Global Credit Management Group

China: Perception versus Reality....

2011-12-22T02:53:00.003Z

Western business leaders, who are devoid of ideas, continue to rationalise their inability to capitalise on the opportunities that abound despite the so-called crises. I am wary of reading Western slanted commentaries designed to ‘prove’ that China’s relentless march forward is bound to falter, so it was refreshing to read an article titled ‘China’s new Corporate Champions’ written by Joel Backaler, see: http://www.bbc.co.uk/news/business-16206489 for the full text, courtesy of BBC.com.

Here is a brief extract, quote:

The global economic downturn presented these Chinese companies with a unique opportunity to capture market share as global consumers increasingly prioritised value for money. Western multinationals have limited time to adapt their strategies and regain their momentum before these new competitors can further consolidate their presence in key markets.

Chinese companies are perceived by some as opportunistic firms with a "land-grab" mentality that lacks well thought-out long-term strategy. Western executives often cite the large scale investments by Chinese companies in Africa's resources sector as an example of this type of behaviour.

These same executives also argue that Chinese companies' fast growth will likely not be sustainable in the longer term due to their short-sighted business practices. In reality though, there is another side to the story in which Chinese companies have been developing local innovations that are suited for their home country but can also be adapted for overseas markets to boost on-going growth.

End Quote

Western business leaders rationalise their inaction in respect of China and Asia generally by clutching on any piece of bad news and blowing it out of proportion; holding crises meetings to focus on the negatives while ignoring their responsibility to identify and capture the opportunities by changing their business models to acknowledge that they are no longer effective.

The abovementioned article appeared alongside an article titled ‘China: A bigger lender than the World Bank’, which charts China’s advances into the resource rich emerging countries; going where ‘Angels (Western banks and businesses) fear to tread’.

BarrettWells

A Negative Management Style Causes Employee Stress and Ill Health

2010-11-02T21:40:00.003Z

Metal Health and Wellbeing (a UK Government Office of Science 2009 publication) reported that one of the leading causes of stress at work and ill health is linked to the style of management. That is to say that stress and ill health are minimised, if a manager provides autonomy to his or her subordinates, manages them by ‘praise and reward’ rather than ‘fault-finding’, provides them with flexible working arrangements and creates a ‘person-friendly’ organisation culture.

Studs Terkel, in his book Working, wrote; ‘Work is about a search for daily meaning as well as daily bread, for recognition as well as cash, for astonishment rather than torpor, in short, for a sort of life rather than a Monday through Friday sort of dying’.

Many people believe that the best way to motivate ourselves and others is with external rewards like money—the carrot-and-stick approach. That is a mistake according to Daniel Pink, writing in his provocative and persuasive book Drive: The Surprising Truth About What Motivates Us.

Leading at a Higher Level: Blanchard on How to be a High Performing Leader with its underlying theme of ‘selfless leadership’ as opposed to ‘selfish leadership’ is the perfect compliment to Drive.

It is to be hoped that all leaders of the future will read these or similar books, take the messages to heart, and make the world a better place.

Ron Wells

Hedging and Liquidity Risk

2010-08-13T05:02:00.005+01:00

A discussion (English-Chinese) in relation to the management of future price risk, was presented in Shanghai, to an invited audience of EMBA/MBA and other Business Executives. The inter-active presentation was followed by an enlightening discussion of Risk Management topics related to dealing with corporate customers and suppliers, commodity traders, banks and brokers.

One Business Executive and MBA Student commented:

‘Hedging and liquidity risk is still rather a new topic to most of businessmen and managers in China, except those working in banking and the other financial institutions. So your lecture will urge those managers, who want to grow their business in a healthier way, to learn more about the risk management tools. Simultaneously, your lecture will also raise awareness of what an important role credibility plays for a company in the market, which I think is even more important in China.’

View the presentation at:

http://www.barrettwells.com/LiquidityRiskHedgingSHAug2010encn.pdf

See a Related Article:

Hedging Future Commodity Price Risk Can Damage Your Company’s Liquidity:
Hedging future commodity price risk is something to consider, only if you guard against the chance that the outcome could damage your company’s liquidity and/or its competitive position. The English version of this article is available at: http://www.barrettwells.co.uk/liquidity.html

To obtain a copy of the Chinese version of the article click: http://www.barrettwells.co.uk/HedgingLiquidityRiskMar2010cn.pdf

Convention on International Security Interests in Mobile Equipment (Aircraft etc)

2010-04-21T08:43:00.006+01:00

The Cape Town Convention or Treaty, as it is commonly known, took effect in 2006.

‘The treaty creates an international system of perfecting security interests in aircraft and simplified and stronger methods of enforcing the rights created by such interests. It was created to engender more certainty for lenders which will, in turn, lower the costs of financing for the purchase and lease of aircraft.’

The European Community ratified the convention in April 2009. The convention was due to enter into force throughout the European Community (with the exception of Denmark) on 1 Aug 2009.

Below is a link to a good introductory article explaining the Cape Town Treaty:
http://www.aviationtaxlawyer.com/pub_docs/Article-CapeTownTreaty.pdf

Official site for the Treaty:
http://www.unidroit.org/english/conventions/mobile-equipment/main.htm

List of countries that have ratified the Convention:
http://www.unidroit.org/english/implement/i-2001-convention.pdf

Editor: These notes kindly supplied by honorary GCMG member SN

The Death of Modern Management by Jo Owen (full version) - YouTube

2010-01-31T22:08:00.004Z

You may find it interesting to watch this video of the author providing a synopsis of his book The Death of Modern Management, which I have been reading. …..
http://www.youtube.com/watch?v=yiz-D8rm80E

As with so many books, you have to read to chapter 10 to find the real meat of the piece. The point made is that IQ and EQ are no longer enough - a manager/leader today additionally needs effective PQ: political quotient.

PQ is said to be 'about gaining the informal power required to achieve the formal requirements of the job.' Since managers can no longer rely on 'formal authority to make things happen.'

'…the core skills that make up PQ' include:

Building networks of trust and influence
Creating alliances to make things happen
Dealing with conflict
Shaping the organisation's agenda to meet your needs
Dealing with organizational conflict and resistance
Managing ambiguity and uncertainty
Finding the right assignments and projects to work on
Discovering the real rules of survival and success in your firm

Lack of PQ is why '….you may well find people who are both smart (IQ) and nice (EQ), but they languish harmlessly in the backwaters of (your) organisation. Meanwhile, people who are neither as nice nor as smart seem to levitate towards the top of the organisation, using nice smart people as their doormats on the road to the top.'
….according to the author

Ron Wells

The Death of Modern Management – How to Lead in the New World Disorder

2010-01-10T10:32:00.001Z

I am currently reading this book, written by Jo Owen, published by John Wiley & Sons Ltd, ISBN: 978-0-470-68285-2.

I’m still busy reading the ‘where we are and how we came to arrive here’ part of the book so haven’t yet reached the part that will really interest me; the ‘so what should we do?’ part.

Here’s one quote that may give a flavour though:

‘Better educated employees have ever higher expectations about the nature of their work, their conditions, their pay and their prospects. Managing them can be a high maintenance activity. Managing people has moved from ensuring a compliance culture to building commitment.’

Have you read this book? If so, please write a comment.

Ron Wells

Global Credit Management – an Executive Summary

2010-01-04T08:52:00.002Z

Global Credit Management – an Executive Summary was written for business leaders; Chief Executives, Chief Financial Officers, Business Unit Managers, and Owners of Small or Medium Enterprises. It consists of 168 pages of easy to read prose, free of unexplained jargon and containing few diagrams. In fact the writing style makes this book suitable for readers for whom English is not their first language, as well as for those who are not familiar with the world of credit management.

Global Credit Management is the perfect gift for a business leader or MBA student.

The Credit Manager of a global commodity trading house – one of the largest in the world – reported that his CEO saw his copy of Global Credit Management and promptly ordered six. The CEO then gave a copy to the Head of each of the company’s business units, presenting the book as ‘essential reading’.

The following dialogue is based on an actual incident:

Shift working Motor Mechanic to wife; ‘That book you ordered by Ron Wells arrived today, it’s pretty good.’
Credit Specialist wife; ‘What do you mean, ‘pretty good’, did you read it?’
‘Yes, I understood most of it; I just have a couple of questions you could assist me with.’

The Credit Manager of a subsidiary of a global energy company advised that his team of five credit professionals had read the book and hotly debated the ScoreCard recommendations. They concluded these would form a sound basis for development of their own solution.

A partner with one of London’s leading commercial law firms recommended the book to his colleagues as providing a useful insight into the increasingly important world of receivables asset management.

Global Credit Management – an Executive Summary serves several audiences equally effectively.

The credit professional finds an explanation of the whole field set down authoritatively, as well as several challenging, and potentially career enhancing new ideas to adopt or adapt.

The business leader, CEO, CFO, Division Manager, or enterprise owner finds Global Credit Management to be a book that spells out why credit management warrants attention, time and resources. The book also provides the basic knowledge a leader needs to effectively manage credit professionals at work. Alternatively a busy business owner will glean sufficient information - including step-by-step guides - to undertake basic credit management effectively, without additional training.
MBA students, including non-English home language students, will find this book fills a gap in their normal course work by providing the minimum knowledge necessary for any would-be business leader. This knowledge relates to one of the most important – yet often ignored – assets on the majority of balance sheets, the ‘accounts receivable portfolio’.

Trade Finance Bankers will find in Global Credit Management details of the challenges facing their clients. Utilising this knowledge they will be able to detect business development opportunities.
A Chinese version (simplified characters) of Global Credit Management – an Executive Summary is available. See www.t3plimited.com (English) or www.t3plimited.net (Chinese) for details.

Click this link for more details: http://www.barrettwells.com/gcm.html
Check Google Books - http://books.google.co.uk - for details, or Amazon - http://www.amazon.co.uk - to SearchInside!

BarrettWells

Read Taleb’s Black Swan?....twice?…..so now what?

2009-07-05T18:58:00.004+01:00

The Black Swan is an enthralling and instructive read for anyone concerned about future risk; such as any member of the Global Credit Management Group. A thorough study of this work and its predecessor Fooled by Randomness is highly recommended. Nassim Nicholas Taleb (NNT) draws together a large number of references and anecdotes to illustrate his points. He repeatedly attacks the received wisdom of those who model the future and who, being lulled into a false sense of security by the elegant mathematics of their models, are repeatedly surprised when the future does not adhere to their script.

In essence NNT persuades the reader that the most impactful social and technological changes – the changes that will drastically alter the course of future history - cannot be predicted since they are ‘unknown unknowns’. Such events – which he calls Black Swans – will happen for the first time so cannot be imagined in advance, and cannot be predicted by models that extrapolate forward the past. The past cannot be a basis on which to predict the future; ask any turkey just before the butcher’s cleaver falls if he thought his today would be any different from the preceding 1000 days when he ate heartily and potted around a garden or dozed in the sunshine….

With such thoughts in mind, NNT is particularly critical of the use of past trends and volatility statistics to model future risk probabilities. The omnipresent use of Value at Risk (VaR) and Credit Value at Risk (CVaR) calculations to ‘predict’ future losses, with 95% or 99% confidence, NNT shows to be particularly dangerous; as has proved to be the case time and again. Yet the majority of academics and the decision makers they train persist in the use of VaR and CVaR - by inference bowing at the Alter of the ‘bell curve’ – because ‘The demand for certainty is one which is natural to man…’ (Bertrand Russell) even if that certainty is built on mathematical models that cannot predict pivotal events. Thus building on sand, trusting in false predictors, all of the unconverted – those who chose to ignore Benoît Mandelbrot’s theories as expounded by NNT in The Black Swan – created the instruments and conditions that caused the global financial firestorm (Credit Crunch) that followed the collapse of US house prices and the bankruptcy of Lehman Brothers.

NNT refers to the ‘bell curve’ as ‘that great intellectual fraud’.

This is all very interesting however the burning question after reading this seminal work is; what does it mean for someone in the business of Credit (Performance and Payment) Risk Management?

Read the full article at this address http://www.barrettwells.co.uk/blackswan.html

Ron Wells

Black Swan events mean that ordinary (anticipated) events have become increasingly inconsequential...

2009-03-29T22:17:00.004+01:00

The future is where we will be paid or not paid by our customers. Hence as credit managers we need to understand what the future may hold so we can prepare a range of plans that we can adapt to best fit what materializes in the fullness of time.

An understanding of what the future may hold can be gained through use of the Scenario Planning technique.

‘Scenario planning derives from the observation that, given the impossibility of knowing precisely how the future will play out, a good decision or strategy to adopt is one that plays out well across several possible futures. These sets of scenarios are, essentially, specially constructed stories about the future, each one modelling a distinct, plausible world in which we might someday have to live and work.’

(How to Build Scenarios – Lawrence Wilkinson)

The way forward for credit managers then (not being bean-counters of the 19^th century but rather a remarkable synthesis of economist, commercial lawyer, negotiator, management accountant, business manager, detective and master strategist) is to create scenarios of the future for the market or industry in which their customers will be operating. Then to look back from the vantage point of those futures to identify which customers are most likely to have failed along the way.

A Scenario is not a plan, it is not a projection of current trends, yes the future begins from where we find ourselves today, yes the future is shaped by forces we see existent today - if we open our eyes wide enough and shake off assumptions - but it is also shaped by the future actions of men and women of vision, it is shaped by disruptive technology, and unexpected pivotal events; like the fall of the Berlin Wall.

Nassim Nicholas Taleb wrote in his important book on risk assessment, the following:

‘Before the discovery of Australia, people in the old world were convinced that all swans were white, an unassailable belief as it seemed completely confirmed by empirical evidence.

The sighting of the first black swan might have been an interesting surprise for a few ornithologists (and others extremely concerned with the colouring of birds), but that is not where the significance of the story lies. It illustrates a severe limitation to our learning from observations or experience and the fragility of our knowledge. One single observation can invalidate a general statement derived from millennia of confirmatory sightings of millions of white swans. All you need is one single (and, I am told, quite ugly) black bird.

I push one step beyond this philosophical-logical question into an empirical reality, and one that has obsessed me since childhood. What we call here a Black Swan (and capitalize it) is an event with the following three attributes.

First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability. A small number of Black Swans explain almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives. Ever since we left the Pleistocene, some ten millennia ago, the effect of these Black Swans has been increasing. It started accelerating during the industrial revolution, as the world started getting more complicated, while ordinary events, the ones we study and discuss and try to predict from reading the newspapers, have become increasingly inconsequential.’

(Extracted from The Black Swan: The Impact of the Highly Improbable, written by Nassim Nicholas Taleb, published: April 22, 2007)

Please refer to articles found at the following addresses for more discussion on the need for and plausible use of scenario planning:

http://www.barrettwells.co.uk/credit_2010.html

http://www.barrettwells.co.uk/performance.html

http://www.barrettwells.co.uk/customersfail.html

http://www.barrettwells.co.uk/imagination.html

Ron Wells

Time for Thinking

2009-02-22T21:18:00.007Z

I’m sure we have all endured management practices that seemed to be more examples of how not to manage successfully rather than the role models we had hoped to find. Nevertheless these management practices all too often seem to be successful as organisations are carried along on the tide of a benign market cycle. They are only tested when the cycle turns negative.

The result of a negative turn of events is usually howls of anguish from those who have done little, thought little, cared little, planned and strategized little; yet drained their organisations of much. Executives with no vision and no leadership skills but big pay-packets, no, obscenely large pay and benefits packets, wonder how their genius could have suddenly escaped them…..

Robert Heller writing in the January 2009 Letter to Thinking Managers remarked:

‘….the effects of working for the largest company in the industry for so long; managers become ‘comfortable, insular, self-referential and too wedded to the status quo’. Such habits, folklore would argue, will get driven out of supine corporations by the threat of failure and the impact of competition. But this process is not automatic at all.

….twin cults have played a noxious part in the fall of America’s one-time world champions. The Cult of the Chief Executive elevated some quite ordinary men into mini-heroes and mini-heroes into gods. The Cult of Shareholder Value, perversely enough, extracted large wealth from the value that rightfully belonged to the investors. The Congressional hearings on the Big Three auto giants and their pleas for bail-outs showed cultism at its silliest. The three CEOs turned up in separate corporate jets, with no documents or plans, giving the committee a field day. Would the trio accept a cut in pay to $1 a year? The Ford man reckoned that his massive $22 million was just about right.

The banks sum it all up: overpaid colossally, professionally incompetent, immensely conceited. That’s no way to run a bank, a car company - or the world economy.’

Today we hear only bad news, but is it all bad? It cannot be bad that inefficient, and incompetent leaders who lack vision and act only out of selfish greed are removed from the corporate decision making process. It is not bad that excess productive capacity is trimmed – redirecting scarce world resources to more useful activity.

There is no doubt that we live through a time of painful transition for many people, a transition that could have been eased, less radical, and spread over a longer time period if corporate leaders had had the skills and vision for which they were so handsomely rewarded.

Edward de Bono wrote in his January 2009 Letter to Thinking Managers:

‘Most executives regard thinking as a luxury. It is enough to follow the routines. Continuity is everything. Now and again there is a need to analyse a situation to identify a standard element and then the standard response can be applied.

When things are going well, then this continuity works because you are carried along on the tide of success. Unfortunately, the reverse happens when things are going badly, because the tide is going in the opposite direction.

Better thinking is never a luxury. Better thinking is an absolute necessity in difficult times.

This better thinking includes creativity. There is a need for creativity in order to look at things in a different way.’

Although many businesses will benefit from the state of transition in which we find the world economy; let us hope that new leaders of vision and compassion will emerge to enable the whole world economy to expand and prosper to the benefit of all participants.

Ron Wells

Members can subscribe to the Letter to Thinking Managers at http://www.thinkingmanagers.com

Plus ça change, plus c’est la même chose: Margining and Value at Risk – is there a better way

2008-12-27T11:26:00.006Z

The concepts, ‘margining’ and ‘value at risk’ led the global financial system into a very dangerous place recently, but there is no sign that they are being challenged. Is anyone searching for or developing a better way to deal with ‘future risk’ in price volatile commodity and associated derivative markets?

When margining is in place and prices move against a company’s position its counterparties feel safe because they receive cash daily to cover their revised net exposure. That is the amount that would be due to them should the company have gone bankrupt at the close of business the previous day.

Additionally, a value at risk calculation – based on probability (gambling) theory – informs the management of the counterparties daily how much exposure they may incur during any necessary close-out period following a default, say five or 10 days, with a mathematically calculated degree of certainty. Thus empowering the management of counterparties to call for additional ‘initial margin’ or ‘adequate assurance of performance’, if it is felt that such ‘close out period related exposure’ is excessive. Let us remember at this point that value at risk calculations have proved to be nonsensical and useless in many cases, despite the claim that they provide a 95% or 99% degree of mathematical certainty.

Value at risk (VaR) calculations are based on the assumption that markets will behave in the future – as to price volatility and trend – in the same way as they did in the past. Such an assumption is patently spurious, hence the failure of VaR calculations to be of any use in a crisis situation. Nevertheless those who manage and regulate our financial markets cling to the belief that VaR calculations are capable of predicting such ‘worst case’ crisis or extreme situations.

In times of extreme price volatility or price spikes, margining drains the liquidity of companies that are on the wrong side of the price movement, particularly if they are either ‘market makers’ with open (un-hedged) positions, or physical commodity consumers that have to wait for the cash arising from the transaction hedged, thus are unable to find the cash to ‘post’ margin immediately.

If a company is thought to be having difficulty finding cash to pay (post) margin immediately it is often downgraded by the infamous S&P, Moody’s or Fitch, and immediately faces increased margin calls on existing positions hence its end in bankruptcy becomes more certain and more immediate.

At the point of bankruptcy, those counterparties that have secured their positions cheer, then pat themselves on the back and gloat as the zero sum game they play sees another august competitor brought to its knees by lack of liquidity alone.

The schadenfreude moment is short-lived however as counterparties scramble to replace the hedges lost as a result of the bankruptcy.

When Lehman Brothers was destroyed many counterparties lost millions through the need to replace hedges in the midst of the panic that followed, as good old ‘demand and supply’ drove prices to spike beyond anything forecast by any VaR calculations.

Do we have to suffer this cycle repeatedly?

The markets continue to use margining (against daily mark-to-market calculations) so it seems inevitable that the Lehman Brothers fall-out scenario will be repeated time and again, perhaps not so spectacularly nevertheless some fine companies and many jobs will be destroyed in the process. Following the Enron debacle, we saw a similar episode almost destroy Dynegy but the margining and VaR concepts were not questioned at that time.

The margining and VaR concepts and related practices need to be reviewed urgently since they appear to be unsound and unsuitable foundations upon which an untold number of interlocking financial transactions are built. The potential consequences of the failure of these concepts to protect markets have been presented in the stark reality of the ‘credit crunch’.

The danger to global financial markets persists and will persist as long as such crude and impractical tools are considered adequate. Therefore now is the time to re-examine the way in which future risk (performance and delivery) is assessed and how related exposure to counterparty bankruptcy risk is secured.

More information is available in the presentation and articles found at: http://www.barrettwells.com/CVaREnergyRiskFeb2008web.pdf,
http://www.barrettwells.co.uk/performance.html, and
http://www.barrettwells.co.uk/crmsforum.html.

Please post your ideas and comments on this subject, or write an article for a professional journal.

Ron Wells

China: A Review of Developments in Credit Management

2008-11-09T16:25:00.007Z

Ron Wells recently gave a presentation titled China: A Review of Developments in Credit Management. To view this presentation go to http://www.ccrinteractive.com/ and register. Registration is free and only takes a couple of minutes.

After you register you will find yourself on the opening page of the website, with a video of a politician making one of the conference opening speeches starting to play. Below that video window you will see several buttons. Click on the INTERNATIONAL button and a menu of videos will appear, one of which is this presentation, click on that item and the presentation will begin. It runs for 25 minutes....

Editor

Once again the major Credit Rating Agencies (S&P, Moody’s and Fitch) have failed; once again they are being reprieved…

2008-08-03T21:16:00.003+01:00

The following extracts from recent BBC.com reports point out only the most recent in a string of failures clocked up by the major credit rating agencies. Yet once again all we hear from these agencies is that once again they are reforming.

The message is …..do not rely solely on the credit ratings published by these agencies when making credit risk decisions. Treat such ratings merely as ‘input’ to be considered as part of your overall analysis, or you will risk more than credit, you’ll risk your company and your job…..

QUOTE:

Problems found at ratings firms

A report into the much-criticised activities of credit rating agencies has found conflicts of interest at the firms it studied.

The US financial regulator, the SEC, found that the firms, which rate investments, had broken its rules.

It began looking into their work after they gave positive ratings to sub-prime related investment products whose value later slumped.

The agencies are now implementing better procedures, the SEC said.

See: http://news.bbc.co.uk/2/hi/business/7496599.stm

(Editor: We heard the same after Enron and Parmalat, let’s hope this time ‘better procedures’ will mean more useful credit ratings)

Tougher rules for rating agencies

Credit rating agencies could be banned or prosecuted under a draft European Union law aimed at making them more accountable for the advice they give.

Firms that rate debt investments, such as Fitch, Moody's and Standard & Poor's, have been criticised for their role in the sub-prime mortgage crisis.

The new law would replace a voluntary code of conduct.

…..it was generally accepted that the agencies had "failed to reflect early enough in their ratings the worsening of market conditions thereby sharing a large responsibility for the current market turmoil".

http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/7535911.stm

(Editor: So what’s new? This has happened time and time again…..)

Letters of Credit … should state applicable law and jurisdiction

2008-06-20T13:55:00.002+01:00

Letters of Credit (LCs) are still widely used in international trade, although they cover a diminishing proportion of that trade. Most sellers who receive and buyers who initiate LCs and their bankers know that their LCs must be opened subject to the Uniform Customs and Practices for Documentary Credits 2007 revision, as published by the International Chamber of Commerce, in publication number 600; generally called UCP 600.

However relatively few bankers and very few exporters and importers realise the importance of ensuring that the LCs they open, receive or initiate should stipulate the law and legal jurisdiction which applies in each case.

This becomes vitally important if a dispute arises regarding an LC. If applicable law and jurisdiction are not stated, the parties to the dispute may do some ‘jurisdiction shopping’ and/or place the matter in the hands of a court inexperienced in matters of international trade, which has to work with law that does not adequately support an equitable ruling.

UCP 600 is a body of rules incorporated into the LC contract. It is not law hence it does not have the force of law in any jurisdiction. It is a contract between the parties to the LC so the rules will be interpreted by a court simply as rules agreed by the parties, against the background of the applicable law.

I recommend the inclusion of a clause in all LCs stipulating either English law and English Courts, or Singapore law and Singapore Courts, or Hong Kong law and Hong Kong Courts, or New York law and New York Courts; simply because it is these courts that by virtue of the fact that they are based in trading hubs, have extensive experience and sound legislation and/or precedent decisions on which to base broad-minded judgements.

It may not always be possible to persuade an opening bank to include a law and jurisdiction clause but I have found through experience that most banks will agree. I have found that if you persist in requesting this clause it is possible to achieve a high percentage of success.

Feel free to take professional legal advice on this matter, but I recommend that if you do so you consult a lawyer with experience in international trade. I will be happy to recommend some appropriate legal firms if you are not familiar with the field.

Ron Wells

Bretton Woods - No. Globalisation - Yes

2008-05-31T16:24:00.004+01:00

Greetings …

I had the pleasure of attending the FCIB Conference in Budapest a couple of weeks ago. The key-note speech by the Chief Economist of Fortis Bank was amusing, interesting and informative. This was a veritable highlight. Some comments that stuck include; the USA resembles the Roman Empire before it fell, with a near zero savings rate and a $9 trillion debt burden. You can hear the silent cry of US residents – so we have no money, never-mind let’s go to the mall and spend some more of someone else’s money! The prediction is that – if we are all very lucky – the lenders to the US citizenry will not ask for repayment until about 2012/13. So we only have to deal with the sub-prime fall out for now.

The other point well made, amid many a chuckle, was that (i) globalisation, and (ii) technology have changed the rules for the world economy, so the Bretton Woods US consumer dominated model and the associated control mechanisms no longer apply.

Participation in the world economy has grown ten fold since 1990 (800 million American-European-Japanese participants to 6000 million citizens) and technology has made the world ten times faster. Business has been turned on its head by technology and open access, from a heavy asset based fixed address model to an intelligence-connectivity model. Nation states have lost control since intelligence and connectivity has no fixed address.

The positive spin-off for all world citizens has been enormous. Sustained and stable economic growth, low inflation and low real interest rates; despite the world financial crises companies in the real economy are still in good shape.

Were you at the FCIB conference I Budapest? If so, what were your impressions? If not, do you agree with the sentiments that I have poorly represented above?

Regards Ron

PS: Find out more about the FCIB on www.fcibglobal.com

Invitation to join GCMG – No formalities required …

2008-05-18T16:09:00.002+01:00

You are warmly invited to become a member of GCMG – in fact you are already a member. We do not need to know your name, or where you live, you need no qualification other than an interest in B2B credit management, which you obviously already possess. There is no fee to pay!

There are three types of member of GCMG, you are free to choose which one you wish to be and free to change category whenever you like.

The first type of member is a Spectator, who visits the blog from time to time and reads the content. Spectators sometimes pass on a link to friends and colleagues, or send a copy of an interesting item posted.

The second is a Questioner, who visits regularly and from time to time submits a question related to international B2B credit management.

The third is a Contributor, who offers answers and advice to Questioners via blog comments. Contributors are also encouraged to suggest books and articles that members may find interesting and to post reviews. Suggestions regarding new techniques and technologies are likewise welcome. Send an email to info@barrettwells.com and your contribution will be posted under your name or nom-de-plume, as you wish.

All members are valuable, all are welcome.

Ron Wells

Note: B2B = business to business

Introduction

2008-05-17T17:48:00.004+01:00

Comments published on behalf of the GCMG will appear here regularly.

The formation of the GCMG was inspired by the exploits of Credit Agent 007.24 Samuel James Bond Barrett in Central Africa in the mid-nineties. That amazing story illustrated the way forward for 21st century credit management.

Read the full story at http://www.barrettwells.co.uk/gcmg.html.

I’m also looking forward to reading your comments in due course.

Ron Wells