Effectiveness in the Implementation of European Bailout Plans and the Cultural Perspective; Individualism vs Collectivism in the Greek Case

Much has been said about European periphery’s economic problems and how they led to economic crises and the IMF intervention. Much of the discussion centers on overleverage, lost competitiveness and other macroeconomic figures. This is what one could call technical analysis. On the other side much of the “softer” or at times irresponsibly “casual” analysis gravitates towards cultural traits some of them being well-indented and some not so.

Let’s look at the Greek crisis in particular: The Troika(lenders) are complaining about inefficient public administration, corruption, opportunistic political system and the absence of civic society as manifested through tax evasion and other. On the other side Greeks are complaining about the recovery plan being unrealistic, recessionary, insensitive, flawed. The bailout plan supporters may jump into what’s called in psychology attribution bias error confirming their prejudices while the subjects find painful gratification in self fulfilling prophecies: since we are not up to par why bother trying improve after all? But then again and allow this parenthesis why Greeks or other nationalities perform much better in well structured economic systems such as that the immigrant communities in the US, Australia or Germany prosper? Is it because of the existence of institutional framework in these countries as argued by the work of Daron Acemoglou (Why Nations Fail: The Origins of Power, Prosperity, and Poverty)?

Whatever the cause of the economic malice, the slow implementation or failure of the bailout plans may be attributed to mistakes in analyzing the problem in the first place both from technical but equally importantly from cultural and sociological perspective ie the doctor has to prescribe the right treatment before complaining that the patient didn’t respond, as well as not well managed expectations and communications if that was the case. In this article we will focus on the sociological/cultural perspective. Before proceeding however we have to caution that culture can become an uneasy topic as such discussions may raise concerns over stereotyping. However, cultures do exist and do interfere with life and business decisions same as corporate cultures, a much celebrated principle in management, that has been coined for many company successes or failures. It’s not that new of invention, after all the saying goes: “when in Rome do as the Romans do”.

Culture, when it refers to ethnographic aspects is a rather new addition to management topics mainly gaining attention with the rise of multinational companies. In such environments people from different ethnic backgrounds, often painfully, realize that what’s considered the norm in one culture is not so in another. Stories about egalitarian Americans using first name or hierarchy conscious Asians hesitating to ask questions or challenge a position have been abundant. The result is miscommunication and inefficiencies. Other instances in the context of cross-border M&As, are equally amusing but painfully costly. Once somebody mentioned a story about an investment in Eastern Asia; after closing a deal the Westerner went with signed contract in hand to plan implementation; the local executive laughed took out a bottle of wine and invited to start the real discussion about what’s to be done now that the legal part was out of the way…. In another instance in Eastern Europe Westerners and local investors were planning an investment. The tender called for cash and follow-up investment as part of the consideration. The local partner laughed: “that’s good. We can surely outbid anybody by promising a high follow-up investment”. But this is not possible” replied the buyers, “we can’t afford that”. “Don’t worry, we’ll just promise and never do it….” he replied. Off course the judicial system plays a role in enforcing such documents but sometimes it also seem to be accommodating or follow the traits of the surrounding cultures.

So how could culture play a role in the European economic crisis and the success or failure of the restructuring plans? Let’s analyze the theoretical background to that. To do so we will refer to the work of Max Weber, Geert Hofstede and even Samuel Huntington to name a few. To some extent they have used religion as a paradigm for peoples’ social psyche. In this respect European societies could be distinguished between:

a. Northern Europe that follow Protestantism/Calvinism/Lutheranism that lean towards individualism and embrace free market or regulated capitalism. North American and certain Commonwealth cultures follow these patterns too.
b. South and Eastern Europe that follow Roman Catholicism and Orthodoxy, which are characterized as collectivist in nature and lean towards corporatism.

According to Weber for example the Calvinist teaching calls for hard work as the road to business success while profits should be reinvested rather than spent in frivolous pleasures. The Protestant endorsement of usury, contrary to Roman Catholicism at the early ages might have affected economic development in some extent. Same effects mat be attributed to Orthodoxy’s mysticism and its apprehension towards materialism as also manifested in Greek philosophy’s Stoicism and Epicureanism.

According to Geert Hofstede’s famous Cultural Dimensions Theory (not accidental that was developed within multinational IBM) there are 5 traits upon which cultures can be characterized:

– Power distance (we’d call that in other words “respect towards hierarchies”)
– Individualism (or the “degree of interdependence” within the society)
– Masculinity/Femininity (we’d prefer to call that “materialism vs. spiritualism” )
– Uncertainty avoidance (we’d prefer to call this “adaptability” or “resistance towards change”)
– Long term orientation (pretty much self-explanatory: long term versus short term society focus)

In our case now: Greece is a collectivist culture where although business is conducted in a rather relaxed way, power distance is high and respect is important. In collectivist cultures more important than anything are relationships and accountability towards the person’s immediate social grouping be it immediate family, extended family, locality, ethnic group, company, union etc. Next to relationships, written communications might fade (especially when mandated by an outsider to the group). A Greek minister once even admitted that have not even read the bailout plan. There was no time for that or no purpose considering its supposed inevitability or stakes in hand. Obviously the details could be envisioned negotiable later, even after signing. Actually objections started soon after signing. It’s also well documented that statistics were falsified to achieve EU admission. Pretty much the same as ticking the box on Important Terms and Conditions before downloading a software. Who bothers? On the other hand Northern European cultures are in large individualistic where power distance is also high but relationships are not that important and communication can often be blunt. Written communications are respected and highly valued. There’s also a strong avoidance over uncertainty, which may be exacerbated with current financial problems and extremely high unemployment. These differences as illustrated by different scoring in Hofstede’s parameters are shown in the diagram below for Greece and a group of Northern European individualistic cultures.

Blog Graph Greece and Individualists

But let’s set aside the major manifestations of individualism and collectivism and focus, for the interest of brevity, to the issue of how decisions are taken and communicated in these cultures. For example in our case, what went wrong, at least in the beginning, with the restructuring plan? The EU officials have been frustrated with the low pace and erratic implementation. When shortcomings occur they note with disdain their discontent: the plan has been agreed and signed departures from its wording are not expected. In AngloSaxons societies it’s normal for written agreements to be kept; that’s why negotiations are long. On the other hand in societies such as Greece’s, written agreements are of limited value. These are places where one can hear more often the phrase “that’s how we do things here” or these things are not possible here” versus the expression “that’s the law” that explains actions in individualistic countries.

Blog Graph Greece and Collectivists

In individualistic countries is quite straightforward, even to the not educated, of how they should operate within the society. In collectivist cultures however it’s not always possible to understand how things work if not through upbringing and subconscious. Locals mostly can adjust to that it’s just an outsider that might feel lost. It takes empathy and inquisitiveness to prosper. As one said don’t get distracted with what the law says but what the people really do.

So what’s the conclusion, the moral meaning from this analysis regarding enforcement of the restructuring plan? For Troika: should place more attention to what people think than what say or sign. Monitor implementation. Identify power brokers, decision-makers and involve them. Respect sensitivities, be introspective, try figure out motives and hidden messages and agendas. For Greeks: don’t hope for leniency, for lenders giving up or being intimidated. Not that they don’t have feelings; it’s just that they keep them away from work and don’t let them affect the goal. Be upfront and clear on intentions and concerns. Discuss and argue constructively.

This article has been in the making for quite a while. In the meantime it’s good to see that Troika is pretty much adjusting their approach now monitoring evaluation setting gradual landmarks and acting based on progress. Communications from North has been toned down a bit too, it’s so much of an unnecessary distraction anyway. Greeks have also given up on talking, bluffing and protesting and doing more. But then again most people know what’s right or wrong, large parts of what’s happening in the past was illustration of Mental Exit (something that Hirschman refers to in his famous book Exit, Voice, and Loyalty). Mental or Physical Exit by playing along, evading, immigrating and much of the frustration is also put up for other purposes. Once a football(soccer) player was asked why complaining so vividly to the referee for a decision since there was little chance to change opinion. Well, he said, this decision is lost but I may make him think twice about the next one and even if that doesn’t happen and we loose then I’ll put up a good excuse to the fans in bad refereeing…”.

For sure the story unfolds on this crisis and it’s quite early to jump into conclusions. The purpose of the article is just to contribute towards decision making and action taking from a cultural perspective both in this or other instances.

By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

Pete Chatziplis, a finance and management consultant, is the creator of the Transatlantic Business Forum. Drawing on global work-experience he has been part of the Cultural Detective Organization (Intercultural Effectiveness, Increase Productivity-Strengthen Relationships) contributing to the development of a training manual about intercultural understanding.


A European Tale: the debt crisis in other words; Select your ending…

Once upon a time there was a European family… Their life was all happy and mellow and everybody looked up to them. However times changed and they were struck by a terrible crisis. The following story might be true and might be an allegory for something else happening right now in real life… It’s also an unfinished story; you can vote for the outcome right at the end of it. But let’s take it from the start…

Family Background

The mother came from an aristocratic family of intellectuals. You could notice that in her elaborate and polite manners, style and often flamboyant ways. She had rich education in humanities and sciences something evident in her discussions. She was working in fashion, everything that had to do with quality of life but was also very active with civic organizations, charity and arts. She would give grace to whatever she set her eyes on. Then there was the father, a busy, laborious, industrialist; diligent and hard working. It’s not that he didn’t have many intellectuals in his family but he took more pride in discipline, practicality, moderation and self-restraint. He had few words to waste; he often expressed himself without much tact which often got him misunderstood.

It was a rather odd couple some would say but for others it seemed that they complemented each other very well. But it was not always like that. Their families didn’t get along very well in the past. They had many disputes which caused great distraught and pain to them and others. These were tough times, with violence and poverty. However, through much pain they realized it was much better to put all that behind and instead of hating, care about things they shared, cherished and valued. So they concentrated on making their lives better which brought them much happiness and wealth.

As time went by and the wedding grew stronger they also decided to grow their family; so they had kids. It was a happy family they had, full of respect and ideals but little time did they have for each other. The parents were busy and even when they had some time, they wouldn’t seriously care about their kids; they would even find their kids’ mischiefs amusing. The kids were independent-minded though and felt perfectly fine to stay away from their parents’ attention. They were pretty much growing up on their own as the product of circumstances, handouts and serendipity. You see they were receiving a monthly stipend and had nannies and all the care in the world. You could say that they were spoilt.

When they grew up and became adults their parents gave them credit cards. It was supposed to mark their coming of age. Kids could now plan their future; take a loan to study and grow professionally or start a business. Instead kids however rolled down to the easy life. After all they didn’t care much about growing up and making a life for themselves; actually they were not even prepared for doing so.

When parents were asking how they were doing in school or their businesses the kids would say that everything was going well. That was a blatant lie and they were surprised to pull it through; they guessed their parents were probably turning the blind eye. Nonetheless they were afraid that this couldn’t go on for ever and at some point they would get in trouble; but then again it was too difficult to stop. There were so many distractions. There were cars, trips and nice clothes, all easy within their reach; why bother change after all? Dazed from their easy life at times they felt gifted, they felt that they deserved having things coming easy to their way. At other times, when targets seemed tough to accomplish they would feel incompetent and helpless as ambitious targets where out of their reach; after all, their family’s haven was enough.

Crisis breaks out

But nice stories at sometime come to an end. Times changed and the family business was not doing that well anymore. The parents were starting to age and worry about the future and their finances. The world was also changing; it was becoming a more competitive, a less forgiving place. So they started to pay more attention to their family and business. Their kids’ mischiefs were not that amusing anymore. They started to worry more about them and ask questions. It was not long before they realized that things were not going well, but they would postpone taking action. In the end it was a call from the bank telling that credit cards were maxed out and asking for money transfers to cover overdrafts…. It was the last drop in the bucket, they were infuriated…

As a matter of fact the parents assumed that something was not going well, but they were too busy and too distant. . In a way they might even be buying their “silence” for being absent, so that they could go on with their lives undistracted. They didn’t want to face their responsibilities and would blame it to each other or on the kids’ character. On the other hand they knew they just had to bring them to the point of no return to get them on the right track. As somebody said; a crisis is too good of a thing to go wasted. And now it was exactly that time. This situation couldn’t go on for anymore. It was time for everybody to sober up and carry their share of family responsibilities. Yes, the party had to stop one way or the other; but it was not easy.

The kids at the begging denied everything; they tried mislead their parents that everything was still going well. But the parents looked around the home and found expensive clothes and motorbikes and other things that they were hiding that couldn’t be explained. That was not the life they have earned or they could sustain on their own. That was not a life of responsibility that the father was brought up with or wanted for his family.

Parents also asked around and stories started to come out about the ways kids spent their money; they felt embarrassed from what they heard. Everybody thought something seemed wrong with the kids’ way of living, however nobody tried do anything about it; they just looked the other way. The kids would also always have excuses for everything. For example when asked about their expensive cars they would say that they were test drives, or gifts or other funny excuses. In the end the kids started to confess everything.

Stories came out about people giving them loans as they’d assume that their parents would pay for them in the end. A local banker even occasionally reversed some credit card charges or moved them to other ones to erase some debt so that it didn’t hit the credit limit. When they asked him what he was doing he mentioned three letters, showed some lengthy documents and off course asked for a good commission. Kids didn’t understand much but didn’t even bother about it as long as it kept things going.

Not all the kids were the same however. While the younger ones maxed out their credit cards by spending in good life the older ones were a little more responsible but made some bad investments. People started to question everybody anyway. In the end, none of the kids could survive without their parents’ help and now this help was questioned. Even one of their uncles, a bon viveur, with great education and property but extravagant ways fell into disbelief and had to cut down his expenses too. In a way it was him that everybody was worrying about if he’d come to the point of asking for help too. Therefore parents had to sober up everybody, starting from kids. They had to put up a tough face; it was time for action…

Crisis Deliberations

At the beginning kids accepted their fault but said it was impossible to change at once; they asked for more money to give them time. Off course they promised they have learned their lesson and they’d now use their money for good. But they said that before… The parents didn’t buy it.

Then the kids pointed out to some of their friends that when they racked up too much debt they didn’t pay. They argued they were fooled by shop owners and banks; transactions were erroneous, debts were phony; they were simply tricked in. With all this these kids saved face in some way, they said. Even if they managed to walk out of their obligations however little talk was made about these kids been grounded, changed school and losing their club memberships and amenities. These losses would have been unbearable to the European family’s kids. They knew that.

Some of their friends told them that their parents are suppressive and insensitive. They told them they would be better off if they left home, break up with the past life and live ascetically in a communal. All this sounded t romantic, even though they haven’t tried something like that before. Impulsively, a part of them wanted to go this way, but that was merely an impulse.

Then kids thread their parents they’d leave home and family if not having it their way. They didn’t really mean it nor did their parents want them too; however after some initial surprise and frustration parents shrugged their shoulders and told them they were free to go if they’d wish and if they left behind all their goodies. Parents wanted to keep the family together albeit not at any cost, not if the family had no meaning. Kids thought parents were bluffing about sending them away but they couldn’t say for sure; in the end maybe they both were bluffing.

Outside the family, everybody the kids knew, the banker, the nightclub promoter, the shop owners, argued that the parents were unfair for treating their kids this way, for cutting down their stipend and credit cards. They said that this was not a way for kids to grow. Deep inside they were worrying about losing the kids’ business. Some others were saying that kids are incompetent; unable to stand on their own feet. They should be either sent away (and not worry about them) or sustained for ever. It was the parents that have failed in their roles; they were the ones that destroyed the kids and now enjoy torturing them; it was a mockery of a family. Some even remembered the father’s bullying past something left behind but still hurt him to remember.

The father’s family thought kids were useless and that the wedding was a mistake all from the start; a crazy idea, too much of a trouble. The mother, the kids were different people from the father; they were hopeless due to their upbringing. It is probably what you would call in psychology group attribution error. Off course they ignored their positive sides too and the many benefits this wedding brought everybody such as stability and complementary aspects but it was not a good time to bring this up.

An odd aunt that they were not seeing that often and never liked the idea about the marriage, started to throw her poison too. She had good ideas always but never really showed any sincere interest to family issues. You know it’s this kind of aunt that always has an idea about everything but doesn’t do anything about it. She would just love to draw attention on her as in her glory days so that she didn’t feel overshadowed and an odd loner.

The Rehabilitation Plan

After much talking, true to the family’s traditions, the parents came up with a detailed action plan. They said that kids should either leave home and make their living the hard way or stay and embark on a long “rehabilitation process”. They would have to study and at the same time work and contribute to the family’s expenses to the extent they can. They should also pay back their debt. The father was relentless; he said credit was over, they would have to start living within their means. He was strict and absolute while the mother was trying to show some tenderness and flexibility to keep some balance. Parents also hired a strict personal trainer with experience in such “rehabilitations”. They said he had to be tougher with the younger kids so that they motivate the older ones and set a good example for the community around them too.

The kids accepted and to formalize that signed an agreement but without even looking at it. Reality is kids dreaded the rehabilitation idea and they could find a lot of theories to argue on that. But in the end they just wanted to keep on with their ways or if they had to work they would rather work in some office in the family business; but they had no such experience or skills. The parents never worried about equipping them with such skills; or give them jobs in their companies, but that’s another story… In the end kids thought it made sense just to take it easy as parents made enough money for everybody. So they proposed to work in their local club. They ended up however spending most of the time socializing if they would even ever go to work. Kids also said they were taking evening classes but they often skipped and went on partying. In the end they just cared about getting through another day; a vane, meaningless pursuit to others.

So in the end their rehabilitation was failing. They claimed it was due to the plan which was not realistic. They said they were unable to contribute to the family; a self-fulfilling prophecy or what you would probably call in psychology a self-serving bias. The kids thought that parents would be forgiving, fed-up and ignore them so that they could go back to their own busy lives. The single aunt off course said it’s wasted time; the kids were a lost case; will never get in the right truck. But parent were not the sort of giving up. They asked around and found out about their kids’ ways. They were furious about their cheating. They assumed that kids would do what they were asked and signed to do.

The Rehabilitation Plan gets serious…

So the parents said that we’ll have to follow up with what kids were doing every day. At least parents were becoming more involved this time. Issues were to be discussed together and decisions were also taken jointly. They also emphasized to the personal tutor to be extra vigilant. They’d also have to work at a really tough job not like the easy ones they were having up to now. They should start working at a factory. They braced for a long “rehabilitation process”. It was not going to be easy

Story Ending?

Let’s say this story is a metaphor; depicting the European debt crisis. You can try guess parallels between figures here and in the crisis. On the other hand it might just be a simple story on a common family and any resemblance to facts, real persons is purely coincidental:). Let’s also say that this story is stil developing. Taking this in mind feel free to guess potential outcomes (left open as there are so many views on such matters these days..).

So here are some possible endings we could think for this European tale (or add yours):

1st Tale Ending:

Kids kept on failing. The family didn’t pull it together. It broke apart. Kids were sent away from home and:
i. became criminals.
ii. sobered up but never got where they could had they stayed in their family.
iii. they excelled surpassing even their parents’ successes. They probably struck a lottery or came up with a great invention (ok crazy things happen in fairy tales…)

2nd Tale Ending:

Kids and the family stayed together. Kids sobered up and became responsible citizens and successful professionals.

3rd Tale Ending:

Kids and the family stayed together. The kids never really sobered up; they grew up always dependent on their parents but at least they didn’t get into trouble and wrack up debt. They were always dependent on handovers; after all their parents were too possessive to turn over some of their businesses to them. They all just muddled through.

The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.


Virginity: a dubious virtue when it comes to olive oil and the overlooked costs for consumers and the economy

Conventional wisdom has it that virginity is a binary issue. It either exists or not. Not so it seems when it comes to olive oil. There’s extra virgin olive oil, simply virgin olive oil and even if that is not confusing enough some suggest that for most commercially available olive oils, virginity is a questionable virtue altogether. But let’s first start with the definitions: what does virginity stands for when it come to olive oils?

Olive Oil Classifications

The EU, the largest producer and consumer of olive oil globally and US, the second largest consumer have come up with elaborate regulations on classifying olive oils that include both chemical and taste characteristics (EU directive 796 and US Standards for Grades of Olive Oil and Olive-Pomace Oil). These are similar to regulations introduced by the International Olive Council (IOC), the large global organization representing olive oil and table olive producers and consumers. The German and Australian Oil Associations have come up with additional tests (known as DAGs and PPPs). Unfortunately apart from tasting, it’s almost impossible for the average consumer to verify an olive oil’s quality; instead has to rely on representations by manufacturers, public authorities and retailers. But what can the everyday consumer make out of the olive oil’s classification alphabet soup and why does it matter?

Broadly speaking virgin olive oils are those that are extracted directly from olives through only mechanical means i.e. excludes oils that go through any chemical treatment. Extra virgin is the olive oil with lower than 1% acidity, while a grade lower, simple virgin olive oil’s acidity cannot exceed 2%. Oils with higher acidity are not edible. These oils are called lampante as they would only be used as lamp fuel in the past. High acidity olive oils have to go through refining processes and blending with virgin oils to go through the food chain. These chemical processes are perfectly acceptable just as long as product labels indicate so and consumers are aware of what they are buying. Olive oils resulting from these processes are called refined, fine, light or simply olive oil. Pomace olive oil, is a different creature in that is extracted from the first olive pressing pulp refuge, with chemical processes.

Olive Oil Chemistry and Health Benefits

Acidity is just one measure of olive oil’s quality but alone doesn’t guarantee virginity and doesn’t capture all of olive oil’s health features. There are at least ten more criteria, namely concentration in certain chemical substances, used for olive oil classification. Let’s see some of these chemical substances and what one is buying in them. First of all fatty acids: olive oil is rich in monounsaturated and polyunsaturated fats versus saturated and trans-fats who are present in animal and processed fats. Monounsaturated and polyunsaturated fats lower cholesterol levels and risks of heart disease. Olive oil also includes polyphenols. These are natural antioxidants that protect against cell damages, have anti-inflammatory properties, reduce blood pressure and the risk of coronary disease. It’s not accidental after all that in the Mediterranean olive oil is often drunk as medicine or aphrodisiac. Olive oil is also used for skin treatment from healing sunburns to cleansing and conditioning. Non irrigated trees, unripe handpicked olives as well as special varietals give higher percentage in polyphenols. The bitter taste in high quality olive oils, indicate a high percentage of polyphenols. Unfortunately, polyphenols same as monounsaturated and polyunsaturated fats, are sensitive substances that can decay over time or destroyed after chemical treatment or exposure to light and air. Hence oil has to be carefully stored and consumed within one to two year time frame. Olive oil, contrary to wine is not getting better with time. Apart from chemical characteristics sensory tests ensure the right color and absence of unpleasant odors and flavors such as muddiness or fustiness. Only accepted flavors by olive oil connoisseurs are bitterness, fruitiness and pepperiness.

These olive oil qualities are hard to find. Extra virgin olive oils are made from the best quality olives and milled at low temperatures (hence the term cold pressed) to preserve their health features, which however decreases output. If something goes wrong during growing, harvest or production they have to go through chemical treatment and refining to correct flaws and then marketed as refined oils; hence they are not virgin anymore. To secure superior characteristics such as high concentration in antioxidants and intense taste, olives have to be at best handpicked from the tree when just start maturing, sorted out and milled within forty-eight hours or less. Other reasons for manual harvesting is that oil plantations in much of the Mediterranean comprise of sensitive, often ancient trees grown on rocky hillsides and in such spacing that are not suited for modern intense mechanical harvest (SHD plantations).

The Good Scenario for Market Efficiency: The price is right

From all of that it seems that virginity is not easy to find and if so it costs, or to put it better: it should cost. The good scenario would be that in the age of healthy eating and slow food, consumers are well aware of and appreciate qualities of extra virgin and various other oils. Consumers are using extra virgin olive oil, preferably raw in salads or dressings, for its antioxidant and other healthy aspects and may turn to other oils either lower grade olive oils or vegetable oils that still offer lower cholesterol levels for cooking, frying or other uses. That doesn’t mean that extra virgin olive oil could not be used for cooking; this is typical in the Mediterranean but maybe it’s not that economical. But whatever the preferences are, the point is that these consumers are prepared to pay the right price for every type of oil and as a consequence demand and supply adjust accordingly.

A Bad Scenario for Market Efficiency: Information Asymmetry

Then there’s the bad scenario: i.e. consumers don’t differentiate between olive oils or just trust the label in their quest for the more highly appreciated extra virgin olive oil, whatever that means. These are the type of consumers that may be taken advantage of. After all it is perfectly natural that between two extra virgin olive oils and in the absence of any other perceived difference, one would opt for the cheaper one. Higher prices would simply be considered a rip-off. But maybe that’s not so.

UC Davis that has developed expertise in olive oil, carried out a research of large number of commercially available olive oils in California in 2010 which found that most of them do not deserve the term “extra virgin”. In other words contrary to their intentions, consumers are not buying extra virgin olive oils in the many bottles with colorful pictures that proliferate supermarket shelves. At the same time more expensive extra virgin olive oils and their producers are unfairly driven out of the market even if certain consumers have the ability to cover their cost.

This pretty much reminds the “Market for Lemons”, professor Akerlof’s famous paper that studied the damaging effect of information asymmetries in the used car market (lemon is a slang term for defective used cars) and lead to his 2001 Nobel prize in economics. Very briefly, Professor Akerlof argues that used car buyers have difficulty in knowing the exact condition of a used car and in the absence of such knowledge they’d assume that the car is of average quality and be prepared to pay nothing more than average price. At this price owners of superbly maintained used cars will not place their cars in the market, which evidently will bring the overall quality of supply down. This is sometimes summarized as “the bad driving out the good”. In another manifestation of such phenomenon; security market regulators are eager to protect against suspicions of “insider trading” as this would drive away investors that have no access to such information. This could collapse capital markets.

Same as with olive oils: in the absence of reliable information, in the absence of product differentiation, buyers will go for the cheaper product or at least an average priced “extra virgin olive oil”. In vain producers will use superlatives, fancy adjectives, exclamation marks, certifications, nice bottles, emblems and picturesque images to persuade they are “more virgin” than others, hence deserve a higher price to cover their cost. Words have lost their meaning. Many will shrug their shoulders to olive oil producers’ problems. But the problem goes beyond that. It’s not farmers that are doing that bad after all. Instead of going the extra mile to produce high quality extra virgin olive oil the average farmer can sell a descent product at wholesale prices and then pocket some EU subsidy (most olive oil is produced in the EU) to make up for the difference. It is visionary producers of high quality extra virgin olive oil that can’t survive. According to Tom Mueller’s book Extra Virginity, manual harvesting, that is the standard for high quality extra virgin olive oils, costs as much as $3 per liter of the end product. Even outside this segment costs are high. Italian extra virgin olive oil wholesale commodity prices range between $3-4/liter; it is a wonder how it can then retail at $6-8 even $10 and cover bottling, customs, transportation, wholesale and retail margins. Many producers of premium extra virgin olive oils will throw the towel, sell below cost or not produce at these levels. But off course consumers are not aware of all these intricacies. Unfortunately it seems that even retailers don’t know sometimes what they are selling, or at least that’s what it seems like based on the UC Davis report (UC Davis’ report as expected hasn’t gone unnoticed; see NAOOA’s reply for example). One could be safe by selecting upscale retailers or specialized online stores for extra virgin olive oil. These businesses have the ability to sell at higher prices and at these price levels can’t afford to disappoint their patrons.

Making sure that products are correctly labeled doesn’t also mean that lower quality olive oils should be expelled from the market. Beyond free consumer choice, fair markets are about demand and supply. Food is largely considered a commodity, at least up to now. Although supply for some foods like caviar or fillet-mignon is limited hence prices are high, a tomato for example is pretty much the same for everybody. That has started to change with the introduction of organic food, the highest growth food segment in the US and elsewhere. In a world of six billion and counting, for good or for bad, there’s no much room for organic food or free range meat. What would happen though if ordinary products sell for organic without being so? This would register significant profits but it would be fraud. Same with olive oil, be it organic or other premium oil.

Another Bad Scenario for Market Efficiency: Adulteration & Counterfeiting

The other bad scenario behind market inefficiencies is the existence of counterfeit or adulterated olive oils. It’s useful here to briefly outline market economics to put into perspective the extend as well as consequences of such practices.

Global olive oil production varies per year but can be estimated at around 3,000 tons based on 2010 figures, of which EU produces 70% and consumes 64%. In the US alone, olive oil is a $700 million market which amounts to around 9% of global consumption of which more than 90% is imported. The overall US edible oil market (includes all sorts of oils such as canola, sunflower, corn, soya, palm, sesame, avocado, coconut, peanut, cottonseed even margarine and animal fats) is estimated in the tens of billions and grows at 10%, an especially high rate. To complicate things more some oils are also used as biofuels which also affects prices in relation to what’s happening in energy markets. If most of products in a $700 million market are counterfeit to some extend, as the UC Davis report indicated, then profits and foregone taxation must be significant. So the stakes are high. But let’s examine on what’s involved in counterfeiting or adulteration.

Adulteration: Mixing Substances

Adulteration is as old as olive oil trade. It went on in ancient times and through history in 19th and 20th century Europe and US. In 1997 and 1998, olive oil was the most adulterated agricultural product in the European Union, prompting the EU’s anti-fraud office to establish an olive-oil task force. Tom Mueller in a 2007 article quotes one investigator saying: “Profits were comparable to cocaine trafficking, with none of the risks” (Slippery Business, Tom Mueller, The New Yorker, August 13, 2007).

Adulteration can take many faces: from mixing different types of oils to adding dangerous chemical substances. When mixing different types of oils one could add cheaper oils such as rapeseed, sunflower or olive pomace oil to expensive extra virgin olive oil and sell at the higher price pocketing the difference and avoiding taxes. Although mixing different kinds of oil can be harmless to human health; this is not the case when mixing with chemical substances and colorants to arrive at a product whose chemistry, taste and appearance resembles olive oil. In 1981 in Spain, in what’s know as Toxic Oil Syndrome, rapeseed oil was denatured by adding aniline, a dangerous chemical substance and then sold as olive oil. This resulted in over 600 deaths. In April 2008, the Italian police impounded seven olive oil plants and arrested 40 people for adding chlorophyll to sunflower and soybean oil and selling it as extra virgin olive oil, both in Italy and abroad; 25,000 liters of the fake oil were seized and prevented from being exported.

Counterfeiting: Masking Origins

Another possibility is misrepresenting the olive oil’s origin such as country of origin or region (ie if it is of protected designation of origin (DOP)). In 2008 Italian police, in what was called “Operation Golden Oil“, arrested 23 people and confiscated 85 farms after an investigation revealed a large-scale scheme to relabel oils from other Mediterranean nations as Italian. It’s like putting together fake parts to create a Rolex watch.

Let’s go back to global market figures to illustrate the dynamics behind this practice. Of all global olive oil production, Spain is the largest producer with 40%-45% that along with Italy at 15-20% and Greece at 10-15% form the top three producers and consumers, followed by other Mediterranean countries such as Tunisia, Turkey, Israel, Morocco Syria as well as Portugal and Australia down under. Olive oil wholesale prices from the various varietals and regions have different prices. Italian olive oils are usually the most expensive. Although Italy’s production doesn’t cover domestic production it is a major export country controlling more than 50% of US imports. This paradox is explained by sizeable imports to Italy, with the question being which part of Italian olive oil is consumed locally and which exported. At the same time, Greece the third largest olive oil producer and probably one of the first ones, represents only 2% of US imports.

Blending olive oils from various origins is perfectly legal as long as labels indicate so. For example, large circulation brands often mix various olive oils to reach their production quotas at the same time that maintain relatively consistent taste and stable cost basis. On the other hand small producers’ production, same as for wine production, varies in quantities and taste from year to year depending on weather and other circumstances. Much of olive oils sold in the US are blends of olive oils coming from Greece, Italy, Spain, Tunisia and other Mediterranean countries. True to fair representations, US Customs regulations on “country of origin” state that if a non-origin nation is shown on the label, then the real origin must be shown on the same side of the label and in comparable size letters so as not to mislead the consumer. It is interesting though to come across consumers that don’t go beyond the flashy letters and images on the bottle’s front side to check the label on the back side and see what exactly they are buying. On the flip-side some producers argue that there is nothing wrong with blends as one is really buying the bottler’s know-how and guarantees rather than the country of origin. It’s like buying a car assembled in one country whose all parts are manufactured overseas, in the end it’s up to consumer’s choice again.

If mixing is acceptable, nobody can argue in favor of counterfeit products; not at least among WTO members. Unfortunately record shows that there’s still room for better market monitoring when it comes to extra virgin olive oil as well as not the same level of respect. There are numerous experts, magazines, food shows, specialty distribution chains (liquor and wine stores) promoting wine and its uniqueness. Olive oil, sadly though, still lags behind. Maybe producers are not strong enough to enforce a better environment. For example Luis Vuitton has 30 in-house lawyers and 250 outside private investigators and spends $18m to fight counterfeiting (Deluxe: How Luxury Lost Its Luster, Dana Tomas, 2007).

It is amusing and disappointing to come across disbelief for a $50 per liter extra virgin olive oil. At the same time very few would be surprised for a $50 per bottle wine or a $1,000 suit. Nobody is wondering why cars worth more than $200,000 when one only wants to get from A to B, or why a handbag should worth $5,000 for carrying the essentials. It’s often a vain discussion try justify extra virgin olive oil prices by referring to ancient trees, rare varietals, plant densities, non irrigated hillsides, terroirs and labor costs. One would think twice before arguing against the purpose for high wine prices or differences between Cabernet Sauvignon, Merlot, Shiraz, Rioja, Chianti or Pinot Grigio even if not aware of their qualities. It could be embarrassing. Yet in a world where the objective would be to just “drink wine” there’s a good possibility we would only end up with Two Buck Chuck (the two dollar a bottle Charles Shaw wine often synonymous with mass consumption). At the same time very few people can appreciate olive oil from Alberquina, Picual, Mission, Picholine, Frantoio, Leccino, Koroneiki, Taggiasca, Ladoelia and other varietals let alone distinguish between extra virgin or refined. Large retailers and importers would prefer to launch their own branded products than source from independent producers. This may provide a better profit margin and control over quality but in the end it’s product degeneration at its best. And if some argue that fine wine or haute couture or other luxuries is something more than a answers to biological needs, that very understandably, are a statement of art or passion, then what one can say about harvesting century-old olive trees some as old as the civilizations they fed and inspired?

Epilogue: It’s the economy!..

Beyond romanticism, olive oil’s luck will probably change once economic stakes get higher. Americans only consume 1lt of olive oil per person while in the Mediterranean (Spain, Italy, Greece) more than 10 times as much. Olive oil consumption is growing fast in the US and globally along with growing populations, incomes and health awareness. In the US for example trans-fat oils are being phased out. Just imagine the potential if consumption moves closer to that in the Mediterranean. To cater for increased consumption more areas should be cultivated. Olive tree could flourish in California and elsewhere in the US with mildly warm climate as it also does in Australia, South America and South Africa. Production can further increase in the Mediterranean too where the tradition already exists. Higher production can create new jobs and boost local communities both in the US but also in Mediterranean countries that face economic problems. At the same time higher consumption will benefit public health. So there’s great potential and a strong economic case even allowing for some product cannibalization with other kinds of oil. However all these benefits cannot materialize if the economic return to farmers and manufactures is killed with practices such as those already mentioned.

In the end in a large and efficient market there will be ample room for everybody, both at the low and high end. There will be room for mass and premium producers and after all there will be room for teroirs and the sacred tree that threw its shade over Plato’s Academy, provided the winner wreaths in ancient Olympics and the liquid for religious rituals, throughout times, from ancient altars, to christenings and menorahs. And after all virginity, for all what it is worth, will regain its meaning again.


By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

GREK ETF, NBG and other ways for the risky to play the Greek crisis in the US

As a Greek bailout plan seems to be gravitating towards a yet again successful closure in its on-off year-long saga, the Greek stock market has been experiencing a robust rebound.

It’s no secret that the Greek stock exchange has plummeted over the last three years. Its capitalization from over $220 billion in 2007, has fallen nearly 90% to under $28 billion in November 2011. Following recent optimism for a successful closure to the bailout package it is experiencing a remarkable rebound. As a result the Athens Stock Exchange General Index reached 840 points in February 17 compared to a low of 621 almost a month ago. By comparison at the end of 2009, just after the last elections and before the crisis erupted it was at 2,900 points. At this time banks were trading at five times more than current prices or at over 2-3 times book value. Off course since them much of the book value has been eroded due to the devaluation of state bond holdings and loan losses resulting from the economic crisis.

There are some ways for US investors with risk appetite to gain exposure to the Greek crisis if interested. These are mainly the Greek ETF GREK and some very few stocks, mainly the National Bank of Greece (NBG). They might sound like a good opportunity for bottom fishing but be prepared that speculating here maybe a rollercoaster.

The GREK ETF tracks the FTSE/Athex 20 Index, which is comprised of the top 20 companies listed on the Athens Exchange by market capitalization. That limits, to the extend possible, risks from ASE’s low liquidity. GREK is heavy in banks (almost one third of its value) as well as some blue chip private companies, large utilities and state controlled companies. Greek banks in our opinion serve as a sort of hedge fund for small-size Greek companies and to some extent consumer and real estate market, albeit to lesser extend than US banks. Greek banks are coming back from the brink of collapse. If the Greek sovereign debt swap (PSI) and banks’ recapitalization takes place as planned, state funds will flow in in the form of common stock with limited voting rights. These common stocks could be bought back after an extended period; hence management will stay private and dilution will be limited. That’s not that bad of a solution after all; compared to the alternative of preferred shares, no coupon will be paid and at the same time the state can participate in future capital gains. Common stocks with extended voting rights however would be detrimental for stock prices even the banks themselves and the economy. Public corporations that are also heavily represented in GREK, have been largely earmarked for privatization. Hence they may realize some future gains resulting from the M&A process. They can also be benefited from increased flexibility in labor regulations and lower costs that are to be voted by the parliament.

GREK was launched by Global Funds in December 7, 2011. It should have been probably coming long time ago considering the media attention over Greece and ASE’s volatility. It offers the possibility for both institutional and retail investors to participate in the action. It also offers the possibility for diversifying existing portfolios in search for alpha solely from a quantitative perspective. Hopefully this will bring some attention and new investors to the Greek economy. It is traded in the NYSE (arca platform). It has appreciated by 36% in its 3 months of existence to close at $19.4 on February 17 compared to $ 14.2 at launch. Its trading volumes are still relatively low however compared to other Greek stocks; maybe it’s not that very well known to investors yet.

Another great way to invest in the Greek crisis is the National Bank of Greece (NBG) which is listed in NYSE through ADRs. Investing here however also bears the noise from the Greek banking sector’s recapitalization pains. The stock has been in a free fall over the last year but has rebounded considerably lately. NBG’s ADR almost doubled since the start of the year in the midst of uncertainty over Greece’s fate. It closed at $3.86 on February 17 while its 52 week high is $11.85. It seems the worst are over for Greek banks as current rock bottom valuations and almost option-like features, reflect bankruptcy fears for the country and its banks, as well as severe shareholder dilution from recapitalizations. These scenarios seem to be out of the table for now. NBG is the largest commercial bank in Greece (no connection to the Central Bank of Greece although its predecessor) and is state controlled. Although Greek banks have been devastated by their exposure to the public sector under the legacy Greek economic model, they have relatively limited exposure to non-performing consumer and mortgage lending and satisfactory commission income. NBG’s main advantage lies in its exposure to the booming Turkish economy through its subsidiary Finansbank as well as subsidiaries in the developing southeastern economies of Bulgaria, Romania, Serbia, FYROM and Albania. A further benefit may arise from gradual flexibility in labor regulatory framework and wage decreases if current legislative proposals take effect.

Coca Cola Hellenic Bottling Company (CCH) is one of the largest Coca Cola bottlers that is engaged in distribution in Europe. Its shareholders and managements are largely Greek. The stock has gained 17% since the beginning of the year. This stock doesn’t probably offer the highest exposure to the Greek issue, quite rightly so as it’s a blue chip consumer staples company with a strong brand name and diversified operations extensively outside Greece.

Some other stocks that have seen action the last days whenever news about the Greek crisis were coming out, are Greek owned shipping companies. These are companies mainly based in Greece that have been listed in the New York stock exchanges since some time (due to Greek securities regulations shipping companies cannot or choose not to be listed in the Athens stock exchange). Shipping companies operate under complicated corporate structures often utilizing offshore holdings hence they have small exposure to the Greek economy and probably limited correlation as well, we may say. Moreover, their operations, revenues and expenses are denominated in foreign currencies; often in US dollars (crews are largely non Greeks). However, being or sounding Greek seems to offer some exposure for some investors. Companies in this category are Excel (EXM), Dry Ships (DRYS), Tsakos (TNP), Navios Holdings (NM) and Navios Partners (NMM), Diana (DSX), Euroseas (ESEA), Paragon (PRGN), Danaos (DAC), Costamare (CMRE), Star Bulk (SBLK), Safe Bulkers (SB), Freeseas (FREE), Seanergy (SHIP), Stealthgass (GASS), Aegean Marine (ANW) who are Greece based and to some extent Genco (GNK), Eagle (EGLE) who are headquartered in New York. Not all of the above are the same as they operate in different shipping segments (ie tanker, containers, dry bulk, marine fuel). Excel for example who mainly operates dry bulk carriers trades at around 8-9 PE and its 52 week high is at $5.

Greek shipping is huge but unfortunately for the country not that much connected to the economy, due to its offshore status. As said, speculating in these stocks in relation to the Greek crisis may only be offered for momentum trading and in the short tern in our opinion, while longer term potential should better depend on fundamental analysis. The shipping sector is in rough waters again; the Baltic Dry Index has plummeted recently maybe over concerns for China’s and Europe’s cooling. One then has also to drill down by bulk, tanker and container markets for a better analysis.

Although the recent gains in the Greek stock market, this remains a very risky area, not recommended for the faint at heart. However, as history shows, most stock markets do rebound considerably after a significant crisis. It just then comes down to when one calls the bottom.


By Pete Chatziplis, CFA, ACCA, MBA. The writer may trade positions in GREK, NBG, EXM and other stocks named here. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

Entrepreneurism in Greece: causes and problems behind the high numbers

It is often said that Greeks are entrepreneurial. According to OECD, Greece ranks higher among European nations in self-employment; 35.9% of the working population is self-employed, or 28.6% if agricultural employment is excluded. The same pattern is evident in other Southern European economies such as Italy, Portugal and Spain. By contrast the respective US number is only 7.2%.

Some consider the high level of self-employment as a sign of economic vitality; in reality it might well be the opposite. In developed economies, the self-employed represent on average 13% of the workforce while in Africa and South America 37% και 34% respectively. But there’s more to that. Greece and the other PIIGS countries also exhibit a high percentage of very small companies so this is a common pattern. For example, 35.3% of Greeks work in enterprises that employ less than 20 people when the respective number in Germany is 13.0% and in the US 11.1%. Even US high tech computer and research companies that are generally nimble, employ mostly more than 100 people.

As a consequence of fragmentation, Greek companies at least, lack resources to produce innovative, high value added products, take advantage of lower operating costs arising from economies of scale, export in large quantities, grow, hire people and eventually help the country to prosper. But then again that was not probably the idea in the first place. The Greek economy is characterized by a large public sector spanning both state administration and corporations, few big private enterprises and a large number of self-employed. All parties cooperate in harmony in a typical corporatist outlay. This model pretty much worked well, while the economy was mobilized by state funds funneled through public sector payrolls and infrastructure investment towards consumption. In the absence of access to sovereign debt capital markets this model has reached its limitations.

In 2009; a year before the debt crisis and the EU/IMF bailout program was signed, almost half of Greek tax revenues were generated from salaries and pensions. Corporate profits contributed a further 35% while the self-employed, farmers, very small businesses and income earners contributed 17%. In other words although one in three Greeks is self-employed; he/she contributed less than 20% of total tax revenue. In fact 83% of self-employed reported annual revenues below the non-taxable level of Euro 10,500 and paid no taxes. Many suggest that the reason for that is massive tax evasion. It might be; on the other hand that many self-employed truly generate very low revenues. In the absence of better alternatives being self-employed might be a necessity rather an option. It might also be a way for employers to overcome payroll taxes and benefits; employing somebody as independent contractor produced lower overall taxes for both employers and employees.

To increase revenues and cut spending, the Greek government is now pressed to reduce public sector payrolls and increase taxes. No surprise that these plans face severe opposition. As seen by the numbers, public sector workers as well as the self-employed, who are at the core of the Greek corporatist economic system also constitute two large voting blocks; together they form the majority of Greek voters. The government is also considering reintroducing formula-based tax calculation for the self-employed using “objective criteria” as reference. This may as well drive out of business many that indeed generate very low revenues. However it seems the only solution for tax authorities that pretty much have given up on curbing tax evasion. Without trying to find excuses it might not be that easy to keep up with so many self-employed. Imagine if one in three Americans was self-employed or in very small companies; how easy would it have been to administer such an economy?

All these changes will bring, if passed, dramatic changes to the Greek economy and society. Market consolidation might be painful to many small businesses such as independent retailers facing steep competition from large retail chains, but seem as inevitable development judging from experience in developed countries. In this process economic activity should be expanded beyond trade, infrastructure or real estate to industries that will contribute to the reduction of trade deficit. Large companies should be motivated to take advantage of the relatively low, for the European Union, operating costs in Greece and increase production there.

On the other hand this shouldn’t mean the end of Greek entrepreneurism, albeit its transformation to one where innovative, dynamic companies will grow into larger enterprises that will create jobs and exports. In the end, these jobs might be better than some self-employed now have.


Prepared by Pete Chatziplis, CFA, ACCA, MBA.
The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.


Επιχειρηματικότητα στην Ελλαδα: αιτίες και προβλήματα πίσω από τα υψηλά νούμερα

Λέγεται συχνά ότι οι Έλληνες διακρινονται για την επιχειρηματικότητα τους. Υπάρχουν πολλά λαμπρα σχετικα παραδείγματα αναμεσα στις ελληνικες κοινοτήτες ανά τον κόσμο. Πουθενά όμως δεν είναι αυτό πιο εμφανες από ό,τι στην ίδια την Ελλάδα. Σύμφωνα με τον ΟΟΣΑ, η Ελλάδα κατατάσσεται υψηλότερα μεταξύ των ευρωπαϊκών κρατων οσο αφορα στην αυτοαπασχόληση, 35,9% του ενεργού πληθυσμού της Ελλαδας είναι ελευθεροι επαγγελματιες. Εαν εξαιρεθει η γεωργική απασχόληση τοτε το ποσοστο αυτο διαμορφωνεται σε 28,6%. Ανάλογη εικόνα παρουσιάζεται και σε άλλες χώρες της Νότιας Ευρώπης όπως η Ιταλία, η Ισπανία και η Πορτογαλία ότι δηλαδή αποκαλείται σήμερα με το ακρωνύμια PIIGS. Συγκριτικα, το αντίστοιχο ποσοστο στις ΗΠΑ είναι μόλις 7,2%.

Ορισμένοι θεωρούν ότι το υψηλό επίπεδο αυτοαπασχόλησης ένα σημάδι ζωτικότητας της οικονομιας. Στην πραγματικότητα, μπορει να είναι και το αντίθετο. Στις ανεπτυγμένες οικονομίες, οι αυτοαπασχολούμενοι αντιπροσωπεύουν κατά μέσο όρο το 13% του εργατικού δυναμικού, ενώ στην Αφρική και τη Λατινική Αμερική το 37% και 34% αντίστοιχα. Αλλα δεν ειναι μονο αυτο. Η Ελληνικη οικονομια παρουσιάζει επισης υψηλό ποσοστό πολύ μικρών επιχειρήσεων, 35,3% των Ελλήνων εργάζονται σε επιχειρήσεις που απασχολούν λιγότερους από 20 εργαζομένους, όταν το αντίστοιχο ποσοστο στη Γερμανία είναι 13,0% και στις ΗΠΑ 11,1%. Ακόμα και οι Αμερικανικες εταιρείες υψηλής τεχνολογίας, υπολογιστών και έρευνας που είναι γενικά περιορισμενου μεγεθους, απασχολούν ως επί το πλείστον πάνω από 100 άτομα.

Ως συνέπεια του κατακερματισμού, οι Ελληνικές εταιρείες στερουνται των δυνατοτητων παραγωγης καινοτόμων και υψηλής προστιθέμενης αξίας προϊόντων, να εξοικονομησουν λειτουργίκα εξοδα μεσα απο οικονομίες κλίμακας, να εξαγουν σε μεγάλες ποσότητες, να αναπτυχθουν, να δημιουργησουν θεσεις εργασιας και τελικά να βοηθήσουν στην προοδο της χώρας. Ισως ομως και αυτος να μην ήταν ο αρχικος σκοπος της υπαρξης τους. Η ελληνική οικονομία χαρακτηρίζεται από ένα μεγάλο δημόσιο τομέα που καλυπτει τοσο κρατική διοίκηση οσο και εταιρείες, λίγες μεγάλες ιδιωτικές επιχειρήσεις καθώς και μεγάλος αριθμός ελευθερων επαγγελματιων. Όλα τα μέρη συνεργάζονται αρμονικά σε μια τυπική μορφή κορπορατισμού (ή συντεχνιών). Το μοντέλο αυτό λειτούργησε ικανοποιητικά όσο η οικονομία τροφοδοτούνταν από κρατικά κεφάλαια τα οποία διοχετεύονταν μέσω του δημόσιου τομέα σε υποδομές και κατανάλωση, αλλά έχει εξαντλήσει πλέον τα όριά τους δεδομένης της έλλειψη πρόσβασης του κράτους στις κεφαλαιαγορές.

Το 2009, ενα χρόνο πριν από την κρίση του χρέους και την υπαγωγη στο πρόγραμμα διάσωσης της ΕΕ/ΔΝΤ, σχεδόν το ήμισυ των ελληνικών φορολογικών εσόδων προήλθαν από μισθούς και συντάξεις. Οι επιχειρησεις συνέβαλαν ένα επιπλέον 35%, ενώ ελευθεροι επαγγελματιες, αγρότες, εμποροβιοτεχνες και εισοδήματιες συνεισφεραν το 17%. Με άλλα λόγια, παρόλο που ένας στους τρεις Έλληνες είναι ελευθερος επαγγελματιας, συνείσφερε λιγότερο από το 20% των συνολικών φορολογικών εσόδων. Στην πραγματικότητα, το 83% των ελευθερων επαγγελματιών δηλωσε ετήσια έσοδα κάτω από το αφορολογητο οριο των 10.500 Ευρώ και συνεπως δεν κατέβαλε φόρους. Πολλοί θεωρουν την εκτεταμενη φοροδιαφυγή ως την κυρια αιτια γι ‘αυτό. Αν και κατι τετοιο μπορει και να ευσταθει, από την άλλη πλευρά μπορεί και οντως πολλοί ελευθεροι επαγγελματιες να διαθετουν πολύ χαμηλά εισοδήματα. Ο λογος που ειναι αυτοαπασχολούμενοι μπορει να οφειλεται σε ελλειψη καλυτερων επιλογων.

Η Ελληνική Κυβέρνηση προκειμένου να αυξησει τα έσοδα της και να μειώσει τις δαπάνες σχεδιαζει να μειώσει τα εξοδα μισθοδοσιας στο δημόσιο και να αυξησει τους φόρους. Οπως ειναι αναμενο, αυτα τα μετρα αντιμετωπιζουν σφοδρες αντιδρασεις. Συμφωνα με τα στατιστικα δεδομενα, οι εργαζόμενοι του δημόσιου τομέα, καθώς και οι ελευθεροι επαγγελματιες οι οποίοι βρίσκονται στην καρδιά του Ελληνικού κορπορατικού μοντέλου, αποτελούν δύο μεγάλα κομματια της ελληνικης κοινωνιας και συνολικα αντιπροσωπευουν την πλειοψηφία των Ελλήνων ψηφοφόρων. Η κυβέρνηση εξετάζει επίσης την επαναφορά του υπολογισμου των φορων των ελευθερων επαγγελματιων με βαση “αντικειμενικά κριτήρια”. Αυτό μπορεί να οδηγησει πολλους επαγγελματιες που πράγματι εχουν πολύ χαμηλά έσοδα, να μην μπορουν να συνεχισουν την δραστηριοτητα τους. Ωστόσο, αυτο το μετρο φαίνεται ως η μόνη λύση για τις φορολογικές αρχές που υστερουν στην προσπαθεια καταστολής της φοροδιαφυγής. Βεβαια, χωρίς να προσπαθει να βρει κανεις δικαιολογίες ισως και να είναι οντως δύσκολο να παρακολουθουνται τόσοι πολλοι ελευθεροι επαγγελματιες. Φανταστείτε εάν ένας στους τρεις Αμερικανούς ήταν ελευθερος επαγγελματιας, πόσο εύκολο θα ήταν να ελεγχθει μια μια τέτοια κατασταση;

Όλες αυτές οι αλλαγές, εάν πραγματοποιηθουν, θα επιφερουν δραματικές αλλαγές στην ελληνική οικονομία και κοινωνία. Ο εξορθολιγισμος της αγορας μπορεί να είναι επώδυνος για πολλές μικρές επιχειρήσεις όπως τα μικρα καταστηματα που αντιμετωπίζουν σφοδρο ανταγωνισμό από μεγάλες αλυσίδες λιανικού εμπορίου, αλλά φαίνεται ως αναπόφευκτη εξέλιξη αν κρίνουμε από την εμπειρια στις ανεπτυγμενες χώρες. Σε αυτή τη διαδικασία εκσυγχρονισμου της οικονομιας θα πρέπει ομως να ενταθει η δραστηριοτητα πέρα από το εμπόριο, τις κατασκευες και τα ακινήτα σε τομεις που μπορουν να συντεινουν στην μειωση του εμπορικου ελλειματος. Θα πρεπει να δοθουν κινητρα σε μεγάλες εταιρείες να επωφεληθούν από το σχετικα χαμηλο για την Ευρωπαικη Ενωση λειτουργικο κοστος στην Ελλαδα και να αυξησουν την παραγωγή τους εκεί.

Από την άλλη πλευρά αυτό δεν πρέπει να σημάνει το τέλος της ελληνικής επιχειρηματικότητας, αλλα την διοχετευση της στην δημιουργια καινοτόμων, δυναμικων μικρων επιχειρήσεων που θα εκελιχθουν σε μεγάλες επιχειρήσεις που θα δημιουργούν θέσεις εργασίας και εξαγωγές. Τελικα, αυτές οι θέσεις εργασίας μπορει και να είναι καλύτερες από αυτες που κάποιοι ελευθεροι επαγγελματιες έχουν σημερα.


Συντάχθηκε από: Παναγιώτη Χατζηπλή, CFA, ACCA, MBA.
Οι απόψεις που εκφράζονται στο ιστολόγιο αυτό δεν απηχούν υποχρεωτικά τις απόψεις του Transatlantic Business Forum.


The Greek crisis: hidden interests and a case study in the making

The Greek bailout is a heated topic of discussion over the last two years. There are those in favor and those against. Those that believe that Greece should go bankrupt and those that support a rescue plan. There are economists, politicians and businesspeople with differing objectives and audiences preaching their views with passion. It’s very difficult to be informed and follow all aspects of the topic. Although Greece is in the epicenter of the discussion there are further repercussions from the action taken there.

We won’t cover the issues that led to the Greek problem here. We will only attempt to highlight some reasons behind the wide coverage that the Greek issue receives. This extensive interest might sound strange considering the rather small size of Greece’s debt and economy relative to the European Union. It’s also unexpected to see some newly developed support towards Greece. Some in Greece might be delighted with that; however this support shouldn’t be necessarily taken at face value. There may be certain hidden motives behind that. The following list is not inclusive but attempts to highlight some of them:

• Eurosceptics: Not everybody is in favor of strengthening the decision making process and powers of the European Union. Problems emanating from Greece and other economies if escalated can cast some doubts upon EU’s ability to handle such issues, at least under its current form. Some might even go as far as recommend writing-off the debt as a sign of leniency towards Greeks but do not expand on the repercussion if other EU countries or even countries outside the EU will likewise ask for the same treatment. Probably this act would be detrimental to the EU’s finances. Talk is cheap for the supporters of these views; they probably hold no position in the Greek debt or may even have invested on its default. On the other hand tax payers in Northern Europe that are critical of Greece’s economy are also going to foot the bill in the end. Some in Greece and elsewhere believe that this generosity is due to fear that a Greek default would create havoc; on the other hand these fears might be overplayed. They also point out to a potential “sell-off” of Greek assets; although these assets and their management where not able to avert the crisis up to now. In any case the criticism lays the finger on well known problems of the Greek economy that have made many Greeks suffer up to now; it’s probably the way it’s expressed that annoys; but then again all criticisms are annoying.

• Corporatists and power brokers: by this we refer to the corporatist nature of the Greek economy. Under the current model the economy was energized by state funds that were funneled through public sector payrolls and infrastructure investment to consumption, while some leaked away to the undercover economy. In any case the public sector, professional groups and small businesses worked in tandem through an interwoven grid of common interests. This model has reached its limitation due to the lack of access to sovereign debt markets. Change for many will not be easy; hence the unrest.

• Speculators: there’s a lot of money to be made in foreign exchange, sovereign debt and stock markets globally. In the aftermath of the 2008-09 crisis massive amounts of capital moved to macro funds that since then are doing pretty well. Each time that the Greek issue looks like heading to a deadlock then doubts over the Euro’s long term viability are granted and speculation can run rampant. A lot of money can be made in this trade. Capital markets can act more quickly than political systems in taking advantage of market panic or optimism. Don’t forget the fortunes made with the sterling’s exit from the ECU in 1992.

• Bigots: there are people within the European Union and elsewhere that would prefer Greece and other countries outside the European Union. Mistrust, even reservation between Europe’s south and the north exists; these feelings in some people can be magnified in difficult times. In this context many have found the opportunity to support Greece’s exit from the Euro, even the EU claiming that this will be to its benefit, it will better suit it’s economy. No discussion off course on whether this would solve Greece’s problems in the medium to long term.

• Economic debate: it won’t be surprising to see in future textbooks Greece feature as a case study on economic policy. The theoretical debate in developed but aging economies is whether to sustain the high cost of living and social welfare by increasing taxes and national debt or curb entitlements. This is an ongoing discussion in the US and elsewhere. Apart from the opinion that prevails in the end; the Greek case may not be the most suitable example for this discussion. For example the massive Greek public sector, low tax revenue base and labor productivity is not comparable to that of other western economies. What might work in one environment might be tragic in Greece and vice versa. However, the theoretical debate and prejudices complicate action taking on the ground.

As said this list is not inclusive. There’s more in to come as history is made.

The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.

The Greek economy’s Competitiveness: Myths, Reality and Prospects

The sovereign debt crisis brought Greece to the spotlight of world news, albeit in a rather undeserving way. As the country struggles to meet the requirements of its IMF/EU bailout plan but as well to grow out of a recession, attention is finally starting to draw to the core of the Greek economy’s problem: competitiveness, or lack thereof.

Looking back at the time that Greece joined the European Union its GDP stood at 65% of the European average; infrastructure, production capabilities and exports were not that great either. Over the years the Greek economy had to converge to the European average. But how could this happen? It seems that Greece’s and European Union’s plan, either intentional or not was to achieve that through public spending either by raising debt or EU subsidies that eventually trickled down to consumption and real estate. State spending accounts for 50% of the Greek economy and without elaborating further here, much of it as well as of EU subsidies, has been consumed in unproductive ways. This shouldn’t have to be this way, but unfortunately it is. What are the results? An overburdened state budget and a marginalized private sector.

Salary levels and productivity: the facts

The EU with the recently proposed Competitiveness Pact, later renamed to Euro plus Pact, is aiming at raising weak European economies’ competitiveness by taking aim at their wages levels. It’s true that salaries in Greece have increased considerably over the last years, however when compared to European ones are already much lower. Therefore, contrary to simplifications and prejudices, this is not the cause of the problem, at least not the only one. In fact it may as well be its solution.

On the other hand equally important for competitiveness, is what’s produced with this labor cost. Looking at labor productivity we can see that Greeks work more hours than their Northern European counterparts, mainly due to shorter paid leave. At the same time however they produce much less in terms of output value, as indicated by GDP per hour worked. The simplified explanation is that they are not efficient or hard working; the actual one mainly lies with the type of production. The Greek economy is characterized by services and agriculture while Northern Europe’s by high value added/export oriented technological products. In simple words, there’s just as much olive oil one can produce, on the other hand car manufacturing output will always worth more. Ηowever low salaries αρε, Greece would still not be able to grow and converge to EU averages. A vicious cycle..

So what’s the solution?

Greek R&D expenditure accounts for 0.6% of GDP compared to 1.9% for the EU average and a 3% target. In 2000, there were 0.4 patents per 1,000 residents in Greece while the EU average is 2.3. Technology and Computing firms accounted for 6.7% and 2.2% of the Greek economy respectively compared to 19.6% and 7.7% for the EU average. The above figures highlight the backwardation of the Greek economy (Source:
Bust: Greece, the Euro and the Sovereign Debt Crisis, Matthew Lynn, Bloomberg Press, Wiley, 2011). Greeks don’t lack ingenuity as it’s proven by their record around the world; so this situation can change. Successful R&D however requires research infrastructures, sizeable pools of competent R&D personnel, venture capitals and well functioning regulations.

To enable the Greek economy’s transformation to a high value added, robustly growing economy, a well thought long term plan is needed as well as input from prominent investors. If we agree in that then the next question would be which industries to invest in. In our opinion it’s of paramount importance to focus on specific sectors and establish strong local champions that will create exports and jobs, directly and indirectly. Since Greece lacks heavy industry it would be realistic, at least in the medium term, to invest in less capital intensive industries such as software, niche technologies and services while further capitalize on transportation and tourism. Even outsourcing could be an option; Ireland has followed this path. Green technology is another option that can as well offer the additional benefit of reducing oil imports.

Greece, already offers a low cost European base and is currently under a long term overhaul administered by the IMF/EU. Well targeted investment can offer significant benefits to investors and the economy. It will also create employment for scientists and professional and avert another bailout.

Prepared by Pete Chatziplis, CFA, ACCA, MBA. Originally published at the Cosmopolis Greek American Magazine in June 2011.

The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.————–

Aνταγωνιστικότητα της ελληνικής οικονομίας: Μύθοι, Πραγματικότητα και Προοπτικές
Η κρίση του χρέους έφερε την Ελλάδα στο επίκεντρο των παγκοσμίων ειδήσεων, αν και οχι με τον καλυτερο τρόπο. Καθώς η χώρα αγωνίζεται να ικανοποιήσει τις απαιτήσεις του σχέδιου διάσωσης των ΔΝΤ/ΕΕ, αλλά και να εξελθει απο την υφεση, η προσοχή αρχίζει επιτέλους να στρεφεται στον πυρήνα του προβλήματος: της ελληνικής οικονομίας: το κατα ποσο δηλαδη ειναι ανταγωνιστικη.

Οταν η Ελλάδα προσχώρησε στην Ευρωπαϊκή Ένωση το ΑΕΠ της ανερχοταν στο 65% του ευρωπαϊκού μέσου όρου. Υποδομές, παραγωγικη δυναμικοτητα και εξαγωγες δεν ήταν ιδιαιτερα ισχυρες. Τα επομενα χρόνια η ελληνική οικονομία επρεπε να συγκλίνει προς τον ευρωπαϊκό μέσο όρο. Αλλά πώς θα μπορούσε να συμβεί αυτό; Φαίνεται ότι ο τροπος που επιλεχθηκε τοσο απο την Ελλάδα οσο και την ΕΕ, συνειδητα η οχι, ηταν μέσω δημοσίων δαπανών, είτε αυτες προερχονταν απο την αύξηση του εθνικου χρέους ειτε απο κοινοτικές επιδοτήσεις, οι οποιες κατεληξαν στην καταναλωση και την στεγαστικη αγορα. Οι δημοσιες δαπανες αναλογουν στο 50% της ελληνικής οικονομίας. Χωρίς να επεκταθουμε περαιτερω εδω, ένα μεγάλο μέρος αυτων καθώς και των ευρωπαϊκών επιδοτήσεων, ειναι αρκετα αποδεκτο οτι έχει αναλωθεί σε μη παραγωγικες χρησεις. Δεν θα επρέπε αναγκαστικα να ισχυει κατι τετοιο, αλλά δυστυχώς ισχυει. Ποια είναι τα αποτελέσματα; Ένας υπερβαρος κρατικος τομεας και ενας περιθωριοποιημένος ιδιωτικος.

Μισθοι και της παραγωγικότητα: η πραγματικη εικονα
Η ΕΕ με το πρόσφατα προταθεν Συμφώνο της Ανταγωνιστικότητας, το οποιο αργότερα μετονομάστηκε σε Σύμφωνο για το Ευρώ, στοχεύει στην αύξηση της ανταγωνιστικότητας των αδύναμων ευρωπαϊκών οικονομιών, επικεντρωνοντας κυριως στα επίπεδα των μισθών τους. Είναι αλήθεια ότι οι μισθοί στην Ελλάδα έχουν αυξηθεί σημαντικά τα τελευταία χρόνια, ωστόσο ειναι χαμηλότεροι σε σύγκριση με πολλους ευρωπαϊκους. Ως εκ τούτου, αποφευγωντας απλουστεύσεις και προκαταλήψεις, οι μισθοι δεν είναι η αιτία του προβλήματος, τουλάχιστον όχι μόνο αυτη. Στην πραγματικότητα, μπορεί επίσης να είναι και η λύση του.

Εξίσου σημαντική για την ανταγωνιστηκοτητα, είναι και το τι παραγεται με αυτο το εργατικο κοστος. Αν αναλυσουμε την παραγωγικότητα της εργασίας μπορούμε να δούμε ότι οι Έλληνες δουλευουν περισσότερες ώρες από τους Βόρειοευρωπαίους, κυρίως λόγω της μικρότερης άδειας που παιρνουν. Την ίδια στιγμή όμως παράγουν πολύ λιγότερη αξια, όπως προκύπτει από το μεγεθος του ΑΕΠ ανά ώρα εργασίας. Η ευκολη εξηγηση ειναι οτι δεν ειναι αποτελεσματικοι η εργατικοι, αλλα η αιτια βρισκεται κυριως στο παραγωμενο προιον. Η ελληνική οικονομία χαρακτηρίζεται από τις υπηρεσίες και τη γεωργία ενώ της Βόρειας Ευρώπης απο τα υψηλής προστιθέμενης αξίας και εξαγωγικού προσανατολισμού τεχνολογικα προϊόντα. Mε απλα λογια οσο ελαιολαδο και να παραχθει αυτο δεν μπορει να ειναι πιο προσοδοφορο απο την παραγωγη αυτοκινητων. Οσο χαμηλοί και να γινουν οι μισθοί, η Ελλάδα θα εξακολουθει να μην είναι σε θέση να αναπτυχθει και να συγκλίνει με τους Ευρωπαϊκους μέσους όρους. Ένας φαύλος κύκλος ..

Ποια είναι η λύση λοιπον;
Η δαπανη για ερευνα στην Ελλαδα αντιπροσωπευει το 0,6% του ΑΕΠ έναντι 1,9% για το μέσο όρο της ΕΕ και το στόχο του 3%. Το 2000 αναλογουσαν 0,4 διπλώματα ευρεσιτεχνίας ανά 1.000 κατοίκους στην Ελλάδα, ενώ ο μέσος όρος της ΕΕ είναι 2,3. Τεχνολογικες επιχειρήσεις και επιχειρησεις πληροφορικής αντιπροσώπευαν το 6,7% και 2,2% της ελληνικής οικονομίας αντιστοίχως, σε σύγκριση με 19,6% και 7,7% για τον μεσο ορο της Ευρωπαϊκή Ένωση. Τα παραπάνω στοιχεία υπογραμμίζουν την καθυστερηση της ελληνικής οικονομίας. Οι Έλληνες δεν υστερουν σε εφευρετικότητα όπως αποδεικνυεται από τις επιδοσεις τους σε ολον τον κόσμο. Συνεπως αυτή η κατάσταση μπορεί να αλλάξει. Για να αποδωσει η ερευνητικη δραστηριοτητα ομως απαιτουνται ερευνητικες υποδομές, σημαντικος αριθμος ικανου ερευνητικου προσωπικού, χρηματοδοτικα κεφαλαια (venture capital) και ορθο θεσμικο πλαισιο. Η ερευνα δεν μπορει να αποδώσει απο μονη της.

Για να μπορέσει η ελληνική οικονομία να μετασχηματισθει σε μια δυναμικά αναπτυσσόμενη οικονομια υψηλής προστιθέμενης αξίας, χρειαζεται ένα καλά μελετημένο μακροπρόθεσμο σχέδιο και ιδεες απο σημαντικους επενδυτες. Αν συμφωνούμε σε αυτό, τοτε το επόμενο ερώτημα πρεπει είναι σε ποιους τομείς θα πρεπει να κατευθυνθουν οι επενδύσεις. Κατά τη γνώμη μας, θα είναι πολυ σημαντικο να επικεντρωθεί η επενδυτικη δραστηριοτητα στη δημιουργια μεγαλων επιχειρησεων που θα δημιουργήσουν εξαγωγές και θέσεις απασχόλησης, τοσο άμεσα οσο και έμμεσα. Δεδομένου ότι η Ελλάδα δεν διαθέτει σημαντικη βαριά βιομηχανία, θα ήταν ρεαλιστικό, τουλάχιστον μεσοπρόθεσμα, να επενδυσει σε τομεις χαμηλης εντασεως κεφαλαιου, όπως η πληροφορικη, ορισμενες εξειδικευμενες εφαρμογες υψηλης τεχνολογιας και φυσικα να αξιοποίησει περαιτερω τις δυνατοτητες που υπαρχουν σε μεταφορες και τουρισμο. Ακόμη και η αναληψη δραστηριοτητων απο αλλες εταιριες (outsourcing) θα μπορούσε να είναι μια επιλογή. Η Ιρλανδία έχει ακολουθήσει αυτό την πρακτικη. Οι εναλλακτικες μορφες ενεργειας είναι μια άλλη επιλογή που μπορεί επίσης να προσφέρουν το πρόσθετο οφελος της μείωσης των εισαγωγών πετρελαίου.

H Ελλάδα, προσφερει μια χαμηλου κόστους παραγωγικη βαση στην ευρωπαϊκή και βρισκεται υπο αναδιάρθρωση υπο την επιβλεψη του ΔΝΤ και της ΕΕ. Καλα στοχευμένες επενδύσεις μπορούν να προσφέρουν σημαντικά οφέλη για τους επενδυτές και την οικονομία. Θα δημιουργήσει επίσης απασχόληση επιστημόνων και επαγγελματιών και να αποτρέψει μια αλλη οικονομικη κριση.


Συντάχθηκε από: Παναγιώτη Χατζηπλή, CFA, ACCA, MBA. Αρχικά δημοσιεύθηκε στο Ελληνοαμερικανικό περιοδικό Cosmopolis, Ιούλιος 2011.

Οι απόψεις που εκφράζονται στο ιστολόγιο αυτό δεν απηχούν υποχρεωτικά τις απόψεις του Transatlantic Business Forum.————–

US imports-exports increase by 16% in 2011; Transatlantic trade well over $600bn

US international trade recovered in 2011 seeing US exports reaching approximately $1.5 tr, up almost 17% from 2010, while imports increased by 16% reaching $2.2tr. Although trade deficit widened in 2011 was well below historical highs. Around 15% of US trade is with the EU which remains one of US’s main trading partners along with China, Mexico, Canada, Japan, South Korea and Brazil. That pattern is expected to persist although growth potential shifts to emerging markets. Ex-Im Bank that provides financial support to US exporters has identified nine key target export markets in emerging large economies, i.e. Brazil, Colombia, India, Indonesia, Mexico, Nigeria, South Africa, Turkey and Vietnam.

EU imports reached $1.9tr in 2010 increasing by 25% while exports reached $1.7tr, increasing by 23% according to the latest Eurostat figures. Apart from the US, EU’s external trade concentrates in the European region with countries such as Switzerland, Norway, Turkey as well as Japan and China in Pacific Asia. EU has been adversely affected by the sovereign-debt crisis. This has taken its toll on consumer and investor confidence, affected investment and consumption while fiscal consolidation is restraining domestic demand. These trends are expected to hold for several quarters, tilting growth prospects as well as the outlook for labor market developments to the downside. The first signs of improvements for GDP are projected for the second half of 2012 although this will not affect employment significantly.

At the same time the US economy is also experiencing a long period of slow recovery following the 2008-2009 crisis and subsequent recession. High household debt, subdued real estate prices, high persistent unemployment at 8.5-9% are adversely affecting consumer confidence, household and business spending. FED forecasts GDP growth of 2.5%-2.9% for 2012 and will keep rates unchanged through mid 2013 to support growth. In 2010 total US imports reached $1.9 trillion of which minerals, vehicles, other machinery and chemicals constitute the bulk; 5% is for food imports. Main US trading partners are China (19% of imports), Canada and Mexico (NAFTA partners), Japan, Germany, South Korea, Brazil and Netherlands. At the same time US exports reached $1.3 trillion with major destinations being Canada, Mexico, China, Japan, United Kingdom, Germany, South Korea, Brazil and the Netherlands.

Total bilateral US-EU Transatlantic Trade exceeds $600 bn. US imports from the EU reached $320 bn in 2010 (16.7% of total imports). At the same time US exports reached $340bn, hence a trade deficit of $80 bn. US’s larger EU trade partners are:
• Germany (machinery, vehicles)
• Netherlands (dairy, flowers, chemicals, beverages),
• UK (drugs, chemicals, arts, arms),
• Italy (dairy, olive oil, vinegar, apparel, marble, ceramics, boats, arts)
• Ireland (drugs, essential oils, chemicals)
• France (beverages, dairy, drugs, perfumes, aircrafts, art, vegetable extracts)
US mainly imports nuclear machinery, vehicles, pharmaceuticals, aircrafts, chemicals, minerals and beverages from the EU; foods represent 5 % of imports.

We see continued potential in high value added products when it comes to transatlantic trade. Lower Euro values might help tourism and EU exports across the board, although this shouldn’t be assumed a sustainable trend.

Our Import Promotion Services
The above information is a small part of the information included in an extensive market research we carried out regarding the potential of transatlantic trade with a particular focus in the food sector. Contact us if you would require further information or to purchase certain related publications such as:
• US economic outlook and imports data
–The state of the US economy and outlook (main statistics and commentary)
–US imports (top importers and imported items; imports by EU country)
• US Food Market
–Total size and trends
–Market segmentation (ie frozen food, prepared food, oils, sauces and condiments, cereals, pasta etc)
• Food Retail Channels (New York metropolitan area)
–Main retailers and profiles
–Benchmark and Financial analysis
• Business Regulatory Framework
–Business types and characteristics (C Corp, S Corp, LLC, Partnerships)
–Tax framework (taxes at federal and state level)
–Legal framework (liability protection, employment law, administrative requirements)
• Procedures for Food Imports to the US:
–Customs procedures, Import quotas and Tariffs
–FDA regulatory framework (for food products)

Additionally, capitalizing on our consulting experience in Europe and US, we have now launched import promotion services in the US, for European exporters. We have developed a robust methodology to assist in the successful entry of products to export markets.

Our Import Promotion Methodology

We provide a large array of import promotion services to our clients:

• Go-to-Market Strategy
• Product/Business Plan Preparation
• Marketing Strategy
• Business Matchmaking
• Entrepreneur Coaching
• Capital Raising/Commercial Financing
• Company Establishment
• Business Process Outsourcing
• Cultural Orientation
• Public Relations
• Trade Finance
• Distribution Channel Planning
• Event Planning
• Corporate Branding

We also offer in cooperation with external experts:

• Tax Planning
• Company Formation
• Product Label Design
• Regulatory Framework Compliance
• Import Procedures Clearance.

Finally but not least, we also undertake imports through an affiliated company. We are mainly interested in gourmet food products at this point.

Other sectors that we are interested in, regarding import promotion or trade/investment facilitation, are Business Process Outsourcing, Professional Services Outsourcing, Financial Services, Real Estate, Tourism, Energy and Green Technologies.

For a detailed analysis of our services and publications refer to http://www.transatlanticbusinessforum.com/Services.html. For more information you may contact Pete Chatziplis at info@transatlanticbusinessforum.com.

US food imports from Greece and our Import Promotion Services

Imports from Greece amount to approximately $800mn of which one quarter is for food products (compared to $17 bn from all EU). Main imports from Greece are olives, aluminum products, tools/cutlery, minerals and iron. Apart from olives, other imported Greek food products are cheese, olive oil, fish and other processed fruit and vegetables. It is worth noting that despite Greece is the world’s third largest producer of extra virgin olive oil, it represents only around 2% of total US imports for this product, while Italian branded olive oils prevail. Most of imported Greek food products are consumed in the states of New York, New Jersey, Pennsylvania, where populous Greek-American communities also reside, and secondarily in Chicago, Connecticut, Massachusetts and California. Greece had a trade deficit of $310 mn with the US in 2010 (These figures are based on data of the U.S. Census Bureau’s, Foreign Trade Division).

The US food industry’s revenues are estimated at $ 1.1 trillion, split between retail stores and the service sector. Food sales have been negatively affected by the recession having been reduced in 2009 and only grew by 1% in 2010. However, specialty food products as well as organic foods have faired much better. Sales of biological products grew by 7% in 2010 reaching $26.7 billion. Specialty and gourmet food products sales were estimated at $70bn by NASFT. The popularity of gourmet and organic food in the US is expected to grow among high earners, food enthusiasts and health conscious consumers hence large supermarket are investing into these segments. Almost 10% of food consumed in the US is imported with a high percentage of that being in gourmet/specialty products.

The Mediterranean cuisine is quite popular in the US due to its health aspect. A recent success story has been the Greek style yogurt whose sales have grown exponentially. Most of the Greek style yogurt is now produced in the US from multinational, American and Greek companies.

As Greek producers are increasingly interested in export markets, and in this context we have also received various inquiries for product imports to the US, we would like to provide some basic information on import requirements and procedures. First of all, food producers have to be registered with the FDA and specify a US based agent in order for their products to be eligible for import to the US.

Once registered a foreign producer can access the US market either directly by establishing an import subsidiary or through a US import partner. Import partners are for the most part either import agent/brokers or import wholesalers. Import agents/brokers act as intermediaries that connect buyers and sellers without taking title of goods shipped. Once a contract has been reached the agent will be remunerated with a commission on the value of the contract or other arrangement while goods will be shipped directly to the US buyer who will also be liable for payment. When a US import wholesaler is involved then this company will take title of goods and the risk for selling the products to the US market by securing orders at retail level. The import wholesaler may be handling logistics through own resources (ie warehousing and chain management) or cooperating with third parties or delivering the products directly from the import port to its retail partners.

Finally, it is recommended that producers follow the US Good Manufacturing Procedures. Although not required it is considered advantageous to be certified under the HACCP/ISO22000 quality standards especially when it comes to high value added gourmet foods. Tariffs and quotas also apply to certain products (for that it is highly recommended to consult with US Customs and/or customs brokers before initialing an import). Special licenses are for example required for cheese, meat and alcoholic products. A diagram of import procedure is given below.

This is a small part of the information included in an extensive market research we carried out regarding the potential of transatlantic trade in the food sector. Please contact us if you would require further information or to purchase certain related publications such as:
• US economic outlook and imports data
–The state of the US economy and outlook (main statistics and commentary)
–US imports (top importers and imported items; imports by EU country)
• US Food Market
–Total size and trends
–Market segmentation (ie frozen food, prepared food, oils, sauces and condiments, cereals, pasta etc)
• Food Retail Channels (New York metropolitan area)
–Main retailers and profiles
–Benchmark and Financial analysis
• Business Regulatory Framework
–Business types and characteristics (C Corp, S Corp, LLC, Partnerships)
–Tax framework (taxes at federal and state level)
–Legal framework (liability protection, employment law, administrative requirements)
• Procedures for Food Imports to the US:
–Customs procedures, Import quotas and Tariffs
–FDA regulatory framework (for food products)

Additionally, capitalizing on our consulting experience in Europe and US we have now launched import promotion services in the US, for European exporters. We have developed a robust methodology to assist in the successful entry of products to export markets.

Our Import Promotion Methodology

We provide a large array of import promotion services to our clients:

• Go-to-Market Strategy
• Product/Business Plan Preparation
• Marketing Strategy
• Business Matchmaking
• Entrepreneur Coaching
• Capital Raising/Commercial Financing
• Company Establishment
• Business Process Outsourcing
• Cultural Orientation
• Public Relations
• Trade Finance
• Distribution Channel Planning
• Event Planning
• Corporate Branding

We also offer in cooperation with external experts:

• Tax Planning
• Company Formation
• Product Label Design
• Regulatory Framework Compliance
• Import Procedures Clearance.

Finally but not least, we also undertake imports through an affiliated company. We are mainly interested in gourmet products when it comes to the food market. Other sectors that we are interested in, in the context of import promotion or trade/investment facilitation are Business Process Outsourcing, Professional Services Outsourcing, Financial Services, Real Estate, Tourism, Energy and Green Technologies.

For a detailed analysis of our services and publications refer to http://www.transatlanticbusinessforum.com/Services.html. For more information please contact Pete Chatziplis at info@transatlanticbusinessforum.com.

Εισαγωγές Ελληνικών Τροφίμων στις ΗΠΑ και οι Υπηρεσίες μας Προώθησης Εισαγωγών
(Μετάφραση του ανωτέρω στα Ελληνικά)

Οι εισαγωγές των ΗΠΑ από την Ελλάδα ανέρχονται σε περίπου $ 800 εκατ. το 2010 (πηγή από τα οποία το ένα τέταρτο είναι για είδη διατροφής (σε σύγκριση με $ 17 δισ. για όλη την ΕΕ). Κύριες εισαγωγές από την Ελλάδα είναι τρόφιμα (ελιές), προϊόντα αλουμινίου, διάφορα εργαλεία και μεταλλεύματα. Εκτός από τις ελιές, άλλα τρόφιμα που εισάγονται από την Ελλάδα είναι το τυρί, το ελαιόλαδο, τα ψάρια και διάφορα μεταποιημένα φρούτα και λαχανικά. Αξίζει να σημειωθεί ότι παρά την τρίτη θέση παγκοσμίως σε παραγωγή ελαιόλαδου που κατέχει η Ελλάδα, αντιπροσωπεύει πολύ μικρό ποσοστό, της τάξης 2%, του συνολικά εισαγόμενου στις ΗΠΑ ελαιόλαδου, ενώ ηγετική θέση καταλαμβάνουν προϊόντα ιταλικής επωνυμίας. Τα περισσότερα από τα εισαγόμενα Ελληνικά τρόφιμα καταναλώνονται στις πολιτείες της Νέας Υόρκης, Νέας Υέρσεης (New Jersey), Πενσυλβάνια, όπου υπάρχουν και σημαντικές κοινότητες Ελληνοαμερικάνων, και δευτερευόντως στο Σικάγο, Κονέκτικατ, Μασαχουσέτη και Καλιφόρνια. Η Ελλάδα είχε εμπορικό έλλειμμα της τάξης των $ 310 εκ. με τις ΗΠΑ το 2010. Τα στοιχεία αυτά βασίζονται σε δεδομένα της U.S. Census Bureau, Foreign Trade Division).

Τα έσοδα της βιομηχανία τροφίμων των ΗΠΑ εκτιμώνται σε $ 1.1 τρις, τα οποία επιμερίζονται σε λιανεμπόριο και υπηρεσίες σιτισμού. Οι πωλήσεις τροφίμων επηρεάστηκαν αρνητικά από την ύφεση με αποτέλεσμα να αυξηθούν μόνο κατά 1% το 2010. Ωστόσο, τα προϊόντα gourmet καθώς και τα βιολογικά τρόφιμα παρουσιάζουν πολύ καλές επιδόσεις. Τα βιολογικά προϊόντα σημείωσαν αύξηση πωλήσεων 7% το 2010 και έφθασαν τα $26,7 δις. Η αγορά ειδικών και gourmet προϊόντων διαμορφώθηκε σε $ 70 δις σύμφωνα με την NASFT. Η δημοτικότητα των gourmet και βιολογικών τροφίμων στις ΗΠΑ αναμένεται να αυξηθεί μεταξύ εκείνων των καταναλωτών που έχουν υψηλά εισοδήματα, είναι λάτρεις του φαγητού ή προσέχουν την υγεία τους. Ως εκ τούτου, τα μεγάλα σουπερμάρκετ επενδύουν σε αυτόν τον τομέα. Σχεδόν το 10% των τροφίμων που καταναλώνονται στις ΗΠΑ είναι εισαγόμενα με σημαντικό ποσοστό αυτών να είναι ειδικά/gourmet προϊόντα.

Η μεσογειακή κουζίνα είναι αρκετά δημοφιλής στις ΗΠΑ λόγω της υγιεινών χαρακτηριστικών της. Μια πρόσφατη επιτυχία των Ελληνικών τροφίμων είναι το γιαούρτι τύπου σακούλας (ΦΑΓΕ) οι πωλήσεις του οποίου έχουν αυξηθεί θεαματικά τα τελευταία χρόνια. Η αποδοχή του «ελληνικού τύπου» γιαουρτιού από το Αμερικανικό καταναλωτικό κοινό προσέλκυσε πολυεθνικές και αμερικανικές εταιρίες στην παραγωγή του στις ΗΠΑ οι οποίες πλέον ελέγχουν την συγκεκριμένη αγορά.

Δεδομένου ότι οι Έλληνες παραγωγοί ενδιαφέρονται όλο και περισσότερο για την εξαγωγή των προϊόντων τους, και σε αυτά τα πλαίσια είμαστε και εμείς αποδέκτες ερωτημάτων για την ανάληψη εισαγωγής ή διαμεσολάβησης στις ΗΠΑ, θα θέλαμε να παρέχουμε ορισμένες βασικές πληροφορίες σχετικά με τις απαιτήσεις εισαγωγής και τις διαδικασίες. Πρώτα απ’όλα οι παραγωγοί πρέπει να έχουν εγγραφεί με την Αμερικανική Υπηρεσία Τροφίμων (FDA) προκειμένου να επιτραπεί η εισαγωγή των προϊόντων τους ενώ παράλληλα θα πρέπει να καθορίσουν και έναν εκπρόσωπό τους στις ΗΠΑ.

Μετά την εγγραφή του ο παραγωγός μπορεί να διοχετεύσει το προϊόν του στην αγορά των ΗΠΑ είτε άμεσα με τη δημιουργία μιας θυγατρικής εισαγωγικής εταιρίας ή μέσω συνεργάτη-εισαγωγέα. Ο συνεργάτης αυτός μπορεί να δραστηριοποιείται είτε ως αντιπρόσωπος/πράκτορας (agent/broker) είτε ως χονδρέμπορος (wholesale importer). Οι αντιπρόσωποι/πράκτορες ενεργούν ως διαμεσολαβητές μεταξύ αγοραστών στις ΗΠΑ και των παραγωγών για την περαίωση μιας συναλλαγής, χωρίς να εισάγουν οι ίδιοι το προϊόν. Όταν μια σύμβαση έχει επιτευχθεί ο πράκτορας αμείβεται με προμήθεια επί της αξίας της συναλλαγής ή κάποιο άλλο τρόπο, ενώ τα εμπορεύματα αποστέλλονται απευθείας στον αγοραστή στις ΗΠΑ, ο οποίος είναι και υπεύθυνος για την πληρωμή τους. Όταν ένας χονδρέμπορος εμπλέκεται τότε η εν λόγω εταιρεία αγοράζει/εισάγει η ίδια τα προϊόντα και εν συνεχεία τα διακινεί στο δίκτυο αγοραστών της στις ΗΠΑ. Ο χονδρέμπορος μπορεί να διακινεί ο ίδιος τα προϊόντα μέσω ιδιόκτητης υποδομής (δηλ. αποθήκευση και μεταφορές) ή συνεργάζεται με τρίτους ή παραδίδει τα προϊόντων απευθείας από το λιμάνι ή αεροδρόμιο εισαγωγής στις αποθήκες των πελατών του.

Τέλος, συνιστάται όπως οι παραγωγοί ακολουθούν τις Αμερικανικές Πρακτικές Παραγωγής (US Good Manufacturing Procedures). Αν και δεν είναι αναγκαίο θεωρείται θετικό οι παραγωγοί να έχουν πιστοποιηθεί με τα πρότυπα HACCP/ISO22000 ώστε να υπάρχει διασφάλιση ποιότητας κάτι το οποίο είναι κρίσιμο ειδικά για gourmet τρόφιμα. Στα εισαγόμενα προϊόντα εφαρμόζονται δασμοί ενώ για ορισμένα ισχύουν και ποσοστώσεις (για αυτό συνίσταται η διερεύνηση με τις τελωνειακές αρχές των ΗΠΑ η/και με εκτελωνιστές προτού γίνει η εισαγωγή). Ειδικές άδειες εισαγωγής απαιτούνται παραδείγματος χάριν για προϊόντα όπως το τυρί, το κρέας και τα οινοπνευματώδη ποτά. Μια απεικόνιση της διαδικασίας εισαγωγής δίνεται στο παρακάτω διάγραμμα.

Αυτό είναι ένα μικρό μέρος των πληροφοριών που περιλαμβάνονται σε μια εκτεταμένη έρευνα αγοράς που κάναμε σχετικά με τις προοπτικές του εμπορίου μεταξύ Ελλάδας και ΗΠΑ στον τομέα των τροφίμων. Παρακαλούμε επικοινωνήστε μαζί μας αν θα απαιτούν περισσότερες πληροφορίες ή για την αγορά ορισμένων σχετικές δημοσιεύσεις, όπως:
• Αμερικανική οικονομία και Εισαγωγές στις ΗΠΑ
– Βασικά μεγέθη της αμερικανικής οικονομίας και προοπτικές
– Εισαγωγές στις ΗΠΑ (κύριες χώρες εισαγωγής και εισαγόμενα προϊόντα, εισαγωγές από χώρες της Ευρωπαϊκής Ένωσης
• Αγορά Τροφίμων των ΗΠΑ
– Συνολικό μέγεθος και τάσεις
– Επιμερισμός αγοράς σε κατηγορίες προϊόντων (δηλαδή κατεψυγμένα τρόφιμα, προπαρασκευασμένα τρόφιμα, έλαια, σάλτσες , δημητριακά, ζυμαρικά κλπ)
• Κανάλια Λιανικής Πώλησης Τροφίμων (στη μητροπολιτική περιοχή Νέας Υόρκης)
– Κύριες επιχειρήσεις λιανεμπορίου (ονόματα και προφίλ)
– Λειτουργικά και οικονομικά στοιχεία
• Ρυθμιστικό πλαίσιο λειτουργίας των επιχειρήσεων στις ΗΠΑ.
– Τύποι επιχειρήσεων και χαρακτηριστικά (C Corp, S Corp, LLC, Partnerships)
– Φορολογικό πλαίσιο (φόροι σε ομοσπονδιακό και πολιτειακό επίπεδο)
– Νομικό πλαίσιο (επιχειρηματική ευθύνη, εργατικό δίκαιο, λειτουργικές απαιτήσεις)
• Διαδικασίες Εισαγωγής Τροφίμων στις ΗΠΑ:
– Διαδικασίες εκτελωνισμού, ποσοστώσεις και εισαγωγικοί δασμοί
– Κανονισμοί της Αμερικανικής Υπηρεσίας Τροφίμων (FDA) για τα τρόφιμα

Παράλληλα, εκμεταλλευόμενοι την εμπειρία μας σε ΗΠΑ και Ελλάδα παρέχουμε και υπηρεσίες προώθησης εισαγωγών στις ΗΠΑ. Έχουμε αναπτύξει εκτενή σχετική μεθοδολογία η οποία παρουσιάζεται συνοπτικά στο παρακάτω σχήμα.

Η Μεθοδολογία μας για την Προώθηση Εισαγωγών

Το σύνολο των υπηρεσιών που καλύπτονται στο τομέα προώθησης εισαγωγών στις ΗΠΑ περιλαμβάνουν:

• Στρατηγική Πρόσβασης στην αγορά (Go-to-Market Strategy)
• Προετοιμασία Επιχειρηματικών Σχεδίων
• Επιχειρηματική Στρατηγική και Λειτουργία
• Στρατηγική Μάρκετινγκ
• Εύρεση Επιχειρηματικών Συνεταίρων
• Συμβουλευτική Υποστήριξη σε Συνεχή Βάση
• Άντληση κεφαλαίων
• Ανάπτυξη Εταιρειών
• Επιμόρφωση σε θέματα Επιχειρηματικής Κουλτούρας σε ΗΠΑ και ΕΕ
• Δημόσιες Σχέσεις
• Χρηματοδότηση Διεθνούς Εμπορίου
• Σχεδιασμός Καναλιών Διανομής
• Οργάνωση Εταιρικών Εκδηλώσεων
• Σχεδιασμός Εταιρικής/Προϊοντικής Εικόνας(Branding)

Οι παρακάτω υπηρεσίες προσφέρονται σε συνεργασία με εξωτερικούς συνεργάτες που ειδικεύονται στο συγκεκριμένο αντικείμενο αλλά και το εκάστοτε προφίλ πελατών (δηλαδή ανάλογα με την περίπτωση είτε σύμβουλοι μικρών επιχειρήσεων ή μεγάλων πολυεθνικών):

• Φορολογικός Σχεδιασμός
• Ίδρυση Εταιρείας
• Σχεδιασμός Ετικετών Προϊόντων
• Πληροφόρηση για το Κανονιστικό Πλαίσιο των ΗΠΑ
• Διαδικασίες εισαγωγών/εκτελωνισμού

Τέλος πολύ σημαντικό είναι ότι μπορούμε να αναλάβουμε επίσης και τις εισαγωγές μέσω συνδεδεμένης εταιρείας. Ενδιαφερόμαστε κυρίως για γκουρμέ προϊόντα όσον αφορά τον κλάδο τροφίμων. Άλλοι τομείς που μας ενδιαφέρουν, όσο αφορά τις απευθείας εισαγωγές ή την προώθηση των εισαγωγών και των επενδύσεων είναι η Εξωτερική Ανάθεση Επιχειρηματικών Λειτουργιών (Business Process Outsourcing), η Εξωτερική Ανάθεση Συμβουλευτικών Υπηρεσιών, οι Χρηματοοικονομικές Υπηρεσίες, η Ακίνητη Περιουσία, ο Τουρισμός, η Ενέργεια γενικώς αλλά και ειδικότερα η Εναλλακτική ενέργεια και τεχνολογίες Αειφόρου Ανάπτυξης.

Για μια λεπτομερή ανάλυση των υπηρεσιών και των εκδόσεών μας ανατρέξτε στο website μας http://www.transatlanticbusinessforum.com/Services.html . Για περισσότερες πληροφορίες παρακαλούμε επικοινωνήστε με τον Παναγιώτη Χατζηπλή στο email info@transatlanticbusinessforum.com.

Middle market cross-border M&As set to grow

Mergers & Acquisitions plummeted in the aftermath of the 2008 economic crisis; investor sentiment, consumer demand and most importantly financing was simply not there for deals to happen. However, as US corporate profits reached sixty year highs and global economies are growing, M&As are coming back with a bang. Investors regain their risk appetite; strategic investors feel the pressure to use their newfound riches to invest in future growth, either through acquiring technology or market share. Financial investors start flexing their muscles as new capital starts flowing in their funds. Earlier this year BC Partners raised 4 billion Euros ($5.6 billion) for a new fund, Apax is expected to raise around 11 billion Euros by the end of the year (Source: Reuters).

Market Outlook

Although the recent rebound however, global M&As are down 35% compared to the 2007-2008 highs, reaching $2.4 trillion in total value in 2010, according to Mergermarket data. M&A recovery is mainly fuelled by a rebound in the US and Europe, the largest markets, and continued growth in emerging economies.

Almost 60% of the activity took place in Europe and US; of that, middle market deals where $356 billion or around 25% according to Mergermarket data. According to Thompson Financial and Deloitte US Corporate Finance total middle market deals in the US only was $175 billion in 2010. A total of 7,100 transactions were completed with average size of around $80 million. We have no available data for middle market deals in emerging markets but should be high considering the companies’ size there. The following graph illustrates M&As by deal size in Europe and US over the last 7 years, which pretty much spans the latest economic cycle. Deal activity spiked in 2006-2007 fuelled by LBOs. As these are large deals, M&A activity was more prevalent in large cap companies although middle market deals increased as well. Another differentiating factor attached to LBOs and large deals is the high participation of financial buyers; in middle market on the other hand private equity participation is relatively lower, at 13% of all deals (Thompson data).

As economies start to recover there are definitely better days ahead for M&As and especially for the middle market that forms the backbone of most economies. According to CIT and 2010 US Census data, there are 106,000 middle size companies in the US employing 32 million people. Their total annual revenues of $6 trillion compare to $8.3 trillion of the S&P 500 companies. Their total capitalization is estimated at 60% of total U.S. equity market capitalization.

Mid size companies are increasingly expanding globally, tapping into opportunities overseas be it in production resources or demand for their products. According to Mergermarket, cross-border transactions accounted for 31% of all deals in the first half of 2010. In a 2007 survey performed by KPMG’s Global Enterprise Institute four out of ten middle size Colorado companies considered global expansion as integral to their growth strategy and the majority of them actively focused on expansion plans.

This post aims to illustrate the significance and global potential of the middle market M&A sector that often doesn’t attract that much of media coverage. It will also aim to touch upon some best practices to bring cross-border middle market deals to fruition.

Middle market segmentation

Before moving any further let’s make sure we are on the same page regarding definitions. So what really constitutes middle market?

By industry convention, at least in the US, middle market refers to those companies with revenues between mostly $10- 500m and as high as $1 billion at the upper end of the range. The market is divided into lower, middle and upper brackets, with different characteristics in terms of management style and organizational resources; by that we are referring to Robert Slee’s work on private capital markets and more specifically the Slee, Trottier paper on middle market segmentation. Mid market’s lower and middle bracket deals fetch between $10m to $500m as a broad guideline. Price considerations off course depend on case specifics and industry sector, i.e. small companies in basic industries might fetch lower prices than fast growing new economy companies where even low earning figures can produce disproportionately high valuations.

What’s important to note however is that the middle market definition should not be considered unambiguous around the world. Depending on local circumstances such as level of development and industry segmentation the middle market ranges can vary. Looking for example at the graph below the percentage of companies with less than 10 employees is much higher in OECD’s less developed economies pushing higher the middle market mark there compared to US; UK, Germany and other economies in later stages of development.

To our opinion what’s middle market depends on the “big-fish–little-pond” effect: the size of your pond is what really defines where you stand. What’s considered small or middle market in the US might be taken for big somewhere else, just as a large-size US shirt might be extra large somewhere else. What’s the implication of this? There’s a huge difference in terms of self-perception. Hung out with basketball players and you might feel mid size, lead the boy scouts and you might feel a giant. These differences in self-perception make a huge difference in psychology that warrants special attention when approaching a deal.

For example, a midsize company by US standards might be a regional champion in some other country, employing a large number of employees and generating significant wealth for the particular economy. The differences go beyond semantics; they are about management styles and importance in the local setting which all bear implications during the M&A negotiation phase and beyond. Place executives from these two different worlds on the same table and you realize that they don’t only speak different languages in terms of mother tongue or cultural background but also in terms of personal objectives, styles and aspirations. Failure to appreciate that early enough in an M&A process can lead to results that range from amusing to catastrophic.

Deal Drivers

As mentioned above mid market M&As are expected to recover and along with the global economy increasingly become cross-border. According to Mergermarket data, the total value of cross-border transactions rose by 60% in the first half of 2010 reaching 31% of global deal value. Total US outwards middle market deals reached $32.9 billion in 2010 of which 35% landed in Europe (Thompson Financial and Deloitte US Corporate Finance). Add to that the large deals and you end up with total transatlantic deals of $160 billion just to underline the size of the market opportunity that the Transatlantic Business Forum and our blog follow. Outside Europe, large increase in middle market outward M&A took place in Canada, Japan and India.

Alongside the interest from western world to the emerging markets, the Mergermarket data shows that increasingly emerging market companies are also becoming extrovert. Outbound deal activity from the emerging markets rose 318% by value and 111% by deal count in the first half of 2010. According to the U.S. Census Bureau, U.S. companies with a value of $260 billion were acquired or established by non-U.S. owners in 2008 up fourfold from 2003 levels; it is expected that his trend will persist (Source: The Deal: The middle market goes global). There are various reasons for the increase of cross-border transactions. Below we attempt to highlight some of them without aiming to make this list all-inclusive.

• Stage of development: there’s increasing integration across global economies; there’s no denial to that. Globalization allows developed world companies to take advantage of growth prospects in emerging markets as well the later of consumer strength in the former. These opportunities arise from lower but rising GDP per capital levels and lower labor costs in the emerging world (see graph below taken from our recent post about stimulating investment in Europe’s periphery). The latter is a driver for outsourcing, however we would argue that this only cannot be a long term investment criteria as the cost advantage will most probably be sustainable over a specific period. For example there are concerns that although China’s immense production capability, costs there start to grow too.

• Modernization: Developing economies are in the process of modernization; they often start from low value added processes and hopefully move towards higher value added products and higher GDP levels. In this context the large number of promising middle size companies need to retool, upgrade processes to remain competitive as trade barriers fall or labor costs increase. That is crucial in order to preserve their role within local communities. In this context they may welcome foreign input.

• Horizontal expansion: M&As for middle size companies provide a way to grow quickly and break into the large company bracket thus enjoying economies of scale in production, marketing or finance. This growth can be achieved faster and with less risk when existing strengths and products can be leveraged across different regions. Off course this assumes that existing products and know-how can be easily adjusted to foreign environments. In comparison, further penetrating their local niches or even moving into new ones might be too challenging.

• Restructuring/bottom fishing. According to the Transatlantic Restructuring Outlook report published by Debtwire in association with Merrill DataSite it is expected that activity in this area will increase in 2011. Restructuring drivers for North America will be corporate sector distress while in Southern Europe solvency concerns resulting from the sovereign debt crises especially in financial services. Financial distress in Europe’s periphery is a highly publicized problem these days. Additionally Central and Eastern Europe will continue to promote inward investment and modernization. There, as well as in Southern Europe the highest percentage of suitors will be strategic buyers as they could quickly gain market share through a distress sale. But then again, private equity activity has relatively slowed down in Europe.

• Unavailability of capital or of investment options. Companies in developing economies, especially the middle market ones, are usually plagued by difficulty in accessing capital to finance their growth. On the other hand there’s significant accumulated capital and financial know-how in developed countries with limited investment options locally. We believe that this creates significant inefficiencies in capital allocation. Probably for this reason large US banks are looking into assisting middle market companies in their overseas quests leveraging strong capital base and global network (Source: article). On the other side an acquisition in a developed country can provide an emerging economy company access to capital and sophisticated financial products be it through stock market, private equity or bank loans. In this context some companies have pursued reverse mergers to list in the US.

• Access to capital and know-how: According to a UNDP’s report (“Unleashing Entrepreneurship: Making Business Work For The Poor”, UNDP 2004) private sector in emerging economies face certain limitation as it has to operate in corrupted and bureaucratic environments with ill-directed macroeconomic policies and poor infrastructures. According to the report: “even with strong macroeconomic and institutional foundations, three additional factors are indispensable for entrepreneurship and the private sector to flourish in an economy: a level playing field, access to finance, and knowledge and skills”. Entering a developed economy can provide much needed access to advanced technology and know-how.

• Access to natural resources: there’s increasing competition for commodities in a growing global economies. Access to commodities is critical for sustainable growth so we are observing increased interest for investment in natural resources in Africa and elsewhere.

• FX/capital gains: as the US is following a weak dollar policy (low interest rates alleviate the housing market crisis) while emerging economies’ currencies and consumer demand are growing (for example in Brazil, China) there’s a benefit for US companies expanding and investing overseas. We would be critical of investing driven by capital or FX gains only; as this could be speculative and not related to core business. On the other hand there are certainly business owners that may consider building wealth through capital gains (related articles on demand for US manufacturers and capital flows to emerging markets).

• Prestige: operating in a developed economy or in an emerging economy can also enhance some companies’ image. We had to resist the temptation of excluding this reason as it might seem a bit superficial but we think that it is at least in the back of some buyers mind. For example a company can be considered as having growth potential when expanding its global reach and entering an emerging economy while a developing world company can be perceived as playing on another league when operating in a developed country.

Success factors for Middle Markets M&As

Succeeding in executing an M&A doesn’t come easy. The right target should be selected, the one that fits in terms of competencies and management culture, the right price and financing should be negotiated and finally the company can be integrated in a way that resources and time is not wasted. This is not easy; actually a large number of M&As do fail. For a middle market company to succeed in a cross-border transaction or even in a simple cooperation it should select competent advisors and invest on training its management team to deal with issues related to strategic management and international finance in order to fine tune use of capital and maximize shareholder value. Management should also become aware of foreign economies and cultures and walk in negotiations without prejudices or assumptions based on own experiences.

M&A advisors should master a large array of topics in finance, legal, tax and operational matters. This is highly specialized knowledge; therefore a team is necessary with discreet roles. As this is not already enough cross-border M&A advisors should be knowledgeable in both regions to be able to bridge differences in economic circumstances, regulations and cultures. Throw in special regulations associated with foreign investment such as FCPA (Foreign Corrupt Practices Act) and the typical middle market company has enough red tape on its plate to be overwhelmed.

Middle market companies that lack the human capital resources of their larger competitors require increased support during M&As. Apart from that however, planning and executing an M&A can turn out to be a very useful self-evaluation exercise. Working on M&As external advisors bring in valuable technical background and experience from other sectors and transactions playing thus a valuable cross-insemination role. By examining acquisition options companies can evaluate their own competencies and strategy. By valuing acquisition targets they can gain insights on their own cost of capital and value creation record. Thus an M&A can have multiple benefits in shaping up a company in its quest to grow and become more competitive.

The problem with middle market companies is that they don’t reach out to external consultants that often. Cost can be a reason as smaller companies are usually tight with their money, disbelief can be another. On the other hand there’s a limited supply of knowledgeable consultants for middle size companies. Advisors in this market should possess knowledge that is directly applicable to companies of this segment and ability to engage and communicate it. Problem is that much of business literature is created by business schools or consultancies with largely, blue chip companies in mind. Capabilities, objectives and resources of large listed companies usually vary considerably for those of middle market private companies. On the other hand middle sized companies may be underserved by consultants with limited technical background largely depending on empirical knowledge. The ideal solution can be somewhere in the middle where advisors have the right education but also experience in dealing with middle market companies so that they are able to select and apply the most suitable tools for the case in hand.

On the cost side there’s little that can be done for investing on quality. A problem with middle market deals, especially those on the lower range, is that their small size often makes it uneconomical for advisors to work on them on a contingent basis. Work required for large or middle size deals doesn’t vary that much in terms of effort and time; however commission based compensation does. We believe that a solution to that can be provided by technological breakthroughs that make certain processes more efficient. For example advisors increasingly are able to source buyers or targets through online M&A platforms such as MergerID, AxialMarket or others. These platforms can provide liquidity and transparency to private markets, saving the effort in market screening and follow up that bites into transaction fees. We, in the Transatlantic Business Forum are great supporters of the online liquidity platforms (private company exchanges) and follow developments on a continuous basis (if interested further you can read our recent post about main competitors here as well as our presentation on the market ).

For all the above reasons we are very optimistic of middle market prospects both at national level but increasingly cross-border as well. However success is very much depended on getting the right advice.


The Transatlantic Business Forum is a portal, online community of professionals and consulting firm that aims to facilitate discussions on international business and especially between Europe and the Americas and promote and facilitate opportunities for cross border capital flows be it Mergers & Acquisitions, Partnerships or Trade. Contact at: info@transatlanticbusinessforum.com.