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I sent this article and comments to our senior team this morning.
Michael

>
> I commend this article for a close read. I believe it provides some
> guidance on what hedge funds, portfolio investors and private equity
> firms will be looking for from firms like ours. Information on
> political risk and perhaps at times on the companies structure and
> even in some cases their technical depth. It also provides an
> indication that we have recognized that SWF will be critical
> investors since they have large pools of capital and are comfortable
> with the complexity of cross border transactions.
>
> It raises by implications that a company with our products may be
> called upon by Brazilian, Indian, South African companies to assess
> US, European and other developed countries political risk, corporate
> culture and some technical analysis.
>
> MPA
>
> PS the outline of a business plan.
>
>
> Business: A change in gear
> By Stefan Wagstyl
> Published: May 11 2010 21:47 | Last updated: May 11 2010 21:47
>
>
> Pulling rank: a London cab with a Chinese makeover. The vehicles,
> such as this one seen in Tiananmen Square, are produced by
> indigenous carmaker Geely and the British company in which it owns a
> stake
>
> EDITOR’S CHOICE
> Europe agrees rescue package- May-10
>
> Editorial: Markets struck by jitters - May-07
>
> Outside Edge: On the money in the 2.45pm crash - May-07
>
> Basel regulators weigh cost of reform - May-03
>
> Opinion: Plan B for the debt crisis - Apr-29
>
> Opinion: Time to press on with bank reform - Apr-21
>
> As chief executives emerge from recession they are seeing some
> unfamiliar names scurrying around the global corporate landscape.
>
> In Europe, Geely, the Chinese carmaker, is finalising a $1.8bn
> (€1.4bn, £1.2bn) acquisition of Volvo, the Swedish manufacturer.
> In Africa, India’s Bharti Airtel is set to become the world’s
> fifth-largest mobile phone operator through the $10.7bn purchase of
> the regional assets of Zain, the Kuwaiti telecommunications group.
> In the US, Reliance Industries, India’s biggest private sector
> company, is completing a $1.7bn joint venture with Atlas Energy
> after narrowly failing in Europe with a $14.5bn bid for
> LyondellBasell, a Dutch chemicals group.
>
> Meanwhile, after last year’s slump, exports from emerging economies
> are recovering at break-neck speed, rising last month in China, for
> example, by 30 per cent.
>
> Companies from emerging economies are back on the move. They “have
> come out of the crisis better than developed world corporates”,
> says Chris Hemmings of the PwC consultancy.
>
> These groups are climbing up the value chain with new products,
> services and brands, ranging from high-technology Chinese
> electronics to Indian cars and Brazilian financial services. As
> Edward Tse of the Booz consultancy writes in a recently published
> book: “China is no longer exclusively a source of low-cost
> manufacturing. It is realising its potential to be far more: a
> source of global competitors in every aspect of business on the
> global stage.”
>
>
> The same applies to India and, to a lesser extent, Latin America.
> For global corporates, this is an even bigger shift than the
> emergence of Japanese groups as international investors 25 years
> ago. The new challengers are moving faster and more aggressively
> than did the cautious Japanese.
>
> The new multinationals are coming from countries more open to
> foreign investment than Japan was in the 1980s. Hundreds of
> international companies are already firmly established in markets
> such as China, India and Brazil; developed and emerging world
> companies are competing head on across a range of industries – and
> co-operating extensively through joint ventures. But the rivalry is
> becoming more intense, embracing the developed as well as the
> emerging world.
>
> For portfolio investors, too, the game is changing. Once investing
> in emerging markets mainly meant backing a particular economy’s
> growth potential or its capacity to export commodities. No longer.
> Now it means investing in businesses already ranked among the
> world’s largest in their industries, such as SAB Miller, the South
> African brewer; Cemex, the Mexican cement group; or Huawei, China’s
> biggest telecommunications network equipment group. It means
> investing in new technologies, brands and ways of doing business.
>
> Competing with emerging market companies is nothing new for
> developed world multinationals. While they faltered in the worst
> recession since the 1930s, they are recovering rapidly. The number
> of emerging markets companies in theFinancial Times Global 500 may
> have nearly doubled from pre-crisis levels of 68 in March 2007 to
> 119 two months ago – but the majority are still from the developed
> world.
>
> CASES IN POINT
> Asian groups making inroads at home and abroad
> Huawei
> With its library and conference rooms grouped around tropical plant-
> filled patios, the Chinese telecommunications equipment maker’s
> airy, Norman Foster-designed headquarters in the southern city of
> Shenzhen could compete with those of any global technology company.
> This is appropriate for a group that is now the world’s second-
> largest telecoms gear maker, with $21.8bn revenues and a 14.2 per
> cent global market share in 2009, behind Ericsson.
> Unlike banks, automakers and other Chinese companies muscling into
> global top ranks on the back of the country’s 1.3bn population, it
> owes its rise mainly to overseas success. “They have grown despite
> their home market, not because of it,” says Duncan Clark of the BDA
> telecoms consultancy in Beijing.
> With fat credit lines from state banks allowing it to offer generous
> financing to telecoms operators, Huawei has been highly successful
> in emerging markets besides its own, and is also making inroads into
> developed markets.
> Competitors attribute its growing market share to lower prices but
> many customers acknowledge that it offers greater flexibility. Where
> some equipment makers have been marketing complete systems, Huawei
> is willing to customise according to operators’ demands.
> Increasingly, however, it is meeting hurdles. Despite years of
> effort, it has yet to land a big order in America. Since Ren
> Zhengfei, the secretive founder and chief executive, is a former
> People’s Liberation Army officer, the US continues to have security
> concerns over Huawei equipment.
> With reassurances that it is owned by staff rather than the state or
> military failing to convince, it has begun a campaign to win greater
> trust. Huawei has put a managing director in Washington and is
> making efforts to engage the media. Kathrin Hille
>
> Air Asia
> Once a failing state-owned Malaysian airline with just two aircraft,
> AirAsia is now one of the few indigenous companies in emerging south-
> east Asia with a brand that resonates across the region.
> Tony Fernandes, chief executive, bought it in 2001 with the aim of
> making it the home airline of the 10-country Association of South
> East Asian Nations, an economic and trade grouping with 580m
> consumers and a combined economy bigger than India’s.
> Nine years after Mr Fernandes bought it for a token M$1 plus M$40m
> debt, AirAsia boasts more than 90 aircraft, joint-ventures in
> Thailand, Indonesia and Vietnam, and a network that extends beyond
> Asean to China, Sri Lanka, Bangladesh and India.
> AirAsia X, a long-haul affiliate, flies to the UK and Australia, as
> well more distant parts of India and China, bringing the group into
> direct competition with developed country airlines such as British
> Airways, Qantas, Singapore Airlines and Virgin.
> Starting with just $250,000 in cash, Mr Fernandes relaunched AirAsia
> as the region’s first real low-cost airline, copying the no-frills
> model pioneered by Southwest Airlines of the US and Ryanair of
> Ireland.
> The company has grown rapidly because of a rigorous focus on keeping
> down costs through lean staffing, multi-tasking, and high aircraft
> utilisation rates, boosted by low levels of congestion at many Asian
> airports. As a result, its costs are widely regarded to be lower
> than those of Ryanair, regarded for many years as the global leader
> in cost control.
> Chris Tarry, a UK-based aviation analyst, says AirAsia is probably
> one of only three budget airlines in the world making sustainable
> profits.
> “The model for the future,” says Mr Fernandes, is for AirAsia
> “to go to the Middle East, to Korea, and [more comprehensively to]
> China and India”. Kevin Brown
>
> Western, Japanese and South Korean multinationals retain huge
> reserves of talent, technology and capital. Many have been in
> emerging markets for decades, including Unilever, the Anglo-Dutch
> consumer products group; General Electric, the US conglomerate; and
> Siemens, the German engineering group. Others have joined more
> recently, among them Microsoft, the US software giant, which has
> established its biggest development centre outside the US in
> Beijing; and Cisco Systems, the computer network group, which has
> set up “a second headquarters”, Cisco East, in Bangalore, India.
>
> Davin Chor of the Singapore Management University argues against
> over-generalising from the weaknesses of a few high-profile American
> companies, such as the carmakers. “One shouldn’t be too bearish
> about American companies going forward.”
>
> The same applies to European companies. The biggest cross-border
> acquisition this year so far is the planned $35.5bn purchase by
> British insurer Prudential of AIA, the Asian business of US group
> AIG – a more conventional case of a developed world company moving
> into emerging markets.
>
> Equally, some emerging market companies were battered during the
> crisis – notably over-borrowed Russian resources groups such
> asRusal, the aluminium group; and some Mexican companies, including
> Cemex. “There are huge disparities in performance within sectors
> and within countries,” says Alok Kshirsagar of McKinsey
> consultancy’s Asia Centre.
>
> But there is no doubt which way the economic winds are blowing.
> “From my new base in Hong Kong, the shift from west to east is
> clearer than ever,” Michael Geoghegan, chief executive of HSBC, one
> of the world’s biggest banks, said last week. “In developed
> markets, the risks of double-dip recession and stagnation haven’t
> gone away. In contrast, recovery in emerging markets looks secure.”
> said Mr Geoghegan, who this year moved from London to Hong Kong.
>
> Driving emerging market companies are their domestic economies.
> While developed countries’ gross domestic product contracted 3.5
> per cent last year and are expected to record sluggish growth of
> about 2.5 per cent in 2010, the emerging world avoided recession and
> is forecast to bounce back to a healthy 6.3 per cent this year.
> While policymakers in the developed world fret about stagnation,
> their emerging market counterparts worry about inflation.
>
> The domestic demand surge is clearest in India, where incomes are
> rising from a low base. Companies reaping the rewards include Hero,
> a motorcycle manufacturer; Godrej, a producer of personal care
> products; and cement makers such as India Cements and Grasim. “What
> we find is that many Indian companies that focus on India itself
> have done extremely well,” says Kwok Chern-Yeh of Aberdeen Asset
> Management Asia.
>
> Asia – and especially China – is living in a credit boom that
> contrasts sharply with the scarcity blighting western Europe, the US
> and, to a lesser degree, eastern Europe and Latin America. While
> there are concerns the boom could end in a bust, for now, Chinese
> companies have cheap finance.
>
> By contrast, the emerging market companies that have suffered are
> those in countries that followed the developed world into recession
> – notably Russia, where 2009 output fell 7.9 per cent; South
> Africa, (down 1.8 per cent); and Mexico (down 6.5 per cent), the
> laggard of Latin America. Russian tycoons who borrowed heavily
> before the crisis have been forced to sell assets to cut debts, most
> notably Oleg Deripaska, Rusal’s main shareholder.
>
> The most visible – and most controversial – element in emerging
> multinationals’ expansion is corporate acquisition, seen by many
> directors as the fastest way to advance. Li Shufu, Geely’s poetry-
> writing founder, says the Volvo takeover is the perfect antidote for
> what his own and most other Chinese carmakers lack: technology,
> research capability and a reputation for quality and dependability.
>
> While the overall quantity of capital flowing from the developed
> world into emerging economies is still far greater than that going
> in the opposite direction, in corporate acquisitions it is a
> different story. Last year, for the first time, takeovers by
> emerging world companies of developed world groups exceeded
> takeovers going the other way – the former valued at $105bn, the
> latter at $74.2bn, according to Dealogic, a business data company.
>
> “In the next few years we will see a growing number of acquisitions
> in Europe and the United States by companies based in emerging
> markets, es pecially in Asia and South America,” says Rodolfo De
> Benedetti of CIR, an Italian conglomerate. “These companies today
> have considerable financial resources and good management, and are
> interested in entering new markets and acquiring competitors.”
>
> As well as the developed world, new corporate investment is being
> targeted at other emerging markets – often challenging western
> groups. The race for natural resources is particularly tight, with
> China and India leading the way. Not to be left out, Vale, the
> Brazilian miner, last month paid $2.5bn for a half-share in a remote
> iron ore deposit in Guinea. For South African companies, raised on
> links with the west, investing in Africa is a new “orthodoxy”
> says Jacko Maree, chief executive of Standard Bank, the country’s
> biggest.
>
> Alongside acquisitions, partnerships matter in a globalised world,
> with scores of joint ventures already set up between developed world
> motor groups and their emerging market counterparts. In the latest
> case, Peugeot Citroën, the French carmaker that has lagged behind
> other foreign groups in China, this month announced a joint venture
> with China Changan to supplement production capacity it already has
> in the country.
>
> However, the terms of trade bet ween developed and emerging market
> groups are changing, with power shifting to the emerging world. “We
> are seeing a bit of a pendulum shift. Five or 10 years ago, a
> multinational would tell you what to do ... now working together is
> a true joint venture,” says McKinsey’s Mr Kshirsagar.
>
>
> Cross-border deals are not easy. First, timing is crucial as
> companies that made big-ticket acquisitions just before the crisis
> found to their cost – notably Tata, India’s biggest business
> group. In 2006-08, it bought Corus, the European steel group, for
> £6.7bn in India’s largest foreign acquisition; and Jaguar Land
> Rover, the UK carmaker, for $2.5bn. The assets plummeted in value
> during the recession, leaving Tata managers struggling to
> restructure their acquisitions.
>
> Next, the cultural gaps between emerging economy owners persist.
> Chinese managers feel as alien on the Tyne in north-east England as
> western executives do on the Yangtse. According to Tarun Khanna and
> Krishna Palepu, authors of Winning in Emerging Markets, a study
> published last month: “Securing and instilling global standards and
> capabilities throughout an emerging markets-based organisation is a
> difficult, long-term task.”
>
> Finally, there can be political barriers. Chinese state-controlled
> companies have run into trouble in the US over perceived political
> and security risks. A $2.2bn bid for 3Com, a US network technology
> company, from Bain Capital and Huawei, the Chinese telecoms
> equipment-maker, failed in 2008 when Washington objected. In Europe,
> the ambitions of Russian state-run energy group Gazprom to expand
> into the European Union have been contained by political concerns.
>
> But as Japanese companies found 25 years, ago these barriers can be
> overcome. Even before the crisis the corporate order was changing,
> with companies from China, India, Brazil and other emerging
> economies forging ahead in global industries. Their advance has now
> become a charge.
>
>
> Additional reporting by Geoff Dyer in Beijing, James Lamont in New
> Delhi, Kevin Brown in Singapore, Richard Lapper in Johannesburg,
> Adam Thomson in Mexico City and Jonathan Wheatley in São Paulo
>
>