China Update on February 19 in Stuttgart

At this year's China update, we will introduce important information for German companies active in China. Individual consulting meetings can be arranged.

• Mr. Fabian Knopf, Senior Associate, Dezan Shira & Associates, will give an overview of the most important legal and tax changes of 2012 as well as an outlook on 2013.
• Mr. Lutz Berners, Managing Director, Berners Consulting GmbH, will summarize the economic situation and discuss expected developments in 2013.

Please register before February 12, 2013. Due to space constraints, participation without prior registration is not possible. Participation of free of charge for industrial companies. Service companies are welcome to register if they bring at least one participant from an industrial company.

For further information, please contact Miriam Fritz, mfritz@berners-consulting.net.

Back to Newsletter

BVMW Event: Chinese medium sized company investments in Germany

Tuesday, April 16, 15:00 - 19:00, Frankfurt

In cooperation with the German Association of Medium-Sized Business and K&L Gates LLP, we will introduce new developments regarding investments in Germany by Chinese medium sized companies.

Target group: Chinese investors and German companies interested in cooperation with Chinese investors.

Topics will include:

• General background of Chinese investments in Germany
• Motives of Chinese investors
• Dealing with Chinese investors and potential buyers
• Legal and tax aspects
• Case examples

Participation is limited to industrial companies and investors. Details are available upon request.

For further information, please contact Ms. Miriam Fritz, mfritz@berners-consulting.net.  

Back to Newsletter

Save the date: China Seminars in April 2013

In cooperation with compass international, we are offering the following China specific seminars in April:

Participate in one of these seminars and benefit from our broad and deep China experience as consultants and line managers. Rather than teaching Do's and Don't's, we transfer practical know-how and tools for professional and intercultural work in a Chinese context.

Detailed agendas will be provided approximately six weeks before the seminars.

For further information, please contact Mr. Lutz Berners, lberners@berners-consulting.net.

Back to Newsletter

Current cooperation requests from Chinese companies

The following examples are an excerpt from our current cooperaiton request list by Chinese companies. All requests have been checked by us for credibility and ability of the companies for international cooperation. 

For further information about the above project, please contact Miriam Fritz, mfritz@berners-consulting.net.

Back to Newsletter

Berners Consulting at Hannover Messe 2013

Once again Berners Consulting will present at Hannover Messe. As last year, we will exhibit on the joint booth of the German-Chinese Business Association (DCW):

		April  08 - 12, 2013
		Hannover Messe
		Hall 13
		Near ICE-Bahnhof / Gate West 1

Daimler takes a stake in state-owned Chinese car maker

For the first time in Chinese history, a foreign company is taking a major stake in a state-owned car manufacturer. Daimler AG announced the intention to take over 12 percent of its joint venture partner BAIC; the German company will also take two seats on the Board of Directors. With this move, the German premium car maker, which has been lagging behind its competitors in China for a many years, also has prospects for better relations with the Chinese government.

For Daimler, this news comes at the right time. In contrast to the European market, the Chinese automotive market is developing with solid growth rates, and more critically for Daimler, the premium segment continues to grow.

Source: Die Welt.

For further information, please contact info@berners-consulting.net.

Back to Newsletter

Brazil Seminar: Healthcare / Life Style / Medical Technology (in German)

As part of the Chamber of Commerce Export Academy program, Dr. Elisete Pedrollo will introduce opportunities and parameters for entering the Brazilian market in the fields of Healthcare, Life Style, and Medical Technology.

Date: June 14-15, 2013 Location: Villingen-Schwenningen

For further inforamtion, please contact epdrollo@berners-consulting.net.

Back to Newsletter

Automation: Actively engage Chinese competitors - VDMA

According to German Engineering Federation (VDMA) Chief Economist, Dr. Ralph Wiechers, it is essential for German automation companies to become active on the ground in China. Chinese competitors should be monitored and understood - regarding their activities and technological developments. Dr. Wiechers addressed this topic at the conference USA AND CHINA - GLOBAL ECONOMIC PERSPECTIVES of Evangelische Akademie Tutzing and ifo Institute from January 18 to 20, 2013.

China is now no longer just a large sales market, but also a serious competitor. Chinese automation companies worked themselves into a leading position in the global markets. This is partly due to the Chinese government's political support. Chinese products are now becoming more sophisticated and are, therefore, able to compete globally. German manufacturers should engage the Chinese competition also their home ground in China, through sales, service and installation, sourcing, and production.

Source: VDMA

For further information, please contact info@berners-consulting.net.

Back to Newsletter

Consequence of Five Year Plan: Major fire burns unnoticed for three hours 

The smog covering large regions of Northern and Easter China has been a topic in media around the world. It reach an almost unimaginable dimenion in some areas. In Zhejiang province, a major fire in an industrial area burned unnoticed for three hours before neighbors could differentiate the thick smoke billowing from the furniture factory from the "normal" smog and notified fire fighters. As the fire had a large "head start", it took ten hours to control the blaze. There were no reports of casualties.

In some regards, this extreme case is a consequence of the Fve Year Plan.

Pollution is a hard-to-pinpoint topic. In many cases, there is no obvious casual chain between a concrete emittor and a concrete victim. In the case of carbon dioxide, for example, there is a huge number of emittors, and the effects are global - it does not matter where the green house gas is produced. Furthermore, the effects of global warming for any individual are hard to measure. In the case of waste water from a paper mill, on the other hand, the causal chain is clear: a paper mill discharges untreated waste water into a river, and the downstream population suffers. China has mechanisms for dealing with both types of pollution - but they don't work perfectly.

The aforementioned paper mill was supposed to be built in the Eastern Chinese city of Ningbo. Soon, popular resistance formed, as citizens were concerned that the mill would not adhere to the (very strict) Chinese environmental regulations (as the enforcement of those regulations is often lax). The situation escalated. At first, there were popular outpourings on the internet; then, there were demonstrations. The dialogue between the citizens, the mill operator, and the local government broke down. In the end, the plans for the mill were scrapped. A victory for the local population.

That such local influence does not always work can be seen plainly when one consideres the situation of Ningbo. Ningbo is one of the wealthiest cities in China, with a reputation for excellent education and trade relations all over the work. In this open city, it is hardly surprising that citizens can economically afford to challenge the local government and a major potential employer, not to speak of the population's general enlightenment. In many rural areas and inland regions, however, the motto "industry = progress" still holds sway, so popular protests against environmental problems are not as often successful as in the highly developed coastal regions.

In cases in which the direct chain from emittor to victim is not tangible, the Chinese government implements economic policy and legislative measures - if it deems such action to be necessary. The main instrument for this is the Five Year Plan, which, for example, sets the targets for economic policy, and from which most State Owned Enterprises (SOE's) take derive their concrete measures for business policy. On the topic of carbon dioxide, for example, the CO2 reduction was included in the Twelfth Five Year Plan, which took effect in 2011. Almost overnight, we saw a massive adaptation of priorities by Chinese industrial companies, as "CO2 Reduction Targets" were added to tens of thousands of company presentations. But it was not all lip service: product development, purchasing decisions and M&A strategies are now widely influenced by CO2 reduction targets.

And here exactly lies the core of the smog problem. The thirtienth Five Year Plan will take effect in 2016. Until then, the twelfth Plan will be in effect, and the problem of local air pollution is not a top priority in it. Corrective action by the government outside of the plan have very limited effect. For example, an urgent appeal by the Chinese government to reduce particulate emissions was mostly ignored by Chinese steel makers. The Chinese steel sector, different from e.g. the energy sector, is fragmented and influenced heavily by local interests. Now, the government is working to restructure this industry. A lengthy process.

And yet, in spite of all these problems, the above example of the steel producers shows that the government is now also tackling secondary air polluters. For the primary polluters - energy companies, automobiles etc. - the direction has been set already. We can only hope that the current episode of air pollution expedites the process of cleaning up the industry. At the very least, we now know that "reduction of local air pollution" is a hot candidate for high-priority inclusion in the Five Year Plan. In 2016.

Even in China, the wheels of politics are turning slowly.

Sources: Xinhua, WSJ, Berners Consulting

For further information, please contact info@berners-consulting.net.

Back to Newsletter

Record year for Chinese M&A in Germany

by Miriam Fritz, Consultant, Berners Consulting Stuttgart

In terms of transaction volume, 2012 was by far a record year for Chinese M&A in Germany. With the big transactions of Putzmeister (approximately 360 million EUR) and Kion (approximately 750 million EUR), the large Chinese enterprises now occupy a prominent place in German media. However, there is also a significant increase in activities in small and medium sized transactions, both from Chinese buyers and from German sellers.

Chinese buyers are becoming increasingly professional in their M&A activities. While the majority of Chinese potential buyers is still operating on the principle of "window shopping," looking for "opportunities," the number of Chinese companies who are systematically searching for targets is increasing. Especially in the automotive supplier and mechanical engineering industries, in which Chinese companies are highly developed and are looking to close specific gaps in their portfolios, the Chinese companies are aware that opportunistic behavior is not effective. Two examples: A Chinese automotive supplier has mandated us to find M&A targets in Germany; the detailed list of criteria for target selection fills three pages. On the other hand, a mechanical equipment company, whom we are supporting with finding a technology partner in Europe, rejected a German seller's advances, as M&A is not part of the company's strategy. We are, therefore, dealing with strategically acting companies who know exactly what they want.

German sellers are looking to China, especially in industries in which Chinese companies play a major role. Little suprise, these are again the automotive and mechanical engineering industries. Driven by largely positive media reporting in Germany and the large cash reserves of many Chinese companies, an increasing number of German companies is approaching us with sell-side interests. As with Chinese buyers, we differentiate between sellers "spreading the word" and targeted buyer searches. In our experience, "spreading the word" is not very promising, especially if the seller has an interested in seeing the company thriving after the sale. With targeted searches in which a single consultancy is mandated to find a buyer, the chances of success are much higher.

Based on the data from the last few months, we expect the trend to continue in 2013. The number of Chinese takeovers in Germany will continues to increase. No matter whether buyer or seller - our clear recommendation is: One should begin the discussion about one's own targets and requirements for the planned transaction as early as possible, and become active at the appropriate moment with decisive and consequent action.

For further information, pelase contact Ms. Miriam Fritz, mfritz@berners-consulting.net. 

Back to Newsletter

Brazilian Automotive Industry: 2012 Figures and 2013 Outlook

Tax Reliefs Leverage Sales in 2012

In 2012, the Brazilian Government adopted measures to stimulate consumption and keep the economy moving. A decree for the reduction of the federal excise tax (IPI – Taxes on Manufactured Products) came into effect in May 2012 and purchases of vehicles, building supplies and appliances were taxed at lower rate.

The automotive industry benefited from the stimulus and car sales reached a new record of 3.8M vehicles sold in 2012, a 4.6% increase compared to 2011. According to the National Association of Vehicle Manufacturers (Anfavea), the results were 400 thousand more vehicles sold than forecast.

Despite the new record, 3.34M vehicles were produced in 2012 compared to 3.41M in 2011, a 1.9% drop: the first production drop in a decade. The reduction was the result of a 20% contraction in exports.

“Inovar-Auto”: Driving the local industry in 2013

Despite the gradual return to usual IPI rates through July 2013, Anfavea’s vice-president predicts a sales growth of up to 4% in the domestic market in 2013. The optimism may be justified based on the new Brazilian Automotive Regime (Novo Regime Automotivo Brasileiro), known as Inovar-Auto.

The new Regime was established by decree that came into force in January 2013 and comprises a series of requirements for automakers. They establish a minimum level of local production, local content, investments in local R&D and engineering, and minimum standards for energy efficiency. If requirements are not met, companies face an extra 30% IPI rate. On the other hand, a discount of up to 4% in the tax is granted to companies who meet minimum standards.

The Brazilian Government expects to drive investments in the domestic automotive industry and according to the Ministry of Development, Industry and Trade (MDIC – Ministério do Desenvolvimento, Indústria e Comércio), the investments on new factories and expansion of existing ones will increase the installed capacity of 453 thousand vehicles per year. The current installed capacity is 4.5M per year.

The companies who have committed to the new regime include:

• Scania Latin America Ltda.
• Ford Motor Company Brasil Ltda.
• Mercedes-Benz do Brasil Ltda.
• Fiat Automóveis S/A
• SNS Automóveis Ltda.
• Renault do Brasil S.A.
• General Motors do Brasil Ltda.
• MMC Automotores do Brasil Ltda. (Mitsubishi)
• Peugeot Citröen do Brasil
• Toyota do Brasil Ltda.
• Volkswagen do Brasil
• Honda Automóveis do Brasil Ltda.
• Nissan do Brasil Automóveis Ltda.

To stimulate the sector, the federal government gave out R$ 2.85 billion in taxes in 2012 and has budgeted a further R$ 5.1 billion in 2013.

Sources: MDIC, Anfavea, Agência Estado, Terra, Exame

For further information on the Brazilian market, please contact Mr. Daniel Berners, dberners@berners-consulting.net.

Back to Newsletter

Brazil reduces electricity costs

On January 24th Brazilian President Dilma Rousseff announced a plan to drastically cut energy costs throughout the country. The plan calls for cuts of up to 18% for home owners and 32% for businesses (industry, agriculture, trade and services).

The reductions will come as a result of government action to reduce or eliminate taxes related to energy, which represent 12.5% of total costs. In addition, the government is in the process of renewing approximately 20 concessions for energy suppliers due to expire between 2015 and 2017.

The president is hoping to increase industrial productivity and bring to country back to growth rates not seen since the downturn in the global economy.

Electricity prices are a big component of the so-called "Brazil cost" - the mix of taxes, high interest rates, labor costs, infrastructure bottlenecks, and other issues that have made the economy less competitive.

The cost reductions have generated huge expectations among industry experts. According to Carlos Antônio Cavalcanti, the director of infrastructure at FIESP (Industry Federation of the State of São Paulo) when it comes to industry, “energy holds the same weight as both exchange and interest rates. The strengthening of exchange rates and the reduction of the Selic rate combined with lower energy costs will help to reindustrialize the country”.

Source: Blog Fora de Pauta, BBC Brasil, Folha de São Paulo

For further information on the Brazilian market, please contact Mr. Daniel Berners, dberners@berners-consulting.net.

Back to Newsletter

New Chinese Web Site of Berners Consulting

Brand new, informative, attractive - Berners Consulting's new internet site provides important information for our Chinese clients.

With this new site, we underline our commitment to supporting Chinese clients in their international expansion efforts..

Zur chinesischen Internetpräsenz der Berners Consulting

Back to Newsletter

Life Science: Business Opportunities in the emerging markets

by Dr. Elisete Pedrollo - Berners Consulting Partner: Dr. Pedrollo Consulting

The Life Science market worldwide has also being impacted by the recession of the years 2008 - 2009, however following these years the industry leaders show confidence that the market is steadily recovering and the future looks promising. In 2012, the global Life Science market size was around $ 45 billion, but this number may vary depending on the segments that are taken into consideration. Included in this branch are the healthcare industry (pharmaceuticals, medical devices), the biotechnology (molecular diagnostics, vaccines, bioenergy) and the Contract Research Organizations (CROs), thus covers a very broad spectrum.

Different surveys show that the emerging markets (specially the BRICS countries) are the most profitable region for Life Science investors. Expansion on the emerging markets goes from forming alliances with pharma/biotech and medical devices companies, acquiring strategic business or establishing know-how transfer partnerships. Brazil and China are becoming highly attractive targets for foreign investment in the Life Science arena, since both countries have being investing heavily in their healthcare system to bring people under a primary medical insurance program. On top of that the number of consumers accessing the medical care and cosmetics products is exponentially growing.

Brazil and China have also recognized the needs and demand for better, higher quality medical equipment in order to become more competitive in the foreign markets. Just as an example the Brazilian medical devices industry has shown an astonishing growth of 51% in their export numbers (2012), showing that the Brazilian quality for health equipment is well accepted outside the country. The medical devices market in China achieved a record of 30% growth and reached the revenues of $ 21 Billion in 2011.

Because the Life Science market is being reshaped by patent expirations, healthcare reforms and new sources of competition, global companies are constantly looking for innovation to drive their further growth and success. Possible responses include exploring creative partnerships, new approaches to accessing emerging markets and developing strategic responses. Dr. Pedrollo Consulting and Berners Consulting are the right partners to support you at your expansion strategy in these exciting emerging markets.

For further information on the Brazilian Life Science market, please contact Dr. Elisete Pedrollo at epedrollo@berners-consulting.net.

Back to Newsletter

In Brazilian interior regions, slow growth masks real opportunities

With higher than expected inflation and lower than expected growth, the economic performance of Brazil during 2012 was less than stellar. Companies looking to invest in the country have become hesitant in the face of such indicators and may very well miss out on real opportunities hidden within the country.

When considering moving into the Brazilian market, foreign companies have a tendency to focus on well developed markets in large cities such as São Paulo, Rio de Janeiro, and Brasilia. Though many companies have seen real returns in these markets, by focusing solely on them they risk missing opportunities in other parts of the country that are currently experiencing significant growth.

Outside of Brazil’s large cities the interior of the country is thriving as it continues the long process of urbanization. For example, in 2012, for the first time, consumer spending in the state of São Paulo was greater than the city of São Paulo. Consumers in the interior spent a total of approximately $187 billion, or 50.2% of the total spent in both the city and the state.

This shift is being repeated throughout the country. Ten years ago, consumer consumption in the 27 capitals accounted almost 37% of the country’s total. That number has fallen to below 33%. Between 1999 and 2010, Brazil’s state capitals saw their share of income decline from just under 40% to 34%.

According to Nielson’s market research, supermarket sales in the interior, for example, grew 13.3% compared to 7.8% in the country’s capitals in 2011. In the city of São Paulo, the number of stores grew by 8%, while small and medium sized cities saw the number of stores grow by an average of 13%. It isn’t just consumer spending on basic goods at the supermarket either. Outside the city limits of São Paulo, the number of cars sold grew by just over 7.5% in 2011 more the doubling the rate of growth within the city.

This internal economic evolution is the result of a number of factors. First, the agriculture industry, which has traditionally been centered in the rural interior, has experienced a boom as global demand, particularly in China, increases together with prices. More importantly, rising wages brought on by increased development over the last 15 to 20 years has pushed companies located in larger commercial centers to look for cheaper investment opportunities as well as lower labor and production costs. All of which are abundant outside the major cities.

As these economic shifts continue, foreign companies must shift there thinking as well. Cities like São Paulo and Rio are great places to search for opportunity, but the interior might just be a better place to start.

Sources: Estadão, Folha de São Paulo, Folha do Interior, O Caxiense

For further information on the Brazilian market, please contact Mr. Daniel Berners, dberners@berners-consulting.net.

Back to Newsletter