International Direct Investors’ Forum
Why B-Schools Are Expanding in Africa
Competition, Financial Pressures in More Established Markets Prompt Push Into Continent
By MELISSA KORN WSJ.com
Image Davide Bonazzi
They’ve mastered the U.S., saturated Europe and made headway in Asia. Now, business schools are taking on Africa.
Financial pressures and fierce competition in more established markets are pushing schools to view the continent as something more than a destination for student volunteer trips. But the recent Ebola outbreak in Sierra Leone, Guinea, Liberia and Nigeria highlights the unique challenges schools face in expanding their footprints in the region.
The business school of Milan’s Università Cattolica del Sacro Cuore successfully launched an M.B.A. program in Nairobi, Kenya, in 2011, expanding to Accra, Ghana, last year. But it decided to delay the start of a Sierra Leone-based M.B.A. program to at least mid-November, and possibly January, from September, because of public health concerns.
And St. Louis-based Webster University, which opened an Accra location in March, is instructing students, faculty and staff on how to comply with global guidelines to contain the threat, such as avoiding unnecessary meetings.
Still, administrators remain optimistic about the long-term potential for programs in places such as Accra, Kinshasa, Congo, and Abidjan, Ivory Coast.
“The business opportunity is huge,” says Udo Steffens, president and chief executive officer of Germany’s Frankfurt School of Finance & Management. The school started a master’s degree in microfinance in Kinshasa in 2009 alongside the Université Protestante au Congo. Last fall the two schools launched an executive M.B.A. program.
Each school will book €35,000 to €40,000, or $46,800 to $53,500, in surplus revenue for the inaugural year. Prof. Steffens says he expects that with a larger class and higher price tag—tuition will jump by two-thirds next year, to €12,500—they should soon each be able to receive €110,000 to €120,000.
Prof. Steffens says he is optimistic because the Congo is still “a virgin market” for high-quality, European-style education.
Sylvain Bebela, a 52-year-old branch manager at African Motors Co., a Ford dealership in Kinshasa, says his only other option for a decent business degree would have been a costlier, lengthier program more than 2,000 miles away in South Africa.
“I wouldn’t have gone to a local school,” he says. “I was looking for a school that could guarantee a good business education.”
Mr. Bebela, who previously worked as a supply chain manager at British American Tobacco for more than 20 years, has been trying to build up his own domestic transport company.
China Europe International Business School is capitalizing on entrepreneurs as well. That school created a program for women entrepreneurs in Ghana in 2012, expanded into Nigeria last year and started a class in Kenya this year.
Multinational firms’ demand for well-trained managers is fueling much of the interest in creating new Africa programs.
Duke Corporate Education, a wholly owned subsidiary of Duke University, derives between 10% and 20% of its revenue from training programs for African clients, such as banks, mining companies and telecommunication firms.
Africa Regional Director Sharmla Chetty says the customers want to teach a new cadre of middle managers and strategize international expansion plans.
When Duke opened its regional office in South Africa seven years ago, its main competitors were domestic training outfits, Ms. Chetty says. Now, she says, Duke is pitching against top institutions from the U.S. and Europe.
Last month, HEC Paris signed deals with Ivory Coast’s ministries of state and foreign affairs, and a federation of private companies across that country, to lead programs for hundreds of public- and private-sector executives. Inge Kerkloh-Devif, executive director of global business development for HEC’s executive education arm, says that programs of similar scope generally yield €1 million in revenue.
Webster University, which has residential campuses in Geneva, Vienna and a handful of other cities, opened its Accra location with 40 students pursuing undergraduate and graduate programs in business and international relations. The school’s first full class, starting this summer, will be double that size. The school expects a 150-student entering class next year.
Webster has invested about $3.5 million in the Ghana venture so far, and Provost Julian Schuster says the school is on track to break even within three to five years.
But in a region still scarred by centuries of imperialism, schools won’t succeed just by transplanting American or European faculty and course material.
David Bach, senior associate dean for the executive M.B.A. and global programs at the Yale School of Management, says a student he met on a recent trip to Lagos Business School in Nigeria was relieved to hear that Yale didn’t want to bring its own programs to the campus, but rather was focusing on student exchanges and research collaboration via its 27-school Global Network for Advanced Management.
“We don’t want to proselytize,” Mr. Bach says. “A bit more humility and listening is in order.”
Webster President Beth Stroble says Ghanaian accreditation and an internationally diverse faculty and staff help ensure that the school’s program doesn’t “smack of colonialism.”
Though early experiments are starting to yield monetary returns, industry experts acknowledge that success is far from a sure thing.
“Any business school going into that market can’t be doing it for anything other than a longer-term play,” says Tim Westerbeck, president of higher education consulting firm Eduvantis LLC. “Is there even a market there? Right now, the answer is ‘maybe.’ ”
Write to Melissa Korn at melissa.korn@wsj.com
Think Global, Act Local.
A New Jersey Chamber of Commerce and its leading members set an example on how to develop international business relations.
Rebecca Proske, CFP – A Charles Schwab Financial Representative hosts an international workshop for Life Financial Group visitors
Last Wednesday, normally quiet and domestically focused financial sector of the Western Monmouth County in New Jersey, was rocked by an arrival of a twenty person international delegation from Russia’s major banking and financial services enterprise. The visitors from the distant shores arrived on a mission of trying to understand how our best regional banks and financial advisors in the suburban settings practice their craft.
Thus we set out to find a place in the NJ area where finest advisors and banks may be found in a reasonable proximity to each other. After extensive search, we were settled on Samantha Homer Padilla, Executive Director of the Greater Monmouth Chamber of Commerce and her capable assistant Nataliya. Through screening and outreach, the Chamber has lined up an all-star line up of financial professionals, which included Ms. Hedda Lans of Valley National Bank, Ms. Rebecca Proske, CFP a leading Charles Schwab franchisee, Mr. Stuart Lesser owner of the Edward Jones office and Ms. Eddie Leg and Mr. Tino Fontes of Investors Bank.
A series of meetings that ensued throughout the day left our foreign visitors in awe of the professionalism, efficiency, competence and superb client service orientation of their New Jersey hosts. Although financial services are a difficult area in which companies could cultivate international relationships, several potential venues for cooperation have emerged and are being contemplated by the visitors. The hosts have build up a tremendous amount of goodwill and have assured themselves a clear path to any referrals that may arise from this visit. The Russian company after all has 18,000 employees and hundreds of thousands of clients many of whom travel to the US to work, study or move here permanently.
One thing clearly resonated with the visitors and they kept talking about it for the remainder of the trip – the group they met was not only very impressive and knowledgeable in their respective areas, but also demonstrated a superb level of cross-cultural sensitivity, openness and international perspective. So from my perspective the real international Super Bowl took place three days prior of the lopsided show to the Met stadium.
Gap Plans Expansion in China
U.S. Retailer Expects to Open as Many as 35 Stores in the Country This Year
By LAURIE BURKITT and SUZANNE KAPNER, WSJ.com
Clothing is displayed at a Gap store in San Francisco in February. The U.S. retailer is planning to add several stores in China. Getty Images
SHANGHAI–U.S. clothing chain Gap Inc. GPS +0.16% is looking to China, one of the world’s fastest-growing and competitive apparel markets, to offset sluggish sales back home.
The San Francisco company, which operates Gap, Old Navy, Banana Republic and Athleta, plans to open 25 Gap stores and up to 10 Gap outlet stores in China in 2014, said Jeff Kirwan, president of Gap’s China division, in an interview Saturday. Currently, the company has 80 stores in the country.
“The opportunity in China is undeniable,” said Mr. Kirwan, adding that Gap is seeing strong growth in its China-based retail outlets and online.
Gap is also rolling out its lower-end Old Navy brand to cater to China’s cost-conscious consumers, with plans to open five this year, Mr. Kirwan said. It launched its first, a 22,000-square-foot store, in Shanghai on Saturday.
Demand for clothing in China is high, with sales of apparel in urban areas projected to reach $156 billion by 2017, up 58% from 2013, according to estimates from the Boston Consulting Group.
Gap has focused on international expansion to counter slowing growth at home. U.S. sales at its namesake brand fell about 7% in the fiscal fourth quarter to $1.05 billion, compared with $1.13 billion a year earlier. U.S. sales of Old Navy and Banana Republic were down in the period as well.
The company had net income of $307 million in the quarter ended Feb. 1, compared with $351 million a year earlier. Net sales fell to $4.58 billion from $4.73 billion a year earlier.
Some industry experts warn that Gap could run into the same problems overseas. “The problem with Gap is that it doesn’t have a strong identity,” said James Button, a senior manager at Shanghai-based consulting firm SmithStreet. He said that in China, many consumers prefer fast-fashion players such as Spanish company Inditex SAITX.MC +0.77% ‘s Zara brand and Swedish fashion company Hennes & MauritzHM-B.SK -0.17% AB.
Mr. Button said Old Navy will face a large number of competitors including Shanghai Metersbonwe Fashion & Accessories Co. 002269.SZ -2.61% and Glorious Sun Enterprises Ltd. 0393.HK -1.09% , which operates roughly 3,000 Jeanswest casual-wear outlets in China. Gap could fetch higher margins if it expanded its higher-end Banana Republic brand in China, Mr. Button said.
Mr. Kirwan said Gap is planning to bring Banana Republic to China, but it opted to open Old Navy first, looking for the “biggest payback” and easiest route for it. “When we sized the market and looked at the addressable customer, the largest impact and opportunity we had was to bring in Old Navy,” said Mr. Kirwan. He said the brand caters to families and that China is a family-driven shopping market.
With many companies jumping into the premium segment of the apparel sector, there is money to be made with lower-cost brands, said Sherri He, a partner at consulting firm A.T. Kearney. “The low end has a lot of competition and it’s not in the fast growth stage, but the size is very, very big,” she said.
Companies such as Fast Retailing Co. 9983.TO -1.41% , the Japanese operator of clothing chain Uniqlo, and U.S. chain Forever 21 Inc. have been eager to expand in China to fetch consumers who are looking to buy casual wear, clothes for the office and duds for nights on the town. Forever 21, known for its fast-fashion trends, is planning to add five stores this year, adding to its three stores in mainland China and one in Hong Kong.
Gap is also expanding in Japan, adding 20 new stores this year to its current 38, Mr. Kirwan said.
Write to Laurie Burkitt at laurie.burkitt@wsj.com and Suzanne Kapner atSuzanne.Kapner@wsj.com
EB-5 Visas for Investors See Record Demand
Program Saw 6,434 Foreigners Apply in the Latest Year
By ANGUS LOTEN, WSJ.com
Write to Angus Loten at angus.loten@wsj.com
US dominates list for foreign real estate investors
Global real estate investors are flocking to the U.S.
A new survey shows that while London was the number one city among foreign real estate investors, the rest of the top five cities were all in the U.S.: New York (#2),San Francisco (#3), Houston (#4), Los Angeles (#5).
The survey of members of the Association of Foreign Investors in Real Estate said the U.S. is the “stable and secure” country for real-estate investment “by a wide margin.” The U.S. is also the top market when it comes to capital appreciation and for future real-estate purchases.
Houston’s high ranking shows that investors are starting to look beyond New York and San Francisco for deals.
“Our members’ increasing interest in cities beyond the powerhouses of New York, Washington and San Francisco points to the recognition of additional investment opportunities for foreign investors,” said James E. Fetgatter, the association’s CEO.
(Read more: NYC running short on luxury condos)
While most of the association’s members are institutions, some are high-net worth families. The survey doesn’t track investments in single-family homes.
The number one category for investment in 2013 was industrial properties, followed by office, retail and multifamily homes. Last year, multifamily homes ranked first.
(Read more: Which home will sell for $100 million in 2014?)
The latest data from the National Association of Realtors, which was released last summer, showed that foreign buyers had scooped up $68.2 billion of single-family homes in the U.S. in the year ended March 2013. That’s about 7 percent of the total U.S. market. That was down slightly from the $82.5 billion invested during the same period of 2012, but up from 2011. The fastest growth in foreign buyers was from China and Canada.
—By CNBC’s Robert Frank. Follow him on Twitter
Overseas Money Pours Into Miami Real Estate
Condo Development Surges as Foreign Buyers Stoke Demand
MIAMI—Cranes are again rising over this city, as the poster child for the real-estate collapse enjoys a new condominium boom fueled by foreign investors looking to park their money in U.S. real estate.
For several years after the housing bubble burst, a glut of towering condo buildings sat largely empty. Condo values plunged nearly 60% from peak to trough, according to the Miami Association of Realtors. Financing for buyers and developers dried up.
Now nearly all the once-vacant units are filled up, and demand is outstripping supply. There are 118 condo towers proposed in the Miami area, including 35 under construction, according to Condo Vultures LLC, a real-estate consultancy.
The 41 towers proposed for downtown will add 12,100 new units—well shy of the 22,200 units that were built during the 2003 to 2008 boom, but still a remarkable turnabout given that downtown construction was essentially dormant until 2011.
“This boom is very reminiscent of where we were a decade ago,” said Peter Zalewski, principal at Condo Vultures.
A new condominium building under construction in Miami in February. REUTERS
While the growth feels similar to the bubble-fueled oversupply that remains a painful memory in Miami, developers note that robust international demand has created a new cash-financing model they believe is safer than the easy bank loans that fueled the last boom. They typically require buyers to put down at least 50% before closing, which means the owners would lose their money if they walked away.
Under the new payment arrangement, developers are relying more on buyers’ deposits, and less on debt, to fund construction, which they say puts projects on more solid footing. And because banks have become stricter about what projects they finance, less-experienced developers are weeded out, they say.
Developer Carlos Melo relied on that financing model to build 23 Biscayne Bay, a 17-story project that last year became the first completed tower of the new cycle. He said the building is fully sold, and roughly 90% of the owners bought their units as investments and are renting them out. “They are looking to sit their money in a safe place,” Mr. Melo said.
Miami is just a bigger example of a recent national tilt toward multifamily buildings—both apartments and condominiums—instead of the single-family homes that dominated during the bubble years leading up to the recession. While the majority of national construction is still of single-family homes, the recent rebound in construction activity—whether measured by new starts or permits—has been centered in multifamily buildings.
Commerce Department data released last week showed nationwide residential building permits rose to their strongest pace since June 2008, a rise that was driven by a 15% surge in multifamily permits. About one in three building permits issued this year has been for the largest multifamily category—buildings that have five or more units—according to Jed Kolko, chief economist for real-estate website Trulia. From the 1990s until the housing bubble ramped up in 2004, the share hovered around one in five.
Nationally, builders are responding to rental demand that remained strong through the recession and today’s still-tepid recovery. They are also correcting the source of overbuilding during the bubble years.
“Multifamily has been a critical part of the construction recovery. During the bubble a lot of the overbuilding was in single-family homes, and as the construction market rebounds and as more people are looking for rentals, builders have responded with more multifamily construction,” Mr. Kolko said.
The numbers are even more dramatic in and around Miami. In the South Florida region composed of Miami-Dade, Broward and Palm Beach counties, roughly 70% of residential construction permits issued through October have been for multifamily units.
About 7,000 rental apartment units have been proposed for Miami’s greater downtown area, Condo Vultures’ Mr. Zalewski said. Among the factors driving growth are high rental rates and financing that is more readily available because banks consider the rental market strong. While the median rental rate in 2009 was $1.48 a square foot, it is now $2.23 a square foot, Mr. Zalewski said.
The city’s condo boom has been even stronger, fueled by foreign investors who typically pay cash and are looking to hold rentals, instead of flipping for profit as investors did in the last cycle. About 85% to 90% of new-construction buyers are foreign, mostly Latin American, estimates Alicia Cervera Lamadrid, managing partner at Cervera Real Estate, which is handling sales for 16 condo projects.
“The payment structure really separated the speculators from the well-funded,” Ms. Cervera Lamadrid said.
Buyers say they are drawn to Miami’s increasingly cosmopolitan vibe and cultural offerings such as the Pérez Art Museum Miami, which is set to open Dec. 4. They also consider such investments more secure than leaving their money in more economically volatile places like Argentina and Venezuela.
Miami’s high-end condo market has proved especially vibrant, and has gone hand in hand with new luxury shopping destinations rising up in the Brickell financial district downtown and the Design District to the north. Some of the most lavish projects have drawn star architects like Zaha Hadid and Bjarke Ingels.
In August, Umberto Mascagni, a 24-year-old Italian who moved to Miami three years ago to study international business, put down a deposit on a $700,000 two-bedroom condo in a proposed tower overlooking Biscayne Bay that has yet to break ground. He and his father began investing in Miami real estate in 2008 and now have six additional condos they rent out. “In the past two years, the market has been crazy,” Mr. Mascagni said. He is prowling for other investment opportunities, he said, but “always with open eyes, always careful.”
Still, some are sounding cautionary notes. Developers are sometimes starting construction with just buyers’ deposits, without lining up financing to ensure they can finish it off, said John Sumberg, managing partner of the law firm Bilzin Sumberg, who advises developers. “They figure, ‘I’ll get it when I need it,’ ” he said. But “at some point in the cycle, the lenders may say there’s too much product and this isn’t a good bet.”
In addition, some developers are backing away from buying land because prices have risen so much, Mr. Sumberg said. That could “curb the dramatic velocity we’ve seen” in new construction, he said.
Carlos Rosso, who heads the condo division for the Related Group, a developer burned badly in the last cycle, said a similar bust is unlikely this time around. “As long as there’s cash from buyers and banks are disciplined enough not to overextend themselves, I think this is a long market because there’s so little supply,” he said. His company now has 10 condo projects under way, compared with more than 30 it built in the last upcycle.
Also, the sales pace isn’t as frenzied as in the last decade. “Back then, I saw lines at sales offices starting at 12:00 the night before” they opened, said Alan Ojeda, chief executive of the Rilea Group, a developer. “I don’t see lines now.”
Write to Arian Campo-Flores at arian.campo-flores@wsj.com and Conor Dougherty atconor.dougherty@wsj.com
SEC Case Shows Greater Scrutiny of EB-5 Programs
Visa Program Allows Foreigners to Live in U.S. if They Invest in Job-Creating Businesses
“It’s important that investors be protected and that we step in to make sure that this particular vehicle is not abused,” said David Peavler, associate regional director of the SEC’s enforcement division in Fort Worth.
Marco and Bebe Ramirez, a married couple who started USA Now have said in court filings that they didn’t commit fraud. USA Now, which focused on investors in Mexico, claimed that the capital they raised would fund projects including a local fuel wholesaler, according to court documents.
In a 2011 interview with The Wall Street Journal, Mr. Ramirez described his enterprise as “a speed pass for you to your residency” in the U.S. The SEC alleges in its civil suit that instead of investing the $5 million they raised from prospective immigrants in job-creating businesses, Mr. Ramirez and his wife used the money for personal purposes, including settling a lawsuit.
A lawyer for Mr. Ramirez declined to comment on the case. Ms. Ramirez’s lawyer didn’t respond to requests for comment.
Under the EB-5 program, foreigners can invest through regional centers, private entities designed to promote economic development with funds from EB-5 participants. The centers are designated by U.S. Citizenship and Immigration Services, the agency that oversees lawful immigration into the U.S., but it doesn’t endorse or judge the investment projects they offer
Earlier this year, the SEC filed a lawsuit against a Chicago developer who allegedly duped dozens of Chinese investors out of close to $150 million by pretending to build a hotel and convention center through an EB-5 regional center. The developer declined to respond to the complaint in court fillings, pleading the Fifth Amendment. The regional center, also named in the suit, denied any wrongdoing.
The SEC also issued an alert earlier this month warning investors about EB-5 scams.
Interest in the EB-5 program, which was created in 1990 by Congress to help create jobs, exploded in recent years as the domestic economic slump made it harder and more expensive for businesses to get financing from U.S. sources.
Participants must invest at least $500,000, and those who prove that their investment generated 10 jobs are eligible to get a permanent visa.
Some industry observers said the EB-5 program is vulnerable to abuse because regional centers aren’t required to disclose essential information, such as the name of the person who controls them, or their fundraising activities.
“The people who want to commit fraud and malfeasance, they can come in and tell everybody a bunch of lies and no one can verify any of these claims,” said Michael Gibson, managing director of USAdvisors, a Tampa, Fla., firm who advises people looking to invest in EB-5 projects.
Others say the SEC’s alert and the lawsuits filed this year demonstrate the government’s commitment to protecting EB-5 investors, adding that the program has created thousands of jobs.
“This is a program that delivers at-risk capital to job-creating projects all around the country, and it does so at no cost to the taxpayer,” said Peter Joseph, executive director of the Association to Invest In the USA, a regional-center trade group.
U.S. Citizenship and Immigration Services said it doesn’t publish more information about the centers because that would amount to an endorsement of investment opportunities and fall outside its role.
“It’s up to the individual investor to do due diligence,” said spokesman Christopher Bentley.
—Nathan Koppel contributed to this article.
Write to Ana Campoy at ana.campoy@wsj.com
Uber is looking to local startups to help grow its business in Asia
Uber is developing an interesting new strand to business in Asia where, aside from giving its customers a ride to the destination of their choice, it is providing opportunities for startups to raise their visibility worldwide.
While Uber has struck partnerships with tech startups worldwide in the past, its union with VCNC — the Korean firm behind couple social network Between, which has 4 million registered users worldwide — promises to be a little different and set up similar possibilities for others in Asia.
The idea is simple. Find companies that have a strong local presence.
The VCNC coming together is “symbiotic,” according to Uber’s Park Chan, who says Uber is leveraging Korea’s dating craze and the 1 million Between users in the country. In return, it will help VCNC’s efforts to expand across Asia and the rest of the world.
The immediate specifics of the pairing will see Uber sit in Between’s main advertising space — ‘Event Box’ — for one week, showcasing it to Korean users.
Uber is also running a competition to give Between couples free dates to the baseball, with an Uber chauffeur in tow, naturally.
Park explains more to TNW:
There’s so much synergy here. As Uber gets into Asia and builds out its presence, we’re looking at ways to connect with regional startups that have interesting and yet locally strategic brands and demographics. [The other side of the coin is] the value that VCNC, and startups like it, see in us: our international footprint is going to help as they ramp up their global growth strategies.
It’s always interesting when two tech companies partner up. We’re looking to be everywhere, so, of course, we’ll continue to look for opportunities where the economies fit.
The proposition actually came together at Uber’s launch party in Seoul, where the VCNC team got the opportunity to talk to Uber CEO Travis Kalanick himself. That’s no accident, since Uber invites local influencers and startup folks to its new market launch events.
Focusing on Asia, Uber has launched in Singapore, Korea and Taiwan while itrecently begun a pilot services in China and India. We know from its hiring efforts that it has plans to be plenty more countries in Asia — and beyond — so startups across the region will want to take note: the chance to partner with a $3.5 billion company doesn’t come around every day.
Images via beeboys / Shutterstock
Vietnam Premier Opens Door to Foreign Investors
Vietnam’s premier pledged to subject state-owned companies to competition and allow greater foreign ownership of banks as the government seeks to revive growth and join a key trade agreement.
Over the next five years, Vietnam’s state companies will focus on areas such as infrastructure that “the private sector cannot or does not want to invest in,” Prime Minister Nguyen Tan Dung said in an interview in New York on Sept. 27. The government plans to devalue the dong as much as 2 percent by the end of the year and let foreign companies own up to 49 percent of local banks in the “near future,” Dung said.
Nguyen Tan Dung, Vietnam’s prime minister, listens during an interview in New York on Sept. 27, 2013. Photographer: Jin Lee/Bloomberg
Sept. 28 (Bloomberg) — Vietnamese Prime Minister Nguyen Tan Dung talks about foreign ownership in his nation’s banking industry and plans to restructure Vietnam’s economy. Dung spoke with Bloomberg’s Al Hunt yesterday during his visit to New York for the United Nations General Assembly. (These excerpts are in Vietnamese with English translation. Source: Bloomberg)
Nguyen Tan Dung, Vietnam’s prime minister, right, speaks with Albert “Al” Hunt, columnist with Bloomberg View, during an interview in New York on Sept. 27, 2013. Photographer: Jin Lee/Bloomberg
Vietnam’s economy faces its most severe slump in at least a decade, hurt by slower lending as banks strain under the weight of bad debt incurred largely by the state sector. Removing protections for state companies would help Vietnam in seeking greater access to the U.S. market to strengthen its economy, and underpin efforts to boost political ties.
State enterprises will need “to operate in the market economy,” Dung said in the almost hour-long interview. “We will treat them as equal to other enterprises.”
There are plans to sell shares in companies such as Vietnam Airlines Corp., Vietnam Posts & Telecommunications Group, and Vietnam Oil & Gas Group, he said, without giving a specific time frame for divestment.
Dong Devaluation
Dung said he is considering increasing the foreign ownership limit in banks and telecommunication companies. Total foreign ownership in any lender is currently limited to 30 percent and the holding of any single foreign investor at 20 percent. Those limits curb offshore interest in Vietnamese banks, Standard & Poor’s said last month in a research note.
The government plans to devalue the dong because it considers it overvalued against the dollar, Dung said. The timing of a devaluation is “dependent on the market,” he added.
Vietnam devalued its currency by 1 percent in June, the first move since 2011, and the central bank has said any adjustments to the dong’s value this year would be within a 3 percent range. It has weakened 1.3 percent against the dollar this year, while currencies elsewhere in Asia such as thePhilippines and Malaysia have dropped at least 5 percent.
Economic Vulnerability
Vietnam has reduced the number of companies that are wholly-owned by the government to 1,300 from 12,000, Dung said. “We will narrow down the areas of operations for these SOEs,” he said. “That focus is mainly into infrastructure.”
State-owned companies in Vietnam are a key source of economic vulnerability, the International Monetary Fund said in August. Government policies dictate that the state sector play the leading role in the economy, with preferential access to land and capital, while non-state businesses face restrictions on market access, Jonathan Pincus wrote in a paper last year while a Ho Chi Minh City-based economist with the Vietnam Program at the Harvard Kennedy School.
Vietnam is considering measures such as tax breaks to help foreign companies, said Vice Minister of Planning and Investment Dao Quang Thu. Vietnam’s macro economic situation is improving even as the risk remains of higher inflation, he said today at a conference in Hanoi.
Playing Field
“We have been raising this question of level playing field every six months at the highest level of the government,” said Alain Cany, co-chairman of the Vietnam Business Forum Consortium.
“If the prime minister is declaring this in the U.S. in public, it’s probably the most encouraging statement I’ve heard for the last few years,” Cany said. “The country needs this kind of action to be able to go back to the 7 percent growth rates of the past.”
Vietnam’s Ministry of Planning and Investment forecasts the economy to grow 5.4 percent this year and 5.8 percent next year, which would mark three consecutive years of growth that’s slower than 6 percent. Its banks have the highest level of bad debt among the six Southeast Asian countries covered by Fitch Ratings.
Trade Pact
The nation’s economy and exports may be boosted if it signs the Trans-Pacific Partnership, aproposed trade agreement with 12 nations. The U.S. will give Vietnam “differential” treatment in negotiating the accord, Dung said.
“We have urged all the members of the TPP to be flexible, taking into account the low level of development of Vietnam,” said Dung. “The United States is willing to be flexible with Vietnam.”
The nation stands to be the biggest beneficiary if it signs the trade agreement, according to an October 2011 study by the Honolulu-based think tank the East-West Center.
The government is under pressure to accelerate reform of its state sector, with a major American stipulation in talks on the pact that private and state-owned companies compete equally.
“It would be very smart for the government of Vietnam to take what it plans to do anyway, i.e., reforming its SOEs, and build that into its TPP obligations,” said Susan Schwab, a former U.S. trade representative from 2006 to 2009.
“You are self-imposing reforms you want to do anyway, and the sweetener you are getting with that medicine is market access and all the benefits you get from a trade agreement,” she said.
General Electric Co. (GE) won a $1 billion order to supply engines for Vietnam Airlines Corp.’s fleet of 787 Dreamliners, Dung also said.
Military Relations
Closer business ties with the U.S. may come as military relations strengthen among the former wartime adversaries, with then-U.S. Defense Secretary Leon Panetta the highest-ranking American official to visit Cam Ranh Bay since the Vietnam War, making the trip in June 2012.
“The United States is a global power and also an Asia-Pacific power,” said Dung. “An appropriate presence by the United States in Asia Pacific will contribute to peace, stability, maritime safety and security.”
At the same time, the U.S. should lift an “unreasonable” and “discriminatory” ban on the sale of lethal weapons to Vietnam, said Dung.
“That shows a lack of trust,” he said. “To be honest with you, even if the U.S. lifts this embargo it is not certain that we will buy the weapons from the U.S., but it is about trust.”
Hagel Visit
U.S. Secretary of Defense Chuck Hagel accepted an invitation to visit Vietnam next year. He expressed a commitment to boosting defense ties and cited the importance of the peaceful resolution of territorial disputes in the South China Sea, according to a U.S. Defense Department statement. Vietnam is one of a number of claimants, alongside China, to waters in an area rich in fish, gas and oil.
Obama administration officials identify Vietnam as one of the new partners they are cultivating as part of a strategic and economic rebalance toward Asia, wrote Mark Manyin, a specialist in Asian affairs, in a July Congressional Research Service note.
“We were foes before, but we are now friends,” Dung said of the two countries. “We are ready to shelve the past and work together toward the future for our common goal of peace, friendship and cooperation on an equal footing for mutual benefit and development.”
To contact Bloomberg News staff for this story: Jason Folkmanis in Ho Chi Minh City atfolkmanis@bloomberg.net; Diep Ngoc Pham in Hanoi at dpham5@bloomberg.net
China buys into giant Kazakh oilfield for $5 billion
By Mariya Gordeyeva, Reuters
ASTANA
(Reuters) – Chinese President Xi Jinping struck a deal with Kazakhstan on Saturday that will giveChina a stake in the its giant Kashagan oil project, a highlight of his tour of Central Asia securing hydrocarbons for the world’s largest energy consumer.
The $5 billion deal further increases China’s rising clout in post-Soviet Central Asia, once Russia’s imperial backyard, and blocks an attempt by global rival India to get a stake in the oilfield, the world’s largest oil discovery in five decades.
“The two countries have agreed on China’s shareholding in the development of the Kashagan deposit,” Xi told a news briefing after talks with Kazakh President Nursultan Nazarbayev. “The two governments hail and support this agreement.”
Oil and gas deals, including on building an oil refinery in Kazakhstan, are among 22 agreements reached during Xi’s visit and worth some $30 billion, Nazarbayev said.
Kazakhstan will sell 8.33 percent of the Kashagan offshore oilfield to China for about $5 billion in a deal to be signed later on Saturday, Kazakh government sources told Reuters.
The sale and purchase agreement will be signed by the heads of Kazakh national oil and gas company KazMunaiGas and China National Petroleum Corp(CNPC), said the officials, who requested anonymity.
“We suppose that the transaction will be closed by late September or late October,” one of the officials said.
The agreement stipulates that China will help arrange a loan of up to $3 billion for KazMunaiGas to help it finance the second stage of Kashagan’s development, due to begin after 2020, he said.
Another draft agreement, seen by Reuters, would guarantee loans from The China Development Bank and The Export-Import Bank of China – worth respectively $3 billion and $5 billion – to Kazakhstan’s state holding Baiterek, which promotes innovation and industrial projects.
China is already involved in a number of oil projects in the vast resource-rich neighbor, which is five times the size of France but has a population of just 17 million.
This week, Xi visited Kazakhstan’s neighbor Turkmenistan, which holds the world’s fourth-largest natural gas reserves, and oversaw deals aiming to boost gas supplies and build a pipeline to China.
INDIA’S HOPES DASHED
The Kazakh deal comes after Astana decided in July to use its pre-emptive right to buy an 8.4-percent stake in Kashagan that U.S. oil major ConocoPhillips was selling for $5 billion.
Houston-based ConocoPhillips, whittling down its worldwide portfolio of assets, announced last year it had agreed to sell the stake to ONGC, the overseas arm of the Indian state-run company.
The sale to CNPC blocks India’s plan to enter Kashagan.
Kazakhstan, home to 3 percent of the world’s recoverable oil reserves, has moved in recent years to exert greater management control and secure bigger revenues from foreign-owned oil and gas projects.
KazMunaiGas entered the Kashagan consortium as a shareholder in 2005 and has since then doubled its stake to 16.81 percent.
Kashagan and the neighboring fields in the North Caspian Sea hold estimated reserves of 35 billion barrels of oil in place, with between 9 billion and 13 billion barrels recoverable.
Kazakh officials have said they expect the giant reservoir off western Kazakhstan to produce its first oil this month.
A multinational consortium developing the field has invested some $50 billion in about 13 years, making it the costliest oil project in the world.
During Kashagan’s development, production will be gradually increased to 370,000 barrels per day in the second stage from 180,000 bpd in the first stage in 2013-14, according to North Caspian Operating Company (NCOC), which is developing the field.
Italy’s ENI, U.S. major ExxonMobil, Royal Dutch Shell and France’s Total each hold 16.81 percent stakes in Kashagan. Japan’s Inpex owns 7.56 percent.
Douglas Abrams: The man who left the United States enchanted by Asia’s potential – An investor’s story
“Ready to expand your start up into Asia” is a 4-part series, which offers terrific illustration of the concepts developed and outlined in Fluent In Foreign Business
Ready to expand your startup into Asia? Read this
Asia has proven to be an instrumental market for businesses to break into, and as the CEO of a successful Singapore-based startup, I get asked a lot of questions from fellow CEOs and entrepreneurs about doing business here and how to grow their companies across Asia.
Expanding into Asia can be a very complicated process with many subtle but important factors that often go unnoticed to first-time entrepreneurs. Asia is a widely diverse continent with 52 primary languages, 27 different currencies, the highest and lowest GDP per capita, numerous cultures, religions, legal systems, trade barriers, political systems, graft, and many more nuances that are important to consider
The most common question I get asked by far is: “Where do I start?” Here are some tips to help entrepreneurs and companies navigate this new terrain and jump-start their businesses on this wonderful continent.
Prioritize the markets
It’s wise to first broadly prioritize the top markets (i.e. countries or cities) across Asia that you would like to target. An easy way to start thinking about this is to use a formula that I have found extremely useful.
First, brainstorm the top ten levers that will drive revenue, users, and/or usage for your business. For revenue, broad drivers are often things like GDP per capita, SMS price points, voice minute pricing, or CPM or CPC in an advertising revenue model. For users, it could be things like population size, Internet penetration, or number of smartphone users. As for usage, possible drivers include percentage of smartphone population, social activity on popular services like Twitter and Facebook, or messaging volumes.
Then plug the data for all of your potential target markets in Asia into the table. It can be difficult to put a number on qualitative factors, but push yourself to determine a value for the drivers as best you can based on each market’s specific characteristics. And then come up with a weighted average for each of these drivers to sum a total score for each market.
This will force a ranking of the markets. It is certainly not a science, but it directionally provides an idea of how to weight the various opportunities, which is a key first step. If done right, the output usually proves to be quite insightful. I’ve often found that when the CEOs of boards that I sit on here go through this exercise, they realize that one market they were focused on is actually one-tenth the size of another market they were not paying attention to.
In Asia, the sizes of markets are often magnitudes in difference. This will make those differences and thus, the priorities, very clear.
Laser focus
Rome wasn’t built in a day. To start, companies can’t go after everything at once. And companies are always going to be much more effective here diving deep into one market versus putting your toes in the water across many markets. It’s better to select one to four of the markets (at most) from the top of the ranked list and target those initially. Grouping a related set of markets often helps in the execution as well, such as all Chinese or Bahasa speaking markets or several Southeast Asian markets.
Having a honed focus on a smaller selected area allows you to really dive deep and understand the intricacies of what it takes to make your business successful in a given market and gives you the time and resources to go after those factors. In Asia, if you’re spread too thin across too many markets, nothing ever gets done. These are all high-touch, relationship-based markets and you need to be on the ground, in market, day in and day out.
Once a market or set of markets is nailed down, plant a flag and grow from there. Do not waver.
Be aware of the largest markets
It’s key to keep in mind that large insular markets will suck companies in, particularly India, China, and Japan. These markets, although they are great and very alluring, can be a difficult place to start.
First, they are harder to stand out in with limited resources. In a smaller market, companies gain easier access to users, the ability to make a larger splash due to fewer conflicting messages, and faster growth in that market. It’s harder to have the same type of infiltration in a large market on an equivalent budget due to increased noise and competition.
Another thing to keep in mind is that it’s very difficult to go after one of these markets and the rest of Asia in parallel. So if a company chooses to target a large market initially, I would recommend focusing all energy and resources on that one before growth allows the business to expand into the smaller markets in Asia.
But think carefully about this route and be prepared. I’ve seen many companies decide to go after one of these massive markets and just get completely sucked in. This is why it is very rare for the successful startups in China to be a big hit outside of China. The same goes for many Indian startups. They become so entrenched in their local markets, that it is difficult to grow outside of them. Many times, companies learn this lesson and these large markets aren’t even a priority for them.
It is also nearly impossible to find someone with deep relationships and expertise across those three massive markets, which can stunt a company’s growth tremendously. For example, it’s next to impossible to find a Japanese guy that can manage China and Japan – or vice-versa.
Hire REALLY good people
Entrepreneurs often make the mistake of settling for low-caliber employees when building out their core regional team in Asia, because they need to assemble one quickly. This is a huge mistake. These are going to be the people building and shaping the company’s brand, and particularly when first getting a company off of the ground in a new area, people that will go above and beyond in terms of time and effort are vital.
You need to find the rare mix of a scrappy, do everything, entrepreneurial type of person that is also on-the-ground and very well connected. These types of people are rare breeds across Asia. Typically, folks are either very local and not so scrappy or are very Western and entrepreneurial, but not very entrenched in the local markets.
It is of course extremely difficult to gauge just how connected candidates are when you’re going after a new market where you have no basis to judge their local relationships, but go with your gut and check blind references – this is when tools like LinkedIn become extremely useful.
Overall, expanding operations to Asia can be a very difficult road to navigate. There are definitely some hidden speed bumps and roadblocks here and there, but ultimately it can be the most rewarding decision your business ever makes. After all, these are some of the largest and fastest growing markets in the world – and will be for the foreseeable future.
Images via Thinkstock, Thinkstock, Thinkstock, Shutterstock
Thomas Clayton has started and run numerous high-tech startups in Silicon Valley. He is currently CEO of Bubbly, a social media startup backed by Sequoia Capital, SingTel Innov8, and JAFCO. The company is one of the largest VC–backed startups in Southeast Asia, having raised over $60 million in funding.
This is the first of a four-part series that will provide insight into starting, building, and funding a company across Asia.
SEE PART 2 following the next story
Douglas Abrams: The man who left the United States enchanted by Asia’s potential – An investor’s story
A sneak peek into the mind of investor Douglas Abrams, Expara IDM Ventures
Originally from the US, Douglas Abrams, shifted to Singapore in the year 2000 when he sensed the great opportunity to tap into in the growing Asian markets. His profile and accomplishments are nothing short of extraordinary.
An MBA from Wharton, Douglas was an investment banker with J P Morgan for 14 years in New York where he looked after the technology and global markets. Today, he is the founder and CEO of Expara IDM Ventures, and early stage fund focussed on investing in interactive and digital media startups from Singapore, Malaysia and Thailand. He has invested in over 20+ startups in these areas since 2007 via the fund. He is also an Adjunct Associate Professor at the National University of Singapore’s (NUS) Business School, where he has taught since 2001 and is a Visiting Professor in Entrepreneurship for the Sasin Graduate Institute of Business Administration at Chulalongkorn University in Bangkok. He is also the Director of Southeast Asia Business Angels Network since 2001.
Douglas lives in Singapore and calls it his home now. His enthusiasm for entrepreneurship in Asia is palpable when you talk to him. What keeps this man going, why does he bet big on Asia, what were his key learnings while investing in the region? He opens up to us.
Journey from New York to Singapore
I came to Singapore from the US because I believed at that time and continue to believe now that Asian markets are the most exciting markets, and for the next 15 years Asian markets will continue to be the most exciting markets, especially for startups and early stage investing. I truly believe opportunity for growth is in Asia. In 1999 I visited Singapore (and Asia for the first time) on a business trip while at J P Morgan, that very trip I decided to move here full-time. For purely selfish reasons, opportunity brought me to Asia.
Genesis of his investment company Expara IDM Ventures
In 2007, I launched Expara IDM Ventures, a public private partnership between Singapore Government and IDM Program office of the National Research Foundation where we have made 55,000 dollar investments in 16 interactive and digital media startups up until 2011. In 2012, we launched Expara IDM Ventures II where we will continue to invest 255,000 dollars into early stage interactive and digital media startups.
In 2008, I also launched a venture fund called Extreme Ventures which is a 20 million dollar venture capital fund, we did 1-3 million dollar investments up until June 2013
In 2011, we have launched Expara Ventures Thailand, and in 2013 we have launched Expara Ventures Malaysia.
We also have a 2000 sq feet incubation facility in Singapore. We are located at Block 71, which is special purpose complex in Singapore dedicated to incubators, venture capital funds, startups, Government agencies in the enterprise and innovation space – so it is a cluster of participants in the enterprise ecosystem. We are on the second floor of that building. We have 25-30 people working on startups in the space right now.
I make high risk investments
We invest into a company at a very very early stage, we are always the first investors in the companies we partner with. We invest in companies that are pre-revenue, companies that are pre-customer, we invest in first-time entrepreneurs, we invest in students/young entrepreneurs, we invest in companies that only have a business plan and have not developed product yet! What I am trying to say is, we get in really early. Then we help companies develop in the initial stages, and they are able to launch successful products and go out and raise more money.
The small size of local talent force in Singapore is bothering for startups
When I first arrived in Singapore in 1999, and then full-time in 2000, early stage startup markets and early stage investing were at infancy. But now they are starting to grow significantly. The markets are still young, but starting to explode. The number of startups, the quality of startups, the number of venture capital funds, the range of funds available, the sophistication of the startups and the venture capital investors and the various components of the ecosystem have increased tremendously over the last 13 years I have been in this region.
The biggest challenge in Singapore market is the small size of the local talent force. Most people worry about Singapore’s size as a startup market, but I don’t worry about that because successful Southeast Asian startups have to target regional or global markets from Day One. The size of the domestic market is not all that important according to me. But the problem is the labour market here is so small. Often the startups that we work with would require a specialist to join their teams, but most of the talented folks are already employed. We have very low unemployment rates in Singapore. There is a lot of competition for skilled employees and startups have to compete with bigger companies that can pay much more money. People with highly desired skill sets are small in number, and they have abundant opportunities in Singapore. However, I don’t think this challenge is insurmountable, smart startups are able to figure out a way through this.
The second challenge is there is a shortage of experience mentors who have grown and exited companies and now want to help other startups. In more mature enterprise ecosystems, we have a lot more of these mentors. I guess we will see more of them in Singapore too with time, as we have local startups exiting now.
The third challenge is lack of exits for local startups, but I believe this is dramatically changing. I am keeping an informal but not comprehensive tally of local startups that are being acquired by larger companies. On my list, there are about 15 such companies that have exited in the last 3 years. Exit landscape is changing rapidly in Singapore market, which I think is very important for inflow of more venture funds into the market.
On Thai startup market where Expara recently set up its base
In Thailand, the process has began about two years ago. Thailand is now where Singapore was in early 2000s. There is a lot of activity and interest in the ecosystem right now. There is a huge scope for growth in Thai markets for early stage venture capital.
In Thailand, there is no shortage of skilled labour and skilled labour is relatively inexpensive when compared to Singapore. Thailand is a huge country and there are lot of talented people who are interested in working in startups. But the biggest problem is lack of the ecosystem, there are very few incubators, very few venture capital firms active in the region, and incubators and venture capital firms are critical to the success of startup ecosystem. I see some incubators and venture capital funds are starting up now, which is a good sign for the Thai market.
The second challenge is that it is very difficult to sell a Thai company to a multinational company due to structural or regulatory limitations in Thai markets. That makes it harder for Thai startups to sell, which is the key to generating more venture capital. So for now Thai entrepreneurs that are looking for a significant exit have to register the company outside of Thailand to sell – this is a structural challenge.
Historical challenge which is the language barrier is reducing right now, as most young Thai entrepreneurs are fluent in English and are able to develop their products in English.
Expanding to all Southeast Asian markets early on can be a real competitive advantage
Although there are a lot of people in Southeast Asia, it is not a cohesive and coherent market. As a small company it is hard to image expanding to the whole of Southeast Asia from Day One. So either you have to go global or have a real regional strategy.
In case you have cracked regional expansion early on, then it is a great competitive advantage. Different countries in the region have different languages and different regulatory and legal compliances, but if you are able to get people from your company to other regions or if you are able to enable fruitful partnerships with already established players in other markets, then it is possible to go about your regional expansion. This is exactly what some of our portfolio companies are doing
“Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist” – a must read book for entrepreneurs says Douglas. It is the same drive to stay smart that makes Douglas skate to where the puck is going to be.
Expanding your startup into Asia?
PART 2 of 4
Here’s how to build out your operations in the region
Thomas Clayton has started and run numerous high-tech startups in Silicon Valley. He is currently CEO of Bubbly, a social media startup backed by Sequoia Capital, SingTel Innov8, and JAFCO. The company is one of the largest VC–backed startups in Southeast Asia, having raised over $60 million in funding.
This is the second part of a four-part series that will provide insight into starting, building, and funding a company across Asia. See part one here.
My first post in this series described how businesses should start when considering expansion into Asia, which is home to some of the largest and fastest growing markets in the world.
The inspiration for my second post came from the many CEOs and entrepreneurs who come to me knowing they want to go after Asia and are aware of their target markets, but unsure of the best approach to start building out their operations on the ground.
For example, should they hire in-market consultants, an expatriate based in a hub city, or partner with a local player? To best answer these questions I have highlighted six key pieces of advice for execs who are growing the operations side of their business in an Asian country or the region itself.
Hire the right people – local and entrepreneurial
A company cannot hire out of a hub city like Singapore and expect those individuals to cover Indonesia, India, Thailand, and the Philippines. A business cannot even realistically cover a subset of those countries from Singapore. Having people in-market and on the ground is key in each of these countries. Nothing gets done otherwise. Someone needs to be pushing things forward in-country day-in and day-out.
You also need true local expertise. It’s worth the investment to have one local person in each market rather than one person centrally trying to cover all of the markets. Moreover, given the salary differences across markets, one person in three of these countries can often cost about the same as one in Singapore orHong Kong.
Another learning I’ve come across the hard way is to stay away from ‘sales consultants.’
I would say that 95 percent of consultants are not working full time for a company for a reason. I’ve seen so many Western tech companies burn cash on these guys with zero results. They’re often expats that move to Asia for the lifestyle or that were on holiday and decided to stay longer-term, and convince Western companies or regional firms to hire them on a monthly retainer to build out their operations.
The fact is that they simply don’t have the exhaustive relationships to really move things forward. The only reason they keep getting business is because their Western clients can relate to these guys culturally and communicate with them effectively, thus making their clients feel more comfortable. However, this is more of a luxury than a necessity.
The other typical ‘sales consultants’ are local players that claim some “very close” relationship with a key player at a target firm. These people simply cannot be trusted as far as you can throw them.
The best-case scenario for hiring any of these consultants is they don’t take your business anywhere and just waste your time and money. The worst-case scenario is that they will steal your intellectual property and cut you out of the loop (this is especially true in countries like Indonesia, Vietnam, China, and Thailand) — I’m serious, watch out!
Important qualities to look for in those initial candidates on the ground are guys that are scrappy and very hands-on. In Asia, there are too many candidates with a few years of work experience that just want to “manage” and not actually do anything themselves. It gets worse with even more experienced candidates. Many of the most seasoned guys are used to having teams of people around them that do everything for them.
Making it worse still, recruiters in the region tend to only focus on the biggest branded companies for their candidates. That’s just lazy. Moreover, coming from Google or Cisco is an EXTREMELY different skill set and environment than the entrepreneurial, scrappy style that is required to build out a successful remote operation on the other side of the world.
One should simply focus on a track record of entrepreneurship and the ability to be a jack-of-all trades rather than experience with big brands. Recruiters don’t understand this, so try to be hands on with your own network and utilize services like LinkedIn when finding your first few key employees.
Be ‘local’ but don’t overdo it
Partnering with large local companies often results in the larger company wanting to “localize” your service. Most of them either take their localization efforts too far or focus on many of the wrong aspects.
For example, I’ve seen local mobile operators white-label mobile applications with a ridiculous brand and put them into the local language — which is not always necessary and can often have a degrading effect on your service, since many Asian consumers envy Silicon Valley brands and do not view operators as sexy brands.
Then these large companies, which are often the dominant players in their respective markets, will demand dozens of new customizations with a list that will grow until it seems endless.
Most of these will fall under the auspices of “localization,” but the reality is the partner is just trying to play ‘product manager’ and thinks they know more than you do. After all, they’re used to treating partners this way in their own markets. When they say, “jump” everyone always does.
This is obviously not sustainable. In short: be the master of your own localization strategy.
Start light and scale from there
In many northern Asia countries, especially Japan, large local players will want to set up joint ventures or new entities with lots of overhead. My recommendation is to shy away from this.
Joint ventures are a thing for large corporations. Keep it simple.
Also, there is no need to open a legal corporate entity until the company has sizable revenue and employees on the ground. Many entrepreneurs think this is the first thing they need to do when entering a new country. Lawyers will always tell you it’s only a few thousand dollars, but they’re not factoring in all of the overhead and ongoing accounting compliance that will come along with it.
In most cases, its an additional $50,000-$100,000 per year in overhead for the admin costs alone.
My advice? Wait as long as possible.
There is a large gray area in each country, but generally companies can wait until they have a few employees and over $1 million in revenue before they need to take that step.
Never assume rules are different and things must be done unethically
So many entrepreneurs ask me about the graft in countries like China, Indonesia, and Thailand. Yes, it’s there, but it is way overblown and it’s not necessary to get involved in order to build out a successful business here.
Moreover, graft has decreased significantly over the past decade and large players are usually above the table. I’ve been able to build out businesses in all of these countries leveraging hundreds of local partners without ever going down this path or even crossing into a gray area.
My advice is to draw a firm line and stay clean, which should not be difficult because as a foreigner, it is unlikely that you will ever even be approached to cross this line. If one of your local employees says it’s necessary, they’re trying to take the easy way out and you have the wrong people on your team.
Don’t underestimate the power of celebrities in these markets
Asians have a huge affinity towards celebrities and what they are using, because they want to use it too. Word of mouth is incredibly powerful in Asia, and celebrities command huge, devout fan bases that not only follow a celebrity, but will also take action based on recommendations from a trusted figure like a movie star or cricket player.
It’s the sole reason companies like Blackberry got a second life in Asia, and it led to the initial takeoff of GREE and Line in Japan. Local players realize this and leverage celebrities heavily. Working with local talent agencies is a great way to get your foot in the door and start getting some stars to help get the word out.
Mobile operators still matter in the ecosystem
If you’re doing anything related to mobile, it’s imperative you understand thatfeature phone penetration is still well over 80 percent in most Asian markets, which amounts to over four billion consumers. Therefore, working with operators is still one of the quickest ways to reach the masses.
One key benefit that operators offer is easy and seamless billing, which can provide a significant boost since many areas across Asia lack electronic payments and have meaningless credit card penetration. However, prepaid SIM cards are ubiquitous and nearly every consumer has one. Digital ad revenues are still too small in most Asian markets to be a viable business model, so charging consumers via operator billing is still one of the most pervasive local models.
The above are just a handful of lessons that I’ve found to be invaluable for my businesses and those that I advise or sit on the Board of. I hope that it gives others a little color as they look to expand into Asia and a cleaner entrance into this exploding market.
Headline image via Thinkstock, other images via Thinkstock, Thinkstock andAFP/Getty Images
Mongolia Is Feeling Friendlier Toward Foreign Investors
Ulaanbaatar Considers Lifting Restrictions as Outside Investment in Resources Drops
BEIJING—Mongolia is moving toward scrapping a year-old law restricting foreign ownership of what the country deems strategic assets, including mines, as it struggles to reverse the effects of resource nationalism and a global commodity slump.
The proposal, which a senior official said requires passage by Mongolia’s Parliament—with a vote likely in late December—underscores the shift in the country’s fortunes since the law was passed. Mongolia then asserted national interest in its fledgling energy and mineral sectors as a tide of suitors entered from China, Australia and elsewhere. But commodity markets have since turned south.
Bloomberg NewsRio Tinto‘s Oyu Tolgoi mine was acquired before the foreign investment law was enacted, but the miner and Mongolia are in dispute over the project.
Under the changes, the landlocked Asian nation would lower barriers for foreign investors in “strategic” sectors including mining, telecommunications and finance—though it would still closely scrutinize deals involving government-controlled companies such as China’s state-owned enterprises.
“We are trying to cut the Strategic Entities Foreign Investment Law,” Otgochuluu Chuluuntseren, director-general of strategic policy and planning in Mongolia’s Ministry of Mining, said Wednesday. Under the amendment, he said, “there will be no more distinction” between foreign and domestic investors.
The law, enacted in May of last year, requires that foreign investors obtain government approval for deals valued at more than $75 million that would give them 33% or more of a company in a strategic sector. Foreign bids for at least 49% require parliamentary approval. The proposed amendments would lift those restrictions.
A month before the law was enacted, state-owned Aluminum Corp. of China said it would pay about $920 million for control of 800 million metric tons of Mongolian coal through a 60% stake in SouthGobi Resources Ltd. SGQ.T -3.91% The deal fell apart four months later, after Ulaanbaatar suspended some of SouthGobi’s mining licenses.
Signaling that its concerns haven’t abated, Mongolia plans to continue singling out bids by state-owned investors for special review by setting up an official regulator modeled on Australia’s Foreign Investment Review Board. “Something like this will happen here in Mongolia,” Mr. Otgochuluu said.
Chinalco referred a request for comment to its overseas investment unit, which didn’t answer calls Wednesday.
Mining accounts for a third of Mongolia’s economic output, but official data show that foreign direct investment in the resources sector was down 32% in the first half from a year earlier.
The proposed amendments are a “long overdue significant message from Mongolian authorities that the country wants investment back, both foreign and domestic,” said Dale Choi, analyst with consulting firm Mongolian Metals & Mining Research.
The changes also could be aimed at alleviating worries among nonstate investors such as Rio Tinto, RIO.AU +0.15% which owns a 66% stake in Mongolia’s $13 billion Oyu Tolgoi copper-and-gold mine. The government hasn’t publicly challenged the extent of the Anglo-Australian company’s holdings, which were acquired before the Strategic Entities Foreign Investment Law was enacted. But Ulaanbaatar has refused to support the company’s subsequent fundraising efforts to develop the project, and the two are in a dispute over the project.
Rio Tinto this month said it planned to lay off as many as 1,700 employees and contractors at Oyu Tolgoi. Rio Tinto didn’t respond to a request for comment Wednesday.
Write to Chuin-Wei Yap at chuin-wei.yap@dowjones.com
Crowdsourcing giant 99designs acquires LogoChef, continues global expansion
99designs, which is already the world’s largest graphic design marketplace, announced today that it has acquired Brazilian competitor LogoChef and has launched a Portuguese-language version of its site targeted at Brazilians.
Clearly, this crowdsourcing success story wants to go global.
“We’re excited to be taking the next step in our globalization strategy with the acquisition of LogoChef,” 99designs president and CEO Patrick Llewellyn said in a statement. “With small businesses and startups driving 99 percent of Brazil’s economy, we have an extraordinary opportunity to connect a new group of our core customers with designers there and around the world.”
99designs expanded into Europe last year with the acquisition of the Berlin-based 12Designer and localized versions of its site in Germany, France, Italy, Spain. Just recently, the company launched local sites for Mexico, Argentina, Columbia, and Chile as well as the Netherlands and Singapore.
The expansion and purchases are fueled by its $35 million series A funding round in April 2011.
Terms of the acquisition were not released, but LogoChef cofounder Dan Strougo will become 99designs’ country manager for Brazil, working out of a Rio de Janeiro office.
So far 99designs has held more than 235,000 graphic design contests, each of which attract 30-100 submissions from the site’s community of 245,000 artists. My cover design contest, for example, garnered 91 cover art submissions.
To date, 99designs has paid out $60 million to artists around the globe.
[Author’s Disclosure: I used 99designs for the cover of my novel, No Other Gods.]
Read more at http://venturebeat.com/2013/08/27/crowdsourcing-giant-99designs-acquires-logochef-continues-global-expansion/#7iOUVOA7eldDCCHz.99
Should Russia be your next e-commerce frontier?
This is a guest post by Julie-Lynn Tikekar, associate director of emerging markets at e-commerce outsourcing company Digital River
Russia is home to one of the world’s largest economies and continues to be an attractive option for e-commerce ventures. The question at this point is whether Russia is the right choice for your next e-commerce frontier.
In 2012, Russia’s base of Internet users surged to about 70 million people — overtaking both Germany and the United Kingdom. This is particularly impressive considering that in 2003, less than 10 percent of the Russian population was online and today more than 50 percent are active users. Russia now boasts the most Internet users of any country in Europe and, with another 20 million Russians expected to log on for the first time during the next two years, it will approach both Japan and Brazil in web population by 2015.
In terms of economic activity, research shows Russian web users are much more than just window shoppers. Online purchasing among Russian e-commerce customers is expected to grow 27 percent annually through 2015 and reach $25 billion by 2014, according to McKinsey & Company. What’s more, annual revenues per shopper will likely more than double to $1,272 in the next two years — edging ahead of France, Brazil, and South Korea.
The development of Russian e-commerce will soon position it alongside many of the world’s top contenders. Although shoppers in other developed markets like the United Kingdom and Germany currently spend far more their Russian counterparts, their total purchases are expected to actually decrease on an annual basis during that same period, primarily due to economic factors. And while China and India will continue to outpace Russia due to sheer population numbers, the growth in the Russian market will make it among the most valuable in the world in just a few short years.
There is no doubt that current online trends in Russia present a strong business case for any company interested in growing their global e-commerce footprint. Yet, like any international market, the Russian e-commerce market presents its own set of unique challenges.
Here are some of the most pressing factors to consider before expanding your online business into Russia:
Cash is king: As much as 80 percent of Russia’s 89 million online purchases in 2011 were paid for with cash on delivery (COD). However, shopper preferences in Russia are expected to change as credit and debit card use grows and consumer trust increases. In the meantime, merchants should make absolutely clear onwebsites what their COD policies are in order to minimize non-payments or order rejections.
Keep it simple: While Moscow and St. Petersburg are known as the economic centers of Russia, e-commerce activity is following a different trend. Seventy-five percent of online orders are made from smaller cities where economic strength is growing but consumers are still evolving in their online shopping expertise. That is why it is vitally important to take some extra steps to facilitate the shopping experience and create a credible and trustworthy site. For example, prominently display recognized brands on your home page. Present your content in the Russian language. And make links to customer support and FAQs easy to find.
Physical trumps digital: Many Russians have opted to purchase physical software over digital software due to trust, security, and fraud concerns as well as the preference to pay in cash. Although online shopper trust is increasing and payment preferences are evolving, an e-commerce strategy should address both channels to maximize effectiveness in the marketplace.
Keep connected: Social media is another hot topic in Russia. While the opportunity of social commerce is debated in established markets, 93 percent of online users use social media at least once a month and 23 percent are regular content contributors. This is significantly higher than the global average of 70 percent and shows the desire for Russian consumers to stay connected. So keeping a social media as part of your local communication and commerce strategy is key.
Accept uncertainty: The Russian market is growing fast and evolving faster. And while the potential is exciting, the lack of historical market data requires that companies conducting e-commerce in Russia be flexible in their financial planning. Other uncertainties exist as well, such as the lack of carriers providing full nationwide delivery and the overall difficulty in doing business. (The World Bank currently ranks Russia at No. 120.) To take advantage of Russia’s revenue potential, seek partners who are highly experienced in local logistics and payment methods.
With a population of over 140 million highly educated, increasingly tech-savvy people, Russia is a country ready to assume its place in the global e-commerce economy. By building a Web presence with high quality branded products, competitive pricing, good language translation, customer convenience, and strong payment/logistics options, it’s possible to take a commanding position in one of the strongest developing markets in the world.
Julie-Lynn Tikekar is associate director of emerging markets at e-commerce outsourcing company Digital River. Since joining Digital River’s European management team in 2007 as a product manager, Julie has worked closely with both Russian and global clients to develop ecommerce solutions to support domestic online sales in Russia. In her current role, Julie is responsible for product strategy and marketing for emerging markets, including Russia.
Read more at http://venturebeat.com/2013/07/29/should-russia-be-your-next-e-commerce-frontier/#wCYGfK3jYLH0zKar.99
How to go global and win big with your startup
The US is a global leader in Internet and smartphone penetration and use, but the rest of the world is catching up fast. With a good part of the growth for consumer products happening abroad, the question isn’t if you should go global with your startup, but how and when.
Europe may be a good place to start — if we combine the top 6 countries in Europe, they have a higher GDP than North America — but as you can see from the growth charts of some popular US tech companies serving international markets, a huge number of users are coming from farther afield.
WordPress.com
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LinkedIn.com
The traditional US-first launch has worked for a number of companies, but we’ll be seeing many more global-first startups in the coming months. Just.me is one of the first to do so; it launched with 32 languages and in 155 countries.
My company Betable is global-first. We operate in multiple global markets and are always expanding to more, so I’ve gotten a good inside view of both the risks and rewards of this kind of strategy.
The advantages of going global first are that it lets you:
- Quickly lock up markets
- Unlock unexpected growth in markets you may not have launched in otherwise
- Uncover unexpected use cases of your product
- Run cheaper testing and learning experiments in foreign markets
- Save costs dramatically, compared to a later international expansion
- Avoid local copycats
Regardless of when you’re going global, here are a number of things you should keep in mind:
Not everyone knows English
Internationalization isn’t just the process of translating a website or an app, but this should definitely be the first step. Americans might think that English is understood by mostly everyone in the world, but the reality is that most people in foreign countries don’t speak English and, even if they do, greatly prefer native language applications and websites to English ones.
Fortunately, crowdsourcing tools are making app and website translation much easier and cheaper.
People search on Google in their native language
Adding dedicated local websites doesn’t only improve the experience for users, but actually gets you more of them. People search in their native languages, so without native-language versions of your site or app, all your SEO efforts are going to be completely worthless in foreign markets.
Distribution channels are different
Every country will greatly differ in their performance across the various distribution channels. Don’t assume that Facebook traffic will perform badly on your site abroad because that’s what you’re seeing in the US. When launching in a new market, you should erase almost all your previous thinking about distribution and marketing, start with a new clean slate, and run all the testing from scratch.
Payment methods are different
Credit cards might be ubiquitous in the US and a handful number of European countries, but a large number of Internet users don’t have access to or don’t feel safe using them online. When expanding, keep in mind the prevailing payment methods in each country, which can include carrier billing, local payments, and prepaid options.
Latency matters
It’s no secret that speed matters, and having requests and responses going back and forth around the world takes time. Getting servers all around the world or at least a global CDN to host your static content should be a priority.
Hire international people
Distributed teams or not, having diverse people in your team is mandatory. On top of helping the company being more creative and efficient, you will gain a broader understanding of the ways of life and cultural forces in different parts of the world.
Partner with someone on the ground
Joint ventures are usually a very bad idea, but partnerships are a great way to land in new markets, particularly closed ones such as Germany or China.
If you’re doing consumer Internet or mobile, you need to be thinking about your global strategy. If you’re just starting out, considering going global-first. Chances are you won’t regret it.
Stefano Bernardi is on the founding team of Betable, a VC-funded startup where he heads Customer Development. Previously, he worked in venture capital in Europe. He is a part-time hacker, angel investor, and product advisor, and was selected from more than 300 people to “shadow” Dave McClure at 500 Startups. Check out his blog and follow him on Twitter.
Top photo credit: Shutterstock
Rolls-Royce eyes European best prospects with Poland dealership
By Erin Shea, Luxury Daily
Rolls-Royce Motor Cars is expanding its European presence with plans to establish a new dealership located in Warsaw, Poland.
This dealership is a continuation of the British automakers’ global push after the opening of two new showrooms in 2013. With its global expansion and the introduction of a new vehicle this year, Rolls-Royce seems to be secure with its current status in the luxury auto market.
“With more than 38 million people, Poland is a fairly large country – the sixth most-populous country in the European Union – so there are bound to be many good prospects for expensive vehicles,” said Al Ries, founder and chairman of Ries & Ries, a Roswell, GA-based marketing strategy consultancy.
“Rolls-Royce sells vehicles in 40 different countries,” he said. “Last year, Germany and Russia saw the biggest increase in Rolls-Royce sales.
“I would expect Rolls-Royce sales in Poland would be large enough to support a single dealership.”
Mr. Ries is not affiliated with Rolls-Royce, but agreed to comment as an industry expert.
Rolls-Royce was not available for comment before press deadline.
Building a home
Rolls-Royce recently negotiated an agreement to create an official authorized dealership in Warsaw. The new dealership will be named Rolls-Royce Motor Cars Warsaw.
This dealership will take the place of Auto Fus, which has been a Rolls-Royce authorized service partner since 2012, and will now extend its offerings to the entire range of sales and after-sales services.
During the second half of 2013, Rolls-Royce Motor Cars Warsaw will open an interim showroom at the existing location.
The planning for the new showroom has begun. The automaker estimates that the dealership will be open during 2014.
After this announcement, Rolls-Royce plans to keep up the enthusiasm of its Polish customers by presenting the Wraith vehicle through an exclusive event in the Warsaw area on May 11.
Wraith
Around the world
The new dealership in Poland is the third Rolls-Royce showroom to open in 2013.
In April, the British automaker opened a showroom in Beirut, Lebanon, which is the 10th showroom in the Middle East for Rolls-Royce (see story).
Also, Rolls-Royce secured its place in India’s up-and-coming luxury marketplace by opening up a third showroom in the country in February.
The opening of this location proves that Rolls-Royce remains confident with its sales results in India. The showroom is located in Hyderabad, which is a large metropolitan area with affluent consumers (see story).
Since luxury automakers have been experiencing record sales in recent months, it is not surprising that Rolls-Royce is investing in new showrooms and dealerships.
The automaker reported a new global and European sales record in 2012 and says that 2013 are continuing on a healthy level.
“Rolls-Royce had a record year last year, selling more vehicles than they have ever sold, so opening another three dealerships, in addition to the approximately 100 dealerships they already have, is no big deal,” Mr. Ries said.
“The success of Rolls-Royce reflects the fact that the high-end luxury market is not being hurt by the downturn in the global economy,” he said.
Press inquiry
Erin Shea, editorial assistant on Luxury Daily, New York
U.S. Draws Greater Foreign Investments
For U.S., Big Foreign Investment Is a Mixed Blessing
By NEIL SHAH, The Wall Street Journal
Foreign investment in the U.S. dwarfed American investment abroad by the biggest margin on record for much of last year, leaving the U.S. economy more vulnerable to external shocks but also suggesting the nation remains a magnet for foreign funds after the financial crisis.
America’s “international investment position” in 2012—how much the value of foreign investments in the U.S. exceeded U.S. investments abroad—jumped to $4.7 trillion in the second and third quarters of last year before falling to $4.4 trillion by year’s end, up from $4.0 trillion at the end of 2011, the Commerce Department said in a report Tuesday that provided quarterly data for the first time.
The $4.7 trillion gap in the second and third quarters was the biggest since the government began tracking the figures in 1976, according to the report.
The report suggests foreign investors and companies are playing a much bigger role in U.S. financial markets and the economy. That worries some observers, since it makes the U.S. economy more vulnerable to sharp turns in the global environment. Yet it also suggests America remains a beacon for foreign investment.
“The U.S. is still the largest market in the world and despite some of our dysfunction, by comparison, we look like a pretty good investment,” said Nancy McLernon, chief executive of the Organization for International Investment, a Washington, D.C., group representing major foreign investors in the U.S.
Foreign investment in the U.S. has dwarfed U.S. investment abroad for some time. In the first half of the 1990s, America’s “investment position” was nearly zero, meaning Americans owned about as many foreign assets as foreigners owned U.S. assets. In the late 1990s, foreign ownership of U.S. assets expanded faster than U.S. investments, a trend that deepened after the 2008 financial crisis.
Dependence on foreign investment can make the U.S. economy and currency more vulnerable to external financial shocks if investors and companies yank their money, or threaten to.
China is the largest foreign holder of U.S. government debt. That provides the U.S. with a steady source of cheap financing, allowing it to maintain relatively heavy debts, but also could give China leverage.
Still, a pickup in foreign investment is good news for the economy since it can boost U.S. stock prices and real-estate values, fueling Americans’ wealth.
As of the end of last year, foreign direct investments in the U.S. totaled $3.1 trillion, the highest on record, the report showed. Such investment includes purchases of things like U.S. companies and real estate, but not more short-term bets such as U.S. corporate bonds, stock and Treasury securities.
America’s “investment position” also tends to fluctuate with the prices of stocks, bonds and derivatives, and currency values. Last year’s increasing gap, for example, was largely caused by a decline in the value of U.S.-owned financial derivatives. The Commerce Department will provide more detail in June.
Japan’s Aisin Seiki Co. 7259.TO +1.76% is among those plowing more cash into the U.S. The company, which makes auto parts and saw $30 billion in revenue last year, is expanding an operation in Fowlerville, Mich. All told, the facility will represent a $120 million investment in Michigan.
Aisin has also built three manufacturing plants in the U.S. in the last decade and is looking for workers, including in Michigan. “There is lots of room for expansion,” said John Koenig, president of Aisin World Corp. of America.
Chinese Investors Get Picky Over U.S. Visa-for-Cash Deal
By JAMES V. GRIMALDI, ANGUS LOTEN and VANESSA O’CONNELL, The Wall Street Journal
Under EB-5, an immigration program that pairs foreign investment with U.S. visas, descendants of Maria and Captain Von Trapp are trying to raise money to renovate the Trapp Family Lodge in Vermont. Photo: Lauren Stagnitti/Trapp Family Lodge.
STOWE, Vt.—Johannes von Trapp, a scion of the family depicted in “The Sound of Music,” has spent the past year and a half trying to lure foreigners to invest in his ski lodge and brewery here in northern New England, dangling the possibility of U.S. visas as part of the deal.
He has flown to China three times and made his pitch to hundreds of the nation’s wealthy. He has regularly invoked the story of his parents’ escape from Nazi-occupied Austria and the resulting movie, which became a favorite in China decades after it was made. He even found himself reluctantly leading a group of Beijing children in a rendition of “Edelweiss.”
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The response thus far: just $2.5 million from five investors, far short of his goal of $22 million from 44 investors by June.
President Barack Obama has championed the special immigration program known at EB-5 as an engine of job creation. A foreigner who invests at least $500,000 in a qualified U.S. business is entitled to a green card—provided the invested money puts at least 10 Americans to work. American businesses raised more than $1.8 billion through the program in the fiscal year ended Sept. 30, and 7,641 would-be immigrants were issued visas. Eighty percent of them were Chinese.
But as the 74-year-old Mr. von Trapp has discovered, would-be investors are getting much pickier. American businesses ranging from fast-food franchises to biofuel facilities to meatpacking plants are now competing for EB-5 funds. Some projects haven’t produced the requisite number of jobs—prompting U.S. immigration authorities to withhold green cards. And word has spread about investment money disappearing in failed businesses or outright frauds.
“It’s much more difficult than I anticipated,” says Mr. von Trapp.
U.S. authorities say they have slowed visa approval because of fraud suspicions and defects in job-creation estimates by developers. Authorities also acknowledge their reviews of those estimates have been flawed. Last year, the federal Citizenship and Immigration Services agency, which oversees the program, hired a half dozen economists to better assess the job-production claims.
“We have been very focused on ensuring the integrity of the program, working collaboratively with the Securities and Exchange Commission and other regulatory and enforcement authorities,” says U.S. Citizenship and Immigration Services Director Alejandro Mayorkas, a former federal prosecutor.
Last month, the SEC said it had filed its first lawsuit against an EB-5 project, in Chicago federal court, alleging that the promoters of a Chicago hotel-and-convention-center plan had fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from more than 250 Chinese investors. The SEC said some of the funds had been misappropriated and nothing had been built. A lawyer for the developer told a federal judge late last month that his client favors returning the $145 million, now in an escrow fund, to investors.
Gilles Sabrie for The Wall Street Journal
Sam von Trapp pitched investors in Beijing in December.
The added scrutiny has created a bottleneck. In the two-year period ended Sept. 30, 9,845 foreigners applied to invest in EB-5 projects. During that same period, 5,240 waiting applicants were approved and 1,328 denied. Thousands remain in limbo or have dropped out as the immigration agency continues to assess their applications.
The EB-5 program was created by Congress in 1990 to help lift the economy out of recession. It attracted minimal interest from U.S. businesses until the financial crisis hit in 2008 and traditional sources of financing got harder to tap.
Since then, numerous reputable businesses, large and small, have used the program to raise money. Marriott International Inc., MAR -1.12% Hyatt Hotels Corp. H -0.58% and Hilton Worldwide Inc. are teaming up with EB-5 investment funds to build new hotels. An EB-5 project in Los Angeles raised money for Sony Pictures Entertainment and Warner Bros. Another in Brooklyn helped fund the Barclays Center, new home of the NBA’s Brooklyn Nets.
Entrepreneurs across the nation have set up so-called regional centers to market local EB-5 projects, for a fee, and to provide economic analysis to establish that the projects meet job-production requirements. There are now more than 230 such regional centers. Some of them, such as one in Vermont, were set up by governments for economic-development purposes.
A surge of would-be investors from China has fed the EB-5 boom. Wealthy Chinese have become more interested in planting roots in the U.S., which they view as a desirable place to park assets, educate their children and, in many cases, establish residency.
An entire industry has cropped up in China to connect such investors with EB-5 opportunities. Hundreds of immigration-consulting firms, licensed by China’s regional authorities, help U.S. businesses find investors, collecting fees and commissions as high as $175,000 per investor.
Bob Kraft, the president of FirstPathways Partners LLC, which oversees EB-5 projects for a regional center in Milwaukee, has been to China 43 times in recent years and has raised more than $100 million from 200 investors for Wisconsin hotel and manufacturing projects. “A lot of the new folks who have jumped in don’t understand how complex it is,” says Mr. Kraft. “It takes time to build trust over there.”
Problem projects promoted by incompetent or dishonest American businessmen have put Chinese investors on edge. Albert Young, an EB-5 consultant in Shanghai who knows of Chinese families sent home without green cards, said: “No one really knows the rules, and there is a lot of misrepresentation going on to get those investors.”
Dozens of investors from China and other countries have sued various businesses participating in the program. In Louisiana last year, about 31 investors, at least 15 from China, filed a federal lawsuit alleging the only thing they had to show for a $15.5 million investment was an undeveloped plot of land across the Mississippi River from New Orleans. A lawyer for two American fundraisers for the project says they are seeking to dismiss the suit, arguing in part that immigration authorities thwarted the project by rejecting investors’s job-creation estimates.
In San Bruno, Calif., three Chinese investors allege in a lawsuit filed last year in state court that they lost $3 million when an EB-5 developer disappeared after he faked a heart attack in a karaoke bar and his associates concocted a story about his death. In January the court awarded investors a default judgment because the developers never appeared.
Cherry Qian, 24, a graduate student from Shanghai living in Washington, invested $500,000 in a Moberly, Mo., artificial-sweetener factory in 2011. Last year, Missouri officials arrested the developer and accused him of stealing $700,000 in municipal-bond money and using some of it to save his Beverly Hills home from a foreclosure auction. A lawyer for the developer says his client denies the charges. The case is pending. Ms. Qian says she recovered her money from a licensed immigration consultant in Beijing, but lost a $40,000 fee.
That was the landscape Mr. von Trapp faced when he began his quest in 2011. The family business, centered on the Trapp Family Lodge, needed money to renovate guest rooms, build more timeshare units and expand a craft-beer business. Jay Peak Resorts and Sugarbush Resort, two other ski resorts in the state, and Country Home Products Inc., an outdoor-power-equipment maker, had cumulatively raised more than $300 million in EB-5 money, according to the state. Those businesses are part of the Vermont Regional Center set up by the state.
Mr. von Trapp considered other financing options, including a Vermont Economic Development Authority program that uses bond money combined with a bank loan. He decided that the most favorable option would be to use mostly EB-5 money.
The Trapp Family Lodge had been hit hard by the recession, as was the entire Vermont tourism industry. In 2012, the lodge notched a net loss of $456,053, compared with a profit of $166,000 the prior year, according to Mr. von Trapp’s accountant.
A consultant who helps market EB-5 projects to immigration agents in China told Mr. von Trapp his family’s history would be a big plus in reaching the Chinese. Beginning in the late 1970s, as censorship receded at the end of the Cultural Revolution, “The Sound of Music” was screened widely, becoming a favorite.
James Dwinell, a former Trapp Family Lodge board member who twice traveled with Mr. von Trapp in China, said the 1965 movie resonates with the Chinese. “For a generation of, in particular, women in China, they grew up with the ‘The Sound of Music,’ and they know every word to every song,” he says.
On Mr. von Trapp’s first marketing trip to China, he tried to sell limited partnership shares that would give investors preferred stock in the company. Chinese investors “were unimpressed,” he says. They didn’t understand why a limited partnership would give them no control over lodge management.
So he restructured the deal as debt. He is now offering shares in a limited partnership that will lend money to the business, at a low 1% annual interest rate, to be paid off in five years.
China’s Money Trail
- Chinese Fly Cash West, by the Suitcase(1/2/13)
- In Reversal, Cash Leaks Out of China(10/16/12)
- Vegas Bet on Chinese VIPs Raises Red Flags With Feds (9/20/12)
- Resource-Rich Canada Looks to China for Growth (5/14/12)
- China Foothold in U.S. Energy (3/6/12)
- Plan B for China’s Wealthy: Moving to the U.S., Europe (2/22/12)
- In the Heart of the Rust Belt, Chinese Funds Provide the Grease (2/11/12)
Under EB-5 rules, the lodge’s losses last year were significant enough for it to qualify as a “troubled business.” There is a benefit to that. In its job-production tally—the all-important number that determines whether green cards will be issued—the Trapp Family Lodge can count preserved jobs as well as created jobs.
In the offering materials, Mr. von Trapp’s economist asserts the finished project will not only preserve 200 jobs at the lodge, but also will create 904 new jobs within three years—66 jobs at the Trapp Lager brewery and restaurant, and the rest “indirect” jobs as the capital spending ripples through the economy.
“The number one concern of investors is whether the brewery project will create enough jobs,” says Mr. von Trapp.
For obvious reasons, the troubled-business label can spook potential investors. Sam von Trapp, the 40-year-old son of Johannes, who traveled to China for 18 days in November and December to recruit investors, says it has been a “a huge stigma.”
One Saturday in December, about two dozen people gathered in a hotel conference room in Beijing. Sam von Trapp, wearing a jacket like Christopher Plummer’s in “The Sound of Music,” presented a slide show. “Our motto at the Trapp Family Lodge is: ‘A little bit of Austria, a lot of Vermont,’ ” he said. “Some of you may be familiar with my family’s history from the movie ‘The Sound of Music.'”
One 55-year-old attendee said she is an employee of a state-owned enterprise. She said she is looking for a better living environment and a good education for her child.
“My daughter is 10 years old now, and I want her to study in the U.S. after middle school,” said the woman, who identified herself only as Mrs. Wang. “What I’m concerned about this project is that we might lose money if this project is not successful. Or we need to spend more than we expected to invest in this ‘Sound of Music’ project.” Johannes von Trapp later said she didn’t invest.
In addition to the five investors he says have already put funds in escrow, about 20 others are “in various stages of transferring their money out” of China to invest, he says—a complex process because of Chinese restrictions on moving money overseas.
Back in the snowy ski town of Stowe, Mr. von Trapp sat down recently with a 42-year-old architect from Beijing who was considering investing.
“My family was fortunate enough to come to the United States in 1938,” he told his visitor, pausing for a translation into Mandarin. “It is an honor for us to help families come to the United States.”
The architect asked detailed questions about the project and the terms of the deal. “How do I know my investment is secure?” he asked at one point. “How will I know that it creates enough jobs for me to qualify for a green card?”
Sam von Trapp gave him a tour of the resort property, showing him von Trapp family homes, a pasture where the family raises cattle for meat for its restaurants, and the existing brewery that made about 1,000 barrels of beer last year, sold at the lodge and in Vermont bars and cafes.
The lodge was full that weekend, so the architect was staying at Johannes von Trapp’s house. Mr. von Trapp’s gun cabinet, which contains more than 30 rifles, caught his attention.
“If I get a green card, can I buy one of these?” he asked.
“Sure, absolutely,” Mr. von Trapp replied. “No problem. I’ll take you hunting.”
In a later email, the architect, who gave his name only as Mr. Pan, said he wants to expose his two children to a non-Chinese education system—but he had decided that now wasn’t the right time. “I want to wait until the kids are a little bigger,” he said, “around high school or so, then immigrate.”
—Jamila Trindle, Lilian Lin and James Oberman contributed to this article.
INDONESIA’S LIPPO GROUP BUYS L.A.’S U.S. BANK TOWER
By: M. White, Global Trade Magazine
The U.S. Bank Tower measures 1,018 feet high and dominates the Los Angeles skyline. The building was completed in 1989 and designed by architect I.M. Pei. Credit: skyscrapercity.com
An arm of Indonesia’s Lippo Group conglomerate has said it will pay more than $368 million to acquire the 72-story U.S. Bank Tower in downtown Los Angeles, the tallest building west of the Mississippi.
The sale to Overseas Union Enterprise Ltd. (OUE), a hotel and property group, is scheduled to close in late June following the expiration of the tax protection period.
OUE has reportedly made a non-refundable deposit in the amount of $7.5 million for the property, which includes the tower building, and the adjacent West Lawn parking structure and Maquire Gardens park.
The building, only 56 percent occupied, is being sold by Los Angeles-based MPG Office Trust, which owns and operates numerous office properties in California and Colorado.
Net proceeds from the transaction are estimated to be approximately $103 million and “will be available for general corporate purposes, including potential loan rebalancing in connection with the refinancing of the company’s upcoming 2013 debt maturities,” the company said.
According to media reports, the structure was in imminent danger of default and its loan had been transferred to a debt workout firm, according to a piece in a December edition of the Wall Street Journal.
The U.S. Bank Tower’s mortgage loan of about $260 million was set to mature on July 1. MPG had said, as recently as November, that it had no intention to sell the building.
The cylindrical 1,018 foot U.S. Bank Tower was designed by New York-based architect I.M. Pei and was completed in 1989.
U.S. Factories Outpace Their Global Rivals
Outlook Improves on Increased Spending and Uptick in Trade, as Manufacturers Shrug Off Worries About the Sequester
By NEIL SHAH, The Wall Street Journal
American manufacturers are doing better than many of their competitors around the world as increased spending by U.S. businesses and a revival in global trade creates more demand for their products.
The Institute for Supply Management said Friday that its gauge of U.S. factory activity expanded in February for the third straight month to 54.2—continuing the biggest jump in manufacturing activity since the economic recovery started in July 2009. A reading above 50 indicates growth. Exports jumped to a nine-month high, while new orders and order backlogs, both gauges of future business, rose sharply.
The report is evidence that increased spending by U.S. businesses and consumers, the housing recovery and an uptick in global trade are helping America’s factories, which were a key engine for the nation’s recovery three years ago but weakened recently amid a global economic slowdown. The report also suggests that manufacturers aren’t nervous about the looming impact of the “sequester,” the $85 billion in across-the-board government spending cuts that kicked in Friday.
Separate reports on Friday showed that Americans are still spending despite higher taxes, while confidence among consumers rose in February to its highest level since November.
The improving outlook for U.S. factories comes as factories in many other parts of the world are facing more headwinds. Manufacturing growth slowed in China, the world’s second-biggest economy, though analysts said Lunar New Year festivities damped production. In the euro zone, factory activity is a mixed bag, but generally weak: The region’s biggest economy, Germany, saw its factories start expanding again, but manufacturers in Italy, the bloc’s third-biggest economy, slumped deeper into contraction territory. Britain’s manufacturing activity unexpectedly shrank. Factories in Brazil and Taiwan expanded, but their growth pace slowed.
U.S. “manufacturers are now seeing a rebound in domestic demand, especially the early cyclical industries,” said Joseph Carson, economist at Alliance Bernstein. “That’s helping offset some of the more sluggish growth overseas.”
The big drivers of manufacturing’s latest rebound are a jump in business spending and a pickup in global trade, which is creating demand for U.S. exports. American businesses increased spending late last year after largely shelving investment plans before the U.S. election and keeping their inventories relatively light—both of which could mean more orders for manufacturers early this year. Meanwhile, U.S. exports to other countries helped keep the economy growing late last year, with trade adding nearly a quarter percentage point to the nation’s growth rate, which itself was revised Thursday to show a 0.1% expansion instead of a 0.1% contraction.
Robert Livingston, chief executive of Dover Corp., DOV -0.53% an industrial conglomerate that makes a variety of products like refrigeration equipment, says his company’s sales are picking up gradually this year thanks to improvements in the domestic and global economy.
The recovery of the housing market and increased car sales in the U.S. are boosting demand in the manufacturing sector, he said. “I do think 2013 will be better than the last two years.”
Another boost for the company, which had 2012 revenue of $8.1 billion, has been an uptick in sales overseas. Roughly 50% of the firm’s business comes from outside the U.S., including 15% from Europe and 20% from Asia. While Mr. Livingston isn’t expecting a big jump in overseas business, he is relieved that last year’s spell of weakness is over. “There’s a little more confidence with our customers today than four or five months ago,” he said.
After expanding facilities in places like China, India and Brazil in recent years, Dover is now eyeing expansion plans in the U.S., including for a factory in Conyers, Ga., near Atlanta, that makes refrigeration systems for grocery stores.
Economists and corporate executives aren’t expecting manufacturing to become a driver of the recovery the way it was three years ago. But ISM’s report suggests American manufacturers have clearly gained traction after throttling back production last year. An index tracking new orders rose to 57.8, above January’s 53.3 reading—the biggest jump since March 2010—while a separate index for production rose to 57.6 from 53.6.
The “overall tone in manufacturing is clearly positive,” said Brad Holcomb, chairman of the ISM’s manufacturing-survey panel. “As for how sustainable this is, we suspect we will stay in a pretty tight range for the next couple of months.”
THE LOGISTICS OF A POTATO CHIP
The Journey of Sweet Maui Onion Kettle Style Chips From Washington Farms to Japanese Shelves
By: Evelyn Iritani, Global Trade Magazine
Chipping In: Jeff Leichleiter began as a partner at Tim’s Cascade snacks, tasked with creating the production line. Since the retirement of Tim Kennedy—the company’s namesake—Leichleiter has taken over the top spot as general manager and led the brand to new heights.
It didn’t take Tim Kennedy long to figure out that he was in trouble. He had been asked by a Seattle businessman to locate some used American fryers and packaging machines and help set up a potato chip factory in China.
But upon arrival, Kennedy, the founder and namesake behind Tim’s Cascade Snacks, discovered that the factory was high in the mountains of Sichuan Province, a long ways from a port and 400 to 500 miles away from the nearest potato field. Their building was sandwiched between a tangerine processing plant and a gunpowder factory. Every night, they had to drive a couple hours just to get to Chengdu, the nearest place with a hotel.
At the urging of the project’s investors, Kennedy says he eventually ended up taking over the business and bringing over his partner, Jeff Leichleiter, to help get the production line going. The chips tasted pretty good, but they couldn’t line up the trucks and distributors to get their chips to market.
“We ended up going over there and getting it going, but it was the wrong place, the wrong partner and the source of the raw materials was wrong,” Kennedy explains in an oral history recorded for Seattle’s Museum of History and Industry.
That China project—along with an earlier effort to sell popcorn and potato chips into the then-Soviet Union and Estonia—was a sobering lesson in global capitalism. But more than a decade later, the team behind Tim’s Cascade Snacks have developed a global following by producing a distinctive Made in America product and getting it distributed through one of the world’s most successful global retailers.
Taking Root
Over the past five years, Tim’s Cascade Snacks has doubled its sales and racked up numerous awards, including the 2011 Hitachi award for workforce development and a 2010 CEO Magazine listing in the top 100 places to work in America.
“Opportunities are going to come up,” says Leichleiter, 53, who assumed the general manager position at the company when Kennedy retired in 2005 to start a winery in eastern Washington state. “But what’s most important is whether you can build a brand with some cultural significance, no matter where you end up in the world. . . . What we’ve done here is develop a unique product. Anybody can make a potato chip.”
Crisp Operation: At Tim’s Cascade Snacks, no chips are made until an order is placed. Production—from ordering potatoes to the secret kettle cooking technique to bagging and shipping—must be streamlined for the freshest results.
It was 1986 when Kennedy and Leichleiter purchased a couple used batch cookers and set up a chip-making operation in a small town south of Seattle. After cooking and packaging the chips, they would drop off samples at nearby convenience stores. Word spread, and they were soon getting orders from some of the region’s biggest grocers, including Safeway.
“It was really a bootstrap operation with guerilla marketing,” says Leichleiter, who honed his logistical skills while working with the Army Corps of Engineers.
Tim’s Cascade Snacks built up a loyal following for its kettle-cooked chips, stealing market share from industry giants like Frito-Lay. The company started with its original flavor and a jalapeno-spiced chip, which remains its most popular flavor. It added other flavors along the way, including Vlasic Dill Pickle and Sea Salt and Vinegar. Part of Tim’s addictive secret: a patented cooking process that gives its kettle-cooked chips a fortune cookie shape and distinctive “Cascade Crunch.”
As former military men, Kennedy and Leichleiter knew what it was like to want a taste of home and made sure their sales team stopped at the military commissaries near their factory. Today, packages of Tim’s Cascade Style Potato Chips find their way by helicopter and ship to soldiers in Iraq and Afghanistan. In addition to providing a small boost to the bottom line, those military sales introduce Tim’s chips to audiences far from the company’s domestic market, which is concentrated on the West Coast, Alaska and Hawaii.
Aloha Connection
In 1996, Tim’s purchased the Hawaiian Kettle Style brand, producer of Sweet Maui Onion Kettle Style Potato Chips from struggling Granny Goose Foods. Prior to falling on hard times, Granny Goose had produced its Hawaiian chips on Maui, but Tim’s management figured out how to duplicate the recipe at their factory in Algona, Washington, where they could keep a closer eye on costs and quality.
In addition to being a favorite with the locals, the Hawaiian Kettle Style brand—with its distinctive island packaging design—was a popular gift item for tourists. This was particularly true for Japanese visitors, who are expected to bring gifts home to their families and friends. The tradition of gift-giving, or omiyage, has a long history in Japanese culture. A package of Tim’s snack bags fits nicely in the overhead bin of a Boeing jet.
“Japan is a big market for our Hawaiian Sweet Maui Onion chips,” says Leichleiter. “There’s a lot of brand loyalty taken out of the Polynesian community in Hawaii back to Japan.”
It was the Aloha connection that caught the attention of the buyers at Costco, which was looking to stock its expanding global empire. “We had a request from them. Can we get those Maui Onion Hawaiian chips in Japan?” recalls Leichleiter. “We met with Costco and said, ‘Certainly, we can make that happen.’”
Making that happen turned out to be tougher than anyone at Tim’s imagined.
Washington’s potato growers and processors are big beneficiaries of Japan’s post-war love affair with American fast food. Japan is by far the leading purchaser of Washington potato products, buying $215 million worth of frozen potato products—largely French fries—in 2011, according to the Washington State Potato Commission. Last year, McDonald’s alone used nearly half of Japan’s imported fries, according to the U.S. Department of Agriculture’s Foreign Agriculture Service.
But cracking the highly competitive Japanese food market isn’t easy, particularly for small companies without international legal and regulatory expertise. The Japanese retail market is dominated by a handful of powerful domestic firms that control the distribution and sales networks. Japanese consumers are quality conscious and concerns about food safety have increased in the aftermath of the 2011 Tohoku earthquake and tsunami.
Over the past few decades, U.S. and Japanese officials have tussled over a variety of trade issues, including high tariffs and phytosanitary issues related to food safety. Japan has complex labeling requirements and strictly regulates any food products containing genetically modified organisms (GMO). Tim’s potato growers must submit documentation that their seeds are non-GMO and their seed suppliers do not raise any GMO potatoes on their farms, which could lead to cross-pollination.
Though it still operates independently, Tim’s Cascade Snacks has been acquired and sold several times and is now part of the Pinnacle Foods Group, which is based in Mountain Lakes, New Jersey, Leichleiter says he relies on the legal and international experts at Pinnacle and Costco for help navigating overseas. “There have been some times in the past in Japan where we were required to do some secondary labels in the Japanese language and there were some miscommunications over how they were going to handle our products,” Leichleiter says. “But today, things are pretty good.”
Even with that global savvy, mistakes were made. When Costco expanded to Mexico, they thought Tim’s jalapeno chips, the store’s best-selling variety, were a natural fit for the market. Wrong. Costco’s Mexican customers—many of whom were European expats—found the chips too spicy.
“You can have all the right stuff somewhere, but you’ve got to have the right audience at the other end,” Leichleiter says. “We didn’t know everything we needed to know.”
The Hawaiian brand and Tim’s jalapeno flavor turned out to be a good match for Costco’s Asian customers. By riding the Costco wave, Tim’s has expanded its sales beyond Japan to South Korea, Fiji, Guam and Canada. The Hawaiian family of products—which is also popular in California, where there is a large Polynesian community—now accounts for half of the company’s $75 million in annual retail sales. Exports account for about 5 percent of total sales.
“Costco is a marketing machine unto itself,” says Don Brunell, president of the Association of Washington Business, the state’s leading business organization. “If you can consistently provide them with a good product, you’re going to do pretty darn well.”
To deliver on that promise, Tim’s Cascade Snacks depends on a tight-knit community of employees and suppliers, many of whom have been with the company since its early days. By building its supply-chain using mostly local suppliers, the company has created a just-in-time production system that is flexible and fast, critical factors in the company’s export success. Tim’s also has a strong environmental focus, recycling used oil into biofuels, using recyclable materials in packaging and sending unused potatoes and chips to ranches for livestock feed.
Logistics of a Potato Chip
To guarantee the freshest product possible, no chips are produced until an order is placed. Once an order is in the system, it goes to the production team which maps out the week’s work, orders the potatoes and checks the stock of corn oil, spices and packaging materials. The company’s in-house logistics team makes sure the warehouse is notified and Costco’s shipping company is scheduled for pick-up.
David Fazio is one of five potato growers who supply Tim’s with about 40 million pounds of potatoes a year. If Fazio gets the call, he either digs the chipping potatoes out of his fields or pulls them out of his climate-controlled storage facility and loads up a truck which can reach the plant in just a few hours.
“At Tim’s, I feel like I’m part of the family,” says Fazio, a third-generation farmer who lives on Saubie Island at the convergence of the Willamette and Columbia rivers. “If I don’t sell them a good potato, they can’t make a good potato chip.”
Once those potatoes reach the factory, they are peeled, washed, sliced and sent through the company’s high-speed cooking, flavoring and packaging process. Optical sorters and metal detectors are used to weed out malformed chips and make sure no foreign material gets into the bags. Some of Tim’s customers are on a 24-hour turn-around, but Costco gives the company 10 days because of its super-sized orders.
“The one element that goes with selling to Costco is the economies of scale,” Leichleiter explains. “When they buy, they will buy in multiple truckloads, sometimes 10 truckloads at a time. That allows them to be efficient and keep their prices low for the rest of the world.”
Tim’s benefits from its proximity to the deep-water ports of Tacoma and Seattle, which combined represent the third-largest container complex in North America after Los Angeles/Long Beach. A truck can pick up an order at the factory and have it to the port of Tacoma or Seattle within a few hours. A ship leaving from either of those ports can deliver its cargo to the Port of Kobe, Japan, in less than two weeks, at least a day quicker than cargo coming from the East Coast.
Though the vast majority of its exports are handled by Costco, Tim’s has sold some product directly into Guam and Tahiti. For those orders, the company uses C.H. Robinson, a third-party logistics company, and Matson, one of the main carriers serving the Pacific Islands.
The logistics of exporting a perishable product are challenging. Tim’s chips, which are made without preservatives, have a 15-week shelf life. Under Japanese law, products must have at least 50 percent of their shelf life remaining when they reach the store shelf, which doesn’t leave much room for unexpected delays, explains Peter Guyer, president of Athena Marketing International, a global food marketer based in Seattle.
“I’ve got to credit the management at Tim’s with being persistent,” he says. “They stuck with it, even in the early years. They continued to listen to the market and made incremental changes as they’ve learned. Most importantly, they have consistently produced a high-quality product.”
Leichleiter has explored alternatives to extend the shelf life of his potato chips. They include using higher-barrier packaging to keep out the oxygen that turns the oil rancid, using a nitrogen flush to displace the oxygen in the bag, or refrigerating the chips in transit. However, he is reluctant to take steps that he fears will sacrifice quality for an extended shelf life.
One way to solve the shelf life problem would be to build a plant overseas, closer to Tim’s foreign customers. Leichleiter, who is entertaining inquiries from companies in India and the Philippines, hasn’t ruled out that possibility. But this time around, he says he will do a lot more homework and call on his more experienced colleagues at Pinnacle for advice before jumping on a plane.
“Back in those days, we were rogue cowboys,” he says of the company’s early forays into the former Soviet Union and China. “It was our dime and we were willing to risk a little more. We were not focused on, ‘Geez, you could really lose at this game.’”
Coming to America: Closed Casino Banks on U.S. Program
By ALEXANDRA BERZON and KRIS HUDSON WSJ.com
A closed Las Vegas landmark that was a Rat Pack hangout in its glory days may get a makeover through a federal program that offers green cards to foreign investors.
Silver Screen Collection/Getty ImagesPLAYING VEGAS: Dean Martin performed at the Sahara in the 1960s film ‘Ocean’s Eleven.’ Sam Nazarian wants to redevelop the hotel-casino.
Los Angeles nightclub operator and hotelier Sam Nazarian is set Wednesday to begin construction on a $415 million renovation of the old Sahara casino and hotel, which once entertained such guests as Sammy Davis Jr., Frank Sinatra and Dean Martin.
Mr. Nazarian has been trying to finance the redevelopment since 2007, when he and partner Stockbridge Capital Group LLC purchased the property on the Las Vegas Strip from Gordon Gaming Corp.
Mr. Nazarian and his partners are now able to move forward because they believe they are close to coming up with as much as $215 million—or 52% of the overhaul’s cost—from the immigrant investment program known as EB-5. The program, which awards green cards to foreigners who make job-creating investments, has become increasingly popular among hospitality developers seeking financing during a down time for new construction.
Mr. Nazarian’s SBE Entertainment Group says it already has $150 million in commitments from Chinese and Thai citizens and other would-be immigrants who each agreed to make $500,000 debt investments in the project in exchange for a green card. None of the money is available at this point, but SBE will be free to use much of it once a handful of the foreigners get their initial visas from the U.S. Citizenship and Immigration Services.
SBE EntertainmentA rendering of the former Sahara casino, which is being converted into the SLS Las Vegas.
If all goes according to plan, the Sahara, to be renamed the SLS Las Vegas, would become one of the first EB-5-financed casinos. At least one other in Las Vegas—the closed Lady Luck downtown—is seeking $120 million in EB-5 funds for a renovation and rebranding initiative.
The EB-5 program has been around since the early 1990s, but its use is now increasing because more-traditional forms of financing are more difficult to obtain. Hotels, in particular, are popular choices for EB-5 investors because they most often produce the targeted number of jobs needed—in desk attendants, housekeepers, valets and managers—for the investor to keep their visas, according to Jim Butler, a partner in Los Angeles law firm Jeffer, Mangels, Butler & Mitchell LLP, which advises hoteliers on EB-5 financing.
“Every couple of years there’s a new structure everyone’s talking about, and now it’s EB-5,” says Anthony Capuano, Marriott International Inc.’s MAR +0.41% head of development. Marriott has done more than a dozen deals to franchise or manage hotels for third-party owners who have used EB-5 funds.
Hotel developers and government officials trying to spur development say EB-5 helps create jobs. But others criticize the program because it gives rich foreigners advantages not available to poorer ones. Also, hotel competitors worry that the new projects created by the program will put downward pressure on room rates and occupancies.
Jon Bortz, chairman, president and chief executive of Pebblebrook Hotel Trust,PEB +0.49% which owns 26 U.S. hotels, called the EB-5 program “a travesty” in that it allows some foreigners to buy their visas while less-affluent applicants can’t. He added that hotels financed with EB-5 sometimes add rooms to markets when demand doesn’t justify them. “The financing is cheap because it’s from people who aren’t looking for a return on their investment,” he said.
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There were 7,641 visas issued through the EB-5 program in 2012, a record year. The figure was 3,463 in 2011 and only 502 in 2006, a year when financing was plentiful from other sources.
Statistics on the number of hotel projects that are getting EB-5 funds aren’t available, but people in the business say it is on the rise. David Loeb, a hotel analyst for Robert W. Baird & Co. estimates that hotel projects financed at least in part with EB-5 could account for as much as a quarter of a percentage point of the industry’s tepid growth this year.
Developers haven’t built many hotels since the recession, with U.S. room-supply growing by only 1.5% in 2010, 0.8% in 2011 and 0.9% last year, according to Lodging Econometrics. The analysis firm predicts that growth rate will increase to 1.1% this year.
Major chains are using the EB-5 program more frequently. Hilton Worldwide Inc. executives said that roughly 3% of the 560 Hilton-branded hotels currently under development in the U.S. are financed at least in part with EB-5 proceeds.
Under the program, EB-5 investments can either be debt or equity and range in size between $500,000 and $1 million, depending on the unemployment rate in the project’s location. Investors get a visa upon making an investment. They get permanent immigration status, known as a green card, if they can document that at least 10 jobs were created after two years.
Applicants also are subject to standard background checks. They generally get the principal back on their investments in five years but receive very little return because of the numerous lawyers and other middlemen involved in the process.
Hotel executives say that the projects getting funded by EB-5 would be financially viable without the program. “None of these are magical solutions to finance bad deals,” said Mr. Capuano of Marriott. “The ones we’ve done we’ve been confident about underwriting.”
Still, the structure has become one way to finance projects that otherwise wouldn’t get backing from conventional lenders, or at least at a much lower cost. Since the recession, most developers have had to put up at least 50% of a given hotel project’s cost. Now, developers of some projects are covering more than 60% of the project’s cost entirely with EB-5 proceeds, allowing them to take bigger risks.
In Las Vegas, Mr. Nazarian and Terry Fancher, a Stockbridge executive managing director, have struggled to find affordable financing for the Sahara project partly because a glut of new rooms have kept rates down. But they insist the SLS Las Vegas will draw new visitors who are already fans of Mr. Nazarian’s night life and hotel empire in other parts of the country.
The developers said they are confident some of the visas will be approved soon. Stockbridge is confident enough that it has put about $24 million into the project to start construction.
Mr. Fancher said the group underestimated how much it might be able to raise from foreign investors. Recently, in a separate project—a mixed use development in Southern California—Stockbridge raised $200 million in just four months, he said.
Write to Alexandra Berzon at alexandra.berzon@wsj.com and Kris Hudson atkris.hudson@wsj.com
A version of this article appeared February 12, 2013, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: Closed Casino Banks on U.S. Program.
TURKISH STEEL GIANT TO INVEST IN US MANUFACTURING PLANT
Turkey’s largest steel pipe manufacturer, Borusan Mannesmann, will invest $150 million in a new manufacturing plant in the US.
Final decision on the location of investment is not finalized yet, but both Texas and Oklahoma are reportedly in the running to attract the investment through their respective economic development incentive programs.
The facility will cover about 125 acres and is expected to start production in late 2014, according to company sources.
With an annual capacity of 300,000 tons, the plant will make the thick-walled, high-strength pipes used primarily in the production of shale gas.
The target annual revenue for a new US-based subsidiary that will operate the plant is estimated at $500 million.
Borusan Mannesmann has been supplying the US energy sector with steel pipe for almost a decade, but “has felt the need to become a local manufacturer in order to be closer to the market and its customer base.”
The decision to build the production facility makes the company the first Turkish company to invest in the US steel pipe sector. Currently, about 40 percent of the company’s total export output is produced for use in the US.
“This is our second overseas investment after our automotive pipe manufacturing plant in Italy,” said Borusan Mannesmann Board Chair Semih Özmen. “We have a strategic and long-term view of the American market due to its size and quality approach.”
Favorable changes to the energy policies in the United States, as well as the advancements in the shale gas technology, “were the factors that hastened our investment decision at this time of global recession,” he added.
Satgate UAB Selects Red Engineering to Design and Supervise $60 million Tier III Data Center Project in Baltic Region
London. Dec. 5, 2012. Satgate UAB of Vilnius Lithuania announced today that it has selected International Engineering Consultant Red Engineering Designas the technical advisor, designer and supervisor to Satgate UAB for development of an advanced data center in the Baltic States. The $60 million project called Amber Core DC has been under development since 2011.
According to the agreement, Red Engineering will provide professional services in selection and implementation of the latest and most effective data center technologies for the project. It will lead and supervise delivery of the Amber Core DC until operational handover, including obtaining operational Tier III facility certification with UpTime Institute.
“We are delighted to be involved in this ambitious project in Eastern Europe. As a professional design consultancy, we have completed many DC projects all over the world and will use our innovation and experience to achieve the goals defined by SatGate,” said Ian Whitfield, managing director of Red Engineering Design.
“SatGate has been searching for a reliable and experienced designer for its Amber Core DC project in the Baltics. Today we have reached an agreement with Red Engineering Design, whose DC projects like Capgemini Merlin and Fujitsu London North, amongst others, impressed us greatly,” said Vitaliy Malashevskiy, director of Satgate UAB. “We are pleased that our project will be supervised by one of the best engineering design firms available and that its unique experience in designing tier certified data centers will be used to our advantage. With this agreement, we are continuing to pursue our goal of achieving a modern, state-of-the-art data center, which will be attractive for large international companies from IT, finance and other sectors.”
About UAB Satgate
SatGate UAB is a leading satellite services provider, based in Lithuania. Operating a unique satellite teleport facility located near Vilnius, SatGate provides a full range of satellite communication services in Europe, Middle East and Central Asia to ISPs, telecoms, the oil and gas industry, and other corporate and private customers. SatGate integrates and manages turnkey communication solutions of any complexity. For more information, please visit http://en.satgate.net.
About Red Engineering Design
Red Engineering Design is an award-winning international building services consultancy designing MEP services for infrastructure, new buildings and upgrade projects, with a focus on innovative, low energy solutions. Red Engineering designs for mixed-use projects, data centers, offices, hotels, residential, retail and high rise, employing accredited tier designers and designing numerous award winning low energy data centers, including the company’s winning 2011 Uptime Green Enterprise Award project. The inspiration behind Red is a determination by its founding directors to identify a way to provide world class MEP services which raise the bar on speed, quality and innovation and which afford the directors’ time to concentrate on designing and our clients. For more information, please visit www.red-eng.com.
China‘s Wealthy Look Elsewhere to Live
Due to China’s large population, land is very scarce in the urban and suburban areas. This is a turn off to many wealthy Chinese who would prefer the open spaces and cleaner air inCanada, Australia, and the United States. Many wealthy Chinese looking to retire are concerned about China’s current environmental and health conditions. Instances of poisoned food and long waits for medical specialists have prompted China’s elite to look abroad for places to retire.
Another key issue that has been a deciding factor for many Chinese is the political instability in China. This was highlighted earlier this year when Chongqing Party Chief Bo Xilai was removed from his position on corruption charges. This scandal brought into question the future stability of China’s political system and the trustworthiness of the administration.
Of the Chinese citizens with a net worth of at least 10 million yuan ($1.6 million), 16% have already obtained foreign residency and another 44% are hoping to obtain it. The implications of this could be astronomical for China, as the country is not only losing money from these wealthy individuals but skills as well. China has tried to safeguard against capital flight by permitting people to only take a maximum of $50,000 out of the country each year, but this mandate has proved largely ineffective because of the many ways around the restrictions.
For one reason or a combination of reasons, a large portion of China’s wealthy has emigrated or has plans to do so. China must find a way to convince its elite to stay or risk losing the abundance of capital and skills that these individuals possess. How do you think China should respond to this issue? Feel free to leave a comment below.
U.S. Companies Woo Chinese Investment
By DINNY MCMAHON and CAROLYN CUI, The Wall Street Journal, Nov 5th, 2012
More American companies are trying to get Chinese investors to write checks in the U.S. and cash-strapped states are getting in on the sales pitch. The WSJ’s Dinny McMahon discusses the challenges American companies face in wooing Chinese investors.
MADISON, Wis.—Sun Wenbin and his colleagues from China got the red-carpet treatment on a recent trip to the U.S.
Over 10 days, Mr. Sun and 60 other Chinese entrepreneurs and executives were welcomed by former President George W. Bush, and courted by businesses ranging from a shrimp breeder in Orlando to a real-estate developer in Dallas and an alternative-fuel company in Madison. The wooing was part of an effort by local governments to attract more investment from the Chinese, who despite their newfound wealth have the reputation in some quarters as window-shoppers rather than deal-makers.
Mr. Sun—a 50-year old who owns 11 electronics stores in Handan, a city three hours by train south of Beijing—said he was impressed with some of the technology he saw, and his travel companions gushed about the hospitality and clean environment. But, as with many Chinese entrepreneurs who made their fortunes during the country’s economic boom of the last decade, he worried it would take a long time to earn a profit on some of the investment opportunities presented.
“Life is short. I just want to make a few big deals,” said Mr. Sun, over lunch in Madison during the trip. After returning to China, Mr. Sun said none of the projects he saw met his criteria for investing. “The returns are too low.”
In the wake of the global financial crisis, cashed-up Chinese companies were widely expected to swoop in and buy up struggling businesses in hard-hit Western economies. Instead, they mostly went shopping for natural resources in developing economies.
Sun Tao
Zhang Zhenguo rides a bull in Dallas, where a group of potential Chinese investors were on tour.
Now there is an intensifying campaign to get Chinese investors to write checks in the U.S. The tour group including Mr. Sun is alone capable of investing more than $1 billion, organizers said, which is why cash-strapped states are getting in on the sales pitch.
In Wisconsin, the group dined in Gov. Scott Walker’s mansion on a showcase of local products, including Asiago cheese and herb-crusted tenderloin. “We have big hopes and dreams” for the group, said Rebecca Kleefisch, Wisconsin’s lieutenant governor.
The tour also met with Texas Gov. Rick Perry and Florida Gov. Rick Scott.
Chinese investment into the U.S. is already on the rise. According to Rhodium Group, a New York consulting firm that tracks Chinese outward investment, companies there invested $6.3 billion into U.S. companies and projects between January and September, more than the $5.8 billion invested in all of 2010, the previous record for annual investment.
While energy deals still take up the majority of new investment, a slowing domestic economy in China has small and private entrepreneurs looking for opportunities overseas to earn a better return or give them an edge back in their home market.
Carolyn Cui/The Wall Street Journal
Chinese investor Shen Youqiang rides a motorcycle made by Wisconsin-based Erik Buell Racing LLC.
But obstacles remain, often related to the fact that many Chinese have never invested overseas before—one reason they developed a reputation for being slow to commit. The trend could also slow if Chinese investors feel they aren’t welcome in the U.S.
In late September, the Obama Administration, citing national security, nullified the purchase of four wind-farm projects sites within or near restricted air space in Oregon by a company owned by two Chinese nationals. A week later a congressional report warned that telecommunications equipment made by Chinese companies Huawei Technologies Inc. and ZTE Corp. 000063.SZ +1.42% pose a threat to U.S. security.
Still, things are changing. “It’s getting easier [to do deals] because the U.S. side is learning and more willing, partly…because of the need for capital,” said Hanson Li, head of the San Francisco office of Hina Group, a Chinese investment bank, who wasn’t involved in the U.S. tour. But he said patience is needed “so things don’t turn sour on the U.S. side.”
The visit by Mr. Sun’s group was organized by a Chinese private-equity firm, Piyi Investment Co., that opened its first overseas office in the Trump Building on Wall Street. Many members of the group had never traveled outside of China.
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The trip started on Sept. 20 in Dallas and then the group split up, with some heading to Orlando, where they visited Universal Studios, before heading on to Wisconsin. The others went to Los Angeles and Portland, Ore., where they toured the local vineyards, before reconnecting with the rest of the group in Washington, D.C., where the State Department hosted a reception. The trip ended in New York.
The group met with more than 100 companies, including a no-frills airline in Florida, a golf course in Texas, and a company making power from biomass in Oregon.
The companies, which were asking for funding of between a few million dollars and $275 million, according to a Piyi prospectus, were also involved in health care, agriculture or environmental technologies such as water treatment—all areas Beijing is trying to promote—as well as real estate and vineyards.
While no deals have been done yet, the investor group has asked for more information from 25 of the companies they met with, and plan to decide which they are interested in investing in by mid-December, according to Piyi. One investor has already taken the first step by signing a letter of intent with a California-based life-sciences company looking for $27 million in backing, the fund said.
Scott Mosley, foreign direct investment manager for the Wisconsin Economic Development Corp., said he was aware of a number of requests from individual investors for more information on the Wisconsin companies. “I think that the largest challenge in getting American entrepreneurs and Chinese investors to a deal is setting the right environment where each side…can operate in a manner and at the speed to which they are accustomed,” he said.
Miami’s Bid to Attract Latin American Startups
The United States technology sector is dominated by a few clusters, mainly Silicon Valley, San Francisco, Seattle, Austin, New York City and Boston but is there room for one more? Miami hopes so.
The South Florida city is far behind the big players in regards to venture capital and entrepreneurial clout but it does have a solid financial system, sunny weather and most importantly a huge amount of talented Latin Americans.
“This is our natural advantage,” says Jerry Haar, Director of the Pino Global Entrepreneurship Center at Florida International University .
The recent tech boom has spread from Silicon Valley throughout the Americas, and Miami wants to be the place where Latin Americans start their businesses.
Susana Amat, the co-founder and director of the University of Miami’sLaunch Pad and one of Miami’s biggest champions of entrepreneurship, is confident about the city’s potential.
“Miami will be the tech hub of the hemisphere within five years,” she said.
Indeed, the startup trend in Miami is hot right now. Miami-based Open English, an online language learning platform, landed $43 million in investment in July. Amat’s Launch Pad recently announced it will open Miami’s first technology accelerator program in 2013 and provide $25,000 grants to high-potential entrepreneurs.
You can see the impact on the ground as well. The city has hosted a number of well-attended hack-a-thons and meet-ups this year. The LAB Miami, a shared work space targeted to creative startups, is expanding in size from 720 square feet to 10,000 square feet this winter and hopes to increase its member base from 24 to 150 next year.
In many ways, Miami has definite advantages over Latin America, especially in regards to business environment. The U.S.’s clear and enforceable system of rules is attractive to Latin American entrepreneurs who want to avoid the red tape and corruption prominent in places like Sao Paolo, Mexico City or Buenos Aires. The U.S. patent system also guarantees that new ideas will be protected and provides a safe environment to take risks and innovate.
Miami has a few advantages over the rest of the U.S. as well. It is diverse, bilingual and welcoming to immigrant entrepreneurs. A base in the city can help a company reach both the U.S. and Latin American markets. A vibrant art scene has added culture and creativity and there is a lot of potential investment. Thanks to the many wealthy Latin American families that have parked their money in Miami banks (and real estate) there is more financial capital per capita in Miami than in any other U.S. city.
But there are obstacles. For example, how does one attract talent and the need to improve education and continue developing the entrepreneurial ecosystem?
“We love Miami but it’s tough,” Nicolai Bezsonoff, the Colombian co-founder of .CO, told the Miami Herald recently. “What Miami-Dade, Susan [Amat] and Launch Pad are doing is great, but there has to be more of that.”
There is a lack of investor education and engagement in the startup community. There is also a restrictive national immigration system that makes things more difficult than they should be.
Fortunately for Miami, its ties to Latin America provide a unique advantage. Entrepreneurs like Bezsonoff and co-founder Juan Diego Calle are expanding their business and actively supporting the local entrepreneurship scene.
Attracting the most talented entrepreneurs from an emerging region and mixing them into the U.S. entrepreneurial system is a recipe for success. If Miami’s public, private and academic sectors can create the right environment the investment will come, entrepreneurs will set up shop and successful businesses will be created.
Haar points out that all existing tech hubs have “mother ships” like Google (among others) in Silicon Valley, Microsoft in Seattle and Dell in Austin that drive local innovation. Miami has made progress but to become a regional tech hub it needs some clear success stories and a “mother ship” idea. Maybe it can import one from Latin America.
7 Tips to Help Your Startup Enter the U.S. Market
Guest Author | October 22, 2012 as seen in yourstory.in
Selling to the U.S. market can be a significant milestone in the life of an Indian technology startup. The U.S. is the largest market in the world, and a successful foothold here can mean dramatic growth as well as further credibility of your company. But selling to U.S. businesses can be difficult especially if you’re based overseas. Having successfully introduced international technology companies to the U.S. market, we’ve learned several lessons, listed below, to help companies abroad sell in the U.S.
1. Find markets that are not yet saturated by your competitors. U.S. competitors will have a geographic advantage, so pick an industry vertical, or regional market, where you can introduce your product and gain rapid traction.
2. Identify Early Market Signals. Track early signals that the U.S. market is even interested in your product or service. Do you have signups on your website from or requests for information from U.S. customers already? Set up a U.S. page where customers can sign up to be on a waiting list and run a basic online marketing campaign to promote it. If you see interest in your product or service from the U.S. market, you know there’s an opportunity to push further into the market.
3. Experiment with pricing but don’t get caught up in a price war. International companies often differentiate themselves from U.S. competitors by offering similar technology at a lower price. However, cheaper doesn’t always compute as better; many customers associate a lower price point with lower quality. So rather than racing your competitor to the lowest possible price point, pitch your product as providing a superior solution at a price that can actually support the growth of your company.
4. Get introductions from your existing clients. Many of your customers may already operate in the U.S. and have industry contacts that could also benefit from your product or service. Ask them for introductions to new customers. Tell them you’re entering a new market, and as a long term or successful client, you’d appreciate a connection with any industry contacts that would also benefit from your solution. Asking your existing customers is an easy way to find early adopters in new markets, but a tactic that many businesses simply fail to do.
5. Leverage the brand of a notable customer. Associating your company with a larger U.S. brand builds credibility for the larger sales. Customer references, quotes and case studies can all do this, but getting your large customers to speak can be difficult. So be creative.
6. Employ a U.S. Accent. Customers in the U.S. respond better to this versus a “foreign” accent. That’s not to say that successfully selling in the U.S. is impossible for anyone with an accent, but having some who sounds like they’re based here, who understands regional slang and can hold a casual conversation with a potential customer can be valuable to a company breaking into the market.
7. Be blunt and to the point. Many international companies operate in a culture in which a relatively long period of time is spent developing personal relationships with their potential customers. U.S. businesses move fast and these prolonged conversations can be perceived as wasting time. As an international company, enter a meeting with a potential U.S. customer with the intent to determine if a deal can be made and what steps are involved to finalize an engagement. Beginning a conversation with this intent won’t offend your customers but will imply that you’re here to do business, not make friends.
About the Author:
Steli is the Co-Founder / Chief Hustler of ElasticSales and an advisor to several startups and entrepreneurs.
US COMPANIES ‘MOST ACTIVE’ IN EMERGING MARKET M&A, BUT…
Global Trade Magazine, August 27th, 2012
US-based companies were the most active in completing mergers and acquisitions with emerging and high-growth market companies in the first half of 2012, but deal activity dropped by 33 percent compared with the first half of 2011.
According to KPMG International’s latestEmerging Markets International Acquisition Tracker (EMIAT) study, the drop in acquisitions made by US companies coincides with a worldwide slowdown in developed-to-high-growth market (D2H) deals, which dropped 15 percent – 661 in the first half of 2012 versus 778 in the first half of 2011.
Companies in the “other European countries” category made the second-most acquisitions of emerging market companies with 81 in the first half of 2012.
The most popular geographic targets for US acquisitions in 2012 were Brazil (25), Central America and the Caribbean (15), and South and East Asia (14). South and East Asia (122) and Brazil (81) were the most popular targets for D2H deals overall.
The semi-annual KPMG study, which tracks completed deals in which an acquirer took at least a 5 percent shareholding interest,found that US-based companies completed 108 emerging and high-growth market acquisitions in the first half of 2012, down from 160 in the first half of 2011.
US Companies Still ‘Most Popular Targets’
US companies were the most popular investment targets for emerging and high-growth market companies in the first half of 2012 with 47 acquisitions made in the country, more than doubling the number of deals made by companies in the other European countries category (23), the EMIAT said.
South and East Asia (16), China (7), and Central America and the Caribbean (7) accounted for the majority of acquisitions made in the US in the first half of 2012.
The US also was the most targeted country in the second half of 2011 with 49 acquisitions made by emerging and high-growth market companies.
Overall, emerging and high-growth market companies made 203 acquisitions in developed economies in the first half of 2012, down from 219 during the first half of 2011, according to the study.
South and East Asia (41) and China (39) were the top acquirers in high-growth-to-developed deals (H2D) in the first half of 2012.
The EMIAT study analyzed deal flows between 15 “developed” economies or groups of economies and 13 “emerging” and “high-growth” economies or groups of economies.
First compiled in 2003, the report includes data from “completed” transactions where a trade buyer has taken a minimum 5 percent shareholding interest in an overseas company.
All raw data within the EMIAT is sourced from Thomson Reuters SDC and excludes deals backed by government, private equity firms or other financial institutions.
USA is Still a Prime Destination for Foreign Investors Seeking Diversification and Stability
By: Lawrence Nusbaum, Partner at the law firm Gusrae Kaplan Nusbaum, PLLC
US cities offer terrific investment opportunities for foreign businesspeople seeking stability and diversification
In recent years what was once considered by many to be financially untouchable has become touchable. Based upon a conflux of events including the current global economic slowdown, non-U.S. citizens and entities now have a tremendous opportunity to become involved as investors/purchasers of a variety of assets in the United States.
These assets can take the form of acquisitions of or mergers into U.S. corporations (whether public or private), acquisitions of real estate (whether commercial or residential), blocks of publicly traded securities or interests in hedge funds that invest in U.S. as well as foreign securities with strong year to year returns, or taking a foreign owned entity public through the United States capital markets.
One of the great advantages of purchasing/investing in assets in the United States is the advantages provided to investors by virtue of the democratic form of government and the well-developed legal and judicial system with laws, rules and regulations which have been designed to protect the rights of both U.S. investors and non-U.S. investors who invest in U.S. assets.
The attractiveness of investing in U.S. assets has become of particular interest to non-U.S. investors who have cash and/or assets abroad in countries where the laws, the form of government or the judicial system do not necessarily provide adequate protection for a person’s and/or an entity’s rights to their property. Indeed, in many foreign countries, a person or entity can be stripped of their assets without due process or fair consideration and the only recourse available to such a person may be illusory, i.e., once the assets are taken, even if in violation of the law, the assets may never be recovered by the rightful holder.
The United States, with its democratic form of government and well developed legal and legislative system, is considered to be a very strong “safe haven” for investing in U.S. assets, and now, maybe more than ever, many believe is an ideal time to make such investments.
However, foreign investors realize, or need to understand that compliance with all applicable U.S. laws and regulations is necessary to safeguard the value of their investments. In order to accomplish this objective, it is essential for foreign investors to engage experienced, honest and expert professionals in assisting them with their U.S. investments.
One of the key factors in ensuring that such investments in the United States are properly made and legally protected is employing established and expert legal counsel that is able to provide advice and guidance as to the required compliance with all applicable U.S. laws, rules and regulations, and also understands the pitfalls that need to be avoided both with respect to the contemplated investment and also as to being able to recognize the hallmarks of dishonest persons who promote and sponsor these investments under the guise of fancy business cards, suits and titles such as investment bankers, promoters, and the like, but who are really nothing more than con artists.
There is no substitute for hiring a capable and experienced lawyer when investing in the United States. The selected lawyer should be able to advise investors of the preferred type of investment vehicles (corporations, S corporations, partnerships, joint ventures and/or limited liability companies), be experienced and able to structure transactions to meet the client’s needs, whether it be mergers, acquisitions, stock purchases, and/or asset purchases, and have the ability to get a good “read” on the seller, fund manager and/or business opportunity through conducting the relevant due diligence in order to assist the client in making a sound proper investment with reputable people
A foreign investor should develop a strong and trusting relationship with its legal counsel, because, ultimately, the attorney is the client’s de facto agent whose principal responsibility is, to the extent requested by the client and within the parameters of a lawyer’s responsibility, to protect the client and its investment. No amount of money can protect an investment if the investment is done without compliance and/or in violation of the laws and regulations of the United States.
In the United States, well thought out, thorough and detailed and properly prepared transaction documents are extremely important in protecting a client’s investment and, generally, only hiring a very seasoned and experienced attorney should be considered by a client in making any such investment, because such legal counsel must be able to not only safeguard and protect the client’s investment and enable the client to take full advantage of the benefits of U.S. law applicable to the client’s investment. After identifying the target investment, the next most important step in the process of concluding the transaction will be the selection of such counsel.
This Article was authored by Lawrence G. Nusbaum, Esq. Mr. Nusbaum is a partner in Gusrae Kaplan Nusbaum PLLC. Mr. Nusbaum heads the firm’s corporate and securities department and has over 25 years of experience as a trusted advisor to many clients ranging from high net worth individuals to large companies. Mr. Nusbaum has extensive experience in representing foreign entities and individuals in all aspects of their business and personal legal needs and is considered a leading business attorney in the United States. Mr. Nusbaum has represented clients in many countries, including Russia, China, Hong Kong, Greece, India, Africa, Sri Lanka and many European countries. Mr. Nusbaum can be reached by email at LNusbaum@GusraeKaplan.com For more information about Mr. Nusbaum and his firm, please go to the firm’s website at http://www.gusraekaplan.com.
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