
compliance across the 10 topic areas.
Significantly, given the potential of new 6 Costa Rica
The World Bank Doing Business Guide
2013 – the 10th edition – benchmarks markets in the developing world, ‘getting 7 Mongolia
185 economies against 10 topic areas electricity’ is one of the key measures.
8 Greece
(such as starting a business, getting credit,
Top countries for ease of 9 Serbia
paying taxes and enforcing contracts).
Contributors include accountants, lawyers,
doing business
10 Kazakhstan
freight forwarders and government In the overall league of the top countries
officials. There can be little argument for ease of doing business, the more
Poland tops the table of ‘most improved’
therefore that the report is a near-global, risk-adverse investor may be drawn to
economies. “Poland improved the most in
comprehensive measurement of a locations that are ‘safer bets’, such as
ease of doing business through four
regulatory quality, and a worthy piece of Singapore at No 1 (Singapore has topped
reforms – easier to register property, pay
armoury when deciding where to invest. the global ranking for the past seven
taxes, enforce contracts, and resolve
years) or New Zealand at No 3.
The survey is particularly pertinent in insolvency by updating documentation
today’s global economy because tighter requirements for bankruptcy filings,” says
Top 10 countries 2013 for ease ,
budgets make the need to choose the Wiesław Les niewski, of UHY’s member
of doing business
right international opportunity, and get it firm in Poland, Biuro Audytorskie Sadren
right first time, even more imperative: it’s 1 Singapore Sp. z o.o. “Poland also introduced a new
also pertinent for investors to have the civil procedure code that, along with an
2 Hong Kong SAR, China
local knowledge and forethought so they
increase in the number of judges,
can work fast as new opportunities are 3 New Zealand
reduced the time required to enforce
about to develop – and, in some cases, 4 US commercial contract.”
pull out just as quickly as they are about
to evaporate. 5 Denmark
No 2 in the ‘most improved’ rankings is
6 Norway Sri Lanka – the first time in seven years of
The 2013 report, published mid-October
2012, confirms what investors would 7 UK the survey that a South-Asian economy
expect – that doing business remains has featured among the ‘best improvers’.
8 Republic of Korea Significantly, too, Greece – somewhere
easiest in high-income, developed
economies. But that’s where most 9 Georgia investors may not currently have top of their
competition is also found – and, anyway, list – has jumped these rankings significantly
10 Australia
investors are often more adventurous and to eighth place. Driven by its economic crisis,

UHY INTERNATIONAL BUSINESS 3

Greece has implemented regulatory
Significantly, given the potential of new markets
reforms to ease doing business “at a
greater pace in the past year than in any in the developing world, ‘getting electricity’ is one
of the previous six”, says the World Bank.
of the key measures.
“Despite the present negative media
publicity we are receiving, Greece has
taken radical legislation, regulation and
Uzbekistan has improved access to and Poti. “These one-stop-shops for
organisational steps to improve and
credit information by guaranteeing trade clearance processes are open all
facilitate investors interested in investing
borrowers’rights to inspect their personal day, every day, allowing traders to
in Greece, “ says Stavros Nikiforakis, UHY
data. And it has reduced the time to submit customs documents and
Axon Certified Auditors, based in Athens.
export by introducing a single window for complete other formalities in a single
“With ‘fast track’ law, the Bilateral
customs clearance and reduced the place,” says the survey.
Committee of Strategic Investments
number of documents needed for each
(BCSI) has been formed and through it
import transaction.
the procedures have been simplified and
centralised to ‘one shop’. This allows Most challenging locations
Uzbekistan has also strengthened its
investors to concentrate on operational insolvency process by introducing new
issues whilst the issues relating to ‘Most challenging’ locations 2013 for
time limits for insolvency proceedings and
authorisations and approvals are executed ease of doing business
new time limits and procedures for a
by civil servants of the appropriate second auction, and by making it possible 1 Central African Republic
government department. for businesses to continue operating
2 Chad
“The BCSI is responsible for considering throughout liquidation proceedings.
the eligibility of the proposed strategic 3 Congo
Costa Rica is the only economy in Latin
investments based on the criteria of: 4 Eritrea
America or the Caribbean in the top
• Feasibility of the project 10 ‘improvers’. Costa Rica introduced a 5 Democratic Republic of Congo
risk-based approach for granting
• The investors’ solvency 6 Venezuela
approvals for business start-ups and
• Transfer of knowledge and technology established online approval and tax 7 Guinea-Bissau
• Forecast increase in employment payment processes. But Colombia, while
8 Guinea
• eripheral or local development of
P outside the top 10 ‘improvers’, gets
the country special mention for implementing 9 Cote d’Ivoire
25 regulatory reforms over the past
• Subsidies for the enterprise 10 Niger
eight years.
• ompetitiveness in the national economy
C
• Protection of the environment “Improving business regulation is a UHY member firms operate in more than
challenging task,” says the World Bank, 80 countries globally – across almost all
• Saving of energy.
“and doing it consistently over time even the World Bank listings – and offer
Ukraine (at No 3 in these ‘most improved’ more so.” Yet, it says, some economies support to investors through local
rankings), Uzbekistan (No 4) and have achieved considerable success since knowledge and an in-country presence,
Kazakhstan (No 10) show how the 2005 and a few stand out as exceptional
whatever local regulations are in force.
Eastern European region is beginning to within their regions – Georgia, Rwanda,
provide a more favourable environment Colombia, China and Poland. But perhaps that level of support is
for investment. particularly valuable in the more difficult
As an example, the survey highlights
Georgia’s 35 reforms, which have jurisdictions for starting a business, as
Sarvarkhon Karimov, UHY Tashkent LLC,
Uzbekistan, says that his country has followed “a relatively balanced shown in the World Bank survey – such as
made starting a business easier by regulatory reform path”, since 2005 – in Angola (ranked 172) and Venezuela,
introducing an online facility for name such as its moves to make trading across which ranks 180 in the ease of doing
reservation and eliminating the fee to borders easier by introducing customs business stakes out of the 185
open a bank account for small businesses. clearance zones in cities such as Tbilisi jurisdictions surveyed.


“Angola is in a situation of political and Venezuela is expected to remain one of the least-
economic stability, and is one of the
fastest growing economies in the world, friendly places to do business over the next few
essentially due to its natural resources,” years. In fact, Venezuela is referred to in the World
says Armando Parades, UHY A Paredes e
Bank survey in the same context as Zimbabwe.
Associados-Angola Auditores e
Consultores, based in Luanda. “The
Angolan authorities have been trying to
improve the country’s business
environment with significant recent Sub-Saharan Africa Enforcing contracts has been perceived by
changes to private investment laws and a UHY member firms are also building a still entrepreneurs as a problem in China –
comprehensive tax reform. more extensive presence in Africa, both in although the mass market opportunities
the north and in sub-Saharan Africa, for consumables make investors try and
“Although bureaucracy remains high, try again. The problem with India is that it
which gets a special mention in the World
infrastructures are scarce and the justice has a tendency towards bureaucracy and
Bank survey for its record number of
system is inefficient, continuing red tape, and there is lack of political
reforms – a region where less than 10
improvements have been happening consensus on important issues such as
years ago little attention was being paid
throughout the economy as a whole and business liberalisation. Reasons to invest,
to the regulatory environment.
the outlook for the future is very positive. however, are the stable democratic
Although obstacles are still high, investing Among the 50 global economies with the environment, the huge market and the
in Angola is considered very rewarding, biggest improvements since 2005, the availability of skilled manpower –
largest share – one-third of them – are in attractions particularly for investors in
because economic growth has created
sub-Saharan Africa. Burundi is ranked No ‘big-number’ sectors such as technology,
opportunities in most economic activities.
5 in the ‘best improvers’ table (for reforms telecoms and airports.
If the country continues the trend towards
the reduction of business barriers its to starting a business, construction
Russia stands out as an environment with
permits, registering property and trading
attractiveness as an investments doing business issues over ‘rule of law’
across borders) but top billing in the
destination will grow even further.” and excessive government control.
World Bank survey goes to Rwanda (for a
“Foreign investors are wary of lack of
By comparison, the Venezuelan whole raft of entrepreneurship reforms),
reform to eliminate risks for their
president’s victory last October opened which has been the top improver in
investments,” the World Bank has said
the way for further radicalisation of his sub-Saharan Africa since 2005.
previously. But reasons to invest in Russia
agenda that economists predict will lead include planned privatisation of
BRIC countries
to further tough economic challenges: government shares in oil, telecoms and
Two of the BRIC countries (Brazil, Russia,
Venezuela is expected to remain one of transport, and huge undeveloped territory
India, China) rank among the top 50
the least-friendly places to do business rich in natural resources.
improvers in the survey: China and India.
over the next few years. In fact,
They were further up the scale in earlier Some parts of Brazil make good
Venezuela is referred to in the World Bank
years of the survey, but in the overall global investment locations and the country has a
survey in the same context as Zimbabwe
table for ease of doing business they thriving consumer market at all socio-
– “a deteriorating business environment
currently have quite low rankings: for economic levels. The oil and gas sector has
where measures add to the complexity example, China is at No 91, Brazil at No huge potential. But obtrusive labour laws
and cost of doing business or undermine 130 and India at No 132 – suggesting are a problem for investors, the World
property rights and investor protection”. perhaps that they have not sustained Bank has said, and obtaining certain
regulatory reforms that would have placed operating licences can take too long.
All of which makes the work of UHY firm,
them consistently among the top-runners.
UHY Servicios Legales Tributarios, S.C., Diego Moreira, UHY Moreira-Auditores,
based in Caracas, still more challenging BRIC countries are not prominently Brazil, says his firm can help facilitate
– and more valuable to investors looking featured in the 2013 World Bank survey, these bureaucratic processes. “For
to the probable medium-term but previous World Bank survey reports example, we can help alleviate
opportunities in that country when a new have painted a picture of why the BRICs compliance with obtrusive labour laws by
political regime may be in power. appear not to fare so well in the survey. providing consultancy on human resource


(HR) practices as well as providing the World Bank stops short of measuring regulation tracked by the World Bank
outsourced HR management,” he says. economic stability, corruption or other survey over the past year than any other
relevant factors affecting markets, such as – starting a business. The average time to
“On obtaining operating licences, UHY the consumer’s struggle out of poverty. start a business worldwide has been
Moreira can reduce the timeframe Investors need to look elsewhere. reduced significantly, from 50 days to 30
required to obtain several types of licence days, and the average cost from 89% of
(export/import, sanitary, etc) as well as For corruption indicators, another report, income per capita to just 31%.
perform the bureaucratic processes for the Transparency International Corruption
each type of licence. Perceptions Index, is a useful guide. In it, But perhaps the “most exciting finding”,
among the BRIC countries, Russia tops says the World Bank, is the “steady
“For investors interested in the oil and gas the league (perceived to be the most march from 2003 to 2012 towards better
sector, UHY Moreira can assist foreign corrupt), with India some way behind in business regulation across the wide range
firms register in the all-important second – both outstripping Brazil and of economies included”. With a handful
Petrobras suppliers registry. (Petrobras is China, with South Africa perceived as the of exceptions, every economy covered by
the state-owned oil and gas company.) least corrupt location in which to do the survey has narrowed the gap in
Such registration is key not only for business. In countries overall where UHY business regulatory practice with the top
obtaining contracts with Petrobras but member firms operate, New Zealand global performance measured by the
also for being considered as a ‘player’ in comes top as the perceived least corrupt indicators. “This is a welcome race to the
the local oil and gas market. nation, while Venezuela comes bottom. top,” says the bank.

“Furthermore, through our attest services Another index could also be taken into But does all this matter? Does regulatory
(audits, due diligence, limited-scope reviews) account when deciding where best to quality affect the mindset of investors?
we can significantly reduce the risk that invest: The Legatum Prosperity Index Yes, it does, says the World Bank. In a
foreign investors face when acquiring measures countries’ prosperity, based on separate study, the World Bank estimates
companies in Brazil or when establishing both quality of life and material wealth. that, on average throughout all global
joint-ventures or other types of corporate This measure is pertinent because its economies surveyed, a difference of 1%
associations with Brazilian firms. Such risk research shows that entrepreneurship – in regulatory quality as measured in the
mitigation factors are of outmost importance encouraging new ideas and opportunity survey is associated with a difference in
due to widespread labour litigation and – correlates more closely to a nation’s annual foreign direct investment inflows
tax-related legal contingencies.” overall prosperity than any other factor. of USD 250-500 million.
Top of that league is Norway, followed by
The other country commonly aligned Matched with specialist advice from experts
Denmark, Australia, New Zealand and
with the BRIC nations, South Africa, has on the ground, and trusted local partners,
Sweden. Among the BRICs, China has
been credited by the World Bank with the World Bank’s guide and other indexes
improved in the prosperity rankings while
encouraging investors; its natural may confirm an investor’s insight into a
other countries have changed in their
resources are in abundant supply; the potential economic advantage and point to
ranking relatively little.
economic structure is ‘first-world’; the further new opportunities; they may
country is already doing strong business question an investor’s ambition (such as to
compared with other BRIC nations; and Key survey indicators dive into a huge, new-growth market in a
the jurisdiction offers a credible jurisdiction that’s politically unstable); or, at
One key finding of the World Bank survey is
connector to one billion consumers on the very least, they may enable would-be
that European economies in fiscal distress
the African continent. Difficulties investors to assess more accurately the risks
are making efforts to improve their business
highlighted are comparatively minor, involved when going international.
climate, and this is beginning to be
such as the process for registering for reflected in the indicators being tracked.
VAT because of significant amounts of Part of the solution to high debt, says the
fraud (vendors claim and are paid VAT World Bank, is the recovery of economic
refunds then disappear). growth, and there is broad recognition that
creating a friendlier environment for
entrepreneurs is central to this goal.
Other investment factors
Measuring regulatory ‘red tape’ in the Policy-makers worldwide have given
lifecycle of an SME is all to the good, but more attention to one area of business


The average time to start a business worldwide has been reduced significantly,
from 50 days to 30 days, and the average cost from 89% to just 31%.

Brazil (Hidral Elevadores DO), and in Hidral previously used the services of a
Moscow, Russia (Hidral RU). Its sizeable and well-known Spanish law firm,
distributors are in France, Lebanon and together with its partner company in
Russia. Over the last decade the Russian Brazil, which was one of Brazil’s top law
market has been one of Hidral’s main firms. The experience was not satisfactory
and Hidral transferred its business to UHY
export successes, as well as the region
Fay Co “to work with a firm that allows
producing its biggest growth.
the development of a closer relationship
Hidral has an outstanding position in its with communication at the top, as it
allows a swift and efficient decision-
UHY member firms help mid-size market sector: its products are
making process”, says Javier Martínez,
companies to internationalise. represented in more than 45 countries
Hidral’s marketing sales director. “We
and its export sales represent 40% of
For example, UHY’s member firm in Spain, also needed a firm with a clear focus on
total turnover. developing international business.
UHY Fay Co, has been working with
Hidral S.A. The company manufactures UHY Fay Co worked with UHY’s member “With UHY Fay Co, we value the
passenger and goods lifts and platforms firm in Brazil, UHY Moreira - Auditores, to transparency in the valuation of its
which are sold exclusively to other lift establish the company’s manufacturing services, the fast and efficient
manufacturers, installers and plant in Brazil, Hidral’s first such venture development of the engagements, and its
maintenance companies to complement internationally, and UHY Fay Co’s legal proactive follow-up of the different
their own product range. projects,” says Javier Martínez. “We also
team worked with UHY Yans-Audit LLC,
based in Moscow, to establish the value very highly the fluent
With 165 employees at two
communication between the different
manufacturing plants in Seville, Spain, company’s subsidiary in Russia. UHY
UHY offices involved in the engagement.”
Hidral has a turnover of Euro 18 million Yans-Audit is now managing accounting,
(USD 25.8 million). The company also has tax compliance and contracting services for Hidral S.A.
a subsidiary at Iandaiatuba, São Paulo, the Russian subsidiary. www.hidral.com

Details of all UHY member firms, their locations and their local financial and business advisory services for investors
going international are available on the UHY website: www.uhy.com. Doing Business Guides for all UHY locations can
be found under the publications section of the UHY website.
entrepreneurs who chose to leave their education and new talent discovery
previous industries and dedicate their methods. The corporation builds and
careers to bettering the lives of children invests in companies that foster the
around the world. development of prosperous societies.

Their first social enterprise in education UHY Hacker Young in London co-ordinates
was the creation of Phorms, a German accounting assignments globally for Noble
school network of 14 schools that Education Network, provides audit services
increased access to children of all for UK operations, and provides consultancy
socio-economic backgrounds to private for the network’s growing international
In the UK, UHY Hacker Young has education. To do this, the team managed expansion. UHY’s group of member firms in
been supporting Noble Education a system in which wealthy families directly Germany, based in Berlin, UHY Deutschland
Network as it expands its network of subsidised tuition for children from AG, provides services to German
private primary and secondary disadvantaged families. subsidiaries, and its member firm in
schools. Currently, the network has Vietnam, UHY Audit Advisory Services
The network has since joined forces with Limited, and in Austria, UHY-Tax
schools in Germany, Austria, Portugal
the Richard Chandler Corporation, a Wirtschaftstreuhand GmbH, have also
and Vietnam (Ho Chi Minh campus is
pictured above). business building group based in provided services to the client.
Singapore, which invested several million
The UK-registered company was founded euros in the venture to create schools Noble Education Network
in 2003 by three successful German globally that offer high-tech private www.nobel-education.com


The Andean Three: An economic
powerhouse for Latin America

Chile, Colombia,

and Peru all have

market-friendly,

fiscally prudent

democracies that

favour free trade

and investment.

Set among the Andes mountain and last year their stock exchanges The three nations posted balanced
range, stretching from the merged to form the Integrated Latin budgets or healthy surpluses from 2005
Caribbean to Patagonia, in an American Market. This bourse boasts through to 2008. After running deficits in
area of breath-taking vistas, are Latin America’s second-largest market 2009 as a result of the global recession,
what have become known as the capitalisation, after Brazil’s Bovespa, and Chile returned to a balanced budget in
‘Andean Three’. has the largest number of listed 2010, and Peru ran only a 1% deficit.
companies. The three countries are also Brazil and Venezuela, by contrast, have
These three dynamic, and often run significant budget deficits since 2006.
overlooked, economic powerhouses – planning to connect their electricity grids.
Chile, Colombia and Peru – already have a The Andean Three are considered to
In addition, Chile, Colombia, and Peru all
combined GDP equalling 65% of that of present much lower macroeconomic,
have market-friendly, fiscally prudent
Mexico – and their economies are forecast political, labour, and foreign-trade risks
democracies that favour free trade and
to grow faster than both Mexico’s and than most other Latin American nations,
investment. Chile is ranked 11 among all
Brazil’s over the next five years, largely according to rankings by the Economist
nations in terms of openness to trade on
because of rising foreign direct investment. Intelligence Unit. Tax rates and
the Heritage Foundation’s Index of competition policies are also more
But that’s not the only reason why the Economic Freedom, while Colombia and business-friendly.
Andean Three should rank high in the Peru have moved up in ranking to 45 and
strategic planning of companies Such considerations are fundamental for
41 respectively. By contrast, Brazil ranks
expanding internationally, says global companies making large, long-term ‘bets’
only 113 and Argentina 138.
consultants The Boston Consulting Group. in major regional sectors such as mining
“The sound macroeconomic management and energy resources.
“Increasingly, Chile, Colombia and Peru are of the Andean Three makes them
being viewed as an economic bloc serving Although the Peruvian government is
particularly appealing to investors,” putting greater emphasis on social
as a new driver of regional dynamism in
says The Boston Consulting Group. The inclusion, its economic policies have
Latin America,” say the consultants.
Colombian economy has expanded by an mainly stayed on course. The policies of
They have already forged an alliance average of 4.6% annually over the past the Andean Three stand in sharp contrast
binding together their countries’ financial five years. Chile has averaged 5.1% to the leftist populism of Venezuela, the
and commercial markets. They have annual growth and Peru 5.6%. Yet protectionism of Argentina, and the
free-trade and investment agreements, inflation has been kept in check. domestic focus of Brazil.


Investors have rewarded these policies. CorpBanca, one of Chile’s largest Colombia and Peru. Chile’s economy is the
Foreign direct investment (FDI) as a commercial banks, is expected to win most advanced, for example, and is in a
percentage of GDP has risen since 2005 regulatory approval to buy the Colombian good position to attract well-trained
in all three nations and averages 41% for operations of Banco Santander. Meanwhile, business talent, making it a better option for
the bloc. In Brazil and Argentina, by the state-run Colombian energy group, a regional headquarters. Colombia and Peru
contrast, FDI as a share of GDP has Empresa de Energía de Bogotá, acquired are less-developed, but that could create
dropped to 17% and 21% respectively. In 60% of Peruvian gas distributor Calidda in better opportunities for short-term gains.
Venezuela, it plunged from 31% in 2005 2011. Mergers and acquisitions are also
to just 12% in 2010. becoming a trend in industries such as retail, Approach the Andean Three
telecommunications and transportation. differently from other Latin
Capital markets in Peru are also strong, says American markets.
Carlos Sandoval, UHY Sandoval Aliaga y Together, the Andean Three are only 35% The ease of doing business in Chile,
Asociados S. Civil de R.L., Peru. “The of the size of Brazil and with less than half Colombia and Peru, compared with much
corporate bond market in Peru grew that nation’s population. “But the bloc is of the rest of the region, means there is
threefold from USD 1,631 million in 2011 rising on the radar screen of both less pressure on foreign companies to
to USD 5,149 million in 2012,” he says. multinationals and local companies as a find local partners, cultivate government
“The total Latin American region has grown driver of Latin American growth,” says connections, and worry about capital
65%, with Brazil at the top of the list, but it Samuel Rozo Monsalve, UHY Auditores expenditure risks.
is Peru which has grown the most.” These Consultores S.A., Colombia. Their consumer
investments are funding infrastructure markets are at least as thriving as those in Take advantage of the growing
projects and financing growth companies the rest of Latin America. More than 30% links between the Andean
as they expand their operations in Peru and of Chile’s population and 25% of Peru’s Three and Asia.
the region. “There are many companies population climbed out of poverty to the Because of the Andean Three’s
from the US and Europe coming to Peru to lower middle class between 1990 and geographic position and openness to
launch their operations and acquire 2010, making the Andean Three a growing trade, their economies are positioned to
companies in this market,” says Carlos. market for mobile communications, grow as conduits for Asian–Latin
“We advise our clients with mergers and consumer finance and retail. American commerce.
acquisitions, as well as capital-raising.”
The bloc’s strong trade links with the
UHY has local firms in the Andean
The private sector is also an important rapidly growing economies of Asia are
Three countries.
factor, says Ronny Frederick, UHY CEA another attraction. Total trade with Asia
Consultores y Auditores de Empresas, grew by 5% annually from 2005-2009 Chile
Chile. Chile’s LAN Airlines has its main and accounts for around 10% of the UHY Macro Consultores, Santiago
South American hub in Lima, Peru, and three countries’ combined GDP. That is Contact: Juan Marín Hernández
plans another in Bogotá, Colombia, for around double the level of South Email:
example, and Chilean companies such as America’s other big economies, where juan.marin@uhymacroconsultores.cl
Abastible, Gasco, and Lipigas control half trade with Asia has grown more slowly.
UHY CEA Consultores y Auditores
of Colombia’s USD 1 billion liquefied
By seizing opportunities in the Andean de Empresas, Valparaíso
natural gas market.
Three, companies can position themselves Contact: Ronny Frederick
Cross-border mergers and acquisitions strongly in Latin America. But, says The Email: contactos@ceya.cl
within the bloc rose from 16 per year on Boston Consulting Group, they should
average from 2003-2006 to 40 per year keep guidelines in mind: Colombia
from 2007-2010. Peru’s Brescia family, UHY Auditores Consultores
whose interests include banking and Take advantage of the Andean S.A., Bogotá
mining, now owns Chile’s largest cement Three’s economic integration. Contact: Samuel Rozo Monsalve
producer, Cementos Melón, as well as a But keep in mind that there are still Email: s.rozo@uhy-co.com
Colombian maker of welding electrodes. economic differences among Chile,
Peru
The Andrean Three
UHY Sandoval Aliaga y
GDP, 2011 USD 739 billion Asociados S. Civil de R.L., Lima
Real GDP growth, 2006–2011 4.7% Contact: Carlos H. Sandoval
Real GDP growth forecast through 2012 4.9% Email: carlos.h.sandoval@uhyenperu.com
Economic integration • Free-trade and investment agreements
• Integrated stock exchange
Further details of doing business
Average ranking, Index of Economic Freedom 71.7 (Latin America average, 58.5)
in Chile, Colombia and Peru are
Foreign direct investment 41% of GDP
available on the UHY website under
Stock market capitalisation (MILA) USD 550 billion
the publications section: www.uhy.com


China’s declared backing
for SMEs may open doors
to foreign investors

Small-medium sized enterprises specialised and sophisticated” industries • achine tools — as Chinese
M
(SMEs) contribute 60% of China’s and industrial clusters; to upgrade companies continue to upgrade
industrial output and create 80% enterprise management; and to refine technology, reflecting China’s ongoing
of China’s jobs. SME support systems. strength in manufacturing
• usiness services — as the Chinese
B
But for the year just past, Chinese SMEs So what opportunities could this economy continues to develop.
have been experiencing hardships: prospective economic about-turn hold Examples are public relations,
some have been at risk of collapse.
for investors and foreign businesses advertising and specialist financial
Shortages of electricity, capital and
looking to penetrate the Chinese services, such as factoring, private
labour have led them to this
SME market? equity and specialist management
predicament, and soaring costs have
consultancy
made things worse.
Key sectors for • Consumer and personal services

Faced with this indictment of faltering investment success — such as healthcare and medical
growth, the Chinese government’s 12th Some opportunities relate to services, and education
Five-Year Plan contains a key strategy China’s ongoing need to modernise • ptical fibre manufacturing technology
O
specifically in support of SMEs. and upgrade its technology base; • uxury products — such as high
L
According to the plan, the total number
others relate to rapidly growing specification cars for the growing
of China’s SMEs will grow steadily over
consumer markets in the country; consumer market, but also niche
the next five years and achieve an
while others relate to the ongoing opportunities, such as ultra-light
average annual growth rate of 8%.
processes of structural change within aeroplanes, yachts and ski equipment
Five primary missions underpin the plan: the Chinese economy. • ow-carbon technologies —
L
to improve the capacity of establishing environmental products and services,
business and creating jobs; to optimise The most commonly mentioned sectors as the Chinese government
the structure of SMEs; to boost the of business opportunity for foreign increases priorities given to
development of “new, distinctive, SMEs include: environmental protection..


Energy, particularly renewable energy, has
great market potential in China,
according to economic analysts. The
government is taking aggressive measures
to steer the country towards lower-
carbon energy use. Yet China’s energy
use is vast — it is the world’s largest
consumer of energy — and it relies on
coal for two-thirds of its energy needs.

The Economist Intelligence Unit forecasts
that China’s use of solar power, wind
energy and hydropower is destined to
grow rapidly — though, not so fast that directly under the central government, asset investment in Beijing and Shanghai,
ascendant Chinese renewables firms can and two special administrative regions. for example, compared with less than 20%
feel secure. It projects that the combined for poorer provinces, such as Hubei.
As China’s growth has shifted into lower The eastern seaboard is also more highly
share of renewable energy and nuclear gear, the larger eastern provincial
power will rise from 13% in 2010 to over exposed to fluctuations in external
economies have been bearing the brunt demand, as many of its manufacturing
16% at the end of the decade. As a result of the slowdown. Expansion in trade,
of this, and a growing appetite for facilities operate in export-processing.
investment and industrial production
natural gas, coal will satisfy a lower
has slowed to (by national standards) a Falling exports in the eastern provinces have
proportion of China’s energy needs. Yet,
crawl. Inland provinces continue to been accompanied by accelerated export
in 2020 it still expects coal to provide well
outperform their coastal counterparts, growth in central and western provinces, to
over half of China’s energy needs —
much as they did in the aftermath of where a significant amount of
which by then will have swollen greatly.
the 2008-09 downturn. manufacturing capacity has since relocated.
As a result, 35% more coal will be burnt
in 2020 than in 2010. Even though many western provinces are Chongqing, Henan and Sichuan, for
seeing a deceleration from their example, have all recorded a breakneck
Other sectors identified by economic
previously heady growth rates, they pace of export expansion, helping to
analysts include services and supplies to
continue to maintain year-on-year GDP soften the impact of the recent downturn
the plastics industry; lifestyle products;
expansion of over 12%. They are also on China’s labour market, as migrant
life sciences (medical supplies,
recording faster growth in disposable labourers forced out of work in the
pharmaceuticals, healthcare,
income and household consumption than eastern provinces have instead been able
biotechnology); automotive and
the coastal provinces. to find employment inland.
aeroplane technologies; high value
brand products; and building products Although investors might expect that the Sweetened policy incentives and
and services. poorest would be most adversely affected improved infrastructure to support inland
in periods of economic duress, this has trade, such as dredged rivers, expanded
not been the case in China. Beijing, river ports and improved highways, have
Key locations for
Shanghai, Guangdong and Zhejiang — encouraged manufacturers to move
investment success
the country’s political, financial and inland. In July, Chongqing and Henan saw
Investors and exporters study China’s entrepreneurial capitals — are continuing export growth of 160% and more than
Five-Year Plans to identify sectors that will to record the slowest GDP growth rates in 60% respectively.
be supported by the Chinese government. the country, at under 8% year on year.
But they also study regional differences in Among the fastest-growing provinces are
the Chinese market: both regional market The eastern provinces have been hit Shaanxi and Chongqing, which are at the
conditions and differences in how rules hardest because they are much more centre of the national western
and regulations at local and provincial highly exposed to the property downturn development policy, and Guizhou, which
levels are interpreted. Variation is plentiful and weakened external environment than has the lowest average GDP per head in
— China has 23 provinces, five the rest of the country. Property investment the country. All three have maintained
autonomous regions, four municipalities accounts for roughly one-half of total fixed annual growth rates above 13%.


Foreign SMEs tend to
Heilongjiang
believe, for example, that

knowing and understanding
Jilin

Xinjiang
the rules and regulations Liaoning
Inner Mongolia

are the key to Hebei
Ningxia
understanding the local Shanxi Shandong
Qinghai
Gansu
business environment... Shaanxi Henan Jiangsu
Tibet Shanghai
Anhui
Hubei
Sichuan Chongqing
Zhejiang
Jiangxi
Guizhou, for example, is now seeing Hunan
Guizhou Fujian
huge outlays of industrial investment, as
well as a massive government drive to Yunnan Taiwan
Guangxi
develop tourism infrastructure. Property- Guangdong

related investment in July 2012 rose by a
massive 90% year on year. Hainan

A further notable development is that
growth in disposable incomes and their business proposition is likely to be Investors need to not just find good local
consumption expenditure has picked up successful in China. The market is indeed staff and build up relations with local
considerably in many inland provinces. large, but so is the competition in business partners but also to invest in
For example, the south-western province Chinese markets both from local and building good relations with local
of Yunnan has seen expansion in international suppliers. A second issue is governments and government agencies,
disposable income per head and that some SMEs are too optimistic about such as customs, environmental
consumption expenditure of 14.3% and the extent to which quick gains are inspectors and tax offices.
18.3% respectively, outpacing real GDP possible. Experience shows that
growth of 12.6%. businesses need several years to build
relations with business partners and ‘First to file’ principle
By contrast, the eastern port municipality One specific problem is the so-called
government agencies before business will
of Tianjin recorded expansion of just ‘first to file’ principle, which means
really take off and become profitable.
10.8% in consumption expenditure and companies need to register trademarks
10.1% in disposable incomes. Narrowing It is important to invest in the initial years before entering the Chinese market.
the income gap between coastal and in obtaining an understanding of the One foreign embassy in China reportedly
inland provinces has long been a priority business culture in China – and of the advises companies looking to enter
for the government; the fact that incomes specific province in which the SME investor China that they should register their
and expenditure in inland provinces are plans to become established. This trademarks two years before entering.
now growing more quickly than on the
approach does not only refer to issues Another embassy reports that 90% of
coast will be welcomed by the government.
such as language, personal attitudes and the intellectual property rights (IPR) cases
Meanwhile, developing the services sector relations, how business relations are it deals with are trademark related.
offers a sustainable means of generating established and developed and how to Issues also relate to production
long-term growth in China’s eastern organise communication with local staff in technologies protected by patents.
provinces. Such a transition is under way China, but also to more structural issues.
slowly; for example, Shanghai is piloting Although some economic commentators
tax reforms that should encourage the Foreign SMEs tend to believe, for example, believe IPR issues are often exaggerated, it
growth of smaller services enterprises. that knowing and understanding the rules is widely agreed that they do add to the
and regulations are the key to cost of doing business in China,
understanding the local business particularly in the case of smaller
Overcoming barriers environment (investment laws, financial enterprises. IPR problems can present more
to success and fiscal arrangements, employment laws, of a challenge to SMEs than larger
Some SMEs enter China with a naïve etc.), but many tend to overlook that in enterprises, because typically they do not
approach (‘it’s a huge market, I should be China power and relationship are much have in-house lawyers, making it necessary
there’) without studying whether or not more important than most assume. for them to outsource legal services.

China represents a bigger challenge for SMEs than

entering many other markets. But SME investors who

seek out expert advice and support from organisations

with practical experience of the Chinese market are

well placed to overcome the barriers.

Quality information with the Chinese government to set-up
SMEs entering new markets always advanced technical training.
need information about, for example,
Fear can also be a key bottleneck (fuelled
market opportunities, potential
by reports of bad experiences in China):
distributors, laws and regulations, and
Chinese partners who keep raising the level
the availability of business services.
of investment required; cases of business
However, for SMEs seeking to enter
partners disappearing; problems with
China, access to good quality
information is reported to represent a Chinese suppliers, including orders placed
higher cost than in other markets. but not delivered; and some quality issues.

Similarly, when entering new markets As a result, one of the messages
businesses need to understand the promoted to SMEs is: ‘Don’t go to
regulations governing those markets, in China without a reliable Chinese partner.’
order to identify the implications for their China represents a bigger challenge for
planned activities. However, achieving this SMEs than entering many other
in China requires more than just markets. But SME investors who seek
information about the relevant regulations; out expert advice and support from
it also requires knowledge of how these organisations with practical experience
regulations are likely to be applied. This is of the Chinese market are well placed
a particular challenge because of to overcome the barriers. UHY has
frequently changing laws and uncertainties firms based in key Chinese locations
about how laws and regulations will be and with local knowledge.
interpreted and implemented, not least
because some laws can be conflicting. UHY has local firms in China.

Non-tariff barriers exist in several CHINA Let us help you achieve
industries, as part of the government’s ZhongHua CPAs further business success
attempt to protect Chinese enterprises. Contact: Wilson Lu
Email: info@zhonghuacpa.com To find out how UHY can assist your
One example is the banking sector,
business, contact any of our member
which not only makes it difficult for With offices in: Anhui, Beijing, Jiangsu,
firms. You can visit us online at
financial service providers, but also for Shandong, Shanghai, Shenzhen www.uhy.com to find contact details
enterprises in other sectors to deal with for all of our offices, or email us at
investment issues in China. Another Hong Kong
info@uhy.com for further information,
issue is China’s Indigenous Innovation Tai Kong CPA Limited or call us on +44 20 7216 4622.
Policy which makes it difficult for Contact: Robert Kong
non-Chinese owned companies to access Email: robertkong@tkcpa.com.hk UHY is an international network of legally
public procurement contracts. Chinese UHY Vocation HK CPA Limited independent accounting and consultancy
companies are favoured because the Contact: Mica Pang firms whose administrative entity is
government believes innovation needs to Email: phc@uhy-hk.com Urbach Hacker Young International
Limited, a UK company. UHY is the brand
come from within China.
Investors looking for advice may also name for the UHY international network.
Recruiting the right local employees can be wish to contact the UHY China desk in Services to clients are provided by member
firms and not by Urbach Hacker Young
a major issue. Training is one of the their region. For details, contact the UHY
International Limited. Neither Urbach
possible solutions to this and several international office at: info@uhy.com Hacker Young International Limited, the
Chambers of Trade and support UHY network, nor any member of UHY
organisations are involved in cooperating Further details of doing business in
has any liability for services provided by
China are available on the UHY website other members.
www.uhy.com under the publications section:
www.uhy.com © 2013 UHY International Ltd

Uhy international business issue 26

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