Apr 2015

Governments Must Not Be Forgotten

Posted by / in B4Blessing News, Strategies That Bless / No comments yet

Governments seem to be doing a dance of glaciers — a little movement here, a sidestep there — and then all of a sudden things are different and we wonder how that happened.  Being aware of new leaders, old relationships and changes in the laws is important to your business strategy and success. When B4B helps a business get started we begin with an understanding of the legal framework. You cannot do business anywhere without taking into consideration the government requirements for business. Even with the smallest business – even in a developing country such as Kazakhstan or Laos – you must register your business and pay your taxes. Governments can also enable business with free trade zones, advantages for green business, tax holidays for hiring certain people, etc. It’s only good business to remember government.

So our environmental scan takes into consideration governments and how they work with businesses. A few current changes we are watching are: New Relationships Moving Trade: China and the New Silk Road. In October 2014 China announced a new infrastructure bank funded with $50 billion for development in Asia. This bank would compete with the World Bank and the Asian Development Bank. In November, 2014 China announced a 40 Billion dollar package for infrastructure across Central and South Asia aimed at moving goods easily across the world’s largest landmass. The aim is to be both faster and cheaper than moving goods by sea. China’s moves signal shifts in power among governments around the world as well as opening new markets for business.

Leaders Changing: Both China and Russia have leaders that are more autocratic than in the past. Indonesia and India have new leaders who seem to be moving their countries forward in more democratic ways. Many others could be cited, and we recommend watching the dance of change among world leaders. Government Structures Changing: The opening up of Myanmar is probably the biggest change we have seen in SE Asia the past few years. I was in Myanmar shortly after that happened. SE Asian countries were able to see the possibilities and first mover advantages to move into starting business. A delegation of US businesses couldn’t quite grasp the change and were hanging back.

Sovereignty of Borders/Nations: The Treaty of Westphalia in 1648 set up the system of sovereign nations. After each World War, boundaries were rejigged according to the changes of the Colonial Powers. They didn’t represent natural borders among different ethnic groups. So today many nations have ethnic minorities that want to separate into ever smaller units. The opposite trend, nationalism, is found in many countries who hold their minorities tightly (China). Other countries are seeing their borders breached by ethnic minorities from neighboring countries (the United States). Others are finding that a neighboring country has designs on their territory (Russia for Ukraine). Globalizing trade has also undermined sovereignty (IMF and WTO rules).  The end of European Colonialism as well as the fall of Communism in Europe has created mass migration of people changing the cultural face of many countries.

Nationalism for Business: Paradoxically as we have seen more global and cross border governing structures we are seeing an opposite backlash. China wants to build up its own consumer class so that their exports don’t have such a large affect on their economy. The US is focusing on Made in America to bring manufacturing jobs back to the US.

Legal Systems: Every business is only allowed to do business by a country’s legal system. You must set up your business, pay taxes, have employees pursuant to a legal code. There are four predominate legal codes in the world. While many governments talk about Rule of Law, it means different things under different systems. Please refer to our paper under Business Resources: Fundamental Differences of Legal Systems. Its important to understand the laws where you want to do business. In China the laws may change slowly, but how they are implemented in a province or city can change capriciously. One Tier 4 Chinese city has determined that there are 40 annual holidays and an employee who works those holidays must be paid triple time. That sort of change can put a fledgling business under very quickly.

Keeping Up: The big multi-national companies have scores of people whose sole job is to interact with government agencies that are pertinent to their business. Smaller businesses typically don’t have the resources, or the mindset to consider government relations. If you have a business in a country other than your passport country, you have to consider the laws in both countries. B4B can help you navigate those complexities, ask the right questions and find competent legal help. However, we also utilize a number of resources that may be helpful to you:

  • The Economist magazine comes out each week, can be viewed on-line.  It covers every region of the world for current issues as well as important business sectors.  Can’t recommend it highly enough
  • Political Science Quarterly or Foreign Affairs for in-depth articles on the effects of changing politics.
  • Country specific:  China Law Blog (http://www.chinalawblog.com)  Best way to keep up with changes in Chinese law.  These guys are really good.  China Source (http://www.chinasource.org) provides information on many areas in China from a Christian perspective.
  • Chambers of Commerce. If you are a business or intend to run a business, you should join your local Chamber of Commerce. Chambers of Commerce are the representatives of business to the government at all levels.  They watch regulations for the impact on business and speak up or write papers on issues important to business. In countries other than the US, you can probably find an American Chamber of Commerce (AmCham). You don’t have to be an American to belong and you will probably find many resources on their websites that are either free to download or have a small charge.  
  • US State Department, Commercial Affairs. Again, you don’t have to be an American to utilize their cross border insight or attend a conference on how to do business across borders. There is typically a commercial affairs officer at each US Consulate.

Changes in government leadership, relationships among governments, laws and how they are implemented affect all businesses. It’s a dance of change that can sometimes seem like a slow waltz and sometimes turn things on their head like a breakdance. It’s imperative to understand the changes that affect your business as well as the direction of travel in the laws. If China’s leadership is more autocratic, how will that affect business? If Russia is more corrupt, under an embargo that deflates the economy, can you do business there? And does the situation in Russia affect other countries and trading partners such as oil rich Kazakhstan? If the US is trending toward Made in America, will you be able to sell your goods sourced in Asia? And at what price. Complex? Yes. Sometimes scary? Yes. But always fascinating. How about you? What has your business been impacted by governments in flux? What have you done to moderate the problem? Leave us your comment and insight.

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