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21
Mar

Survey Finds Substantial Variety in European Leadership Behaviors

While the European Union has struggled to harmonize its legal, regulatory and political framework, the Member States continue to be perceived as very different environments to conduct business due, in large part, to long-standing cultural characteristics that remain in place even as European institutions are created and nurtured.

The Management Research Group (“MRG”), a private consultancy focusing on individual and organizational development, compared the leadership behaviors of almost 4,000 persons in various management positions with firms in eight European countries—Belgium, Denmark, France, Germany, Ireland, the Netherlands, Sweden and the United Kingdom—using a questionnaire that measured 22 different leadership practices relating to what it referred to as six essential functions of the leadership role: creating and developing a vision or direction for the organization; developing a followership that supports the vision or direction identified for the organization; implementing the vision or direction in organizational terms; following through to make sure that things happen according to plan; achieving results (i.e., the ability of leaders to set high standards of performance for themselves and their organizations; and team playing (i.e., the ability to work within a team environment).  Based on the results of the survey, MRG concluded that there were very few similarities in leadership behavior among European managers and, in fact, they noted common ground on just three of the 22 leadership practices that were measured: expertise (i.e., as a group, managers from all of the surveyed countries tended to place the same degree of emphasis—moderate—on the level of technical expertise and orientation toward detail and in-depth analysis), competitiveness (i.e., managers from all countries tended to seek and prefer “win-win solutions” as opposed to engaging in forceful, competitive behaviors) and setting standards of excellence. 

MRG also highlighted distinctions between behaviors of managers in regions typically clustered together such as the Scandinavian countries and reported several areas where the leadership styles of Swedish managers contrasted sharply with their peers in Denmark.  For example, while Swedish managers rated themselves as the most innovative, team-oriented and pragmatic and less reliant on using guidelines, procedures and systematic methods for monitoring progress, Danish managers reported being more strategic, analytical and demanding, less team oriented and more likely to rely on formal planning and performance measurement processes.  Not surprisingly, given the results of other studies, differences also emerged between German and French managers.  One illustration was that while German managers accessed new ideas and perspectives by reference to past practices, seeking to minimize risk by building on knowledge gained through experience, French managers are much less likely to reflect on the past.  German managers are much more technically-oriented and analytical than the French and while Germans prefer long-range planning after detailed study the French are more likely to take a short-term view.  French managers are outgoing and continuously engaged with their followers while German managers are more understated and subdued. 

MRG summed its findings by quoting Jean Monnet, the founder of the European Community: “If I were again facing the challenge to integrate Europe, I would probably start with culture.”

21
Mar

Knowledge-Based Entrepreneurship in India

There is intense interest in the formation and evolution of "emerging companies" in India.  Mani has referred to this type of entrepreneurial activity in India as “knowledge-based entrepreneurship”, which he defined as “entrepreneurship in the context of medium and high technology industries, both in the manufacturing and service sectors as well”.  With respect to India, the specific industries considered to meet the criteria for “knowledge-based” status include chemical and chemical products, metal products and machinery, electrical machinery, transport equipment, communication services, computer-related services and research and development services.

An analysis by Mani of the “hottest start ups” in India identified by the National Entrepreneurship Network as of 2008 revealed the following characteristics of technology-based entrepreneurship activities in the country:

  • 40% of the companies were technology-based (i.e., information technology, Internet, software, telecommunications and mobile);
  • Most of the companies—63%–were based in the larger cities (Bangalore (25%), Mumbai (19%) and Delhi (19%);78% of the companies had been in existence less than three years and the oldest companies had been formed in 2003;
  • Just under half of the founders were still in their 20s and more than half of the founders were “first generation” entrepreneurs launching their first business; however, only 8% of the founders were women;
  • 585 of the founders had either studied abroad or received their education in one of India’s “Tier I” institutions; and
  • The number of employees ranged from five to 15.

For purposes of determining eligibility as a “technology company”, the following criteria are used: (i) the company must own proprietary technology that contributes to a significant portion of the company’s operating revenues; (ii) the company must manufacture a technology-related product; and (iii) the company must devote a significant portion of its operating revenues to research and development.

There has also been a significant increase in the number of Indian companies included among the Deloitte Technology Fast 500 Asia Pacific, a collection of the fastest growing technology companies in the Asia Pacific Region.  Indian representation grew from just 12 firms in 2003 to 82 (engaged predominantly in information technology or software) in 2007, the second highest among all countries represented on the list that year.  By 2010, the number of Indian firms had dropped to 60, fourth among all countries represented behind China, Taiwan and Australia; however, India still outpaced traditional technology leaders such as Korea, Japan and Singapore.

14
Mar

New SEC Rules on Shareholder Compensation Votes & Progress on US Patent Law Reforms

This month’s Business Counselor Update highlights the adoption of final rules by the Securities and Exchange Commission implementing required shareholder votes on executive compensation and golden parachute compensation and the latest developments in the ongoing efforts to reform the US patent laws.

14
Mar

Tips for Evaluating Foreign Partners from the Ex-Im Bank

One of the principal sources of public financing to assist US businesses looking to finance new or expansion projects in foreign markets is the Export-Import Bank of the United States, which is the official export credit agency of the US.  Commonly referred to as the “Ex-Im Bank”, this agency provides a variety of assistance in financing the export of U.S. goods and services to international markets, including working capital guarantees (pre-export financing), export credit insurance, medium- and long-term loans and guarantees to overseas buyers and limited recourse project finance support.  In addition, the Ex-Im Bank provides various education programs for the business community, including regular seminars and group briefings that are offered at several locations around the U.S. Rather than competing with private sector lenders, the role of the Ex-Im Bank is to fill gaps in commercially available trade financing by assuming credit and country risks that the private sector is unable or unwilling to accept. While Ex-Im Bank assistance is available to exporters of all sizes, most of its transactions are done for the benefit of small businesses in the U.S.

The Ex-Im Bank has published guidelines on what it considers to be “best practices” in connection with financing transactions that the Ex-Im Bank takes into account when reviewing applications for assistance under one of its programs.  These guidelines (see Export-Import Bank of the U.S., Transaction Due Diligence Best Practices (Jan. 10, 2008)) are not only useful to participants in Ex-Im Bank transactions–lenders, exporters, buyers, guarantors, agents and brokers–but also can be used by U.S. exporters in reviewing any cross-border transaction that requires an assessment of, and decision about, the creditworthiness of a foreign participant.

The first factor that the Ex-Im Bank takes into account is ensuring that there is a “reasonable assurance of repayment” and the Ex-Im Bank states that it will conduct a repayment analysis that encompasses all aspects of and all participants in a transaction. In addition to financial analysis, the type of information that is relevant to reasonable assurance of repayment includes whether parties operate on an arm's length basis; the applicant's ability to conduct due diligence and assess risk; exporter and supplier experience and ability; and commercial or legal concerns with respect to the relevant geographic or market sectors or with the particular parties.

The second major factor taken into account by the Ex-Im Bank is potential fraud and corrupt practices and the Ex-Im Bank conducts a thorough analysis to identify transactions tainted by fraud and corruption. The Ex-Im Bank provides a non-exclusive list of fraudulent activities including non-shipment of goods, inflated invoices, and falsified financial statements, bills of lading or exporter certifications. As for corruption, the Ex-Im Bank notes that it can take many forms including bribery and money laundering. It is the practice of the Ex-Im Bank to insist that transaction participants provide legitimate information, certifications, financial statements, and export documents and agree to comply with all applicable laws–both domestic and foreign. Ex-Im Bank also encourages transaction participants to emphasize their commitment to legal compliance to their employees, agents, and contractors. The Ex-Im Bank may decline to process or discontinue processing any application related to a transaction if Ex-Im Bank determines there is evidence of fraud or corruption or any of the participants has engaged in, or been associated with, fraud or corruption in the past.

Finally, the Ex-Im Bank has made it clear that some level of due diligence must be performed with every prospective transaction with the level and detail of analysis tied to the risks involved based on the nature and complexity of the transaction and the perceived risk level. In order to assist applicants and other transaction participants in understanding the Ex-Im Bank’s underwriting process, the Ex-Im Bank has identified the following ten questions that it considers in review every application:

•    How was the export transaction generated?

•    How did the lender find its customer?

•    Is the obligor's financial information credible?

•    Do transaction parties operate at arm's length, and, if not, what has been done to mitigate potential conflicts?

•     Can the exporter perform under its contract?

•     Does the volume of business associated with a particular exporter, intermediary, buyer or other party seem appropriate, given the size of the company?

•     Does the buyer appear to have a demonstrated need for the export?

•     Is the price of the goods or services reasonable?

•     Does compensation seem reasonable and appropriate given the scope of work performed by a transaction party?

•     Does any transaction participant or principal appear on a U.S. Government prohibited parties list (for example, Office of Foreign Assets Control or Excluded Parties List System)?

The Ex-Im Bank has also developed additional questions with respect to specific transaction participants. For example, the Ex-Im Bank has correctly noted that due diligence with respect to the obligor (who may not be the same party as the buyer) is critical because Ex-Im Bank relies on this party to repay the debt. Accordingly, the following questions will be considered with respect to both the obligor and the buyer:

•     Is there any reason to doubt the obligor's character?

•     How long has the obligor been in business?

•     Is the purchase of goods related to the obligor's primary line of business or a new line of business?

•     Has the applicant visited the buyer and obligor?

•     Who are the obligor's shareholders? Does a government official have any ownership interest?

•     Is there any common ownership between the obligor and any other party to the transaction?

•     Has a background check been conducted on the obligor?

•     Is the obligor overseen by a government regulatory authority?

•     Have the obligor, its shareholders or its senior managers been convicted of a crime in any court of law or other tribunal?

While the Ex-Im Bank is obviously concerned about the ability of the obligor to repay any funds advanced in connection with the transaction, due diligence with respect to the exporter is also critical to assessing transaction legitimacy and the likelihood of repayment and the Ex-Im Bank will ask the following questions about the exporter:

•     How did the exporter generate the sale?

•     How long has the exporter been in business?

•     How long have the exporter's principals been engaged in the line of business for which they are seeking Ex-Im Bank support?

•     Was the exporter incorporated as a subsidiary of a foreign company for the primary purpose of facilitating Ex-Im Bank financed transactions?

•     What is the exporter's reputation in the marketplace?

•     What is the nature of the exporter's operational and technical expertise relative to the export product?

•     Does the exporter have an existing relationship with the buyer?

•     Does the export contract seem consistent with the exporter's sales history and production capability?

•     What is the exporter charging the buyer relative to list price?

•     Does the exporter maintain a policy regarding use of agents and/or commission payments?

•     Are the exporter's principals operating through more than one company on the subject transaction?

 

 

7
Mar

Corruption Remains Major Threat to Continued Indian Globalization

In 2010 the US Commercial Service, in its “Doing Business in India” guide, noted: “U.S. firms have identified corruption as one obstacle to foreign direct investment. Indian businessmen agree that red tape and wide-ranging administrative discretion serve as a pretext to extort money. According to some foreign business representatives in India, corruption lies in the lack of transparency in the rules of governance, extremely cumbersome official procedures, and excessive and unregulated discretionary power in the hands of politicians and bureaucrats.”   Since then the situation seems to have become even more problematic with an article in The Economist reporting in March 2011 that [c]orruption is dreadful in India . . . [and] [w]orries have grown that graft is scaring away foreign businesses”.  The same article referred to an survey released by PERC, a Shanghai-based consultancy, that indicated that investors are more negative because of corruption than they were five years ago and that India ranked fourth among 16 Asian countries among 1,275 businesspeople questioned with regard to the level of corruption—worse than China or Vietnam and on a par with countries such as Cambodia.  Corruption is derailing deals that need to be completed in order to resolve fundamental infrastructure issues in India and foreign investment in 2010 ($24 billion) was down a third from the year before, although factors other than corruption (i.e., bureaucracy, weak property rights and limits on foreign investment in certain sectors) contributed to investor wariness of committing more capital to India.  Adding insult to injury is that not only are investors being asked to pay bribes but in many instances the officials who take the funds ultimately fail to “deliver their side of the bargain”.  The article noted that in other countries where bribes are expected and paid, such as China, investors can at least be assured that they will get what they bargained for, thus leading some to comment that graft can sometimes actually be an “efficient” way to conduct business in certain markets.

7
Mar

Cultural Differentiation Based on Employee Work Values

During the 1960s and 1970s a good deal of research was done on identifying and measuring differences between national cultures based on patterns of employee attitudes toward work.  This report summarizes some of the most important studies and demonstrates how societies might differ with respect to their attitudes regarding work goal importance; need deficiency, fulfillment and job satisfaction; managerial and organizational variables; and work role and interpersonal orientation.