International

Business Issue 2 1999 Prosperity in peace time

As the annual UHY Shareholders’ Meeting and Conference prepares to meet in Israel, International Business reports on the country’s continuing success.

Jerusalem as seen from the Mount of Olives he peace process has played a major role experience of the western democracies, in freeing up trade between Israel and combined with Jewish law and practice. rapidly absorbing immigrants. Tthe international business community – For its first 25 years, Israel’s economy More recently, Israel achieved the highest but how has Israel taken advantage of these reached an average GDP growth rate of GDP growth rate among western (OECD) benefits? The modern State of Israel was about 10 per cent annually. This economic economies during 1990-96, averaging almost established in May 1948, based on democratic ‘miracle’ is often ascribed to the use made of 6 per cent during these years. In 1997, the and judicial principles derived from the economic aid, and to the country’s success in total GDP grew by 1.9 per cent to $98.5 billion ($16,950 per capita), a 25-fold increase since 1950 and enough to rank Israel’s GDP 21st in the world. GDP declined What next for the in 1998 and was only 0.3 per cent higher in the first half of 1999. Celtic ? Israel has the highest population growth rate (2.4 per cent) of any developed country There has been much talk Ireland’s success is commonly other economies of Europe. and in life expectancy is ranked 4th in the recently about Ireland’s ‘Celtic acknowledged to be their However the economy is world, higher than the USA. The most Tiger’ economy. The country’s decision to join the still small and dependant on recent United Nations Human Development prosperity has been so great European Economic trade. Agriculture, once the Index places Israel 23rd in the world, ahead that the Irish government has Community in 1972. This has most important sector, is of , Greece, Portugal, and well launched a Millennium now dwarfed by industry, ahead of countries in South America, Entrepreneur Fund, offering which accounts for 38 per Eastern Europe and the Arab world. incentives to anyone with Irish cent of GDP, about 80 per blood who is prepared to cent of exports, and employs Peace process return home – if they have 27 per cent of the labour The peace process has allowed the skills in financial services, force. Although exports are government to divert funds from defence information technology or the primary engine for to infrastructure and education, and is electronics. Ireland’s robust growth, the assumed to have contributed as much as an It used to be customary economy is also benefiting annual 2 per cent to the growth of Israel’s for people to emigrate out helped to turn a rural island from a rise in consumer GDP during 1993-96. of Ireland, but in the past six community into an spending and recovery in Direct foreign investment soared ($5.56 years 118,000 people have adaptable and dynamic both construction and billion during 1993-96 and $3.7 billion in chosen to resettle in the modern state. They are now business investment. 1997), new markets opened for Israeli Republic. The secret of the envy of many of the continued on page 6 continued on page 2 WORLD PICTURES

IN THIS ISSUE: The future for Israel 1-2-3 update 2 US boom-time 4-5 Mercosur update 8 The 1,6 Öresund Bridge opens 3 Strategic alliances 7 UHY contacts 8

Urbach Hacker Young International (UHY) is a world-wide network of independent accounting firms. Israel continued... exports, and Israeli businesses Industrial sectors The highest growth rates are in gained access to nearby labour Israel’s industrial sector is dynamic the high-tech sectors – which are markets. and widely diversified. In 1997, skill and capital intensive and The new markets were a there were some 190,000 require sophisticated production consequence of the 1991 Madrid industrial firms employing more techniques, as well as considerable conference: Israel has been able than 470,000 workers, producing investment in R&D. to establish diplomatic relations an output of $55bn, of which 30 Israel has been known for with an additional 70 countries, per cent was exported, several years as Silicon Valley II bringing benefits also to its representing 17 per cent of GDP. and for good reason. There are trading relations. Industrial output growth during high-tech factories, R&D centres Though Israel’s main trading 1990-96 was second highest after and software houses all over links are with Europe, America Korea among Western-style Israel. Intel, IBM, Digital, Amdex, and Asia, the peace process has economies, and investment in 3Com, Motorola and other allowed the state to establish industry amounted to $5.5 billion international giants have set up some trading links with in 1997. development centres in Israel. neighbouring countries. Intel’s first venture outside the For example, a number of High-tech US was in Israel. large projects between Israeli From the 1970s, Israel has made In June 1999, Intel opened a and Jordanian enterprises are international progress in the new $1bn plant in Israel to being discussed, including plans fields of medical electronics, manufacture microchips. Steve for a joint airport at Eilat/Aqaba. agro-technology, fine chemicals, Poole, Intel’s director of European A successful conclusion to the tele-communications, computer operations says: “There’s a higher peace process will consolidate hardware and software and quality workforce in Israel, in these achievements. diamond cutting and polishing. higher quantities.

and development programme commerce (13%), mining (11%) (RDP) and a growth, and agriculture (6%). employment and redistribution The market is slowly opening Next steps for programme (GEAR). up to foreign investment - it has The lifting of sanctions begun to implement tariff against the country, and the reductions in selected industries systematic abolition of and to terminate past protective exchange controls has led to a policies. Import surcharges on South Africa stronger economic outlook, as capital goods have also recently has the move towards been eliminated. privatisation of many utilities. Conversely, crime and All that glitters... corruption figures have risen The last ten years have seen the since Mbeki became president. South African gold export market take a dramatic down- The wider picture turn – from representing 50 per South Africa is a member of the cent of all South African exports Southern Africa Development in the 1980s to just 30 per cent Committee – and with a GDP of in the 1990s. US $80 billion has an economy The recent fall in the price of three times larger than the rest gold together with a relatively of the region. stable rand is causing less The South African transport profitable gold mines to close, system is more developed and with resultant unemployment. Mandela and Mbeki at the handover its financial and productive As a consequence, less reliance is he largest and most Africa’s biggest industries – capacities are much bigger than being placed on gold exports as diverse economy in Africa, affect this burgeoning economy? those of other regional a source of foreign currency. TSouth Africa was first Since Thabo Mbeki succeeded economies, accounting for This situation doesn’t mark the identified as a top ten ‘Big Nelson Mandela in early 1999, approximately 75 per cent of beginning of the end for South Emerging Market’ in 1994. It the country has seen greater GDP for the southern African Africa’s gold industry however – currently has a GDP nearly three black economic empowerment – region and 45 per cent of GDP gold will still play a major role in times that of , its main and affirmative action has been for the entire African continent. the country’s economy in terms competitor on the continent. taken in employment issues, with The country’s economy is of exports and employment. So what has been the impact the introduction of a more diversified, with manufacturing on the country’s economy of the stringent equal opportunities representing the largest sector of • For more information, contact recent presidential elections, and policy in employment. the economy, contributing 26 per the UHY firm in South Africa, how will the reduction in There has also been the cent of GDP, followed by finance R A Hellmann & Co demand for gold – one of South introduction of a reconstruction and business services (16%), +27 11 447 8447

UHY International Business Issue 2 1999 2 “And with less competition for tech centre of excellence to an New investment funds are them, Israel is much more a Silicon industrial powerhouse. announced almost daily and it is Valley lookalike than anywhere in According to the executive estimated that more than $1.5 Europe.” Israel’s success in the director of Haifa’s Technion billion has been raised in this high-tech field is down to human Institute of Management, Yoram way, nearly all of it destined for capital. Most of the high-tech Yahav, Israel has a lack of investment in technology companies in Israel are unknown managerial expertise, which companies. Foreign investors outside their respective markets – could prevent such a leap. He says range from Goldman Sachs in the from network communications to that unless this is addressed, US to France Telecom, semiconductors. Israel’s whole high-tech boom will DaimlerChrysler and Kyrocera. The more successful ones – be a temporary phenomenon. Boeing recently invested in an those more than a year or two old Israeli venture capital fund – its – are located in high-tech office Trading first such investment anywhere complexes started over the last Today some 100 Israeli companies in the world and Deutsche five years. The importance of are traded on the NYSE and Telekom has recently invested $8 these small companies is reflected NASDAQ-AMEX equity markets, million for a share in a new $70 in the development of Israel’s and the London, Frankfurt and million venture fund established economy during the 1990s. High- EASDAQ stock exchanges are by Dutch investment fund tech businesses have flourished vying to list Israeli companies. Magnum Technologies. while the rest of the economy has Israel has around 50 venture slowed down. One of the capital funds dedicated to high- • For more information, contact challenges facing Israel now is to tech investments, with a further the UHY firm in Israel, produce some real global players 20 or so diversified funds focusing Shiff-Hazenfratz & Co to make the jump from a high- on start-ups. +972 3 5618188 Tel Aviv, as seen from Jaffa Öresund Bridge DIRECT LINK BETWEEN MALMÖ AND COPENHAGEN SET TO TRANSFORM REGION

he bridge between Malmö Copenhagen is again booming. and Copenhagen had its During 1998/99, 280,000 square Tlast girder installed in metres of office space have been August, resolving an ongoing developed or approved, twice as debate between Denmark and much as in 1996/97. New office Sweden. space is being built for IT In addition to the ecological businesses, telecommunications and economic reservations and the pharmaceutical sector. shared by many Danes, more and More construction contracts are more Swedes are concerned expected to be signed in the about connecting themselves next few years. with Denmark because it’s not The greatest impact will be in only a bridge between Sweden Copenhagen because of the and Europe, it’s a bridge between proximity to the airport and the Malmö and Copenhagen. Oresund – the last link is put in place larger labour market. But The Minister for Finance in because Copenhagen is Denmark has expressed the wish that the working in closer partnerships. For example, beginning to suffer a lack of manpower, many Öresund bridge should create a single UHY’s firms in Copenhagen and Malmö are Swedes are expected to start commuting from metropolitan area covering the Copenhagen forming a closer alliance, with the ultimate Lund and Malmö to Copenhagen. region and southern Sweden, but this may not goal of operating as a single unit. The property market in the region is also be how the Swedes want things to develop. The two Governments have to remove the heating up. Prices in commercial property Employment is set to grow in the Öresund political and practical barriers to prepare for increased 11 per cent in 1997 and sales region. The largest rise is set to happen in an integrated labour market across Öresund. increased by 50 per cent compared to 1996. the service sector (25%), followed by hotel Both Copenhagen and Malmö are registering and catering, the chemical industry, retailing a wave of interest from companies from • For more information contact and the education and care sectors. Some across the world, with a view to establishing the local UHY firms: ACT decline is expected in finance, insurance, the themselves in the future Öresund region, Info:Revision A/S, Copenhagen food sector and agriculture. including Mercedez-Benz, Dell Computers +45 39 53 50 00 However, a single market for businesses is and Siemens Business Services. Norberg and Jansson AB, Malmö A NEWS / IMP

P likely to develop in the region, with firms The construction of commercial property in +46 40 20 02 00

UHY International Business Issue 2 1999 3 BOOMBOOM--TIMETIME FORFOR THETHE USAUSA The US economy continues to surge ahead, despite financial crises elsewhere. International Business finds out why.

he US economy is booming. Despite the shadows of financial crises elsewhere, and the exuberant level of Tstock prices in relation to corporate earnings, America keeps surging ahead. The economy has grown consistently at 3.5 per cent since 1992 and at around 4 per cent over the last 30 months. The rate of unemployment has also fallen to 4.3 per cent. This productivity is largely due to prevailing economic conditions created by previous American administrations, such as the mid-Seventies liberalisation of the US stock exchanges, which increased shareholder power. In turn, shareholder power and share option targets have forced managers to increase productivity. Although this makes redundancies more likely, market freedoms and the availability of investment mean that there are plenty of new businesses appearing, which generate enough employment to offset the losses. A lack of job security and more stringent welfare regulations have given rise to a more response to questions. However, a concern is fiercely competitive market. Wage demands that the Internet as a ‘tax haven’ will drain have not got out of hand, despite the need for government revenues. And yet, discriminatory labour and very low unemployment. Every day, people are taxation – or even the fear of it – has the finding new ways potential to slow the growth of e-commerce. The role of technology It is the position of the Treasury These conditions helped to foster the boom to provide innovative Department that tax neutrality and non- in technology – a factor in the unprecedented products and services discrimination should be the increase of Internet use. In 1997, private principles guiding the development of tax analysts forecast that the value of Internet electronically policy with respect to electronic commerce. retailing could reach $7billion by the year On the 21 and 22 June 1997, the Federal 2000. In fact this level was surpassed by 50 Advisory Commission on Electronic per cent in 1998. unemployment, have served to boost Commerce met to discuss federal, state, Between 1993 and 1998, IT accounted for consumer confidence. The Y2K compliance local and international taxation and tariffs a quarter of the economic growth in the issue has also helped, rather than hindered, on transactions using the Internet, USA. Because a mass-market was created, market buoyancy. This has created a demand proposing a moratorium on taxation of computers were cheaper, which helped to for better hardware and technical people to e-commerce for the next two years. In the keep inflation low. This has led to a address the problems. international arena, the Americans are strengthening of the US stock market, which The cost of access to the Internet has come helping to develop an international in turn fuels further growth. down, to encourage more people to use the consensus on the concepts of neutrality Interest rates have been relatively stable in new medium. People can also work from through the Organisation for Economic Co- the US for the past year and, with low levels of remote sites, with clients expecting a faster operation and Development (OECD).

UHY International Business Issue 2 1999 4 Factfile

What makes an effective website? In the early days, the effectiveness of a website was measured simply in terms of having one. Now success is measured in the number and quality of hits a site incurs daily or monthly. As the industry matures, it has further refined the technology to record the number of impressions on the site and the number of click throughs on advertisements. Further statistics allow management to measure how much a customer purchases from the advertiser’s site.

CLIENT CASE STUDIES: A toy company A client of the US firm sells games and toys to the ‘killer retailers’ in the US – mainly to stores such as Wal-Mart, Toys ‘ R ’ Us and others. The company wants a wider distribution of their product, so developed a site that allows for direct sale to the public and smaller retailers – areas where they have little current business. The company felt they had to ‘look’ like an e-commerce business in order to compete more effectively in the market. Although they do not expect a big increase in sales this year, they felt that if they did not have TONY STONE IMAGES the site they would be left further behind in Internet sales. They had to hire outside developers of the site to work along with the MIS staff at the company. They plan to expand the site in the future as they realise that as the The dramatic changes in the market have higher paying jobs faster than any other technology changes they will have to meant small businesses have had to invest in sector.” change with it. better equipment to remain competitive. This One danger is if the treasured Internet required substantial re-investment or mergers. stocks, which have contributed to the An Internet advertising Furthermore, the government’s support for continued rude health of the American stock broker e-commerce could make life for small market, are suddenly devalued. Already Another client of the US firm places banner businesses uncomfortable, or even precarious. Internet stocks are below the peak values of ads on the internet for advertisers, “Every day, people are finding new ways to early 1999. With such extravagant wishes measuring the number of ‘click throughs’ – provide innovative products and services having been invested in the medium, it is information which is essential to the client. electronically,” said inevitable that the They are also developing software that will William M. Daley in future will see measure revenues generated by banner ads the preface to ‘The e-commerce factfile continued for the clients. They have a software Emerging Digital readjustment. system where they can more accurately Economy II’. “It • There are 10,116,882 commercial track the impressions than the web host provides fresh domain names registered worldwide • For more sites. The ads are transmitted electronically evidence that our • Domain registrations increased information, to the site directly by the company. In the nation’s massive 118% from 1997-1999 contact the future they will get a commission on all investments in these • 7.3 billion transactional e-mails are UHY firm sales that result from the ads. This will help sectors are producing sent each day in the US alone in the USA, advertisers to target their markets more gains in productivity • By 2002, conducting business Urbach Kahn effectively, rather than basing campaigns on and that they are on-line will save companies an & Werlin PC magazine circulation statistics. creating new and estimated $125 trillion +1 518 449 3166

UHY International Business Issue 2 1999 5 Ireland continued... The Irish Economy Labour force: 1.52 million (1997) Occupation: services 62.1%, manufacturing and construction 27.0%, agriculture, forestry and fishing 10.0%, utilities 0.9% (1996)

Budget Revenues $20.6 billion Expenditures $20.3 billion (1997), including Capital expenditure of $5.2 billion Debt - external $14 billion Exports Total Value: $54.8 billion Commodities: chemicals, data processing equipment, Dublin call-centre in action industrial machinery, live animals, animal products Ireland is now the second rate of 12.5 per cent will apply Ireland’s high tax brackets of 24 Partners: EU 66% (UK 22%, biggest exporter of computer to trading profits in all sectors, and 46 per cent were offset by Germany 13%, France 8%), US software after the United including manufacturing and cheaper accommodation and 12% States. international services. living expenses, but this is no Exports account for a far Unlike many other European longer the case. Imports higher level of output than countries, the country has a Ireland’s prosperity means Total Value: $44.9billion anywhere else in Europe, and large, young population. By that EU support will not Commodities: food, animal much of this success is due to the year 2001, four out of continue forever. It is likely to feed, data processing the contribution of overseas every ten people will be under lose its special status under the equipment, petroleum and companies investing in Ireland. 25 years of age, which is crucial European Commission and petroleum products, This export orientation is for companies relying on the reform of the Common machinery, textiles, clothing reflected in the use clients of future availability of labour. Agricultural Policy could lead Partners: EU 52% (UK 29%, our Irish firm make of the Communications are also to other funds drying up. Germany 10.2%, France 4%), UHY network. good. Ireland has a highly Ireland retains the US 12% efficient distribution network advantage of being the only Impact of the Euro which brings most of Europe (a English-speaking country to be the Good Friday Peace Since Ireland signed up to the market of 370 million people) part of European Monetary Agreement envisages closer Euro, the weakness of the within 24-48 hours by truck. Union. Over the past two links with Northern Ireland. As currency has further boosted Massive amounts of money decades more than 1,200 long as Dublin continues to exports. Added to this, Ireland have also been invested in the overseas companies have successfully court foreign also has favourable tax telecommunications systems, joined the strong base of local investors, the future looks regimes. Profits derived from making the country an firms trading successfully from bright for the Emerald Isle. eligible manufacturing and attractive place to host call Ireland. The information qualifying services are subject centres and central offices. technology industry is thriving, • For more information, contact to a tax rate of 10 per cent until But economists have warned and trade with Britain and the the UHY firm in Ireland, 31 December 2002. From 1 that the pace of economic rest of Europe remains strong. O’Connor, Leddy & Holmes January 2003, a corporation tax growth will slow. Traditionally, Inflation is under control and +353 1 496 1444 Labour Force Trading Partners

■ services ■ manufacturing/construction ■ agriculture forestry fishing ■ utilities ■ UK ■ Germany ■ France ■ EU other ■ US ■ Other

UHY International Business Issue 2 1999 6 BUILDING BRIDGES TONY STONE IMAGES

n contrast to an outright merger or manufacturer as part of an alliance. The Corporation, who were bidding for Dennis – a acquisition, a strategic alliance involves alliance helped Nissan ease its debt situation, at company which builds bus chassis and fire- two companies pulling together to share the same time allowing it to retain control of engines – laid claim to a distribution alliance Iresources, funding or equity in a new its Sunderland car plant. There should also be with the world’s biggest bus manufacturer enterprise on a long-term basis. It is benefits from combined production processes Daimler-Benz. The idea was that Mayflower estimated that 10,000 new alliances were and efficiencies in purchasing and design. could sell Dennis products through the formed last year globally. The move towards strategic alliances is so Daimler-Benz network. But Daimler-Benz said Recent examples include a deal between strong as so many industries today are the agreement was no more than the type of Nissan and Renault, in which Renault took a subject to powerful forces: competition, ‘co-operation’ it had ‘with a lot of our £3.3 billion stake in the Japanese car globalisation and industry convergence. For suppliers’. So such agreements can just be example, in banking, insurance, mutual strategic ‘spin-doctoring’ rather than actual funds, financial planning and credit cards, pooling of resources. Case study where does one industry end and the next Alliances are almost always cemented on one begin? the level of individuals, and the new Strategic alliances often form when one In the Internet book trade, alliances are relationship must be captured in one or two company alone can’t fill the gap in serving the constantly making the market tougher. pages. If the strategic alliance runs to 30 or needs of the marketplace. Thus when German publisher Bertelsmann is joining with more pages of legal text, it’s not likely to last. Mitsubishi Electrical and Lucent Technologies bookshop chain Barnes & Noble, and Book-A- Microsoft has a strategic alliance with jointly pulled together to develop and build an Million is forming an alliance with America’s Reed, where it supplies systems support in advanced microchip to be used in high- biggest retailer, Wal-Mart, to take on market exchange for Reed’s information services. definition television, they pledged to do five leaders like Amazon. Prices are likely to be Microsoft has previously taken stakes in things that define a true strategic alliance. driven down so it’s unlikely to be profitable media companies such as CD-Rom publisher for any but the most efficient. Dorling Kindersley to support various ● They committed to work together on a Other forms of alliances are also on the strategic alliances. joint task for at least 10 years. increase – for example, operational alliances In the healthcare sector, Misys has entered ● They linked together on equity and shared are being formed between accountants and a strategic alliance with Healtheon, the capabilities. solicitors to tackle business issues from a leading American provider of healthcare ● Their relationship became reciprocal with multi-disciplinary perspective. electronic commerce operations, under a shared and common strategy. Changes around territory borders are also which Misys will provide Healtheon’s ● Both companies saw their respective heralding new alliances (see Öresund Bridge e-commerce services to 11,000 practices with market values grow because they were, feature, page 3), between companies within 65,000 doctors, using Misys’s Medic medical in effect, a greater threat to their the same discipline, and with firms outside of practice software. competitors. their range of expertise. The lesson seems to be that in the rush to ● To make the alliance operational, the Given that many of these alliances are not form an alliance, the companies should define companies agreed to share and leverage built on hard rock, they can easily sink into the both their individual and collective needs – core capabilities on an ongoing basis. wet marshes. Last year, the Mayflower and what the possible benefits could be.

UHY International Business Issue 2 1999 7 Mercosur update

This is based on a large market, natural in October and there have been rumours of a resources and skilled labour force. There modification to the exchange rate, which is are no duties on trade within Mercosur, and tied up to the dollar by the 1991 in due course, duties on imports into Convertibility Act. Mercosur will be unified. The current administration and the two Brazil and Argentina are the biggest major candidates have strongly rejected the partners in Mercosur. Since the beginning of possibility of any change in that arena. 1999, Brazil has devalued its currency by There are indications that change will not almost 100 per cent against the US dollar. happen because a substantial proportion of Since Argentina is still keeping an the national budget is dedicated to exchange policy that ties the peso to the US repayment of Argentina’s foreign debt, dollar, Argentine exports to Brazil became denominated in foreign currency.

ACT more expensive and Brazilian exports to Any change in the exchange rate would

IMP Argentina became cheaper, with a reduce the dollar value of income taxes, so The view from Botopago commensurate drop in Argentinian exports producing a budget deficit, when one of the ormed in 1991, Mercosur – the South and an increase in Brazilian imports. government’s main aims is to achieve a American customs union of Brazil, For this reason, Argentina set up a balanced budget. FArgentina, Uruguay and Paraguay – selective duty scheme for several Brazilian has stimulated an impressive growth in products, but this was rejected by the • For more information, contact the local intra-regional trade and investment. Brazilian government. UHY firms, The first aim of the Mercosur common At this point both governments are Roberto Carlos Macho & Asociados market is to provide its partners with a holding meetings to resolve the situation Argentina +54 11 4815 8866 competitive advantage for exporting and with no major result so far. LM Auditores Associados, Brazil attracting investment. Argentina will hold elections +55 11 572 3962 member firms

For more information on UHY, in the first instance, please contact your local member firm.

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UHY International Business Issue 2 1999 8 Copyright UHY, 1999. Published on behalf of UHY by The Communications Team, Exmouth House, 3-11 Pine Street, London EC1R 0JH. phone: +44 20 7923 5400, fax: +44 20 7923 5401