PBEC Chairman Scott Price interviewed by VentureOutsource.com about trade, finance, and economic development challenges facing companies expanding into Asian markets.

Trade, finance, and economic development - interview with PBEC chairman Scott Price

May 30, 2007

VentureOutsource.com talks with Scott Price, chairman with the Pacific Basin Economic Council (www.pbec.org). Mr. Price is also CEO for DHL Express Asia Pacific.

The Pacific Basin Economic Council (PBEC) is focused exclusively on Asia-Pacific centric business interests and helps provide a framework for members to actively engage in policy discussions and initiatives designed to guide regional progress. Transcripts from that discussion follow.

VO: For company executives exploring the possibility of expanding into the Pacific Basin market, what do you see as the top three (3) challenges companies face?

Price: Three challenges facing companies expanding into the Pacific Basin market are:

1. Understanding the various Asian cultures
2. Acquiring adequate knowledge of a large and diverse geographic area of the globe with varying social and economic levels sometimes accompanied by challenging political climates and
3. The various customs and regulatory requirements for different countries

VO: What do you feel are three (3) challenges facing companies already operating in the region - yet wanting to expand their market presence?

Price: Three challenges facing companies already operating in the Pacific Basin market:

1. Managing growth: to meet increasingly sophisticated consumer demands, companies must continuously invest in infrastructure, systems, and people to consistently provide the highest level of product and service quality.
2. Attracting and retaining talent: retention of mission-critical job holders is difficult in a competitive landscape. Hence, effective leadership as well as retention and development training programs are both necessary and critical in order for companies to be successful.
3. Executives must recognize the importance of developing innovative products and services that can clearly differentiate their organization from the competition.

VO: With unrest in the world, focus on world peace and opportunities to create prosperity for countries (whether already developed or developing) is important to humanity. What role do you see ‘trade' playing in bringing economic development and peace to volatile regions around the world? What are your thoughts on trade barriers?

Price: Increasingly, governments are recognizing the importance of trade, especially intra-regional and global trade, and its unifying role across geo-political boundaries.

Scott Price Chairman Pacific Basin Economic Council (PBEC)

In recent years, the world has seen an unprecedented number of new trade agreements and trade blocs or, free trade areas, across all parts of the globe. New free trade agreements (FTA) and a burgeoning WTO membership, with several developing countries waiting in the wings to become part of this exclusive group, bear testament to the emphasis governments place on trade.

Some critics say increasing trade brings with it greater social divide, a bigger gap between the haves and have-nots. However, the positive impact trade brings to a country's economic development is undeniable and is, in fact, irrepressible.

As part of a trade promotion body such as PBEC and, as CEO of a trade facilitator in DHL Express, I am always looking forward to further relaxation of trade barriers and the greater promotion of free trade.

1. Managing change: as they say, any change is painful. It is important to give a lot of thought to the adverse impacts of change. Early communication with key staff is critical as companies do not want good talent from either organization to decide to leave as a result of integration. Companies must turn this challenge into an opportunity.
2. Managing different cultures: companies need to be aware of cultural differences and sensitivities to be able to subscribe to different strategies when communicating and working with people from different cultures. Many different backgrounds and experiences can be leveraged to create vibrant and creative corporate cultures.
3. Meeting regulatory requirements: companies need to be aware of the various requirements as early as possible - such as anti-competitive regulations.
4. Ways to increase shareholder value resulting from acquisition.
5. Transfer of best practices and standards.

VO: Supply chain infrastructure is important for companies to be able to expand global footprints and serve the marketplace. Many developing countries are striving to create adequate communications channels; roads, and air and sea ports as part of their efforts to become more attractive to multinationals. What is the PBEC doing to help improve infrastructure and related conditions across the general Pacific Basin and, what three (3) key objectives, in particular, do you feel the public and private sectors (for their respective countries in the Pacific Basin region) should put in place and work together on to help create sustainable infrastructures for the Pacific Basin region, as a whole?

Price: The World Bank estimates developing nations in the East Asia region will continue to need infrastructure investments of at least US$200 billion per year through 2010.

PBEC is active in promoting a business environment in the region that helps ensure open trade and investment while encouraging competitiveness. Infrastructure to facilitate free flow of trade is one of the main areas of PBEC's policy efforts.

At present, developing nations in the region are only getting about US$20 billion a year in funding from the private sector and international development institutions. On this note, it is anticipated China will require a large portion of this investment - estimated to be approximately 80% of the above figure.

On the other hand, countries such as Laos and Cambodia are currently receiving no funding. This creates a dilemma for poorer countries with a low-return economy - positioning them to be less desirable for investing. Without foreign and local investment, these countries cannot grow.

Funding options, such as a regional bond market, are currently being investigated by Japan; China, South Korea, Thailand, and Southeast Asian nations.

VO: What are your thoughts on protectionism and outsourcing?

Price: Clearly, the ‘outsourcing' wave has taken off slowly in Asia. Take the example of supply chain logistics.

Companies are increasingly outsourcing logistics and supply chain management, preferring to focus on their core activities. The growth of outsourcing in these areas can be attributed to the following:

• Outsourcing the above is one of the best methods to managing costs and to adhere to timely delivery schedules
• Logistics providers form the backbone and core strength of many companies looking to increase efficiency and reduce costs
• Third-party logistics (3PL) often result in noteworthy inventory savings

The economic rise of India and China provides a source of growth and opportunity not only for domestic businesses in these two countries but also for trading partners with each. The Indian and Chinese economies are realizing their potential and have both achieved strong growth over the last few years while utilizing quite different strategies.

To some extent, China's and India's strengths are complementary.

India is developing a highly competitive services sector while China has become the world's workshop for manufactured goods.

The size of the potential market for such manufacturing related services in China is huge given the country has a population of 1.3 billion and a GDP of US$1.1 trillion. Furthermore, transportation and logistics expenditures account for 20 percent of China's GDP.

Although outsourcing accounts for only US$4.7 billion or, less than five percent of the US$1.1 trillion figure, the market for such services is still in the early stages of development.

According to a recent survey, 56% of respondents currently use a third-party logistics provider (3PL) which is much less than the percentage leveraged by other continents such as North America (79%) or, Western Europe (76%). And, only 20% of respondents consider 3PL as a ‘solution provider'.

The survey also noted that 3PL in China needs to be more ‘professional' and differentiated when compared to transporter and warehouse operators.

Accordingly, the survey identified the top three ‘services' currently outsourced to 3PL in China as transportation (>30%), warehousing (15%) and customs clearance (12%).

Of noteworthy interest, more than 65% of manufacturing and retailing companies surveyed noted their China logistics decisions were taking place within China whereas 16% of companies surveyed said their China logistics decisions were determined from their Asia-Pacific headquarters. Only 18% of companies surveyed indicated their China logistics decisions were determined outside of Asia.

VO: Booming economies in some developing nations such as India, Russia, China and South Africa are changing the rules of global competition. Nations such as these and others like Vietnam and Brazil have region-specific and culture-specific market characteristics that are helping to sustain aggressive growth in their respective domestic markets. With this growth comes the challenge of maintaining a supply of trained workers talented enough to meet increasing demands for skilled labor. What trends do you see taking shape in the way multinationals are approaching these evolving markets and, from a human resources perspective, what should companies engaging these growing regions look for in order to feel secure that the pace of economic growth in a region will not be adversely impacted by an inadequate rate of growth and ultimate lack of supply of available human capital armed with the proper skills? (This issue becomes even more critical when the required labor force must be highly technical and associated technologies are constantly changing)

Price: Finding a relevant and strong local partner is one suggested method for multinationals entering new and attractive markets. Doing so helps partner multinationals with excellent local market and industry knowledge as well as equipping them with necessary social and political awareness.

Meanwhile, one primary reason employees leave companies is lack of personal developmental and lack of professional advancement opportunities. Companies are constantly challenged to attract; retain, and empower the best in industry. Companies must recognize the value relative to training and investing in people.

Effective leadership and retention and development training programs are both necessary and critical to helping companies become successful along their way to achieving corporate goals.

VO: If you could have a dinner conversation with anyone (currently alive, deceased, or fictional), who would you select?

Price: I would love to meet Thomas Jefferson - he was a brilliant man - an inventor, the writer of the American Declaration of Independence, and an astute diplomat who rose to become the third President of the United States. He was also the founder of the University of Virginia, from which I graduated.

VO: Thank you, Scott.

Price: You're welcome. Thank you.