News of how luxury giant LVMH, breweries, and carmakers including Ford and BYD are suddenly producing medical supplies show just how far and quickly companies are able to adapt to an entirely new scenario.

Although these specific pivots are likely to be temporary, others won’t. As this article argues, coronavirus is already rewriting the future of business.

We find that trying to visualise what the world will look like after the pandemic is a positive source of motivation. It allows us to take a break from “fire-fighting” mode.

These are some of the things that we think businesses will focus more on:

• Finding alternatives to the “just in time” and “immediate gratification” economy
• Increasing resilience, for instance by outsourcing individual tasks
• Ensuring lean and flexible corporate setups
• Developing more caring and flexible working cultures, including working-from-home
• Lowering supply chain risks by, for example, diversifying geographically

Businesses in China Bounce Back

Another source of encouragement lies in how international companies in China have managed to go back to business in less than two months after the crisis peaked on this side of the world. Here are some success stories from our network in Greater China. All about Sourcing in China here.

“Our operations in Songjiang, Shanghai, are back in full swing. Only two operators haven’t returned due to regional quarantines, but we could find new operators within 4-8 days. Now HQ is requesting us to produce parts that were shifted to Germany at the beginning of the crisis.”  – Frank Hoffmann, CFO Asia Pacific / GM China

________

“Our production output today is higher than before Chinese New Year. Since over 4 weeks, our factory and all offices are back to normal operations…except for the heaters.”  – Thilo Koeppe, MD North Asia

________

“Our manufacturing site in Kunshan was back to full capacity by 2 March. Despite the Covid-crisis, this first quarter will be our best ever in the China and East Asia region. We believe this positive trend will continue as we’re well positioned to support the rebound of the biotech, pharmaceutical and food processing sectors.” – Paul Marty, East Asia Commercial Manager (TFIT & HPP)

Whether you’re focused on bouncing back or already planning a pivot, we’re here to help you with insights, advice, and inspiration. Please write to us whenever you feel stuck.

The post What Comes Next? Pivoting and Bouncing Back After Covid-19 appeared first on Fiducia Strategy Advisory.

>> Read our explainer: The Corporate Social Credit System in 10 Q&A

We have helped multiple clients assess their CSCS scope, identify and address risks, conduct informative/training sessions, and jointly establish a roadmap towards CSCS-readiness. 

Now, many of them are asking: how will the coronavirus outbreak affect our scores? Will it delay the implementation of the CSCS?

What we are seeing on the ground is that authorities are going ahead with the CSCS rollout, and even putting the rating framework into practice to decide who gets more funding to fight the epidemic.

Coronavirus and CSCS: A Two-Way Link

Government authorities have issued strict epidemic prevention rules. Adhering – or not – to these guidelines can affect a company’s CSCS score, e.g. via HR-related criteria.  

More often, though, what we have seen is a positive linkage between virus-related guidelines and the CSCS. Companies who follow these new policies closely are eligible to enjoy certain government incentives, including relief measures (tax and social contribution waivers) and rewards (e.g. subsidies).  

As an integral part of our CSCS projects, we are now also helping clients comply with virus-related guidelines, while leveraging their good track records to access valuable government incentives. 

>> Request Service Flyer: Keeping a High Corporate Social Credit Score

Client Stories

In February, two of our outsourced finance and accounting clients in China received government subsidies for epidemic prevention, after local authorities used “big data” to select the SMEs with good tax records.  

Reach out to us if you’d like to know more about these case studies and discuss how we could support you.

>> Get in touch

The post Coronavirus and the Corporate Social Credit System: A Two-Way Link appeared first on Fiducia Strategy Advisory.

With its full implementation officially scheduled for the end of 2020, businesses in China are worried about its possible implications. They’re also anxious about the confusion that still clouds its parameters and methodology.  

Are these fears justified? Read our take on this and other questions raised by our clients. 

>> Read our new article: Coronavirus and the Corporate SCS – A Two-Way Link

1. What is new about the CSCS? 

FIEs in China are already closely supervised by tax, environmental, customs, and other authorities – so what’s new? Mainly, three things: (a) records collected by private and public entities will be shared into a single national meta-database, and sometimes made publicly available, (b) companies will face more wide-ranging punishments/rewards, and (c) new scoring parameters might be introduced (e.g. a draft regulation to blacklist companies for spreading ‘dishonest’ information online).  

2. Who will be affected?

The corporate SCS will apply to all registered commercial entities in China: large, small, domestic, and foreign-invested – an estimated 33 million businesses in total.  

3. When will it be implemented?

Although officially scheduled for full implementation by the end of 2020, it is misleading to set a fixed “roll-out” date. The system’s mechanisms, some of which are already active, are being built up gradually. A pilot run is currently being tested in Zhejiang province.  

4. Should FIEs be worried? 

Some of our clients feel that the negative impact of the CSCS is sometimes exaggerated, while others fear that the system could be used to justify the unfair treatment of FIEs for political or other reasons. Only time will tell, but what is certain is that the CSCS represents an intensification of China’s compliance requirements. From our experience, FIEs are generally at an advantage thanks to their stronger compliance culture and already higher scrutiny by Chinese authorities. Of the 600,000 companies that have been blacklisted until now, a large majority are domestic.  

5. Is there anything positive about the CSCS? 

Designed as a self-regulating mechanism, the CSCS could theoretically create a better-functioning and more transparent market with more trustworthy players. Companies that score well can expect to enjoy several benefits, ranging from lower taxes and better credit conditions, to less frequent inspections and audits and greater access to public procurement opportunities.  

6. Where can companies find their scores? 

Currently, firms must check several databases (ran by governmental and private entities) to check how they are doing on different parameters. Two key platforms are the National Enterprise Credit Information Publicity System (NECIPS), which collects data from various authorities (e.g. regarding taxes, environmental compliance, and court proceedings), and CreditChina, which publishes individual and corporate blacklists and “redlists” (lists of high-scorers). 

7. What actions should you be taking now?

We are helping our clients implement several measures to make sure the CSCS doesn’t catch them off guard. These include: checking your current performance (e.g. identifying any negative records and compliance risks), making internal adjustments, screening your business partners and personnel, and making sure everyone in your organisation (especially key stakeholders) have a detailed understanding of the CSCS and its implications.   

8. Will the personal scores of employees affect the company’s score, and vice-versa?

A company’s social credit score can affect (and be affected by) the individual score of its legal representatives and “responsible personnel”. The latter is loosely defined, so, to be on the safe side, companies should look closely at the integrity and track-record of employees on key positions.  

9. Is there any way to fix a bad score?

Yes. Apart from making internal adjustments to strengthen compliance, companies can object against a bad rating by submitting a “credit restoration letter” supported by additional materials that will depend on the case at hand. 

10. Where can we find official, up-to-date information on the CSCS?

The CSCS is confusing, which is one reason why it’s causing so much anxiety among the international business community. The detailed workings of the system are not yet pinned down. Official announcements made by different government bodies are gradually bringing some clarity, but they are usually published only in Chinese. At Fiducia, we are helping decision-makers stay informed by offering seminars, workshops, and monthly CSCS newsletters. 

If you have further questions regarding the CSCS, feel free to reach out to our experts, who will be happy to share more about how we are helping companies like yours prepare for it.  

>> Request Service Flyer

The post China’s Corporate Social Credit System: 10 Q&A appeared first on Fiducia Strategy Advisory.

It contains unprecedentedly generous relief measures to revitalise the economy in the short-term, as it weathers prolonged political unrest, global trade tensions, and the Covid-19 outbreak.

It also addresses the city’s long-term plans, such as boosting technological innovation and financial integration with the Greater Bay Area (GBA).

Although we find that some blanket measures – particularly the cash giveaway to individuals – are not the most effective (see Question 1), we welcome the more targeted efforts, such as the expansion of digitisation subsidies. They are a reassuring sign of the government’s responsiveness to the needs of Hong Kong-based enterprises.

But, as we explain in Question 3, in order to steer Hong Kong’s economy in the right long-term direction, much more needs to be done by policy makers and by entrepreneurs themselves.

Highlights

General

• A HK$120b (US$15.4b) relief package (on top of the HK$30b in four rounds of support measures introduced since August 2019)
• Hong Kong’s first budget deficit since 2004 for the 2019-2020 fiscal year
• Hong Kong’s largest-ever deficit for 2020-2021

Tax cuts and other waivers

• 100% profits tax reduction on the first HK$20,000
• Waived business registration fees for 2020-21
• Rent and utility bill subsidies for eligible SMEs

Digitisation subsidies

• Subsidies for short term internships for STEM (science, technology, engineering and mathematics) graduates of local universities
• An expansion of the Technology Voucher Programme that helps SMEs fund digitisation projects

Recycling and green tech

• New round of rental subsidies for recycling enterprises
• A Green Tech Fund to support decarbonisation and green tech R&D/applications
• Subsidies for the installation of charging infrastructure for electric cars

Finance

• Special tax concessions to attract private equity funds
• Establishing a ‘connect scheme’ for borderless wealth management in the GBA
• Expand the channels for the cross-boundary flow of RMB funds in the GBA

Logistics

• A pilot technology subsidy scheme for the logistics industry

Individuals

• HK$10,000 (US$1,280) will be handed out in cash to all adult permanent residents
• 100% salaries tax reduction on the first HK$20,000

>> Request full report

Get in touch with our Tax Advisory Manager Helen Wong to receive our full report on the Hong Kong 2020-21 budget. It contains a detailed outline of available support measures as well as comparative tax rate tables.

Analysis: Q&A

1. Will cash handouts help to stimulate the Hong Kong economy?

Yes, but a more targeted measure would have had a greater impact. A portion of the cash handed out will be spent in local restaurants and shops, but some of it won’t. As our Hong Kong Tax Advisory Manager Helen Wong points out, many will decide to save that money or spend it abroad. More critically, the giveaway will have an insignificant impact on the spending power of higher-income people. Targeted handouts for lower-income groups, in the form of spending vouchers, would have been more effective.

Some of us at Fiducia have decided to donate our portion to local charity organisations where the funds can be put to better use. If you’re interested in doing the same, get in touch with our CSR manager Anne Vuillin who can tell you more about this.

2. Is it worrying that Hong Kong will run a budget deficit for the first time in 15 years?

No. Just like companies, countries often need to apply leverage wisely to invest more than they’re earning in order to expand. A budget deficit is worrying when it results from, or signals, financial irresponsibility, but that’s not the case of Hong Kong right now. The government is still strongly backed by US$150b in fiscal reserves (and more than US$440b in foreign exchange reserves).   

3. Will these relief measures prop up business confidence?

Hong Kong has been going through a rough patch. Some in the business community remain confident that it’s temporary. But others fear that current issues could potentially indicate, or catalyse, deeper structural problems. A competent government with political will is a major factor in avoiding near-term challenges from becoming long-term ones. If this year’s relatively bold budget is a first step towards more “hands-on” policy making, it will indeed boost confidence in Hong Kong’s future. For now, they are will offer temporary relief to some.

To revitalise and reshape Hong Kong’s long-term role as a business hub, a lot more can and should be done by both policy makers and entrepreneurs: more outside-the-box thinking and less top-down decision-making; bolder investments in technology and more all-rounded efforts to foster and attract talent; and most importantly, a more balanced pursuit of profits and purpose.

A silver lining in the current situation is that it might motivate both private and public decision-makers to take on these tasks sooner rather than later. At Fiducia, it already has.

The post Hong Kong’s Support Measures for Businesses 2020 appeared first on Fiducia Strategy Advisory.

Besides working from home, the coronavirus outbreak is also teaching us how to network from home. With their headsets on and their masks off, 25 China-based MDs and C-levels joined our virtual roundtable last week to exchange coronavirus-related experiences and tips.

Rather than postponing our signature Leaders’ Circle event, we decided to hold it via Zoom, sticking to our belief that connectedness and adaptability are winning traits when times get tough. We and participants walked away with valuable learnings for the weeks ahead and with a sense of reassurance that we’re together in this.

We hope to achieve the same through these weekly updates. Take them as a reminder that our consultants, and the business leaders in our network, are people you can turn to for support.

Below are some soundbites from participants. If you’re interested in what else they had to say, get in touch with us so we can share with you our summary of the 20 key challenges and solutions that came up in our discussions.

Soundbites

– “Size matters. In Shenzhen, big companies are getting their licenses to reopen first. The process is not always transparent.”

-“Pollution, censorship, and now the coronavirus – it will be even more challenging to convince foreign talent to relocate to China.”

-“We sent out early ‘force majeure notices’ to warn our customers of potential delays.”

-“We are absorbing the cost increases instead of passing them on to our customers – even when it means zero profit.”

Poll Results

>> Request full summary

The post Executive Perspectives on the Coronavirus appeared first on Fiducia Strategy Advisory.

Exactly three weeks after the WHO declared the coronavirus outbreak a “public health emergency of international concern”, balancing safety and business continuity remains the key task of China-based executives. As most organisations have already introduced comprehensive safety measures, their focus now is on getting back to business.

We are proud of our Fiducia team who are helping us do exactly that: our Hong Kong colleagues are back in the office since February 3rd, our Shanghai office is at the official maximum of 50% since February 10th, our Beijing team is back to work (remotely at times), and our Shenzhen office will reopen tomorrow, following city-specific conditions and guidelines.

In today’s Q&A, we’re sharing some best practices and government incentives that can help businesses like yours and ours bounce back from this crisis – or ‘disruption’, as we prefer to call it – quickly.

1.How are SMEs successfully managing work-from-home in the current context?

For most companies, this is the first time that so many employees are working from home (WFH) for such a long period. So it is definitely the right moment to set clear WFH policies and enhance your IT/CT structure. But given the fluid and unique conditions – from regional lockdowns and transport restrictions, to mandatory quarantines – staying flexible and considering employees’ individual situations is key. Here are some recommendations based on what Fiducia and other China-based mid-sized companies are doing:

• Team rules: At Fiducia, teams working remotely start and end the day with a group call or videocon. This generates engagement and adds structure to the day, something we also achieve by setting clear and compatible working cycles through our shared calendar.
• IT: Review your existing communication and remote collaboration tools to make sure they’re working optimally and make sure your IT team is available to provide support. If you don’t have an adequate infrastructure already in place (e.g. an ERP system with remote access) it is a good moment to start looking into it. For the meantime, rely on ‘plug and play’ solutions such as Zoom, Lifesize, and of course WeChat – all of which work smoothly in China.
• Expenses: Consider reimbursing certain costs incurred by employees when working remotely (e.g. phone and internet expenses) and make sure everyone is aware of the support that’s available to them.
• Compliance: Monitor local government policies closely to make sure your WFH arrangements are compliant. Guidelines regarding the salary of quarantined workers, or the ability of an employer to suggest when to take annual leave, for instance, vary by region.
• Communication: Establish platforms/channels for managers to share best practices with each other, for staff to report challenges to HR, and for HR to provide guidelines and support.

2. How can I make my staff’s back-to-work experience as easy as possible?

Officially, authorities in most of China have allowed businesses to re-open, but the reality varies by region. In Shenzhen, for instance, companies must submit an application to reopen and, until now, only a small percentage of companies have been given the green light.

More importantly, workers are finding it difficult to return to work because of regional lockdowns, transportation hurdles, or mandatory quarantines. So most businesses right now – big or small, manufacturing or service focused – have re-opened only partially. Our clients’ production facilities are running, on average, at 30%-50%.

Those who do make it back to the office are likely to be facing challenges of their own. In most of China, people’s social lives are on standstill. With schools closed and many “Ayi” (private helpers) stuck in their home provinces, working parents are struggling to juggle work and childcare. And on top of this, they’re dealing with the fear and uncertainty surrounding the epidemic itself.

Employers should take on the role of offering both practical and emotional support to make their team’s back-to-work experience easier by. Consider the following:

• Flexible hours: Introduce flexible office hours so that employees can avoid peak traffic and lunch times.
• Workplace safety and comfort: Most companies with a factory in China have decided to close their canteen to reduce the chances of transmission. Office facilities may face problems such as that of our team in Shanghai, where the building’s occupancy rate was so low that the central heating system was kept off.
• E-learning: Even if your employees are back at work (remotely or not), there’s a good chance that big parts of your supply chain are not. This frees up a lot of time, which is why this is a good moment to encourage online training. Some regional authorities are offering generous e-learning subsidies for businesses affected by the epidemic (see below).
• Strategic projects: This is also a good moment to revisit projects that tend to be sidelined, such as internal optimisation efforts. At Fiducia, we’re using the time freed up from client-facing interactions to accelerate our digital transformation. We are recommending clients to do the same and supporting them in the process.
• Motivation and morale: Large companies, such as Daimler, have set up hotlines to offer psychological consultations. At Fiducia, one of our initiatives was a lunch workshop on “How to deal with anxiety”, where over half of the company joined (either physically or via videocon) to share personal experiences in a friendly and surprisingly open discussion.

3.Which of the recently announced government incentives should I be aware of as a foreign-owned company?

China is fighting the coronavirus outbreak on two fronts: controlling the epidemic itself while doing as much as possible to get the country’s economy back on track. The central government has announced important measures to help businesses weather the financial blow, but even more policies have been introduced at a city and district level.

Below, and in last week’s Q&A, are some preferential policies that we consider particularly relevant for our international clients in China. This list is not exhaustive and we expect more incentives to be released in the coming weeks, so get in touch with us at contact@welcome-120cc8b.netsolhost.com for detailed and up-to-date information.

Social insurance payment exemptions/cuts:

• Nationwide, SMEs will be exempted from pension, unemployment, and work injury insurance payments between February and June 2020.
• In Hubei, this measure applies to companies of all sizes.
• For large enterprises, these three premiums will be halved between February and April.

Tax filing:

• Nationwide, the February tax filing deadline has been extended from February 17th to February 28th, 2020.
• In locations including Beijing and Suzhou, SMEs can apply to defer their tax reporting for up to three months.

Refund of unemployment insurance premiums:

• In locations including Guangdong province, Beijing, Shanghai, and Suzhou, companies that do not lay off workers in 2020 can apply for a partial refund of the unemployment insurance payments made in the previous years.

Rental waivers or reductions:

• In some locations, including Shanghai, commercial property owners can apply for land/property use tax deductions
• SMEs renting state-owned properties can have their rents completely waived in February and March in some locations

E-learning subsidies:

• In Shanghai and other locations, enterprises that arrange online training for employees can apply for subsidies of up to 95%.

Our consultants on the ground in China are working hard to collect insights and come up with solutions which they will be pleased to share with you. Don’t hesitate to send them your questions or schedule a call with them at contact@welcome-120cc8b.netsolhost.com.

The post Coronavirus Q&A: Getting Back to Business appeared first on Fiducia Strategy Advisory.

Given the fluid situation in China we are publishing weekly updates such as this one.   

Today, we are pleased to announce that Fiducia is back to work. Our Beijing and Shanghai offices reopened on February 10th and our Shenzhen team is scheduled to resume work on February 17th.  

Below are some of the most common questions we get. For more detailed information and recommendations, read our regularly updated article or get in touch with us here. 

1. What is the official re-opening date for companies in mainland China?

February 10th for most provinces, but there are variations by industry and location. Harder-hit regions have set later official re-opening dates, e.g. Hubei on February 14th and Wenzhou on the 18th. In other cities such as Kunshan, Shenzhen, and Taicang, companies (especially manufacturers) must submit applications to reopen to local authorities.

2. Why are some of my suppliers in China remaining closed beyond this date?

Some factories have chosen to reopen until next week (between February 17th-21st) as a precaution. With authorities on high alert, even a suspected case of infection in their facilities could lead to a longer shutdown. Others are reopening gradually because logistics, migrant workers, and component/raw material suppliers continue to face challenges.

3. Can I ask employees to work from home before officially re-opening?

You can negotiate directly with your employees, case by case, taking into account that if this was/is during government-mandated closures, you should grant them paid special leave or pay overtime salaries if they work.

4. Should I allow staff to continue working from home after re-opening?

If you are complying with local guidelines and taking adequate precautions to guarantee a safe workplace, returning to the office should not be discouraged. But do continue to offer employees as much flexibility as they require to ensure their and their family’s well-being.   

5. In the unfortunate event of an employee getting diagnosed with coronavirus or quarantined by a hospital, how should we as employers handle his/her salary?

Regulations vary by region. For example, an infected employee in Shanghai has the right to his/her full salary during treatment, while Beijing mandates a reduced paid sick leave salary (80% of the average social salary).  

6. Are there any bright spots in the current situation?

Many clients feel reassured by the helpfulness displayed by local authorities. Some cities have already introduced relief measures for businesses, and we believe more will follow. They vary at the city and district level, so get in touch with our team to know more about the opportunities available to your business. Here are a few examples from Beijing:

• Rewards for avoiding layoffs: companies can get a 50% refund on the unemployment insurance premiums paid the previous year.  
• Deferred social security payments: SMEs that meet certain criteria can delay social insurance payments by 2-6 months depending on the industry. 
• Lower rent: factories renting state-owned premises can apply for a two-month rent exemption (or a 50% rent deduction for offices).  
• Deferred tax payments: SMEs facing epidemic-related difficulties can apply for a deferral of up to three-month.  

Any questions you would like us to address in next week’s Coronavirus Q&A? Please send them over by email to contact@welcome-120cc8b.netsolhost.com. If you need faster answers, our consultants in Beijing, Hong Kong, Shanghai, and Shenzhen will be happy to schedule a call with you.

The post Coronavirus Q&A: HR Issues & Relief Measures for Businesses appeared first on Fiducia Strategy Advisory.

We want to reassure you that you can continue to count on our services and advice throughout the current situation. Our team in Hong Kong resumed work on February 3rd, our Beijing and Shanghai offices reopened on February 10th, and our team in Shenzhen is scheduled to return to the office on the 17th.

Our experience with SARS tells us that it will take weeks, perhaps months, for daily life in Greater China to return to normal. This requires us to find ways to keep functioning as businesses and individuals. Besides taking informed precautions, it’s also essential to continue to interact with trusted parties.

Please get in touch with us here (or by phone with your Fiducia contact) for on-the-ground information beyond what you get from reliable news sources (see below).

In the meantime, here are some of the internal measures we are taking at Fiducia and practical recommendations we are sharing with clients.

Best Practices for Businesses

1. Actively inform yourself

• Monitor developments closely via reliable sources, such as the Hong Kong Department of Health and the World Health Organisation (WHO), and follow the announcements/guidelines released by Chinese authorities that could affect your operations (see section below on “Latest Updates Affecting Businesses”).
• At Fiducia, we do not allow the sharing of rumours or forwarding of misleading news, photos, or videos.
• Stay in touch with reliable people who are on the ground and can give you real time information: our team members in Beijing, Hong Kong, Shanghai, and Shenzhen!

2. Communicate closely with staff, clients, and partners

• Fiducia managers are communicating with team members individually to keep up their motivation and dedication in this challenging environment. We find that frequent voice / video calls (as opposed to relying purely on written communication) is key.
• Together with HR, managers are monitoring the health situation of team members and their families, and assisting them when needed (e.g. parents who need extra support due to extended school/daycare closures).
• Keep clients and partners informed of your decisions to maintain trust and warn them of any potential disruptions (e.g. office closures or delays).
• Stay in touch with vendors and partners to foresee risks, to offer your cooperation where possible, and as a way of getting additional insights from developments in their region.

3. Introduce alternative work arrangements

• At Fiducia, HR has installed clear work-from-home policies for all team members.
• IT is safeguarding security and optimising remote work, company-wide communications, and virtual meetings to cope with different scenarios.
• More details on flexible work-from-home and back-to-work arrangements here.

4. Ensure personal and workplace safety

• Make sure all employees have read these WHO recommendations.
• Introduce strict safety guidelines at work, including hand-washing and temperature checks when entering the office and staying at home when feeling unwell.
• Make face masks and hand sanitiser readily available for staff. Stock is low in most Chinese cities.
• Consider temporarily closing high-traffic areas prone to transmission, such as factory canteens.
• At Fiducia, we require all employees to fill out a digital survey on a weekly basis to keep a record of their health and travels.

5. Rethink business meetings, events, and travel

• At Fiducia, we have suspended non-essential travel to/between Hong Kong and mainland China until further notice, and introduced a two-week self-quarantine for anyone returning from mainland China.
• As far as possible, keep up or even increase the frequency of your internal and external interactions by holding cross-office/cross-border meetings over the phone and via videocon (Lifesize, Zoom, and, of course, WeChat work smoothly in mainland China).
• When rescheduling an event or meeting, we recommend setting a tentative new date rather than postponing indefinitely to minimise uncertainty.
• Some events and trade fairs around Asia are being cancelled or postponed, so check with organisers if you are planning to attend any in the first half of 2020.

Latest Updates Affecting Businesses

Taxes and operations:

• China’s tax administration has extended the January tax filing deadline from February 17th to February 24th, 2020, nationwide. For companies in Hubei and other strongly affected provinces, tax authorities will allow an even further extension.
• In Hong Kong:
  • The Inland Revenue Department (IRD) partially resumed services on on February 3rd.
  • The deadline for tax payments and submission of tax documents and information has been extended to February 10th (from January 29th – February 9th).
  • The deadline for 2018/19 year loss cases has been extended to February 28th (details here)
  • Courts remain closed this week. Collection of documents and attendance to Court Summons will be rescheduled.
  • Expect queues and delays in the delivery of mail. Post offices reopened on February 3rd (instead of January 29th) with shorter opening hours.

Mandatory holidays / office closures:

• Businesses in the following regions are set to re-open on February 10th following the official prolongation of Lunar New Year holidays: Anhui, Chongqing, Fujian, Guangdong, Hebei, Henan, Inner Mongolia, Jiangsu, Jiangxi, Shandong, Shanghai, Yunnan, and Zhejiang.
• In Beijing, companies must let employees work from home until February 9th.
• In Hubei province, holidays will be extended until February 14th or beyond.
• In Tianjin, companies are to remain closed until further notice.

Travel restrictions:

• Hong Kong closed most of its borders with mainland China on February 2nd, . The port of Shenzhen Bay, the bridge to/from Macau and Zhuhai, and the Hong Kong international airport remain open, but flights to and from mainland China have been reduced.
• This list outlines all international airlines that have suspended flights to China (updated February 10th).
• On February 4th, American Airlines Group and United Airlines suspended all flights to and from Hong Kong until February 20th.
• The US government is restricting the entry of foreign nationals who have visited mainland China in the last 14 days, as of February 2nd. This measure has not impacted Hong Kong.

Key Resources

• Novel Coronavirus latest information, WHO
• Advice for the public, WHO
• Local situation and guidelines by the Hong Kong Centre for Health Protection
• Communication and virtual meeting solutions that work smoothly from mainland China: Lifesize, Zoom, and, of course, WeChat

We will update you regularly on how we and other businesses in Greater China are dealing with new developments. Sign up to our newsletter to receive our alerts and advice.

The post Coping with the Coronavirus Outbreak as a Business: Ongoing Updates appeared first on Fiducia Strategy Advisory.

An economic storm is coming—are you ready?

Business leaders in Europe are getting nervous: dark clouds are gathering on the economic horizon and the threat of a severe crisis now looks possible after years of economic upswing. The good news is that at least we can see this coming, unlike the devastating crash of 2008. Nevertheless, the risk of a new crisis poses some questions that really ought to be answered. For example, is your company prepared for an economic downturn after years of healthy growth? And what actions must business leaders take now in order to defy a downturn? To find out, we interviewed representatives from more than 30 companies and gained some valuable insights, some of them disturbing.

>> Download full publication, ‘Adversity: A Time for Transformation’

We found out that more than half (55 percent) of the company leaders we spoke to openly discuss the potential of a downturn among their top management. This is good but not good enough. We fear that leaders may be reluctant to take actions until they see clear evidence, which is too late.

We also found out that less than one third of the companies use indices or scenario simulations to anticipate the impacts of a downturn. In addition, two thirds of all companies still feel safe in the current economic environment, despite the clouds on the horizon. We feel that this is a false sense of security due to full order books and good utilisation of capacity.

>> How does this compare to the outlook of China-based leaders? Find out on this link

Life insurance for companies: Early warning systems and stress tests

Overall, the results of our survey on crisis preparation reveal worrying results and point towards a certain level of carelessness in the management of many companies. We consider this to be very dangerous and are convinced that more can and should be done to mitigate the threat posed by a potential downturn. At the very least, a good early warning system is needed, including relevant industry-specific indices, intense communication with your customers and structured feedback loops. Additionally, a stress test will help you to identify the effects of a downturn on your company’s EBIT margins, working capital and financial reserves. Armed with this data, you would be in a far better position to foresee the impacts of a crisis and to put preventative measures in place.

Preparation is the name of the game

The recommendations stemming from our survey can be summed up in two words: be prepared! Those who are prepared and act early will become stronger through the downturn. Below is our 10-point preparation plan:

1. Install early warning systems that aggregate market indices and customer feedback.

2. Examine simulations and different scenario calculations.

3. Develop contingency plans for sales and earnings slumps, liquidity and existential crises.

4. Review the value chain and where possible streamline operations, processes and organisational setup.

5. Consolidate your company’s footprint and search for best-cost alternatives.

6. Re-define your business model, leverage service businesses when feasible and look for new growth opportunities.

7. Define procurement commitments, volumes, prices, and exit clauses with existing suppliers.

8. Unleash your company’s financial reserves that may currently be tied up in working capital and assets.

9. Terminate and re-allocate financial investments and raise new capital as a financial reserve.

10. Negotiate employee agreements with the joint aims of becoming more flexible and reducing overtime.

Are you flexible? (enough)

Irrespective of the threat or not of a downturn, it is generally wise to make your company more flexible. When asked about measures to secure their future viability, 70 percent of the companies we spoke to mentioned digitisation and the development of new business models. Only 40 percent recognised the inevitable increase in agility as a pre-condition to secure their future. Where do you stand?

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For businesses in Greater China who are already grappling with a “new normal” of slower growth, rising costs, and dizzying market trends, the prospect of a downturn offers one key opportunity: the chance to hit “reset” and drive changes that may well be long overdue. This is why at Fiducia, we believe that getting “downturn ready” is just another way of getting “future ready”. We’re helping clients achieve this by gearing up, getting fit, and growing selectively.

>> Download full publication: ‘Adversity, A Time for Transformation’

1. Gear Up: Mitigate Risks

Downturns disrupt “business as usual”. Late payments on the customer side, capacity problems on the supplier side, tighter access to credit – risks start to emerge from all sides, making it hard to keep the wheels of your business turning if you’re caught off guard. Below are some of the actions you can take to avoid this. They must be taken early, before you or those around you face financial distress.

Cash Flow

Smart cash flow management is particularly vital in China, where you must file and pay VAT on the fapiaos (invoices) you issue monthly, regardless of when clients pay. Start by:

• Reviewing payment terms in accounts receivable/payable
• Renegotiating fixed costs (e.g. rental)
• Reducing non-essential expenses
• Taking up/increasing bank loans

Compliance

Difficult times tend to increase fraud and other integrity risks within organisations, as employees come under heightened pressure, e.g. to meet their sales targets. It’s also common for tax and other authorities to increase their oversight. So stepping up internal and external compliance – already a top concern for China-based leaders – becomes even more urgent in the current context. Key actions include:

• Reviewing and strengthening internal controls (e.g. establishing a Whistleblower System)
• Reviewing tax and regulatory compliance

Supply Chain

The last global crisis shook Chinese supply chains. In 2008, half of China’s toy exporters went out of business. Since then, China’s manufacturing base has indeed matured. Our clients have built solid relationships with reliable suppliers. And yet when we carry out supplier assessments, we continue to find established Chinese manufacturers who, for instance, lack a proper MRP or accounting system. How well can they weather the next downturn? Avoid shocks down the road by addressing underlying volatility in your supplier base early:

• Identify supply chain risks (e.g. assess/monitor existing suppliers)
• Draw contingency plans
• Diversify your vendor network (within and outside of China)

Case Study 1 | Finding and Preventing Fraud

Challenge – Our client suspected that non-compliant behaviour in the sales team was causing losses in their Shanghai WFOE. We performed a Corporate Health Check that involved analysing the clients’ financials and internal processes and speaking to relevant stakeholders within and outside the organisation.

Solution – We found proof that the former sales director and other team members had sold discounted products to shell trading companies that they set up themselves and created fake business licenses to cover up the relationship. We helped the client fix internal control loopholes to avoid a similar situation in the future.

Case Study 2 | Complying with New Transfer Pricing Rules

Challenge – A multinational group with sales and distribution entities in Hong Kong and China requested a Corporate Health Check of their Greater China companies as part of their downturn-readiness programme.

Solution – One of our findings was that the Hong Kong subsidiary’s intra-group transactions in 2019 met the recently introduced threshold that requires them to provide special transfer pricing (TP) documentation to tax authorities. We helped the client prepare the necessary reports to avoid a potential non-compliance penalty and challenge. We are now reviewing their cross-border pricing strategy to optimise tax savings.

2. Get Fit: Optimise Costs

Cost initiatives are the first thing that come to mind when discussing downturn readiness. And while they’re certainly necessary when margins tighten and revenues shrink, the focus is too often on cost reduction rather than optimisation. The former can hamper your company’s growth prospects: while trying to cut fat you can end up cutting muscle. The latter is about refocusing resources to where they matter most, delivering savings while still boosting profitable capabilities. Below are some areas where you can free up resources without losing competitiveness.

Organisational Setup

The prospect of a downturn is not the only reason why foreign companies in China are reviewing their setup. But it’s making the task all the more urgent. Many of our clients established their China operations under an entirely different market reality. Companies who started sourcing/buying here 15 years ago, for instance, are increasingly looking to sell into the local market. Their original setups have been adapted on-the-go, but not always in the most cost-effective ways. Many of our clients have been able to optimise costs by:

• Adapting their investment structure to match current needs
• Consolidating their physical footprint
• Outsourcing business/administrative functions

Processes

As with their setups, companies should regularly adapt their processes to China’s changing market and regulatory conditions to avoid prolonging obsolete operations. For example, tax authorities regularly update filing requirements – often eliminating certain time-consuming steps. This, combined with adopting the right digital tools, can free up significant resources from low-value operations. We recommend clients to:

• Review processes regularly and eliminate unnecessary steps
• Accelerate digitisation by leveraging “plug-and-play” tools (e.g. virtual team platforms to reduce travel expenses)

Tax Optimisation

China’s tax burden on corporations is the 12th highest in the world according to the World Bank (2018). And anyone who has seen a Chinese company from the inside has probably gotten lost in its maze-like system of tax rules and incentives. So it’s no wonder that a closer look at your taxes in China often reveals vast room for improvement. Common solutions include:

• Restructuring cross-border operations
• Careful tax planning, e.g. ensuring all available deductions are claimed
• Tax-efficient employee compensation strategies under the updated Individual Income Tax (IIT) guidelines

Case Study 3 | Selling to China with a Low-Investment Setup

Challenge – Our client, a German furniture manufacturer exporting to China, was at risk of losing its top Chinese customer to a competitor. Unlike our client, this competitor had a WFOE in China and could therefore issue fapiaos (official VAT invoices) that allow customers to offset their own payable tax.

Outcome – Fearing a downturn, our client decided against the option of opening a WFOE now. Our trade services team provided an agency solution for them, managing their sales and issuing fapiaos in China on their behalf. Our client was able to salvage its key account and improve its competitiveness in China with a low-risk solution.

Case Study 4 | Optimising Your China Footprint to Fit New Needs

Challenges – Our client, a European industrial equipment supplier, set roots in China 20 years ago with one trading company in Shanghai and one in Nanjing, planning to turn the latter into a “China for China” plant. Over time their import business boomed, so they scrapped their plan to produce locally. The Nanjing office became less useful and profitable, so the client requested our help to consolidate its operations in Shanghai.

Solution – We created a step-by-step consolidation plan and helped the client implement it. This included gradually moving all Nanjing operations to Shanghai, changing the Shanghai WFOE’s business scope accordingly, untangling inter-company billing, and getting the Nanjing entity ready for de-registration. The new setup generated significant cost savings and, more importantly, clearer and more efficient processes.

3. Grow Selectively: Focus on Future Growth Engines

After years of fast top line growth, many foreign invested companies in China are under pressure from their headquarters to up the pace. These expectations are getting harder to meet – especially for businesses who are simply doing more of what they’ve always done. To succeed in an increasingly competitive China, companies need to identify their future growth engines and invest disproportionately in them. The problem with this is that it entails disruptive transformation, but the prospect of a downturn might give China-based executives the buy-in they need to drive a bold change of strategy.

Growth Strategy

It’s hard to overstate just how quickly market opportunities shift in China. Environmental regulations can make or break the demand for a certain industrial material overnight, online channels can gather or shed millions of users in a month, and entire sectors that were previously off-limits for foreign investors suddenly open up. Many foreign players fail to review their growth strategy often enough to enable a swift reaction to such changes. The possibility of a downturn raises the need to do so in order to avoid wasting potentially scarce resources in segments or strategies that will not be relevant tomorrow. Key actions include:

• Analysing market potential to identify growth-driving business segments
• Reviewing your sales and distribution channel strategy
• Reallocating resources accordingly
• Identifying potential M&A targets/routes

People Strategy

A downturn can hurt your long-term competitiveness if slashing costs becomes the main task of your HR department. Unwise redundancies can demoralise employees and a culture that rewards austerity can push managers towards bad decisions. Instead, the focus of HR professionals should be on building resilience while keeping the organisation focused on the future. For instance, by continuing to invest in attracting, retaining, and developing R&D and innovation talents that will help the company unlock new growth and “bounce back”. Forward-looking HR professionals should:

• Improve work flexibility to attract/ retain talent and save costs (e.g. telecommuting to optimise space)
• Recruit candidates who can adapt to change, especially for key positions
• Drive organisational and cultural change to improve performance

Case Study 5 | Targeting high-growth application segments

Challenge – Our client, a European manufacturer of high-performance materials, was facing lower downstream demand from the automotive and smartphone industries. They requested our support in identifying specific application segments that could help them unlock new growth in the Chinese market.

Solution – Our China Consulting Team carried out a benchmarking analysis of 10 major competitors, including an in-depth cost analysis, to identify high-potential and high-profitability application segments. Based on our findings, the client developed a new plan to target solar energy and medical applications.

Case Study 6 | Weathering the slowdown with the right sales leader

Challenge – As a manufacturer of premium machinery for the packaging industry, our client had been losing business to mid-market Chinese competitors. Fearing that this trend would accelerate now that slowing exports and rising uncertainty are making customers put off capital investments, our client partnered with Fiducia’s Executive Search Team to look for a Sales Director who could help them reverse the sales slump.

Solution – After analysing the sales team’s pain points, we advised the client to search for a candidate with a proven understanding of Total Cost of Ownership (TCO). We helped them find and hire a Sales Director who is now incorporating TCO calculations into the company’s sales proposals and pricing strategy, making it easier for buyers to gauge the long-term benefit of choosing a high-end machine over a cheaper one.

How We Can Help You

Whether it’s to prepare for upcoming headwinds or to create lasting transformation, below are some of the ways in which our consulting and outsourced service teams can help you gear up. Get in touch with us to learn more about how we can tailor our support to fit your specific situation.

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