September 6, 2012

News Briefs

  1. Outsourcing Issues Growing...and Not Just in the U.S.
  2. WTO Rules for U.S. over Chinese Discrimination on Electronic Payment Services
  3. Moody's Negative on U.S. Banking; EU Creditworthiness
  4. Cambodia Eyed for Possible Investment Treaty
  5. Brazil's Fall From Grace Continues


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Outsourcing Issues Growing...and Not Just in the U.S.

U.S. workers who complain about the outsourcing of jobs, whether in credit and collections or totally unrelated professions, have often been painted as protectionists or overly nationalistic. And, as more U.S. credit managers begin to note that outsourcing, while sometimes successful in certain instances, is no panacea for cheap completion of certain credit and collections tasks, so do those based in international markets.

Increasing stories of problems and disappointments, including the level of savings and resulting quality of service, have led many NACM sources based around the world to halt plans for expanding credit function outsourcing. Some are scrapping outsourcing almost entirely and bringing the jobs back to their hubs in the United States, United Kingdom or other first-world economic locations. The short version on the reasoning is that there are a lot of hidden costs and unintended consequences regarding quality.

FCIB European Advisory Council Member Angela Bradbury, ICCE, group credit and payables manager at Innospec, Inc., noted "it's only cheap for so long." Bradbury, who will be speaking at an upcoming FCIB roundtable in London focus on credit as a business profit-center, added that outsourcing areas regularly see a lot of turnover, high competition for good workers and the quickly-emerging demands from new staffers for more responsibility or money.

"Within two or three years, the wage cost savings driving your decision to outsource narrows quickly," she said. "It happened in Eastern Europe; it happened in India; and it's going to happen in [new hubs like] the Philippines, I'm sure."

Moreover, there is the real issue that customers simply don't like the practice. Companies are open to bad public relations, as high unemployment in places like the U.S. and U.K breed discontent, as do recent reports that a New York-based regulator called Standard Charter's money-laundering controls "deficient," with outsourcing partially to blame for making questionable transactions in Iran possible. In addition, there's the often-aired customer concern over accent and language issues. Whether real or mere perceptions, the issue is relevant for many.

"The U.K. population likes hearing U.K. voices on the other end of the phone," said Bradbury who noted that some current big marketers claim to be UK call centers. "At a previous job, I did collections throughout Europe. Customers felt a need to have native speakers. The Italians wanted to talk with a native Italian speaker and so on. Even when we localized collections, we had to invest in native speakers."

- Brian Shappell, CBA, NACM staff writer

Look for the feature story on this topic in the September/October issue of Business Credit.

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WTO Rules for U.S. over Chinese Discrimination on Electronic Payment Services

The World Trade Organization (WTO) ruled in favor of the United States last week in their dispute regarding China's discrimination against American suppliers of electronic payment services.

Though the U.S. panel report on China's prejudiced trade practices was initially circulated in July, without word of an appeal from China, the WTO finally adopted the report on August 31, putting an official end to the dispute and signaling China's willingness to accept the terms of the report, which now represent the WTO's official recommendations and rulings. China must now state within 30 days whether or not it intends to comply with the findings, which is pro forma for WTO members.

"This makes it clear that China should honor its WTO commitments to play by the rules and stop discriminating against American financial services providers. Fair and open financial services markets are critical to facilitating global trade," said the office of the U.S. Trade Representative (USTR). "Most of the world's leading providers of the services that enable credit and debit card transactions are headquartered in the U.S. These companies employ tens of thousands of American workers. A more efficient credit and debit payment system in China will also enable consumers to buy more goods, including made-in-America products."

In the wake of the decision, the industry estimates that the U.S. stands to gain 6,000 jobs related to electronic payment services. Over $1 trillion worth of electronic payment card transactions are processed in China annually, but China's regulator of electronic payment services issued a series of measures, dating back to 2001, that discriminate against foreign suppliers. Such measures imposed requirements on institutions in China that issued payment cards, on all point-of-sale terminal and payment card processing equipment and on the institutions in China that have the relationship with the electronic payment services supplier and handle transactions for Chinese merchants.

"The WTO panel agreed that China's pervasive and discriminatory practices are unfair to American suppliers of electronic payment services and discriminate at each stage of a payment card transaction," said the USTR. "The message to the government of China is that those practices must end."

- Jacob Barron, CICP, NACM staff writer

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Moody's Negative on U.S. Banking; EU Creditworthiness

Market watchers, businesspeople and credit professionals may have taken their shots at credit ratings agencies like Moody's for poor performance during and, some say, after the economic boom and recession of last decade, but they're all still closely monitoring what they say. This week can be described as a glass-half-full week at Moody's.

Moody's maintained the negative outlook for U.S.-based banking institutions over concerns of high unemployment, lackluster growth and inflation-goading low interest rates. Granted, Moody's did note that banks were strengthening a little compared to a few years ago and that the negative American outlook was due more to its key trade partners than its own systematic problems.

"The threat of contagion stemming from the European sovereign debt crisis is undermining economic recovery in the U.S., and exposes banks to a heightened risk of shock," noted Moody's analysts on its website Tuesday.

The negative outlook news came one day after Moody's dropped its outlook for the European Union long-term rating from stable to negative after the same negative outlook was hung on Germany, France, the Netherlands and the United Kingdom in previous weeks and months. The four are a few points shy of comprising half of all EU budget revenue. Moody's voiced concerns about defaults on loans owed from other countries to members of the four mentioned above:

"Moody's believes that it is reasonable to assume that the EU's creditworthiness should move in line with the creditworthiness of its strongest key member states considering the significant linkages."

Still, surprisingly, the EU has maintained an "Aaa" rating with Moody's. Granted, many suggest that Moody's ratings should be taken with a grain of salt. Earlier this year, Ed Altman, PhD, professor of finance at New York University's Stern School of Business and creator of the Z-Score bankruptcy prediction metric, characterized some of Moody's sovereign ratings as an embarrassment. "Spain and Italy are still 'A3' from Moody's and similar from S&P, but we all know these countries absolutely are no longer A-rated," he said during NACM's Credit Congress in June, weeks before those ratings dropped.

- Brian Shappell, CBA, NACM staff writer

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Cambodia Eyed for Possible Investment Treaty

United States Trade Ambassador Ron Kirk announced last week that the U.S. and Cambodia have begun exploratory discussions on a potential bilateral investment treaty (BIT).

Kirk made the announcement following a meeting in Siem Reap between Cambodian Economic Minister Cham Prasidh and himself, who also presided over ministerial meetings of the Association of Southeast Asian Nations (ASEAN). Experts in both countries will now discuss their respective investment policies and investment agreements to determine key similarities and differences, with an eye on sharing approaches and opening further discussions based on the U.S. model text for bilateral investment treaties (BITs).

"A bilateral investment treaty between the U.S. and Cambodia would encourage investment by improving investment climates, promoting market-based economic reforms and strengthening the rule of law," said Ambassador Kirk. "Our decision to explore this possibility highlights progress made by Cambodia in fostering a policy environment that treats private investment in an open, transparent and non-discriminatory way."

The U.S. currently has more than 40 BITs in force with countries around the world. Cambodia would be its first in Southeast Asia, a region where the Obama administration has looked to deepen trade ties. The announcement of a possible BIT came after the economic ministerial ASEAN meetings, as well as the first-ever U.S.-ASEAN Business Summit, both of which closed last week.

"The ASEAN countries together are already a major trading partner for the U.S., but we—and the American business community—see enormous potential to grow our mutual trade and investment as ASEAN pursues its own objectives of liberalizing trade in the region, harnessing the digital economy and reducing economic disparities among its members," said Kirk. "Our decision to explore a possible BIT with Cambodia demonstrates the U.S. view that the countries of this region can be valuable partners individually as well as collectively in ASEAN."

BITs provide binding legal rules regarding one country's treatment of investors from another country. The U.S. negotiates them on the basis of a high-standard model text that provides investors with improved market access, protections from discriminatory, expropriatory or otherwise harmful government treatment, as well as a mechanism to pursue binding international arbitration for breaches of the treaty.

- Jacob Barron, CICP, NACM staff writer

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Brazil's Fall From Grace Continues

Five is a key number in Brazil right now. As in, the streak of improvement in manufacturing orders and employment levels of the last five months has ended. This is problematic given that it was one of a handful of nations that had been relied upon to offset several European and Asian nation struggles tied to recession or stagnant growth.

Brazil's manufacturing Purchasing Managers' Index (PMI), complied by HSBC, tracked at 49.3 after spending the initial months of 2012 well above the 50 mark that divides growth from contraction. HSBC did note that the rate of job losses was the lowest in five months. Still, inflation, the fatal obstacle in past Brazilian economic booms, appears to be a significant player in the nation's newfound problems and rising prices. Trade problems also loom large.

"Brazil has been seen as a nation falling from grace given that the rapid growth of the past year or so has largely faded. Now there is some real concern regarding the ability of the country to survive lower growth rates in the 2% to 3% range after having become accustomed to the 7% and 8% levels," said Chris Kuehl, PhD, NACM economist. "The manufacturing sector had been considered a major contributor to that growth, but the vast majority of manufacturers were aimed at the export market, and that has largely eroded as Europe. The United States and China have also slowed to a degree."

One bright spot for Brazil is its role as host for both the Olympics and the World Cup this decade. There's still a significant economic bump expected there, though delays and red tape have pushed back the start of some key projects. Granted, the whole "global economy" ethos could also cut into the gains of domestic outfits there.

"It has been made clear that Brazil will count on private companies and foreign operations far more than in the past, and it has been stated publicly that at least one-third of the work will be privatized," Kuehl noted. "As this infrastructure build gets underway the Brazilian manufacturer will see some opportunity, but so will other companies in other nations."

- Brian Shappell, CBA, NACM staff writer


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