Social Security in China

Posted by Elena Luk'yanenko
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Social security, also commonly referred to as mandatory benefits in China, is quite straightforward to explain as a concept; however, the calculations to arrive at the correct contribution to be made by the employer and each employee can be complex. This is especially true when employees come from different cities in China or have different working locations.

 

There are six categories of social security in China. They are:

 

- Pension
- Medical insurance
- Maternity insurance
- Unemployment insurance
- Accident insurance
- Critical illness insurance

 

As a general rule, employers should make a contribution to each of these types of social security on behalf of their employees. Employees are also required to make contributions to some of them. The contributions are set as a percentage of average monthly salary.

PTL Group advises Dutch Companies to Obtain a Share of the Chinese Clean Tech Market

Posted by Elena Luk'yanenko
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Driebergen, The Netherlands, June 23, 2010 - DeBaak has held the seminar “China and Sustainability: Green Technologies”  focused on the growing trend of green technology in China and its significance for Dutch companies. The seminar aimed to showcase and discuss China’s changing stance on the environment and the opportunities it provides for the Netherlands to both gain and contribute to the development of this sector.

The issue of price and quality of clean tech items and purchasing from China was especially addressed. Kitty Eegerdingk of Tebodin commented on the price differences between Dutch and local firms. She notes that Tebodin markets towards multinational companies as working in high standards in China causes Tebodin’s price to be triple that of local engineering companies.

Eline Mertens-Barkel from Ingreennious stated that due to quality control issues regarding high-end production in China, the company diverted their purchasing to European suppliers.

Zvi Shalgo, CEO of PTL Group, emphasized the inevitability of purchasing in China in order to remain competitive: “Purchasing from China is inevitable as we will not be able to compete with Chinese producers without purchasing at the same price levels. If today a Chinese engineering firm can provide it's services for 1/3 of the Tebodin price, when the knowledge transfer period ends (and in China it's quick) these local companies will control the market.” Mr Shalgo further recommended that Dutch companies should obtain a share of and be present in Chinese markets and work in the demanding environment there, in order to remain competitive should Chinese producers enter the European market. He also identified Research and Design as the key area with opportunities for Dutch firms.

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Contract signed to start construction of LycoRed factory in Wujin Economic Zone (managed by PTL Group)

Posted by Elena Luk'yanenko
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CHANGZHOU, JUNE 9 – Global leader in nutrition and fortification solutions, LycoRed Limited, signed a contract for a construction project of the factory in Wujin Economic Zone (WEZ), Jiangsu province. The factory construction project is managed by PTL Group.

The contract signing ceremony was held in the Wujin administrative center in presence of Consul General of Israel in Shanghai, Jackie Eldan, Party Secretary of Wujin District, Shen Ruiqin, and Vice Mayor of Wujin, Ling Guangyao. LycoRed Limited is the first Israeli company investing in Changzhou.

“This is the first time for the Israeli company to settle in Wujin and we want to use this step as a bridge to strengthen ties and cooperation between Israel and Wujin,” said Jackie Eldan, Consul General of Israel in Shanghai.

“In the process of recommending Changzhou WEZ to LycoRed Limited, PTL Group confirmed the quality and operational advantages of the Wujin. We are already considering future projects in this fast developing region,” said Zvi Shalgo, CEO of PTL Group.

“This construction project underpins our goal of making LycoRed's unique proposition available and accessible to all of our customers, wherever in the world they operate", said Morris Zelkha, CEO of LycoRed Limited.

The construction of 7,000 square meters plant in WEZ begins immediately and it will be commissioned at the beginning of 2011.

Wujin Economic Zone occupies an area of 58 square km.The economic zone explores a way of ecological development with emphasis to the development of bio-clean industries represented by new materials, equipment manufacturing, bio-pharmaceutical and medical equipment.

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Below is a selection of some of the questions many China operations teams are grappling with right now. As you read these, it is worth noting that the further you delve into any one of these issues, the more complex it becomes. In the end, the key to answering all of these questions is having the right people on the ground in China.

1. Does your company have a legal obligation to facilitate the organization of a local labor union in its China-based factories? What is the appropriate response to a visit from local union officials requesting unionization?

2. How are China's new policies that promote "indigenous innovation" affecting your industry? Are domestic competitors using these policies to gain an advantage in government procurement, funding for research and development (R&D), or tax breaks? And is application research done by Chinese scientists in your Shanghai R&D center considered "indigenous innovation"?

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How do we prepare for the ‘Roaring Dragon’?

Posted by Elena Luk'yanenko
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This question and several others have been attempted to address during the ‘China Challenge’ Seminar at ‘de Baak’, Driebergen the 27th of January, 2010. Zvika Shalgo, CEO of PTL, with his keynote speech, and the panel moderated by Harry Starren, CEO of de Baak, have educated us on several topics concerning doing business in and with China. When we go, what will be the drawbacks? Can we control this dragon, taking over the world economy and coming to our small country? How should we set up a business there and how will we be successful? Also, how can our European institutions, facilitate for Chinese companies? How can we be both attractive, though also protect our own industries?

The China Challenge seminar in the Netherlands

Posted by Elena Luk'yanenko
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Thursday January 27 a seminar titled ‘China Challenge’ was held at country estate ‘De Horst’ in Driebergen. The seminar was organized by de Baak and consisted of a presentation by Zvi Shalgo, CEO of the PTL Group (a management company active in China), followed by a panel discussion led by Harry Starren (director of de Baak). The panel consisted of Zvi Shalgo (PTL Group), Helmy Koolen (Benelux Chamber of Commerce in China) and Taco van Someren (Ynnovate).

This article aims to give a summarized overview of what was discussed in the presentation of Zvi Shalgo and a grasp of topics discussed during the panel discussion. Zvi Shalgo starts his presentation by giving an overview of the current economic status. China can beviewed as a post communist emerging market with the following characteristics:

  • A privatization of markets (instead of privatization of state owned enterprises)
  • Ongoing opening of markets to increase competitiveness
  • Co-optation in enterprises (The Chinese government gives credit to both state-owned as well as private companies)

Even though the Chinese market is more open now, approaching it still has different challenges than you will find on many others. First of all, specific ‘entry fees’ are present. An example of this is that for a multinational to get foot on the ground, it needs to give up particular technology in order to get permission from the Chinese government. Besides this there is, perhaps unfair, competition by local companies supported by the Chinese government (examples of this support are a more flexible application of Chinese law and government funding for investments needed).

Despite drawbacks for international companies, the huge (and fast growing) Chinese market is still offering huge potential. Zvi shares that most multinationals neglect the lower and middle segment of the market, or in other words, are not selling to Chinese consumers but merely to the government or other companies and MNE’s. The reason for this is that most companies simply find it too demanding to manage direct selling. In this segment huge growth of local enterprises is witnessed. The entrepreneurs that are most successful (in this segment and in general) will nowadays be ‘adopted’ by the government. This means huge credit lines for investments and such. An interesting fact is that an ‘entrepreneur’ is, only since 2002, accepted as a decent person by the Communist Party. Successful entrepreneurs nowadays are viewed by the government as important ingredients for growth of the Chinese economy. The presentation continues with some examples of these very successful (and often quite young) entrepreneurs:

Name Company  Industry
Wuang Chuanfu  BYD  Autos, Mobile phone parts, batteries
Zong Qinghou & family  Suning  Household appliance, retail, property
In the Hurun list, which summarizes the 1000 richest Chinese, the number of billionaires increased from 3, only 5 years ago, to 130 today. Only one of them inherited his wealth.

When asked what (and when) mistakes are mostly made by companies interested in China, Zvi. Shalgo answers that most mistakes are made in the home country during preparation. A big mistake is the approach of many companies with the ambition of entering the Chinese market. According to Zvi the right approach is a long term vision, that includes, at least in the longer run, production in China. Simply going there to sell without monitoring closely is not advisable. Even though foreign
companies might hire Chinese agents, closely monitoring the developments of your business is a must. Furthermore, many companies that go to China have a short breath and expect to make a profit quickly. This is often not the case. Although presence on the Chinese market might be very fulfilling for a company as a whole, making a profit is often not easy.

Finally, an interesting approach of the mentality of the Chinese workforce. A standard critique is that although Chinese workers might be excellent listeners, in successful companies you also need independent thinkers. However, as Zvi Shalgo puts it: ‘You don’t need a lot of independent thinkers. If only 0,5% of the Chinese are intelligent and independent, that’s already a larger group than the population of my home country Israel!’
 
This summary is written by Harmjan Oldenbeuving, a Economics and Law student at the University of Amsterdam who is currently active in the FSA Research Project 2010 – China. A group of twenty talented master students (UvA/VU) will perform field research in China in the months July and August, tailor made for companies with activities or an interest in China. For more information on this project, please visit: www.fsaresearchproject.nl or www.fsa.nl
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How (Not) to Choose a Partner in China (Part 4 - Final)

Posted by Elena Luk'yanenko
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So, how do you choose your partner in China?

“Don’t be anybody’s first foreign client/partner in China” (Andrew Hupert, www.ChinaSolved.com)

Choosing a business partner in China is just like choosing a business partner anywhere else in the world. Don’t believe anyone who tells you that you cannot do the same kind of background check in China that you can do in other markets.

Here is a short list of things that needs to be done:

1. Reference checks are not only possible - they are a MUST. Check every company on your future partner’s CV and any foreign client he claims to have worked with. Call each one of them and don’t be shy about asking for any type of information. If you are afraid of hurting your future partner’s feelings – DON’T BE! Professionals with nothing to hide will not be offended. If he has something to hide and you don’t do a thorough background check, your feelings and pocket will be hurt badly! It is your business on the line, so don’t feel uncomfortable.

2. Check the business license of your future partner to find out if he is on any black lists of the tax bureau, banks, customs, trade office etc. If you feel that you cannot do it yourself, use professional help to do it for you. It is a worthwhile expense that might save you a lot of money and trouble in the future.

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The Top 10 China Economic Stories of 2009

Posted by Elena Luk'yanenko
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The top 10 economic stories of 2009 as selected by senior editors, media agencies and domestic economists.

1. The Chinese economy leads the recovery from the economic downturn

  • China's economy leads the economic recovery from the financial crisis worldwide, and the target of 8% GDP growth planned for this year is achievable as a result of a proactive fiscal policy, moderately loose monetary policy and extension of the economic stimulus package.
  • From January 14, the Chinese government launched a series of plans to adjust and reinvigorate key industries including autos, steel, shipping, petrochemical, textile industry, nonferrous metal, equipment manufacturing, IT and logistics. The government measures also include subsidies for autos, motorcycles, home appliances.
  • The unemployment rate was consistent below 4.6%.
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How (Not) to Choose a Partner in China (Part 3)

Posted by Elena Luk'yanenko
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The Returnee

Many foreign companies think that if they hire someone with the same passport as them and speak the same language, that this will make their life easier in China. Since sending an expat is very expensive, many times a Chinese returnee, someone who was born and/or educated overseas is hired.

Overseas companies think that the returnee has several advantages:
  • He is cheaper, especially compared to an expat with a family with a few children who all need international education, which is extremely expensive.
  • He knows the Chinese language and the culture, which help him and his family settle in much quicker than a foreigner.
  • He knows the western style of thinking and can bridge the culture difference.
  • He might be more respected by local Chinese who will appreciate his achievements.
  • He should have similar moral standards to the country he was educated in.
Unfortunately most of these assumptions are not always true. If he was educated overseas he might lack a high level of Chinese that people who went through the Chinese education system have, and local Chinese will pick up his dialect or slight foreign accent immediately. Also in many cases the locals Chinese feel that the “returnee” is looking down at them since he “made it” overseas and they didn’t. This creates antagonism and a bad atmosphere.
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Opportunities in the Chinese Market: Strategy, Tactics and Practical Tips

Posted by Elena Luk'yanenko
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TEL AVIV, ISRAEL – This week MIT Enterprise Forum Israel held a conference for Israeli entrepreneurs, managers and professionals in Tel Aviv University to discuss business opportunities and challenges in the Chinese market.

Zvi Shalgo, Founder and CEO of PTL Group, who has been recently appointed as the Chairman of the Israel Chamber of Commerce in Shanghai, was invited  to share his personal and valuable experience of helping numerous Israeli companies to establish and manage their business presence in China for the last 14  years.

Prof. Gadi Ariav, an expert of international business management opened the seminar by saying that nowadays there is no excuse to fail when doing business overseas.  Israeli entrepreneurs and companies should learn from the experience that Israeli businessmen have accumulated over the last decade.

Mr. Shalgo stressed the point that many foreign companies don’t realize how important the process of recruiting local Chinese employees is.  Later they also fail to manage their Chinese team.  He believes that only local Chinese professionals should sell the products of the foreign companies in China.  There has to be a local control and supervision platform around the Chinese Manager, which will regulate the company's financial and logistics activities and allow the Manager to concentrate on the business development and sales activities.

Talking about the future of the Israeli export to China, Mr. Shalgo mentioned that 90% of the competition usually comes from the local companies, which have strong local government support.  In order to be competitive Israeli companies have to localize their supply chain and manufacturing.

Mr. Effi Wachtel, President and CEO of RAD Data Communications, who has been doing business in China since 1990, supported Mr. Shalgo's opinion by adding that the best way to operate in China is to set up a company that does it all: R&D, manufacturing and sales.

Prof. Ariav said that foreign companies must work in China, but most of them are just afraid.

The general consensus of all the speakers was that giving up on the Chinese market is a crucial mistake, which will be hard to correct in the future.

If you didn't have a chance to attend "Opportunities in the Chinese Market" conference, you may review its recorded version online on YouTube or on MIT Enterprise Forum Israel website.

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The Israeli Chamber of Commerce in Shanghai Announces Steering Committee Election 2010 Results

Posted by Elena Luk'yanenko
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SHANGHAI, CHINA – The Israeli Chamber of Commerce in Shanghai (IsCham Shanghai) has announced the results of its 2010 election for the new Steering Committee.

IsCham Shanghai's members elected Mr. Zvi Shalgo to the position of Chairman. Mr. Shalgo is the Founder and CEO of PTL Group. Dr. Bella Ohana, Life Managing Director at Infinity, has been elected to serve as Vice Chairman.

“I joined Zvi Shapiro, the Founder of the IsCham Shanghai, in an effort to maintain his achievements of two previous years of activity,” said Mr. Shalgo. “We targeted a clear goal - to reorganize the Chamber into a working organization based on a realistic business model that will enable it to exist for the long term and to support the Israeli business community in Shanghai for many years to come.”

“Many helped this effort,” said  Mr. Shalgo, “my role was mainly to manage marketing concepts, gather the investing founding corporate members and make them to believe in the project.”
 
“The most important task we accomplished over the last six months is establishment of cooperation with the Israeli diplomatic mission to enable a smoother and more flowing channel of mutual resources.”

Three additional Steering Committee members have been elected:
  • Mr. Amit Ben-Yehoshua - China Partner, Shibolet & Co. Advocates & Notaries  and Senior Counsel at Da-Cheng Law Offices.
  • Mrs. Shiri Atsmon - Research Manager at Orcale Added Value.
  • Mr. Ido Klein - Joint Managing and Founder of ToyMonster Ltd.
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How (Not) to Choose a Partner in China (Part 2)

Posted by Elena Luk'yanenko
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The Generous Distributor

Many foreign companies start their quest in China by coming to a Chinese professional business exhibition. Many clients told us a similar version of the following story.
 
The client was approached by a very nice, English speaking, well dressed, professional person who presented himself as a distributor in their field. He showed great knowledge about their company and seemed to have done his homework about them. He showed them his huge and costly exhibition booth where they could see that he has indeed sold many brand names well known in their industry.

He then offered to take him to dinner in his luxurious car, in one of the most expensive restaurants in town which was then followed by karaoke and dining on expensive gourmet food, wine and more. The foreigner was astonished by how much money the distributor was spending on someone he just met that day and was very impressed.

What he didn’t know was that the distributor was using the marketing budget that other clients gave him to do marketing for them - but instead the distributor uses it to entertain prospective clients  - just like he intends to do with the marketing budget the new client will give him to develop the market for him.
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How (Not) to Choose a Partner in China (Part 1)

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“Why is it that when overseas entrepreneurs come to China they lose their sensibility and rationalism?” I keep asking myself and others, after finishing yet another meeting with a potential client who came to tell us all of his troubles regarding his business in China.

In our business we meet many overseas entrepreneurs who started their business in China and after getting into trouble, come to us for possible solutions. By the point they come to us, it is normally two to three years after they started the business in China and they already have at least one partner they rely on. This partner does not necessarily have to be a legal partner such as a Joint Venture partner (God forbid…) , but it can be anything from the first sales representative, first distributor, agent, Chief Rep Office, Office manager, business developer and various other arrangements that represent a very special relationship between the foreign client and their local representative. The foreign client normally comes to meet us with their “trusted” partner and they assure us that everything can be said in front of their representative.

 
I hate to generalize, but typically for every nine out ten cases, the main cause of the business failure in China is sitting next to the foreign client. Each time I am introduced to the “trusted” partner I am always astonished how the foreign client chose this person in the first place. I always like to hear the story of how they met and why they decided to form a partnership. I would like to share some of these stories to show how people lose their senses when starting a business in China.
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Selecting a Distribution Partner in China

Posted by Elena Luk'yanenko
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For many firms entering China it makes more sense establish their presence through distributors already established in China rather than setting up their own sales and marketing organizations. However, while working through a distributor can reduce capital requirements and reduce risks in some areas, choosing an effective distribution partner raises its own set of challenges.

RightSite spoke with Arie Schreier, Vice-President Downstream at PTL Group, a provider of outsourced management solutions for foreign investors in China to get his insight on selecting a distributor that your business can grow with.

RightSite: Many distributors claim to operate nationally, but may actually cover only one region of the country. How can companies ensure that their products are truly distributed nationwide?

Schreier: Every distributor will claim that they cover all of China, or at least that they have partners that cover all of China. This is far from the truth. In fact no distributor can ensure nationwide coverage, just like no distributor can cover the whole Shanghai area.

The reason is very simple: in China sales are done normally through personal relationships and networks. The “guanxi” network that a distributor has can help a lot in the sales process. For example, if a distributor has good contacts in the purchasing department of a hospital, he will be able to sell this hospital anything from bed sheets to MRI machines. But to the hospital across the street where he has no contacts he may not be able to sell even one bed.

The distributor that you will choose will sell as much as he can to his contacts but when his contacts don’t need any more of your products, this distributor is not likely to find new clients for you. Instead he will try to generate more sales of additional product lines through his existing contacts and then start to neglect the sales of your products.

For a company seeking nationwide coverage, it is better to rely on a number of distributors that will cover a larger geographical area as well generating a variety of sales channels.

The biggest challenge (and possibly the biggest obstacle in China) is to manage so many distributors effectively.

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The Art of Turning Around Distressed Entities in China

Posted by Elena Luk'yanenko
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PTL Group: What brings you nowadays to China?

Jan Molenkamp: Many international companies have ventured into China without taking into account the necessary preparation and analysis steps. Consequently they inevitably run into trouble some way or another. During the time that the domestic markets of these companies were on a “high”, underperformance or even loss making of their Chinese entities was accepted as a “part of the business development process.”

Now the domestic markets are less than favorable due to the global economic crisis. Due to this, more focus is put on the individual contribution of the various international ventures. After all, these were set up over the past couple of years to contribute to the enterprise’s overall bottom line. The attention to these contribution factors quickly (and in some cases finally) exposes to some unlucky international enterprises that the Chinese venture is underperforming at best.

Due to enormous pressures on profitability and cost saving a culture of decision making emerges in corporations, which previously was deemed unnecessary. Quickly the companies scramble their own analysts, reorganization- or liquidation experts, who are immediately sent to China to see what can be saved, improved or shut down.

The Impact of the Stimulus Package on FIEs in China

Posted by Elena Luk'yanenko
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In recent weeks a mood of cautious optimism concerning China’s economic growth prospects has started to take hold. The result has been the upward revision of many analysts’ 2009 full-year GDP growth forecasts, and a stronger Q2 2009 GDP growth result of 7.9% (compared to 6.1% in Q1 2009).

The biggest winners from China’s economic stimulus package so far have been domestic Chinese companies, particularly state owned enterprises (SOE) whose combined investment has increased by 40.6% year-to-date over the same period in 2008. A preference for domestic goods and services under the stimulus package was recently confirmed by a government circular issued in early June which mandates that where possible all products and services for government invested projects must be domestically sourced. This has quickly become known as the “buy Chinese” order.

However, as confirmed by the National Development and Reform Commission (NDRC), such preference does not exclude goods produced by ‘legal branches of foreign companies in China’ and after the notice was released there have been evidence that national and provincial government agencies are continuing to buy foreign products.

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PTL Group holds China workshops in Israel and the Netherlands

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“The Smart Approach to Set Up and Manage Business in China” and “Management of Chinese HR” were the subjects of the seminars held by PTL Group in June in Israel and the Netherlands accordingly.

Israeli workshop was held in June 11 at Dan Accadia Hotel, Herzliya Pituach and was organized by PTL Group in cooperation with HIL Lawyers and Advisors, accounting company Baker TIlly Israel and Israel Management Center (HAMIL). Workshop attracted senior executives and decision-makers from over 40 Israeli companies which are already present or plan their business presence in China.

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PTL Group and HIL Lawyers and Advisors - strategic partners for Corporate Turnaround and Business Recovery in China

Posted by Elena Luk'yanenko
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PTL Group, provider of outsourced management solutions for international companies in China, and HIL Lawyers and Advisors, international law firm licensed in China, formed a strategic partnership to provide a complex corporate turnaround and restructuring services for troubled, distressed or under achieving foreign businesses in China.

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Israel and China get closer with the Launch of the Israeli Chamber of Commerce in Shanghai

Posted by Elena Luk'yanenko
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Now, Israeli and Chinese business worlds will get closer to each other. The Israeli Chamber of Commerce in Shanghai (shortly IsCham Shanghai) was officially launched at Israel 61st Independence Party which was held in Shanghai on the 9th of May at Hyatt on the Bund, Shanghai. The Mission of the Chamber is to support the success of its members by promoting a healthy business environment in China, strengthening Israel-China commercial ties, providing high-quality business information and resources as well as to develop and support social activities of Israelis in Shanghai.

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Marketing in Downturn

Posted by Elena Luk'yanenko
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Most industries go through downturns at some juncture. Planning a more aggressive approach to sales and marketing can help to keep your business in the black during difficult times. In addition, it can set your company apart from the competition which may be complacently weathering the storm. The conventional wisdom is that businesses hurt themselves in the long run by cutting back on marketing during recessions.

A downturn can create opportunity for the companies that are more efficient at turning marketing investments into revenue, since there will be less competition overall. In a study of U.S. recessions, McGraw-Hill Research found that business-to-business firms that maintained or increased advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth than those that eliminated or decreased advertising. In fact, by 1985 companies that were aggressive recession advertisers grew their revenue over 2.5X faster than those that reduced their advertising.

Now is the time to go on the offensive and steal share to expand your business. If you have the right marketing ROI system, it may be easier, more reliable and more predictable to improve sales than it is to raise capital. The key is increasing the effectiveness and efficiency of marketing.

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