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China Gaining Ground in Global ‘Head and Brains Race’

COLUMBUS, Ohio, Sept. 29 /PRNewswire-FirstCall/ — Global competition, once defined by the Cold War arms race, has evolved into a “head and brains race” where nations measure success through the development and application of technology.

That was one of the conclusions from a Battelle-R&D Magazine report on international research and development trends. The report frames international competition as evolving from the arms race to a “hands race” based on lower-cost manual labor and now to the head and brains race driving the current escalation of R&D spending.

“It is tempting, and certainly reasonable, to acknowledge the fact that each of these races has involved a reliable adversary,” says Dr. Jules Duga, senior research scientist at Battelle and co-author of the report. “These adversaries continue to present challenges to the United States that can be met and conquered or accommodated only by long-term strategic investment and will.”

While the U.S. remains the standard-bearer in terms of worldwide R&D, China is emerging as an R&D giant. That trend will continue, the report projects.

The U.S. is responsible for 32.4 percent of global R&D this year, compared to 13.4 percent for China. Those numbers were first and second, respectively, worldwide but represent a decline for the U.S. and an increase for China. The same trend will continue in 2007, according to the report, when the U.S. will be responsible for 31.9 percent of global R&D and China 14.8 percent.

“There still is a considerable gap,” says Duga, “but it’s closing.”

With China leading the way, Asia continues to seize more and more of the international R&D market. Asia’s share of global R&D grew from 34.9 percent in 2005 to 35.6 percent this year and should continue to grow to a projected 36.5 percent in 2007, according to the report. The U.S., over the same period, has declined from 32.7 percent to 32.4 percent this year and is projected to dip to 31.9 percent next year.

Changes in government attitudes, direct government investments, liberalization of their economies, and an increased emphasis on developing a highly educated, technology-oriented population are some of the factors leading to the R&D growth in Asia. These also are reasons why industry from all over the world is changing the way it develops relationships with the R&D communities from these burgeoning countries. The first steps could be characterized as casual, “testing-the-waters” interactions that included preliminary contract research arrangements. These quickly have evolved into major investments in institution-building, the creation of subsidiary operations, and the development of a wide range of joint ventures.

“It is apparent that the modifications in the internal policies of East and South Asia, in particular, have had and will continue to have an influence on the amounts and patterns of R&D performance in the U.S. and other nations,” says Tim Studt, editor of R&D Magazine and Duga’s co-author on the report.

Outsourcing of R&D has been a growing trend and will continue to grow as long as the cost of doing business makes sense for U.S. companies, concludes the report. The lower costs in most areas, especially China and India, enhance the competitive position as compared to other (usually domestic) resources and lead to measures of higher productivity. When other advantages, such as enhanced global R&D infrastructure and improved support for other global operations, are considered, the value of outsourcing becomes apparent, says Duga.

“Host countries like China and India have come well down the road in terms of providing a technology-friendly environment,” Duga says.

Battelle has prepared a report on U.S. R&D funding annually for more than 40 years, including the last 12 in partnership with R&D Magazine. Duga has co-authored that forecast for 27 years. This is Battelle’s second comprehensive report on international R&D spending.

The full report is included in the September issue of R&D Magazine. Reprints are available by contacting Battelle’s Jean Hayward at (614) 424-7039 or at haywardj@battelle.org.

Battelle is a global leader in science and technology. Headquartered in Columbus, Ohio, it develops and commercializes technology and manages laboratories for customers. Battelle, with the national labs it manages or co- manages, oversees 20,000 staff members and conducts $3.4 billion in annual research and development. Battelle innovations have included the development of the office copier machine (Xerox); pioneering work on compact disc technology; fiber optics for telecommunications; development of new medical products to fight diabetes, cancer and heart disease; breakthroughs in environmental waste treatment; homeland security technologies; and advancements in transportation safety and security.

Nasdaq and NYSE Seek China IPOs

BEIJING — The New York Stock Exchange (NYX – commentary – Cramer’s Take) and the Nasdaq Stock Market (NDAQ – commentary – Cramer’s Take), worried they’re losing out on big IPOs from China, are trying to boost their visibility in the region. They’re staffing up and touting the benefits of a U.S. listing to dealmakers at investment banks, private equity outfits and law firms in China.

“Obviously China is a very exciting market. We see it as the fastest-growing market outside the U.S., as well as the strongest market internationally,” says Charlotte Croswell, the London-based head of Nasdaq International.

This year the Nasdaq started publishing Going Public: A Guide for Chinese Companies to Listing on the U.S. Securities Markets. Written in both Chinese and English, it details minimum listing requirements, explains the role of investment banks and accountants, and even sets out a sample 20-week IPO timetable, from start to finish.

There’s no mystery why the American exchanges are feeling anxious.

Last year, China’s IPO proceeds of $24.3 billion ranked second only to those of the U.S., whose companies raised $33.1 billion, according to Ernst & Young/Thomson Financial. And in 2005 China claimed three of the world’s 10 biggest public offerings.

But a U.S. listing is no longer the default for ambitious Chinese firms. All three of the Chinese companies on 2005’s 10-biggest IPO list — China Construction Bank, China Shenhua Energy and Bank of Communications — passed up the U.S. in favor of listing in Hong Kong. The Bank of China, another multibillion-dollar IPO, followed suit earlier this year.

The moves are part of a broader trend of foreign firms passing up the U.S. exchanges.

Companies are discouraged by America’s higher regulatory burdens, litigious investors and different accounting requirements. (The U.S. uses generally accepted accounting principles, or GAAP, while some other countries employ a framework called international financial reporting standards, or IFRS.)

And foreign companies that list outside the U.S. don’t have any problem reaching American money managers. They can simply arrange ahead of time to sell shares to big institutional investors on the day of their IPO.
As a result of all this, the American exchanges are having to work harder to attract overseas listings — and China is a key focus. Currently the NYSE has 17 companies listed from mainland China, while the Nasdaq has 29.

The NYSE “has an aggressive marketing campaign out to show the advantages of listing in New York as opposed to listing overseas,” says Alan Seem, a Beijing-based partner at the law firm of Shearman & Sterling.

The NYSE and Nasdaq both are seeking Beijing’s go-ahead to open offices in mainland China. The NYSE now has two salespeople on the ground in mainland China, with another in Hong Kong.

The Big Board is also hoping to score new listings business through NYSE Arca, an all-electronic trading platform aimed at small, fast-growing companies that don’t yet meet the standards of the main board — a category likely to include many firms from emerging markets such as China. Companies can aim to graduate to the NYSE as they grow bigger.

This year Nasdaq tapped a new Asia-Pacific executive to be based in Hong Kong who will work with another salesperson already focused on China.
Both exchanges say they’re seeing progress on the mainland. The NYSE is in talks with four or five Chinese companies “that are considering the U.S. capital markets,” according to Noreen Culhane, the NYSE’s executive vice president of the global corporate client group.

“Our pipeline, I would say, is stronger now than it was 12 months ago,” says Nasdaq’s Crosswell, although she acknowledges that some of those IPOs may not take place for a couple more years.

Even as they vie for more Chinese business, both U.S. exchanges deny competing with the Hong Kong bourse.

“We say we don’t compete with local markets,” explains Crosswell. Chinese IPOs “have always gone to Hong Kong. That has always been quite a natural home for them as well as Shanghai and Shenzhen.” Nasdaq offers a “complementary” listing that can increase their visibility, market liquidity and access to capital, she says.

But in fact, while Shanghai and Shenzhen are still crowded with weak, poorly run government-owned companies from the mainland, the Hong Kong exchange has emerged as a more powerful regional force over the past few years. Its legal infrastructure is much stronger than that on the mainland, and its regulations are respectably high — though not as burdensome as those in America.

Still, American exchanges contend they are in a different league from their peers in Hong Kong and elsewhere. The 2,700 companies listed on the NYSE claim a total market value of $23 trillion. “This is the deepest investor pool in the world. Companies come here because they understand there is a valuation premium that comes with being associated with high listing standards,” says Culhane.

Companies that trade on an American exchange are able to give stock options to employees based in the U.S. They also benefit from a higher profile that can help them attract stateside customers, business partners and employees.

That’s important for Chinese outfits with international ambitions — or so say the NYSE and Nasdaq. But lately, a small but notable number of major Chinese companies don’t seem convinced.

China’s biggest bank breaks record with IPO

Industrial & Commercial Bank of China attracted a great number of retail investors and is expected to raise up to $22 billion, the most ever raised in a stock debut anywhere.

HONG KONG – (AP) — China’s biggest lender, Industrial & Commercial Bank of China, attracted the largest amount of orders ever from Hong Kong retail investors for the bank’s initial public offering, news reports said Friday.

The bank’s dual IPO in Hong Kong and Shanghai is expected to raise up to $22 billion, the most ever raised in a single share debut anywhere.

The retail portion of the offering drew orders of more than HK$420 billion ($53.9 billion) in Hong Kong, The Standard newspaper and the Hong Kong Economic Journal said.

More than 1 million people — or one in seven of Hong Kong’s total population — placed those orders, the Journal said.

The keen demand surpassed the record set by Bank of China, the mainland’s No. 2 lender, whose IPO in June drew HK$280 billion in retail orders.

The Hong Kong portion of the IPO is being priced Friday, while the price of the mainland portion will be set Monday. The shares are due to begin trading simultaneously in Hong Kong and Shanghai Oct. 27.

Given the strong interest, the state-owned bank is expected to price its shares at the top end of the range specified in its prospectus. The price range for the Hong Kong portion has been set at HK$2.56-HK$3.07 ($0.33-$0.39), on par with its Shanghai offering, at 2.60 yuan to 3.12 yuan ($0.33-$0.39).

The IPO has also attracted well over $300 billion in orders from institutional investors, the South China Morning Post reported quoting unidentified market sources.

ICBC plans to sell 35.39 billion ”H” shares in Hong Kong — stocks for a mainland Chinese-registered company listed in Hong Kong — and 13 billion ”A” shares in Shanghai.

If priced at the top of the range, the dual IPO will raise about $21.9 billion — exceeding the 1998 IPO by Japanese mobile phone company NTT DoCoMo, which raised $18.4 billion.

Mainland Chinese banks have a long track record of bad debts and lending scandals, but investors have been keen to buy shares, betting that government support will limit risks while allowing them to tap into China’s economic boom.

Like the two other major state banks that have already sold shares in Hong Kong, Bank of China and China Construction Bank, ICBC has restructured and wiped out billions of dollars in bad debts.

IBM to move procurement HQ to China

IBM said on Thursday it would move its global procurement headquarters from New York to China in an endorsement of the country’s ever-growing role as a supplier to the global economy.

The company said John Paterson, its chief procurement officer, had relocated to Shenzhen, the Chinese special economic zone that borders Hong Kong.

It is the first time the company has moved the headquarters office of a global unit outside the US.

The company said the move would not affect staffing levels in the US, where it employs about 2,500 people in its procurement operations.

IBM has operated a China procurement centre in Shenzhen for more than 10 years, and also established a PC manufacturing joint venture there in the early 1990s.

The company sold its PC business to Chinese rival Lenovo two years ago and has also hived off its hard-drive business to Hitachi, but it still maintains a large sourcing operation in Asia.

IBM says it spends about 30 per cent of its $40bn annual procurement budget in Asia, and also employs more than 1,850 procurement and logistics staff in the region.

Shenzhen has successfully attracted investment from a large number of multi-national IT companies, as it seeks to upgrade its industrial base.

The government has actively encouraged low-tech industries to move out of the zone, to cheaper locations inland.

Shenzhen raised its mandatory minimum wage rates by up to a quarter earlier this year in a bid to accelerate the flight of labour-intensive businesses.

While rising labour and other costs in Shenzhen are also a concern for high-tech investors such as IBM, these are mitigated by a dense network of component suppliers that have taken root in the Pearl River Delta, as well as the region’s first-rate infrastructure.

HR Market Growing Fast in China

By Frank Mulligan, Talent Software

The recruiting of staff is the greatest challenge that HR practitioners in China face.

But turn the turtle on its back and we see that recruiting is big business. There is a lot going on underneath. A mulititude of players offer everything from executive search to Applicant Tracking Systems (ATS).

These international players are currently targeting China.

The graphs below tell an interesting story. They are based on a large scale study of international companies who offer some form of solution for recruiting. They illustrate well how the investments in the recruiting space have shifted from Hong Kong to Mainland China, and specifically to Shanghai. China is taking off, with Hong Kong flat. The study was done by a London-based MandA specialist called The1, and if you want to know more go here and click on ’Research’.

So the good news is that the kinds of recruiting support services that are avalilable in most countries around the world will soon be available in China. This would include Recruitment Process Outsourcing (RPO), online hiring services, background checking based on call centers, online skills testing, outsourced payroll and benefits, Applicant Tracking Systems (ATS) and so on. The 1 tracks them all.

These additional support services will make life a little easier for HR professionals in China. They won’t solve the biggest problem, which is the shortage of skilled, experience staff.

For that we still have to get our hands dirty.

Has Korn/Ferry Hit the Ceiling?

The employee-search outfit’s stock hit its highest level since 2001, but some analysts think the climb may be nearing an end

by Alex Halperin

Based on the recent strength of Korn/Ferry International (KFY) shares, many investors would no doubt give the headhunter high marks in a performance review. Shares of the executive and middle-management search outfit brushed $23.18 on Oct. 17, their highest level since May, 2001. What’s behind the strong showing? Analysts attribute the performance to a combination of strong management by the company and macroeconomic factors like low unemployment.

Indeed, in a recent conference call with analysts, the company crowed about the falling U.S. jobless rate, and, more specifically, even lower unemployment in the job market for white-collar workers and those with a college degree, which increases demand for its services. It also highlighted falling unemployment in Britain and Europe, where the company has a large presence. But amid the positive news, analysts disagree on whether investors will be able to squeeze much more juice out of the company, at least in the short term.

Just a few years ago, the shares were underemployed. Following the September 11 terrorist attacks, the stock wallowed in the doldrums, spending much of 2002 and 2003 in the single-digit price range. But as job growth has returned—albeit not as robustly as some would like—and the Dow has reached new heights, Korn/Ferry was well-positioned for the ride.

Database Management
The Los Angeles-based outfit recruits senior-level executives and middle management employees, the latter through a unit called Futurestep, which focuses on employees with salaries in the $75,000 to $150,000 range. By combining the company’s recruitment expertise with a database of job-seekers, Futurestep is “pioneering the market,” says SunTrust Robinson Humphrey analyst Tobey Summer. There are “hardly any global competitors to what Futurestep does,” he adds. Futurestep complements Korn/Ferry’s much larger executive recruitment business since employers looking for one service can end up using both.

For the quarter ended July, the company posted revenues of $161.1 million, up from $129.1 million a year earlier, with quarterly net income rising from $11.6 million to $13.7 million. Though the company has offices worldwide, it saw the greatest revenue growth in its core North America executive-recruitment division.

Analysts applaud the company’s recent performance but question whether the stock has more room for growth, at least in the short term. Bulls can find encouragement in the relatively strong corporate-earnings climate, which could lead to more hiring. And at the lucrative senior levels, there’s a growing need to replace retiring baby boomers.

Competitive Consultants
The company is “catching a good cyclical time for the business,” says Summer. Despite his enthusiasm, he rates the stock neutral. He says the company is well-positioned globally with an extensive office network across Europe and Asia.

But he doesn’t see that translating into notably better profit margins. He also says that after a few good years, the executive recruiting sector as a whole is doing more promoting and hiring their recruiters from outside the industry instead of tapping more experienced headhunters. While new recruiters—Korn/Ferry calls them consultants—are a sign of a growing industry, they tend not to deliver revenue as quickly, Summer says.

Korn/Ferry no doubt owes some of its recent success to strong performance in the sector. Smaller rival Heidrick & Struggles International (HSII) is also trading near multiyear highs. But over the past five years Korn/Ferry’s stock has outperformed Heidrick’s. With both outfits armed with ample balance sheets, Summer speculates that they might be on the prowl for acquisitions, though probably more for secondary businesses than executive recruiting.

Labor Upturn
Standard & Poor’s, which has a long-standing buy rating (four stars out of five) on Korn/Ferry, says it expects revenues to climb 15% for the year ending in April. Despite this generally positive outlook, though, it cautions that the stock remains vulnerable to “the possibility of an unexpectedly weak global economy.”

S&P analyst Michael Jaffe remains relatively bullish. It’s a “pretty well-run company,” he says, adding that “a lot of the human-resources companies are doing well because we’ve been in the midst of a labor upturn for past few years.”

In a recent report, Korn/Ferry market-maker Merrill Lynch (MER) agrees with Summer that it doesn’t see much more near-term upside for investors. And it doesn’t expect the company to add a dividend soon.

While the company’s prospects appear solid, the shares may not be able to climb the ladder much higher. Perhaps it’s time for investors to start thinking about the exit interview.

HR Market Growing Fast in China

By Frank Mulligan, Talent Software

The recruiting of staff is the greatest challenge that HR practitioners in China face.

But turn the turtle on its back and we see that recruiting is big business. There is a lot going on underneath. A mulititude of players offer everything from executive search to Applicant Tracking Systems (ATS).

These international players are currently targeting China.

The graphs below tell an interesting story. They are based on a large scale study of international companies who offer some form of solution for recruiting. They illustrate well how the investments in the recruiting space have shifted from Hong Kong to Mainland China, and specifically to Shanghai. China is taking off, with Hong Kong flat. The study was done by a London-based MandA specialist called The1, and if you want to know more go here and click on ¡¯Research¡¯.
1
2
3

So the good news is that the kinds of recruiting support services that are avalilable in most countries around the world will soon be available in China. This would include Recruitment Process Outsourcing (RPO), online hiring services, background checking based on call centers, online skills testing, outsourced payroll and benefits, Applicant Tracking Systems (ATS) and so on. The 1 tracks them all.

These additional support services will make life a little easier for HR professionals in China. They won¡¯t solve the biggest problem, which is the shortage of skilled, experience staff.

For that we still have to get our hands dirty.

Comments to: frank.mulligan@recruit-china.com

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When It Comes to Job Offers,It Pays to Ask for More Money

CareerBuilder.com’s survey of 875 hiring managers revealed that about 60% leave room in the first offer for salary negotiations, 30% say their first offer is final, and 10% say it depends on the candidate.

Meanwhile, four out of five corporate recruiters said they are willing to negotiate compensation, according to a study conducted by the Society for Human Resource Management.

Yet few job-seekers actually ask for more, says Randall Hansen, a career advice writer for Quintessential Careers.

Clearly, it pays to negotiate, though actually doing so can be difficult. To be successful, arm yourself with information. Research the company’s pay scale, the job’s fair market value, the industry average and the region you’ll be working in.

Salary comparison information is easy to find–try employment surveys, libraries, professional organizations and peers. Numerous Web sites offer comparison information–try Salary.com, CareerInfoNet.org or Jobstar.org.

Delay salary and benefit discussions until you actually have an offer. You will have more negotiating power once you know you’re the desired candidate. And let the employer talk first; otherwise, you risk asking for less than what the employer is prepared to offer. If you must provide salary requirements during the application process, offer a bracketed range or say that you expect a salary that’s competitive with the market.

Prove what you’re worth. Employers are more likely to honor your requests for higher compensation if you can demonstrate why you deserve it. Highlight your unique skills, specific accomplishments or the revenue you’ll generate. Make sure your references give you good reviews–employers rely on past peers and bosses when deciding on a higher salary.

Other benefits count. If a salary isn’t negotiable, you may be able to get other perks such as increased vacation days, tuition reimbursement, moving expenses, stock options or profit sharing. Consider requesting an earlier performance review so your next salary discussion is sooner rather than later.

Always get your final compensation offer in writing. You can ask the employer for a day or two to review it before making a final decision, but once you sign on the dotted line, don’t go back for more.

China:Foreign banks need to be ‘local’

RULES that require foreign banks to incorporate locally before they can offer bankcards and yuan-denominated deposit service will be implemented by December 11, an official of the banking regulator said.

Passing the rule should be no problem by that date, Xu Feng, director of the banking supervision department at the China Banking Regulatory Commission, told a conference in Beijing yesterday.

The regulator has reached “more consensus” with foreign banks on the draft regulations, Xu said.

China is set to open its retail yuan business to overseas banks on December 11 under its World Trade Organization commitment.

The banking regulator has held two meetings in Shanghai and Beijing to get responses from overseas institutions about the draft.

Some of them have said it’s hard to meet the requirement of having a deposit-to-loan ratio of 75 percent.

The regulator is likely to grant overseas banks a transition period to allow them to take in deposits to meet the requirement, earlier media reports said.

Overseas banks that don’t incorporate locally will need three times more capital to offer yuan services to local individuals in the country, under draft rules given to Shanghai Daily in August.

Overseas banks which are not locally incorporated can only take fixed deposits of more than one million yuan (US$125,000), the draft noted.

China’s US$1.9 trillion household savings are like the icing on the cake that most overseas banks can’t easily overlook.

Overseas banks have 214 outlets nationwide now. The figure is the tip of the iceberg when compared with more than 70,000 run by their Chinese rivals.

Xiang Junbo, deputy governor of the People’s Bank of China, said in September that international experience has shown that a “too fast” and “too much” opening up of the banking sector will do harm, rather than benefit, a country’s economy.

RMB becomes more powerful in regional finance system

Chinese central bank announced on Tuesday that the amount of swapped currency included in the bilateral currency swap agreement between China and Indonesia has increased to about 4 billion US dollars, doubling the previous figure. Analysts say this shows that China has played a more important role in maintaining the stability of the regional finance system. It is expected that Renminbi will become a more powerful currency in regional finance system in future.

In December 2003, China and Indonesia signed a bilateral currency swap arrangement, and the total amount of swapped currency included in that agreement was 1 billion US dollars. In October 2005, when the two countries re-signed the agreement, the amount of swapped currency had increased to 2 billion US dollars.

Economists have suggested that Asian countries should establish a regional financial cooperative scheme possibly in four ways: The first is to establish a regional currency fund system; the second is to set up an exchange rate administrative system in the Asian region; the third is to set up a regional trade settlement system. Some experts also suggest that a regional currency system should be set up that takes a specific currency as the core currency in the system. Under this system, most people think that Japanese yen and Chinese yuan are the two most probable currencies to take the role.

Previously, when talking about the basket of currencies to which Renminbi refers, Chinese central bank governor Zhou Xiaochuan encouraged businesspeople to use more local currencies, not US dollar, for bilateral trade settlement.

Pushed by the central banks of China and Russia, the two countries started to use local currencies for bilateral trade settlement since January 1, 2005. Previously, China and Russia had only accepted US dollar for their bilateral trade deals.

At present, Renminbi has already become the major currency for border trade deals in countries such as Mongolia, Vietnam, Myanmar, Nepal, etc.

When Renminbi is greatly needed by neighboring countries, its influence in Asia is also greatly increased.