Dispatch (Asia version)
| by Peta Tomlinson, Majella Gomes, Sonia Kolesnikov-Jessop 16 Jan 2008 Topic: News |
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A tidal wave of change is headed for global economic shores, with two giants of Asia responsible. So says Hong Kong-based Forbes magazine journalist Robyn Meredith, who argues businesses may need to reinvent themselves in order to remain competitive. In her new book, The Elephant and the Dragon, the author explains how India (the elephant) and China (the dragon) are reshaping the world. She says an understanding of these two economic superpowers is as essential for today's managers as an understanding of accounting was 20 years ago. 'The emergence of China and India has become one of the basic principles that business leaders need to understand,' said Meredith, an award-winning journalist and Asia specialist. 'That's because these two giant, fast-growing economies are changing the landscape of business around the world. Because they are reconnecting to the world, a global labour pool has emerged along with a fast-growing batch of potential new customers.' For many companies, Meredith says, India and China are big potential contributors to earnings in terms of cost and revenue. Both countries significantly lower labour costs for many factory jobs and white-collar tasks, and while on the revenue side China is a larger contributor so far for most companies, some firms are already finding big gains in India. 'There are more to come as tens of millions more Indians become prosperous enough to buy Western goods and as Indian companies buy industrial goods and other supplies from foreign multinationals,' Meredith pointed out. 'The potential in both fast-growing countries is so big that it should ring alarm bells for executives whose companies have not yet explored whether India and China operations should be started up or expanded. Your competitors are likely already there,' she said. Meredith adds that managers already in Asia, whether working for Asian companies or multinationals, are perhaps best prepared to bring an understanding of foreign markets to their companies. 'Companies headquartered in Asia Pacific can usually take advantage of their employee diversity and language capabilities that allow them to work in these big new markets. But companies from around the world are already doing big business in India and China.' The Elephant and the Dragon can be found in bookstores worldwide - including most airport bookstores - and online at Amazon.com or www.800ceoread.com They cost more to produce than they are actually worth, so come 1 April 2008, the Malaysian one sen coin will no longer be in use. All payments will therefore be either rounded up or down to the nearest five sen. However, the coin will not be demonetised and will continue to be legal tender up to a limit of RM2. Malaysia's central bank, Bank Negara, will reduce production of the coin with the view to eventually withdrawing it completely. It currently produces 30 million pieces of the copper-based one sen coins per month. The price of copper has steadily increased over the years, from US$1,500 (RM5,028) per ton in 2002 to US$7,500 (RM10,057) in 2007. Ironically, the cost of production is about 4.2 sen per piece, more than four times the actual value of the coin. With the cut in production, the Government expects to save about RM14m in annual minting costs. Another major reason for taking the coin out of circulation is the cost connected with its issuance and administration. Charges paid to security companies to handle and transport the coin can be as high as RM3 per bag, and RM60 per trip. There have also been instances where a shortage of the coin has occurred, leading to an increase in customer dissatisfaction. Consumers' main concern is that the removal of the one sen coin from circulation, and the resulting move to 'round up' or 'round down', will cause an increase in prices. However, the Ministry of Domestic Trade and Consumer Affairs says that the move has more pros than cons for both consumers and retailers. The Minister, Shafie Apdal, added that the coins usually ended up unused as consumers were not particularly concerned about such small change; this contributed to economic wastage. On concerns that the move to round off prices could cause inflation, he said that according to analysis done by Bank Negara, countries that had made similar moves only experienced an effect of about -0.0004% on their inflation rate. Fraud has been on the rise in Singapore in the past two years, with 19% of firms reporting being victims of economic crime in 2007, up from 16% in 2005, the PwC's 2007 Global Economic Crime Survey found. Globally, reported economic crime showed a slight decrease from 45% in 2005 to 43% in 2007. Accounting fraud and asset misappropriation were listed as the most prevalent types of economic crimes (at 28% and 26% respectively), followed by intellectual property (IP) infringement (16%), corruption and bribery (14%) and money laundering (10%). 'There was a four-fold increase in the perception of IP infringement as a prevalent economic crime since 2005. This may be due to the greater awareness of the lack of IP protection as Singapore companies expand abroad and the increase in cases reported in the media of grey market activities, counterfeit goods and illegal software downloads,' explained Subramaniam Iyer, advisory partner, PwC Singapore. The survey also found that more than half of fraudsters were employed by the defrauded company and more than a quarter were in senior management; individuals committed fraud because of a company's weak controls, their low level of commitment to the company, their ability to use authority to override controls, their relative anonymity and a lack of clarity about the company's ethics. Companies have increased the number of measures, especially preventive ones, to combat these crimes. The number of companies with a whistleblowing hotline has increased from 35% in 2005 to 47% in 2007, while the number of companies having their own specific fraud training has also risen from 19% to 31%. The survey revealed that almost half of all fraud cases were initially detected via a whistleblower hotline or some other tip-off, thus highlighting the importance of a transparent corporate culture that enables employees to recognise and expose improper conduct. The PwC survey also showed a decline in reliance on external auditors to discover and prevent economic crime. This may reflect companies' increased awareness that fraud prevention and detection is not the main purpose of a statutory audit, the report said. Recommendations by the Malaysian Institute of Accountants (MIA) for the proposed Accountants Act were expected to be finalised by the end of 2007. These will then be submitted to the Government through the Accountant-General's office. Having earlier issued a consultative document on the matter, the MIA has already received feedback from stakeholders, regulators and academics. It is currently collaborating with the Malaysian Ministry of Finance and the office of the Accountant-General on amendments to the Accountants Act 1967. Among the recommendations are the introduction of a competency assessment for accountants against international standards and the widening of the MIA's regulatory functions, vis-à-vis designing surveillance mechanisms and taking disciplinary action against errant members. Malaysia's national oil company, Petroliam Nasional Berhad (Petronas), may be on a roll. Having recently bought Australian energy firm Woodside Petroleum Ltd for US$418m, and a US$1.1bn stake in Rosneft, a player in Russian oil and gas, Petronas has now secured funds to buy Italian lubricant maker, FL Selenia SpA from Kohlberg, Kravis Roberts & Co (KKR). Petronas will be paying KKR €950m (RM4.65bn) for Selenia, €115m more than KKR paid when it bought the company in 2005 from the New York-based buyout firm Vestar Capital Partners. The move to acquire appears to be gaining momentum. Via its wholly-owned company, Petronas International Corp, Petronas plans to put out about €207m to increase its stake in Star Energy, the UK's second largest onshore oil producer. Currently, it owns about 39% of Star Energy, and will offer 365p for each share bought back, having paid that price per share for the shares it purchased in Star in mid-November 2007. Petronas has so far spent about US$1.5bn (RM4.98bn) on purchasing international assets this year. While the Australian deal brought in Woodside's Mauritanian assets and the Rosneft deal will place Petronas' foot in the oil and gas producing regions of Eastern Europe, it was not immediately evident where the purchase of Selenia will lead. Petronas officials have so far declined to comment on the deal. The reason for the Star Energy purchase, however, is clear: Star is considering a North Sea project in which Petronas sees great potential - an offshore project that is 50% bigger than the UK's current biggest gas-storage site. A group of Australia's leading economists predicts there is more life yet in the nation's 16-year run of economic growth. The executive committee of the Australian Business Economists (ABE) says that strong commodity price gains and continued consumer spending will propel the economy upwards for at least two more years. It believes that even recent housing interest rate hikes and a possible downturn of the US economy will be unlikely to dampen Australia's growth, forecasting GDP growth of 3.8% this year before a slight slowing to 3.5% growth in 2009. Robert Henderson, ABE chairman and chief economist of nabCapital, says the upbeat outlook is based on Australia's strong economic fundamentals and the prospect of increasing demand from its major export markets, notably China and India. Henderson has some sympathy for the view that Australia's good times cannot last forever, acknowledging that after 16 years of uninterrupted growth, compared to the length of time in between recessions, it looks on paper as though one is due. 'But then you could have said that in 2000,' he said. 'When you look at the underlying fundamentals, Australia has very strong foundations, and there are no real potholes I can see that would lead the local economy into recession.' The biggest risks come from offshore, and notably from the US, he said. If the economic troubles in the US prove to be merely a downturn, then Asia, including Australia, will survive. If it goes into a full-blown recession, 'nobody escapes'. But 'the forecast at nabCapital is for a slowdown in the US economy, not a recession, so that makes me reasonably encouraged', he adds. Henderson feels there are at least five to 10 years left in Australia's resources boom as China and India complete their industrialisation. Going forward, he expects the economic drivers will change to include a ramping up of exports and an increase in housing construction - the latter being desperately needed given acute shortages in many areas. He is optimistic on the stock market too, pointing to strong earnings growth by Australia's listed companies. 'It doesn't look to me like a stock market price bubble. Stock prices are underpinned by earnings, and this leaves room for upsize growth,' Henderson said. Chinese accounting firms are going into the new year facing at least three professional certainties. From 1 January on the Western calendar, or the Year of the Rat (beginning early February) in the Chinese lunar cycle, they will be busier than ever, stepping further into the complex world of international accountability. First, the nation's banking regulator has named 2008 as the year it expects financial institutions to implement new accounting rules designed to step up internal controls. The rules, drawn up by China's Ministry of Finance, were rolled out among listed companies at the start of 2007. Local and foreign banks, trust companies and financial leading and currency dealing companies have been targeted for compliance in 2008, with rural financial institutions to follow in 2009. The China Banking Regulatory Commission announced the timetable on its website late last year in its bid to promote a healthy banking industry. It urges supervisors to 'pay intensive attention' to the changes, including staff training and re-engineering of business procedures if necessary. Secondly, accountants involved in dodgy practices continue to be put on notice. The Ministry of Finance (MOF) has indicated no let-up in its 2007 crackdown on accounting firms across the country, checking on audit information and quality of professional service provided. State-owned enterprises, listed companies, foreign-invested enterprises and real-estate enterprises have been targeted for inspection. Under scrutiny will be any accounting firms that have been the subject of frequent complaints, have a significant social impact, whose internal quality control mechanism is relatively weak, or whose branch operation management seems lax. To facilitate the implementation of the new enterprise accounting standard and audit standard released by the MOF this year, the inspection campaign will also watch out for irregular practices, such as ad hoc reconciliation and profit/loss manipulation, as enterprises including listed companies begin to adopt the new standards. Thirdly, in 2008, the European Commission will review Chinese accounting standards to consider if they are in line with International Financial Reporting Standards (IFRS). In what some observers have called 'the great experiment', China will not adopt IFRS in totality but accepts its broad framework and will rewrite a local version to suit its particular needs. If it can achieve convergence, China would take its place among the major financial markets of the world - a giant step indeed for the mighty dragon. in brief...
Sky opens between Singapore and KL
Tougher fraud penalties
Data sharing to benefit SMEs
Thumbs up to new PM
China allows FDI in Hong Kong
No more banks
Signs of economic slowdown in Singapore
HK exports stand firm | |