Highlights of Amcham’s 2012-2013 Business Report: A conversation with Kent Kedl of Control Risks




Technomic Asia show

Summary: Interview Steve:  I’m here with my good friend Kent Kedl, Managing Director of Control Risks Greater China, North Asia.  We’re here to talk about the annual review of Amcham’s business climate survey.Kent did a great job in summarizing the results at the annual event with the membership and so we’re very privileged to have Kent give some of his personal highlights to us today. Steve:   Kent.  Welcome! Kent:     Good to be here. Steve:   Kent, basically what were the highlights this year? We’ve been used to pretty stellar results and very positive feedback from the membership of Amcham.  What did it look like this year? Kent:     Again the performance was good.  73% of the membership reported profitable performance.   I think that’s fantastic in pretty much any environment.  The year-on-year performance, that’s where we’re starting to see a little bit of leveling off. Since 2010, which was a great  year after the setback in 2009 we’ve seen a little bit of a stair step down, and this year 71% said that revenue was up year-on-year whereas last year 80% said revenue was up year-on-year.  This year 48% said operating margins were up, whereas last year it was 51%, so we’re starting to see a little bit of leveling off. Steve:   We’re so used to these big numbers and so it’s pretty easy to say we’re going downhill but if you step back to look at the absolute numbers in the context of global performance, it all sounds pretty good. Kent:     What we need to remember is where we are versus where we’ve come from. You remember 4 to 5 years ago, 13% growth was just nuts and we are sitting at 7-8% growth right now.   Anyone else around the world would kill for the 7-8%, the US certainly would. The fact that we’re sitting at that level is pretty good.  It is not 13% and so what everybody’s looking at is the 5% delta between the 13 and 8 and that’s the part that’s tougher. Steve:   How about on the challenge side? Anything new in terms of what are the key operating challenges, regulatory challenges; I know you look at them separately? Kent:     One of the features of the survey we’ve designed is to look at two different kinds of challenges.  One is business challenges and those are the things that any market around the world would go through.  As China has matured we wanted to compare it with what’s happening around the rest of the world.  So that would be issues like HR challenges, competition, rising costs, things like that. And then there are the issues like; the kind of legal regulatory challenges in which China is still… we would call it “emerging”; China would call it “self-emerged”, they’re “fully emerged”. But that’s more in the maturing market kind of thing.  And so we ask two questions: No. 1 Does this challenge hinder your business?  No. 2 Is it getting better, is it deteriorating or is it staying the same. On the business challenges, what happened last year was rising costs, which became no. 1.  And that was the first time it beat out HR constraints.  This year it became even more of an issue and it was 92% of those surveyed said that rising costs got in the way of their business.  And the majority of the contribution of that was labor cost. And your business I’m sure, like my business, it’s the same, costs are rising.  And you have to pay for people and to hang on to them is also an issue.  Taxes were a big contribution to the rising costs as well.  Interestingly No. 3 was domestic competition. Steve:   Right, that stood out to me as well.  I do not remember that being called out in the past. Kent:     Well, to be fair we hadn’t asked it that way in the past, so… Steve:   Okay, well that explains that! Kent:     Yeah, well you know the survey design.  But it had become more of an issue and we had a couple of questions last year that talked about domestic competition.  What we’ve seen is a feeling among the foreign business community that Chinese companies are getting better.