Repaving the ancient Silk Routes

China’s Belt and Road (B&R) initiative is a global connectivity program focused on infrastructure development across East and Central Asia, the subcontinent, Africa and Europe. It goes beyond roads and ports, to include airports, power plants, pipelines, waste and water management facilities and telecommunications. These are supported by extensive ecosystems, providing opportunities for international professional and project management expertise.

Demand for global expertise

B&R projects are open to all countries beyond the 65 developing nations along the 6 economic corridors. It will have an impact on a population of about 4.4 billion and one third of the global economy. The size and complexity of B&R projects means that enterprises from both China and along the B&R will seek to partner with foreign companies which have globally recognized skills and capabilities, as well as experience in managing complex international engagements.

However, identifying the right B&R project and preparing for success raises a number of complex questions:

What are the risks associated with B&R projects?

  • Geopolitical risks: Changes in political regimes or in bilateral relations between countries involved in B&R during a project’s lifespan.
  • Funding risks: Funding gaps and host countries’ varied ability to repay loans, exacerbated by higher capital and debt service ratios of B&R projects.
  • Operational risks: A lack of experience in delivering and managing complex transnational projects, leading to delays and cost overruns.

How do I evaluate which B&R project to be involved in?

  • Commercial viability assessment: Conduct realistic economic modelling to establish the business case viability of a B&R project.
  • Review maturity of the infrastructure ecosystem: Assess the maturity and future plans of the surrounding infrastructure.
  • Establish a portfolio fit: Evaluate how the proposed B&R project complements the company’s existing infrastructure portfolio and overall growth objectives.

Which factors will help me position for success?

  • Contingency strategies: Establish contingency plans to manage short term disruptions and plan for lengthy project lifespans.
  • Align with governments: Build strong and respected relationships with local authorities and align with national interests in order to effectively navigate political pressure points.
  • Establish trusted partnerships: Work with local companies with proven track records and established connections with key local stakeholders.
  • Adopt a risk-sharing approach: Establish trust among all stakeholders to dilute the burden of shouldering potential risks.

 


Contact:

Felix Sutter
Assurance Partner
Tel. +41 58 792 2820
felix.sutter@ch.pwc.com
https://ch.linkedin.com/in/felixsutter/de

The future of sports sponsorship: what are tomorrow’s winning strategies?

A few weeks ago, the executive director of an international sports federation bluntly told me that while I see the industry growth as ongoing, that was not what he was experiencing: “In fact”, he told me, “it’s getting much tougher to get sponsors and deal values are flat if not decreasing.” I hear this viewpoint more and more, especially among those involved in the sponsorship of second- or third-tier sports.

Over the past decades, the development of sports sponsorship has been driven by brands’ ability to reach the masses via linear TV distribution and associate with the values of the specific sport and its athletes for effective activation. As a result, multinational brands have been flocking to global events, as have national brands with local events. Only a few brands – with Red Bull leading the way – have been able to take sponsorship to another level, seeking direct access to content by sponsoring athletes and creating own events, often outside the framework of traditional sports.

What is happening today? With the rise of the mobile, millennial consumer, the priorities of brands engaging with sports are changing significantly. There are three main drivers behind this change:

1. Millennials interact with brands very differently, with authenticity and identity being top of their agenda. While exposure through mass media continues to be important, brands now have to consider a wide variety of factors to ensure that their sponsorship decisions result in authentic engagement across multiple dimensions.

2. Millennials are active consumers seeking high levels of engagement, often becoming the broadcasters themselves. User-generated content is leading and shaping opinions. Brands are capturing this by treating millennials not only as consumers, but also as content creators.

3. Media consumption is also changing, with growing fragmentation across channels and devices. Consumption of linear TV is giving way to digital consumption, which is reinforced by the proliferation of the types of media that can be consumed on demand (e.g. highlights, data/statistics, behind the scenes content, personal posts of athletes and fans). Brands can now choose from a plethora of channels to drive their messages home.

How does this change in priorities translate into concrete sponsorship opportunities? We will increasingly see three clusters of sponsors:

1. Those that (can afford to) secure big-ticket sponsorship deals will continue to push for the mass exposure delivered by global premium events, while in parallel demanding for increased integration within the property, acquiring special rights to access content and drive engagement. Their campaigns will be fully CRM-enabled, highly dynamic and targeting fans with the right content, through the right channels, at the right time.

2. Those that have typically been engaged with second-tier properties will increase their demands on rights owners. They will demand guarantees or negotiate variable compensation models depending on exposure, which will be difficult to provide as linear programming continues to dwindle. They will also require increased digital reach across channels as well as ready-to-use activation strategies and content, facilitating their engagement with fans.

3. Those that opt out of sponsoring traditional events, as Red Bull did decades ago already. These brands will consider the opportunities presented by the decreasing costs of producing engaging, authentic content (e.g. via a GoPro or even an iPhone camera), striking the right “storytelling” tone by building relationships with a new set of digitally native opinion leaders (athletes, teams, bloggers, etc.), and the ability to segment and reach their audience directly via social media channels.

What does this mean for sports properties and event organisers?

Premium sports properties and events will continue to thrive as they continue to deliver mass audiences through linear TV. Nevertheless, they will also have to evolve their media distribution strategy to maintain the edge over the long term, considering the current transition from linear TV to digital/mobile/OTT solutions. This will require a more professional and analytical approach to distribution, with bespoke commercial strategies and implementation that no longer fits into the box of traditional agency-style media rights sales.

Second- to third-tier properties, however, will be under growing pressure, requiring a greater effort to develop effective strategies. Various options present themselves:

• Adopting a niche strategy that aims to fully dominate a specific target audience across geographies. This will require event organisers and governing bodies to make hard choices by focussing resources on fewer and clearer segments, tailoring event formats to their selected target audiences. To boost such a strategy, we expect properties to strive for greater control on activation rights related to athletes and teams.

• Placing their bets on geographical expansion, most particularly towards Asia, with public investments and infrastructure developments acting as a compounding force. Such strategies will be a high risk, high returns exercise, as they will require a significant effort in developing sports participation at a grassroots level before an effective commercial strategy can bear fruit.

• Developing partnership strategies with other properties to increase critical mass and boost synergies. By transforming their fragmented single-sport events into a coherent multi-sport festival, these properties will engage with host cities, spectators and media followers with a broader proposition.

To conclude, irrespective of the strategy adopted, properties and sports will have to change their approach to content management across the board. Simply producing engaging, linear content, even if live, will no longer be sufficient to keep the attention of increasingly demanding audiences. For brands, it will be essential to refocus attention on building a strong, coherent and authentic brand identity. This will require a greater ability to gain more control and access of the core assets of the sport: athletes and teams, their personalities, their stories and their values. Ultimately, that is what sports sponsorship is increasingly all about.

Contacts:

David Dellea
Advisory Director
Tel. +41 58 792 2406
david.dellea@ch.pwc.com
https://www.linkedin.com/in/daviddellea/

Lefteris Coroyannakis
Senior Associate
Tel. +41 58 792 1578
lefteris.coroyannakis@ch.pwc.com
https://www.linkedin.com/in/lefterry/

China Economic Quarterly May 2017

What to expect from Made in China 2025 and China’s first Belt and Road Forum

The China Economic Quarterly is a market outlook prepared on a quarterly basis by PwC to share the latest economic and policy updates. In this third quarter update, the overview of China’s macro trends are followed by a summary of the main policy developments and hot topics of interest such as policy updates for a new economic zone Xiong’an New Area, insights into the “Made in China 2025” initiative and the Belt and Road Forum for International Cooperation to be held in Beijing on 14 and 15 May 2017.

China’s economic growth in the first quarter of 2017 delivered a much better result than market expectations. GDP increased by 6.9% year-on-year – the highest growth over the past five quarters, thanks to more pro-active fiscal stimuli and continued expansionary monetary policies.

Here are some highlights of the report:

  • The primary, secondary and tertiary (services) industries all grew, with services as a share of GDP reaching a new high of 56.6% and contributing 61.7% to overall economic growth.
  • In the first quarter of 2017, China maintained its expansionary monetary policy. The increments of Aggregate Financing to the Real Economy (AFRE) were RMB 6.93 trillion, which was RMB 226.8 billion more than the same period last year.
  • In a bid to address severe traffic congestion and air pollution in Beijing, the Chinese government announced a historic plan on 1 April 2017 to create Xiong’an New Area, a new economic zone about 100 km southwest of Beijing, with an initial area of around 100 square km and eventually expanding to nearly three times the size of New York City.
  • “Made in China 2025” is China’s first ten-year plan for manufacturing expansion and upgrading and has attracted criticisms for being “problematic” with the potential to be used to “discriminate against foreign firms in favour of Chinese competitors”.

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china_economic_quarterly_nov2016To read more, you can access the latest issue of China Economic Quarterly by clicking the following links:

China:           www.pwccn.com/ceq
Hong Kong:  www.pwchk.com/ceq

 

Business Review of Premier Li Keqiang’s Government Work Report 2017

March 2017

China recently held the 12th National People’s Congress in Beijing. Premier Li Keqiang announced a number of key policies and initiatives which sets the country’s economic direction. These changes will have profound implications on the business landscape in 2017 and beyond. As part of the Congress, Chinese Premier Li Keqiang delivered the Government Work Report which provides a review of:

I.   Government’s achievements in 2016;
II.  Government’s goals and priorities for 2017; and
III. Government’s plans and actions to improve quality and effectiveness of growth.

Key highlights of the Report

Economic growth rate

  • GDP growth rate for the coming year has been set realistically at “around 6.5%, or higher if possible in practice,” relative to the range of 6.5-7% for 2016.

Fixed and private investments

  • The government will invest 800 billion yuan in railway construction and 1.8 trillion yuan in highway and waterway projects in 2017 while continuing its massive investments in major state projects.
  • To encourage growth in private investments, the government plans to improve policies as well as public administration and promote Public Private Partnerships.

Emerging industries and investment hot-spots

  • The government plans to accelerate the R&D and commercialisation of new materials, artificial intelligence, integrated circuits, and bio-pharmacy and 5-G mobile communications.
  • The government has also set aggressive targets for environmental protection and plans to launch extensive ‘Fitness-for-All’ initiatives, creating business opportunities in education, elderly care, healthcare, tourism, e-commerce and creative services.

Pro-business reforms

  • The government plans to make service industries, manufacturing, and mining more open to foreign-invested firms (FIEs).
  • There are also plans to treat FIEs the same as domestic firms on applications, standards-setting and government procurement and allowing FIEs to enjoy the same preferential policies under the Made in China 2025 initiative.

Real estate sector

  • In 2017, the government will establish robust long-term mechanisms to promote steady and sound development of the real estate sector to restrict further investment and “speculative” purchases by residents and investors.

RMB exchange rate and bad debt

  • To address the rising non-performing loans, Premier Li has pledged to reform the financial regulatory system and work systematically to defuse major potential risks.

Leap ahead: 2016 China tax policy review and 2017 outlook

China Tax Policy Review and Outlook is a series of PwC China Tax annual publication designed to review key tax policy developments in China and discuss the trends and impacts to Chinese businesses from a forward-looking perspective. This 2016 China Tax Policy Review and 2017 Outlook is the second issue in the series.

2016 was a year of transition for China. It was also the first year of the 13th Five-Year Plan. The State Administration of Taxation has released a series of tax policies to support the transition of China’s economy. Turning eyes to the international taxation, China has voiced out her stance on international collaboration to foster growth, innovation and transparency, and her goal to establish a modern tax administrative system by 2020.

Highlights of the 2016 China Tax Policy Review and 2017 Outlook: 

  • Impact of the Business Tax to Value-added Tax Transformation Reform and outlook of the next phase of VAT reform
  • Innovation-driven tax incentives related to High-New Technology Enterprises, equity incentive plans, etc. and “green tax” initiatives (Resource Tax and Environmental Protection Tax)
  • Development of tax transparency (e.g. Country-by-Country Report and Common Reporting Standard) echoed by China’s digital administrative strategy (“Golden Tax III” and “Thousand Groups Project”) New trend of tax dispute resolution mechanism (e.g. tax administrative appeal and court litigation, Advance Pricing Arrangement, Mutual Agreement Procedure)
  • Key words for 2017 outlook, e.g. anti-tax avoidance, localisation of BEPS recommendations, details of Environmental Protection Tax Law, further cut in tax and government levies

With China’s increasing influence on the global economy and international taxation, we have more to expect in the years to come. As Mr. Wang Jun, the SAT Commissioner, commented, “The SAT will step up effort in 2017 to balance its focus on inbound and outbound taxation, and refine some of the existing rules to add more certainty and clarity.” Policies in the 2017 pipeline may include revised anti-avoidance rules related to Controlled Foreign Corporations, Thin Capitalization, etc.; rules to further implement the BEPS project recommendations regarding anti-treaty abuse; landmark reforms in terms of Individual Income Tax, Property Tax; the elaboration on the implementation of the Environmental Protection Tax Law; further cut in non-tax government levies; and what taxpayers are most earnestly waiting for, the new look of the Tax Collection and Administration Law.


Download the full report here.

 

2017 Telecommunications Trends

Choosing new strategic identities is essential

Senior executives at telecommunications companies around the world have heard for several years that their industry is approaching a tipping point. When it hits, they are told, their business might not survive the disruption. And yet they continue to do business. They might well think the warning from telecom industry specialists (including us) is overblown. Telecom customers are often locked into a long-term plan; many are loyal to their carrier. Doesn’t this suggest that the industry will continue as it is for some time?

To be sure, business upheaval often happens more slowly than people expect, and no one can predict exactly when the moment of truth will strike for any given company. But to judge from several trends that have roiled the telecom sector during the past few years, the time for preparation is over. You must now pick the businesses where you have a competitive edge and focus your strategy on them. Even if you think your current business model has several years of life left, you can’t be sure — and strategic focus will help you, no matter how far away the time of change.


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The end of trust? Balancing privacy with profits in the digital world

Over the past 20 years, technology has penetrated our business and personal lives at a speed and on a scale that few would have predicted. Yet while technology creates enormous opportunities, it also exposes us to significant risks. We can now source goods and services from across the world with a couple of mouse clicks, but that convenience comes at a price. Many of us, myself included, worry that we’re unintentionally compromising our privacy and the security of our personal data by shopping online.

As our markets leader in Switzerland, I had the good fortune to be in Davos last month where we launched our 20th CEO survey to the global media. I can’t remember a time when trust has been more prominent than it is today. Although it wasn’t a focus area in the earlier years of our CEO research, it’s been steadily climbing up the agenda. And most, the financial crisis and the political focus on the tax affairs of multinationals have eroded both customers’ and other stakeholders’ trust in businesses. Our survey shows how heavily this erosion is weighing on CEOs. More than half (58%) were worried that a lack of trust in business would harm their business, a significant jump from 37% in 2013.

In some respects, technology has made us more trusting than before. This is best demonstrated by the sharing economy, where digital platforms connect strangers who are willing to share cars and homes. Overall, however, technology is acting as a drain on trust, especially where people believe they are dealing with ‘faceless corporations’ instead of someone like themselves. A never-ending stream of cyber attacks, system disruptions and phishing scams creates the impression – accurately, in many respects – that the internet is not a safe place. We increasingly have to differentiate ‘real news’ from ‘fake news’ and we fear that governments and companies are abusing our personal information. No wonder more than two-thirds (69%) of CEOs are firmly convinced that it’s getting harder for businesses to gain – and retain – people’s trust.

Customer data is a great asset to companies, which use it to influence purchasing behaviour. It will be an even greater asset still once the Internet of Things has expanded to include host of devices ranging from smart watches and heart monitors to refrigerators and cars. Understandably then, customer data is probably the most pressing trust issue for CEOs, with 91% saying that breaches of data privacy and ethics will have a negative impact on stakeholder trust in the next five years. Our research suggests they are right to hold this view since 84% of people we spoke to at the same time as we surveyed the CEOs confirmed that breaches do indeed undermine their trust in companies.

Of course, companies will want to use data generated by the Internet of Things to serve their customers better, but they must also avoid intruding on their customers’ privacy or allowing their customers’ data to fall into the wrong hands (and indeed new EU regulations in the form of the General Data Protection Regulation will come into force next year to help further protect individual’s personal data).

Another major challenge to businesses is cyber espionage, the modern-day equivalent of industrial espionage. This is the practice of using computers to gain access to confidential information held by another organisation. Furthermore, more than half (53%) of CEOs are afraid that trust will be undermined by global cyber warfare – where government-backed hackers target another nation’s crucial energy or security infrastructure, commercial assets or mass transport system.

CEOs recognise that trust is an opportunity as well as a risk. Significantly, 64% of those surveyed believe that how their firm manages data will be a differentiating factor in future. The businesses that flourish will balance getting and using data with the social consequences of those actions. They will actively engage with stakeholders and invest heavily in their IT security, risk and governance strategies. Ultimately, in an environment where the line of acceptability regarding data usage will be constantly moving, the ability to earn trust will be one of the greatest determinants of business success. Read more about what’s on the mind of the CEO in our 20th CEO Survey.

Asia: digitally diverse, economically attractive

Digitisation is in full swing in Asia, and is having an impact on both business and society. But the picture is mixed: while Asian countries are setting the trend and the pace in some areas, they need to catch up in others. As a leader in innovation and engineering, Switzerland will continue to play a key role in the economic and geocultural exchange with Asia.

Read more…

 

China Economic Quarterly February 2017

China announces new measures to attract foreign investment in 2017

The China Economic Quarterly is a market outlook prepared on a quarterly basis by PwC to share the latest economic and policy updates. In this fourth quarter update, the overview of China’s macro trends are followed by a summary of the main policy developments and hot topics of interest such as what China plans to do in 2017 and what’s next for the Renminbi.

Major economic indicators

pwc_china economic quarterly q4 2016

 

  • China’s GDP in the fourth quarter of 2016 increased by 6.8%, resulting in the overall GDP growth of 6.7% for the whole year over 2015.
  • Fixed asset investment remained a key driver for China’s economic growth, growing 8.1% over last year and accounting for 80% of GDP.
  • Massive money supply has exerted great pressure on RMB’s exchange rate, which fell from RMB 6.55 per dollar at the beginning of the year to RMB 6.92 per dollar at the end of 2016.
  • China’s manufacturing purchasing managers index (PMI) experienced the highest performance since 2012 in the fourth quarter of 2016, thanks to booming domestic demand, rising prices and growing activities in high-end manufacturing.

Policy update

  • China’s State Council announced on 17 January 2017 an unprecedented set of new measures to attract foreign investment. These measures aim to lower market entry restrictions on foreign investment in several sectors including banking, insurance, futures and others.
  • China has issued its 13th Five-Year Plan (2016-2020) to strengthen the protection and utilisation of intellectual property rights (IPRs). The plan laid out 7 major tasks for the development of IPRs, such as improving the legal system and protection for IPRs, promoting industrial upgrading and international cooperation.

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To find out more about the market outlook and its implications for businesses in China, please click this link:

China: www.pwccn.com/ceq
Hong Kong: www.pwchk.com/ceq