Archive for the ‘European Business Association’ Category

Can North Korea embrace Chinese-style reforms?

Thursday, October 28th, 2010

According to China Economic Review:

Could North Korea be saved by Chinese-style reforms? In return for its continued support, China is pushing the rogue state to liberalise its economy, and Chinese firms are making inroads into various sectors, especially infrastructure and mining. Earlier this week, I interviewed Felix Abt, a Swiss business consultant who was appointed managing director of a pharmaceutical joint venture in Pyongyang with a brief to turn around the loss-making company, about his experiences over the last eight years.

How open is North Korea to foreign investment, and how many foreign companies are operating on the ground?

In 1992 the Supreme People’s Assembly adopted three laws allowing and regulating foreign investment — the Foreign Investment Law, the Foreign Enterprise Law, and the Joint Venture Law.

Since then, foreign investors have become active in a variety of industrial and service industries. There are a few hundred foreign-invested companies operating at present, mainly smaller sized ventures ($100,000 to $3 million) and of Asian origin (with China ranking No.1).

There are a few very large foreign investments, mainly in the telecom and cement industries. Western multinationals have been shying away from North Korea for fear of ending up on a sanctions list in the world’s largest economy. BAT sold its highly profitable tobacco factory due to political pressure in Great Britain to a Singaporean company a few years ago.

What sort of person sets up business in North Korea? What sort of industries have arrived and what sectors are not represented?

The domestic market is still very small and limited and and not much growth can be expected in the foreseeable future. So to talk about a promising emerging market at present would be a silly exaggeration.

However, North Korea is a very interesting location for the processing of products from garments to shoes to bags where you send the cloth or the leather and the accessories and they send you the finished products back.

The same goes for the extraction of minerals and metals, abundantly available in North Korea, in which case you would send equipment and get the mining products.

In addition, the manufacturing of low to medium technology items is very competitive and such products are already being made with foreign investment in North Korea from artificial flowers to furniture to artificial teeth. I was involved in making the business plan for the artificial teeth joint venture and know therefore that such products can be manufactured with a much better profit margin than for example in the Philippines where the artificial teeth had been produced before.

A particularly promising industry is IT due to the extraordinary quantity and quality of mathematicians unmatched by other countries. The first and only software JV, Nosotek, has seen remarkable successes within a very short time from its foundation and could become a subject of interest to investors who would never have thought of putting any money in North Korea until now.

How easy is it to do business there? Are most foreigners concentrated in Pyongyang or are they spread around?

It depends on the expectations, on the choice of the local partner and on the expatriate staff a company sends there. You need to thorougly select the most suitable local partner and an expatriate manager that is not only professionally competent but also can adapt to and cope with a demanding business environment.

The success of the pharmaceutical joint venture I was running in the past depended on a fast capacity building of the Korean members of the board of directors, managers and staff. I brought them to China where they visited the first foreign and Chinese invested pharmaceutical JV and I convinced its Chinese octogenarian architect to become a member of our company’s board of directors.

Since he faced very similar problems decades earlier he could convince the North Koreans quite easily why certain things had to be done in a certain way to make the business successful. We visited a great number of pharmaceutical companies, wholesalers, pharmacy chains in China and some of our staff even worked in a Chinese factory for some time.

When I wanted to set up the marketing and sales function I was first told that “companies in the DPRK usually don’t have a sales dept.”. I was asked to send a letter to the cabinet to explain my reasons to get the permit for doing so. The visits in China were surely important eye openers and helped getting things organised like in any other country.

The Korean managers and staff quickly acquired all the necessary skills and were able to run the day to day business (factory, import and wholesale of pharmaceuticals, pharmacies) alone when my term ended as managing director.

Many foreign business people are based in Pyongyang, but there are also many working in different places throughout the country, e.g. near mines in the mountains.

Hu Jintao has urged North Korea to speed up its economic reform, using China as a model. Could North Korea open up in the same way over the next few years?

The Chinese are better informed than the scholar and North Korea expert who recently wrote in the Wall Street Journal that the country’s elite would never agree to reform its economy as they fear the system would then collapse.

Together with the Chinese, I believe the risk of a collapse is much bigger if no reforms are carried out than if there are slow and controlled changes.

Once the economy starts taking off and people’s living standards rise the people will hardly challenge the system and the leadership even though the North Korean people know that South Korea’s economy is much more advanced.

Read the full story here:
Can North Korea embrace Chinese-style reforms?
China Economic Review
Malcolm Moore
9/23/2010

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Pyongyang International Trade Fair (Sept 2010)

Wednesday, August 18th, 2010

Information can be found on the European Business Association web page.

General information here (PDF).

Registration information here (PDF).

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Kim Jong Il, the reformer?

Monday, June 28th, 2010

Bradley Martin, author of Under the Loving Care of the Fatherly Leader, writes in the Global Post:

Now that food shortages reportedly have forced North Korea to reverse its crackdown on capitalist-style markets, more systematic reforms for its collapsed economy may not be far behind.

The markets policy reversal came May 26 in directives issued by the cabinet and the ruling Workers’ Party to subordinate organizations, according to a report by the Seoul-based newsletter North Korea Today, which gets its information from officials and ordinary citizens inside the North. “The government cannot take any immediate measures” to relieve a food shortage that is “worse than expected,” the newsletter quoted one of the directives as saying in explanation for the policy change.

The same authorities only late last year decreed a sudden currency revaluation that crippled the “anti-socialist” markets, where stallholders had been trading for individual profit, by confiscating the traders’ wealth. The new decrees bless and deregulate what’s left of the markets, which have shrunk and in some cases closed completely in the interim, in the hope that market trading will keep people from starving. And the directives instruct managers of state-run enterprises to pursue lucrative deals — especially in foreign trade — that could help feed their employees.

This could all turn out to be the big event that finally pushes the very reluctant leadership into a multi-year campaign of serious reforms of the sort that began decades ago in Vietnam and China, according to Felix Abt, a Swiss involved in North Korean joint ventures in pharmaceutical manufacturing and computer software.

“Given an industrial stock and an infrastructure beyond repair, and the impossible task of maintaining a huge army, economic reforms appear unavoidable in the very near future,” Abt, a former president of Pyongyang’s European Business Association, wrote in an email exchange.

“It looks intriguing and it reminds me of Vietnam’s history of reforms,” said Abt, who did business for years in Vietnam before going to Pyongyang and recently has moved back to Vietnam while maintaining his involvement in North Korea.

“The Vietnamese economic situation looked dire at the beginning of the 1980s,” he explained. “Nguyen Van Linh, party secretary in Ho Chi Minh City, favored moderate economic reforms. He tried too early, lost his job and left the political bureau in 1982.

“Le Duan, secretary general of the Communist Party, was categorically against any economic reforms. He died in 1986, the year of the five-year party congress which brought Nguyen Van Linh back and elected him as his successor. The new party secretary general immediately launched the Doi Moi policy — ‘reforms.’”

Abt ventured the lesson that triggering reforms “takes something big like the death of a leading politician” in Vietnam — or, in North Korea, a “ruinous” currency revaluation.

Not every foreigner who has had firsthand economic dealings with North Korea is convinced the recent events constitute that trigger. Some worry that U.S.-led sanctions could nip any flowering of capitalism in the bud.

“The problem is still U.S. Treasury’s attitude,” said one such foreigner, who asked not to be identified further. Treasury Department officials began working several years ago to take North Korea “out of the international banking system,” discouraging trade, he noted.

Some U.S.-sponsored sanctions subsequently were eased in an effort to persuade Kim Jong Il to negotiate away his nuclear weapons capability, but after those talks went nowhere — and especially after North Korea allegedly torpedoed a South Korean warship earlier this year — enthusiasm for compromise cooled. Recent reports say Washington is moving toward aggressively strangling cash flow into the country.

There is also the argument that Kim believes he cannot afford to reform the economy because it would let in information and influences that would undermine his family’s rule by letting his isolated subjects learn that the rival South Korean system works much better.

According to Abt, one answer to both concerns could be China, which “will provide all the support necessary to the DPRK party and government to enable economic reforms without regime change.” He used the abbreviation of Democratic People’s Republic of Korea, the country’s official name. “The DPRK may expect support from other quarters, for example, the European Union, too,” he said.

“I think the dilemma of the leadership — economic upsurge versus the inflow of ‘subversive’ system-destabilizing information and ideas, particularly regarding the South — can be overcome with the necessary Chinese support,” Abt said. “Though the division of Korea can only be compared with that of Germany before 1990, China’s division — capitalist Hong Kong, capitalist Taiwan — was a sort of challenge to Deng Xiaoping and successors, too, but they learnt to manage that quite well.”

Read the full the story here:
Analysis: Kim Jong Il, the reformer?
Global Post
Bradley Martin
6/24/2010

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Felix Abt’s advice on starting JV company in the DPRK

Thursday, September 3rd, 2009

German Asia-Pacific Business Association
Ausgabe 3/2009
Download the full publication here (PDF)
Download Mr. Abt’s article here (PDF)

North Korea – doing business in a demanding environment
Despite political obstacles within the system and internationally, it is possible to set up successful business in North Korea, says Felix Abt. Identifying partners and exploring market potentials are difficult tasks. Having completed them, one can count on a dedicated workforce.

The Right Local Partner: The Most Important Requirement to Succeed First, you need a Korean partner for your business as you cannot do any business without one and, second, you do have to find the right one if you want to succeed. When you start with your fact finding mission you come across people who want to introduce you to a specific business partner or they want you to do business with themselves. Of course, they have a vested interest and, most likely, they will not introduce you to alternative and potentially more suitable business partners. But you need to know that in every industry there are companies of different sizes, competence, ranges of products, competitiveness etc.

(more…)

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FDI and JVCs in the DPRK…

Thursday, June 25th, 2009

The General Association of Koreans in Japan (Chongryun) have made a video about foreign direct investment and joint venture companies in the DPRK.  I have posted links to the video below.  It features the PyongSu pharmaceutical factory among other things.  It is in Korean and Japanese (with Japanese subtitles), so if there are any readers who care to translate, please let me know if there is any interesting information in the videos:

Part 1:
chongryn-pyongsuvideo1.JPG

Part 2:
chongryun-pyogsu2.JPG

Part 3:
chongryun-pyogsu3.JPG

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European insurers and LinkedIn nervous about the Swiss

Friday, March 20th, 2009

Over the last few years, the European Union has pursued an engagement policy with North Korea.   MEP Glyn Ford makes regular trips to Pyongyang to facilitate diplomatic progress; the German Freidrich Naumann Foundation runs economic education courses; European donors founded the Pyongyang Business School; and a small group of European ex-pat businessmen formed a de facto chamber of commerce, the European Business Association in Pyongyang.  Although European companies have experienced mixed success in the DPRK they continue to look for new opportunities

This morning, however, Felix Abt, a Swiss director of the PyongSu Pharmaceutical Joint Venture Co. in Pyongyang informs me that his life insurance policy (purchased from a European company) has been cancelled. 

“A European life insurance company cancelled my life insurance because I am a dangerous person living in a dangerous country. Credit card organisations cancel credit cards for such persons in such countries, health insurance companies come up with other reservations and limitations and the latest organisation that has just expelled me is LinkedIn with a very curious explanation.”

I am unsure how the cancellation of life insurance policies could impact other Europen investments in the DPRK, but the marginal effect cannot be positive.  Mr. Abt has been a resident of Pyongyang for years where he manufactures Western-quality pharmaceuticals.  Needless to say, the DPRK is very much in need of his services, so it is a shame that after all this time he is now considered a liability by his insurer.

Mr. Abt also forwarded his rejection from the business networking site LinkedIn, which is posted below:
 

linkedin.JPG

Apparently LinkedIn‘s legal department considers logging into the server as “receiving goods of US origin” (the software I presume), and so it prohibits account holders, or even logging in, from Cuba, Iran, North Korea, Sudan and Syria—even if they are Swiss.

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GPI consultancy report on DPRK trade mission

Sunday, October 19th, 2008

From GPI:

For many entrepreneurs, North-Korea is a relatively unknown trade destination. For this reason, from 28 September to 4 October 2008, a Dutch economic delegation investigated the business climate in this country. You may download a short report of this unique mission here.  Because of its success, another mission will be organised in 2009.
  
The participants noticed trade and investments in several fields, including textile and garments, shipbuilding, agribusiness, logistics, mining, animation and Information Technology. The findings of the mission will be presented at the seminar “Doing business with North-Korea”, which will take place in The Hague in spring 2009. A videofilm about the tour will be shown as well.
  
If you are interested in business opportunities in North-Korea, or in joining a seminar or trade mission, please contact us for further details. It is also possible for us to give presentations at business seminars abroad, in order to present the findings of the Dutch mission in more detail.
 
With best regards,
Paul Tjia (sr. consultant ‘offshore sourcing’)
GPI Consultancy, P.O. Box 26151, 3002
ED Rotterdam, The Netherlands
E-mail: paul@gpic.nl
tel: +31-10-4254172 
fax: +31-10-4254317
Website: www.gpic.nl
report_dutch_trade_mission_to_north_korea.pdf

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Interview Blog: Felix Abt, European Business Association

Wednesday, September 10th, 2008

Interview Blog
How a hopeless pharmaceutical joint venture was turned into a success story, why and how humanitarian aid and economic development mostly follow conflicting interests, how foreign business people challenge and survive an environment overshadowed by heavy geopolitical influences including arbitrary sanctions imposed by foreign powers, how North Korean managers prepare themselves to get fit for export and international competition, and what the dos and don’ts are for those who want to successfully start a business in this very special country.

(click here for other North Korea-related interviews)

Klaus-Martin Meyer: Felix Abt, you came as country director for the ABB group to North Korea in 2002 where you have been resident since. ABB closed its representation just about 2 years after your arrival but you have successfully been involved in a number of other businesses since then. What happened?

Felix Abt: At the time the Swiss-Swedish ABB, a global leader in power and automation technologies, not only faced huge asbesto claims in the United States but also large debts versus a tiny equity that culminated then into a matter of life or death for the group. To survive it decided to immediately save 800 million USD cash expenses, making the closure of a number of factories and offices around the globe unavoidable.

Though we at ABB Pyongyang fully covered our cost through sufficient sales with a good margin the funds and other resources necessary to set up the planned joint ventures I had been negotiating, however promising they may have become, were definitely not available any longer. In addition the pre-contracts I secured for ABB – including one for a 9-digit USD infrastructure project I signed at the dismay of the competitors in presence of the Swiss foreign minister, the Swedish ambassador and the North Korean minister of power and coal industries – would have required even more substantial funding. Given ABB’s critical financial condition that I, far from the headquarters, grew aware of only later, neither ABB could have provided this in the form of supplier credits nor commercial banks in the absence of sufficient export risk cover nor institutions like the Asian Development Bank or the World Bank from which North Korea remained excluded as a member due to US and Japanese opposition.

It led ABB to shut down its country representation. The speculations put into circulation suggesting political rather than economic reasons or the failure of its local business operation for the shutdown were all wrong. ABB’s case also drew more attention than it deserved because this company and British tobacco giant BAT were then the only multinational groups active with resident expatriate staff in North Korea.

After the closure of ABB’s offices I continued to work in Pyongyang as an agent for ABB and added other firms to a strategic agency portfolio which comprised first-rated companies in promising key sectors like mining (e.g. Sandvik) and light industries (e.g. Dystar). On behalf of the companies represented by me I realized multi million USD sales in the following years. I was also involved in setting up mining operations.

Klaus-Martin Meyer: From heavy involvement in infrastructure and mining business to raising a North Korean pharmaceutical factory to world standard – how come?

Felix Abt: The PyongSu Pharma J.V. Co. Ltd. in Pyongyang is the first pharmaceutical joint venture between North Korean and foreign investors and the largest operational European investment at present. The foreign investors that had been holding the majority equity stake sent first a Philippino production pharmacist to Pyongyang to build up and run the joint venture. After he had been in Pyongyang for some time he decided some day not to return to Pyongyang from a holiday. The project suffered a setback and got stuck until a second one from Germany was found who stayed some years until he decided to retire. Both of them were excellent production experts and successfully set up and run pharmaceutical operations elsewhere before. And yet, PyongSu’s situation still looked desperate when the second one left and when I was asked to become managing director and the third one to, so to speak, try his luck: A WHO-sponsored international inspection had just come up with 75 objections, rejecting Good Manufacturing Practices (GMP) acknowledgement, a universally recognized production quality standard in the pharmaceutical industry as defined by the WHO. In addition from being far from reaching the necessary standards, the company had no sales but only expenses, large quantities of Aspirin and Paracetamol nearing their expiry dates were stockpiled at its warehouse, and last but not least both investors, unwilling to give the company any more support, and staff were discouraged and they had little confidence left in the company’s future.

Having had the unique chance of getting to know North Korea and gaining, unlike other foreign business people, a pretty good insight and understanding of the way business is done here during the previous years of my stay thanks to my multi-faceted business activities and having worked and survived for a large multinational pharmaceutical group as country director and regional director before in no much less challenging places in the Middle East and in Africa, I thought I should dare it. At the beginning I felt really lonely in the belief that PyongSu had a fair chance of succeeding and many told me straightforward I was a day dreamer. But already recognizing the impressive potential of the Korean staff when I was a member of the board of directors before taking over as chief executive and the ability to recruit more of the industry’s best talents I believed that with proper management that included coaching and training in all business aspects good results were achievable.

The results of the new approach are quickly told: PyongSu did become the first North Korean pharmaceutical factory to reach international GMP-level confirmed by the World Health Organisation. It also became the first ever North Korean company to participate in tender competitions and to win contracts against foreign competitors from Germany, China, India, Thailand and elsewhere. With an increasing cash-flow generated by ourselves, we have even become able to add significant value to the company by buying and profitably operate pharmacies and other sales outlets in the country.

Being recognized as a model pharmaceutical company PyongSu has, at the request of the government, also made itself socially useful by sharing know-how with other pharmaceutical companies to help raise their standards.

Klaus-Martin Meyer: You have been the initiator and the first president of the European Business Association (EBA) in Pyongyang, the equivalent of a European chamber of commerce. What was the motivation for its foundation and what has been the result of it so far?

Felix Abt: I always felt that there are plenty of misconceptions about North Korea and the way business is done here. Not only was the country underreported and often misunderstood but when Western media did report about it they tended to repeat old, mostly negative stereotypes. Thus, I saw a need to provide the business world with more accurate information, ideally by competent business people on the ground themselves. I also thought an entity should be created that could serve as a bridge between European and North Korean enterprises to accelerate investment and trade between them and to break the isolation the country was pushed into by the powers who have been trying to overthrow it ever since the DPRK or, in full, the Democratic People’s Republic of Korea (North Korea’s official denomination) was founded 60 years ago. I also thought it could some day become a welcome medium for European businesses and North Korean authorities to hold dialogues in order to learn to understand one another’s problems, concerns and thinking which would strongly benefit both sides. I could, by the way, also imagine a larger meeting and communication platform not just limited to few European businesses but open for enterprises around the globe interested in investing and doing business in North Korea.

Since its foundation the EBA Pyongyang made some headway into the direction described before. However, my presidency was marked and overshadowed by an avalanche of arbitrary economic and financial “sanctions” imposed on the host country which kept me busy to find ways and means to keep (legitimate) business going.

As things have stabilized and as we have learnt how to deal with obstacles to our businesses in the meantime and, last but not least, in order to save time for existing business projects as well as new business opportunities in North Korea and Vietnam including those your readers may approach me with I decided a few months ago that I would no longer be available as president or committee member for a second several-year-term.

But having closely experienced Vietnam’s economic adjustment process and the way it so successfully attracted foreign investment where I have been living and working for many years before I moved to Pyongyang I would still be prepared to spend time and share experience and know-how with the competent North Korean authorities should they be interested in it.

Klaus-Martin Meyer: One of the many hats you are wearing is the one as director of the Pyongyang Business School. Is capacity building for enterprises a better alternative to sending rice bags in order to prevent hunger and starvation in North Korea?

Felix Abt: Let me explain you first that with the exception of Sweden and Switzerland all European countries, invited by the North Korean government to do development projects in North Korea, have refused to do so until now for political reasons (following largely US-policies) and provide only humanitarian assistance, particularly in times of disaster. It is mainly the United States plus European and certain Asian countries that have been donating rice and other food items instead either directly or through the World Food Programme (WFP) each and every year for more than a decade and they are continuing to do so. This not only allowed donors to get a glimpse into North Korea through the eyes of WFP-food distributors but it also created a culture of dependency which I suspect was not entirely without political intentions by the donor countries and which economists and development experts claim to also have prevented necessary economic adjustment measures that would have allowed the DPRK to get on its own feet faster.

Recently, for example, I saw that an NGO bought a large quantity of cookies fortified with vitamines in China with taxpayers’ money from a European country for malnourished kids in North Korea. They thought that European hygiene, safety and quality standards of food items can be met in China but not in North Korea. Instead of helping the North Korean food companies with some capacity building reach these standards they were in fact undermining the efforts that the North Korean food processing industry is undertaking to catch up with the rest of the world. How do these do-gooders imagine that domestic factories can thrive and feed their workers and their families if they place their orders with competing industries just across the border? I can illustrate my point also with PyongSu’s example. Some organizations like the WHO and the IFRC have supported and sincerely honored PyongSu’s efforts to reach international quality and safety standards and competitive prices. They were fully aware of the fact that by purchasing quality pharmaceuticals made in the DPRK they would help raise the quality and safety of pharmaceuticals and save additional lives! And yet there are still many NGO’s and countries that prefer to buy pharmaceuticals to be donated abroad rather than from us, directly undermining efforts of PyongSu and the rest of the North Korean pharmaceutical industry to reach and maintain high international standards. This proves that there is a lot of politics, self-interest and hypocrisy involved in what I would call the foreign aid industry which literally beats the domestic manufacturing industry.

A former country director of the Swiss governmental Development and Cooperation Agency (SDC) and I thought food security could only be established by promoting adequate economic development leading to increasing income in domestic and hard currency, job creation etc. Since, of course, we would not have been able to mobilize finance for the upgrading of the infrastructure, or to buy spare parts and raw materials for enterprises, we thought that a very cost-effective means of helping North Korean companies is capacity building for senior officials and managers to enable them to make the best out of their existing enterprises and to prepare them to get fit for export and international competition.

I made a concept for approval by the sponsor SDC and the DPRK-government and then I started organizing the business school seminars (including some essential elements of an MBA-course) with lecturers from different countries with an outstanding theoretical knowledge and practical international experience. Having gained a good idea of the state of North Korean enterprises, their environment and a fair understanding of the needs of their managers when doing business with them I was not only able to select the most suitable lecturers but also brief them in such a way as to have their lectures tailored to the students’ real needs – something other foreign economic training organizers have failed to do. The students at the seminars are North Korean senior officials and company executives. It was therefore not surprising that they expressed great satisfaction with what they learnt and with the practical benefits they drew from it for their businesses. Since SDC did not pay my work and my expenses during the first two years I was not only a co-initiator but also a co-sponsor. In addition I could convince some large foreign companies to send senior executives and experts to hold seminars in Pyongyang at their own expense.

Western media like The Financial Times were quick at speculating that we were about to challenge the socialist system but that, of course, is non-sense. It’s very simple: If a country, regardless of whether it is capitalist or socialist, wants its enterprises to successfully export they need to get to know and apply the corresponding marketing tools. Or irrespective of whether an enterprise is privately or state-owned it needs to have a strategy and a business plan. So the company managers have learnt such basics at our seminars and, to stay with the example, know that if they fail to plan they plan to fail.

This year most of the lecturers have been coming from Hong Kong. They have an academic teaching background and, in addition, international management experience of 20 years on average. A further asset they have, and that’s another reason why I have chosen them, is that most of them also built up subsidiary companies in mainland China on behalf of Western companies. Thus, they are not just teaching knowledge acquired from books but have a lot of highly useful hands-on experience and are also well aware of the different business worlds and of the very different economic, cultural and political aspects in East and West, which is essential to know when interacting with businesses of other countries. Needless to say that they can understand and empathize with North Korea better than European and other Western lecturers who would have to overcome much more than just a wide geographical distance.

Klaus-Martin Meyer: With your unique and large wealth of experience in North Korea what do you recommend to business people who want to start a business in North Korea.

Felix Abt: This is your toughest question since it would take me at least a full evening to give some really useful reply.

Perhaps I would summarily try to answer that if you want to understand why and how certain companies succeed you have to know first why certain other foreign companies fail. Those who fail are quick at blaming North Korea, its system and so on, and, of course, never recognize their own shortcomings.

But it’s worthwhile having a closer look at them to learn how to avoid costly errors. From my observations these are the five main causes of their failure:

– lack of basic knowledge of the country due to a lack of due diligence (no or little home work done before traveling to Pyongyang)
– advice by ignorant and/or biased advisors and sponsors (all advisors belong to this category to at least a certain extent)
– choice of random, suboptimal business partner based on a recommendation (see above) rather than a systematic selection (i.e. asking for a range of alternative business partners from which to choose the most suitable one)
– no identification of a leverage for a long-term joint venture (e.g. lasting technological advance, ownership of unique loyal customer base etc.)
– appointment of unsuitable project manager (with lack of technical and/or social and/or cultural competence as well as lacking patience, stamina and flexibility and/or a background difficult to accept for the North Koreans)

A larger number of Chinese but also some European business people have successfully started businesses in North Korea in recent years. Readers of yours may join the growing foreign business community and I wish them good luck and success, too!

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Pyongyang Autumn International Trade Fair announced

Tuesday, July 8th, 2008

From the European Business Association (EBA) web site:

4th Pyongyang Autumn International Trade Fair
September 22nd – 25th, 2008, 9:30am-6:00pm
Further details here

Information flyer here: eba.pdf
Registration flyer here: registration.doc

The European Business Association (EBA) in Pyongyang issues this bulletin in order to inform about special conditions for participation by European businesses in the upcoming international trade fair in Pyongyang.

EBA Pyongyang and Korea International Exhibition Corporation (KIEC) will co-organise a special collective booth to host European businesses for the third time.

European companies interested in taking advantage of this opportunity are invited to visit the EBA website www.eba-pyongyang.org to see reports about the EBA booths in October 2007 and May 2008, which both were very successfull. Please also click through to membership and consider becoming a member of EBA.

The collective EBA booth has proven to be a convenient and cost-effective way to introduce European companies to the North Korean market. The participation fee is 600 or 700 Euro.

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Interview with president of Nosotek, JV company in DPRK

Tuesday, July 1st, 2008

Via Interview Blog:

UPDATE: Here is an interview with Jürgen Bein about the Kaesong Industrial Zone (In German)

Klaus-Martin Meyer: Mr. Eloesser, you recently became the President of Nosotek Joint Venture Company in Pyongyang, the capital of North Korea. In which the field of business is Nosotek operating?

Volker Eloesser: We do general IT outsourcing. This includes data base applications, 3D technology development as well a games production. Nosotek’s customers come from all over the world and some of our products are even used in the US.

Klaus-Martin Meyer: According to your CV, before you were heading to North Korea, you’ve been the general manager of Elocom, a subsidiary of a German Joint Venture between News Corporation (NWS.A) and Verisign (VRSN). It’s quite unusual for a high-ranking manager of a US based public company to move to North Korea.

Volker Eloesser: That’s true. But I don’t see my job as a political mission. At Elocom, I was managing a company producing mobile phone software technology. Neither my old job nor my new one is a political one.

Klaus-Martin Meyer: What’s your opinion about the demolition of the nuclear cooling tower in Yongbyon and the announcement of the US President George W. Bush to remove the country from the terrorism blacklist?

Volker Eloesser: This was great news. I think that both parties, the Korean and US government, took wise decisions which hopefully help giving peace a chance through diplomacy. For our business, lifting the sanctions will have a very positive impact, as well as for the People in the DPRK. North Korean Companies, domestic and foreign-invested, were suffering a lot under the sanctions. Foreign trade was very difficult and many potential customers feared to get trouble when making business with the DPRK.

Klaus-Martin Meyer: When did you first get interested into the DPRK? Did you already do active business with North Koreans before?

Volker Eloesser: Of course I did. In the beginning of 2005, I held lectures at the Pyongyang Business School. The Korean participants of my lectures were great people really interested into international business.

Klaus-Martin Meyer: Who are the shareholders of Nosotek? Is it a state-run company?

Volker Eloesser: Nosotek is a joint-venture between a European owned private holding company and the General Federation of Science and Technology of DPRK, a non-government organization.

Klaus-Martin Meyer: Along being the president of Nosotek, you are Chairman of the Supervisory Board of Next Generation Entertainment N.V. (NGE), a Dutch public company. Are there any links between NGE and North Korea?

Volker Eloesser: NGE’s management is highly interested in investing into the DPRK software industry. The CEO Dr. Stefan Heinemann believes that the DPRK will become a very important sourcing market in the near future, which has many advantages over China and India. Having this in mind, it makes a lot of sense for NGE to have a board member with experience in dealing with North Koreans.

Klaus-Martin Meyer: How would you describe the difference of outsourcing software in the DPRK compared to China or India?

Volker Eloesser: The DPRK’s software industry is already very well developed, but only for the demands of the domestic market. Although the skill level of the engineers is as high as the skill level in China or India, most DPRK software companies never made successful international business in large scale. The Korean engineers usually have no experience with western culture, habits and taste. But of course you’ll experience the same, when working with some small Indian or Chinese companies. One major advantage of the Korean engineers is that they don’t move to a new job frequently, like the Chinese. In this matter, you can compare the Koreans with Japanese staff, who usually never leave the company to move to another job. The result is obvious: the experience and knowledge stays within the company and there is no risk of IP leak.

Klaus-Martin Meyer: Are you personally living in North Korea or can you do your job remotely?

Volker Eloesser: It’s definitely required to have western management in a company dealing with western customers. Every attempt of people trying to do this remotely has failed. I’m planning to live in Pyongyang most of the year. I have a nice apartment in the city centre.

Klaus-Martin Meyer: Living in Pyongyang sounds hard. How are the living conditions for foreigners in Pyongyang? What about your family?

Volker Eloesser: Well, it’s not as hard as western readers may think. Of course the hardest thing is to live separated from my wife, but she promised to visit me frequently. Generally, the living conditions for westerners in Pyongyang are good: The air is totally clean, there is no risk of becoming a crime victim, there is a lot of green in the city and the Korean people are generally very friendly .

Klaus-Martin Meyer: Usually, western media has almost no idea about the real working and living conditions of the people in North Korea. Can you tell us something about the working conditions of your local staff?

Volker Eloesser: One of my goals is to achieve working conditions according to German standard. The staff is equipped with the latest computer hardware and enjoys a lot of incentives from the company to make their live comfortable. For example, the company is providing free lunch for the whole staff, which is delicious and nutritious. I myself have lunch together with my engineers every day, and I like it very much. Additionally to the large number of public holidays, the company even sponsors a one-week holiday trip. This is the way we appreciate the performance on the job.

Klaus-Martin Meyer: What are the most difficult obstacles, western managers are facing in the DPRK? Do you stuffer from political pressure?

Volker Eloesser: I’ve not yet experienced any political pressure, but of course you need to get used to the local security regulations and bureaucracy. When you behave politely, don’t do derogative statements about politics and respect the Korean culture, you won’t face any serious problems. The most difficult obstacle is the absence of international experience of the software engineers, combined with the cultural differences typical to Asian countries.

Klaus-Martin Meyer: How many European businesspeople like you have discovered the DPRK as tomorrow’s sourcing market?

Volker Eloesser: Actually, not many so far. The European community in Pyongyang is very small. After a few weeks, you know every foreigner. Most Europeans who do business in the DPRK are organized in the European Business Association. But I feel that the community is growing since business managers are more and more recognising that doing business in and with the DPRK is of course working with a frontier framework but also with a great potential of highly-skilled people with an impressive work ethic and an attractive cost-performance ratio – and also an emerging domestic market.

Klaus-Martin Meyer: What drives you personally to go there and build up an internationally operating company?

Volker Eloesser: Leading a foreign invested company in North Korea is a great challenge for me. During my lectures at the Pyongyang Business School, I realized that the skilled North Korean IT engineers have a huge potential for successful software development. This potential is almost unrecognized in the world and therefore unused. I like to be the pioneer who builds up this new outsourcing destination. I believe that economic progress will lead to a general improvement of the people’s living conditions and IT business is a key to economic progress. If you ask me, I would tell you that my work will have a greater impact on improving the North Korean living conditions then just sending bags of rice.

Klaus-Martin Meyer: Do you experience economic progress or political changes in North Korea?

Volker Eloesser: The question about political changes should better be answered by the politicians. But indeed you can see economic progress: Compared to my first visit in 2005, there are now much more cars in the street and the number of foreign investment seem to have significantly grown. A group from Hong Kong is building a large shopping and business area along the Taedonggang river and Orascom from Egypt is continuing the Ryugyong Hotel construction as well as investing into a modern mobile phone network. And recently the German-based Prettl Group (Automotive industry) announced that it will be the first foreign non-Korean company to build a factory in Kaesong.

Klaus-Martin Meyer: Nosotek is located in Pyongyang. Do you think things could be easier for companies operating out of the Kaesong free trade zone?

Volker Eloesser: I’ve never been in Kaesong myself. From what I’ve heard, the free trade zone, which has been build with ROK investment, is a modern factory area, mostly targeted to low-cost production of shoes or textile. I don’t know of any software development in Kaesong. Pyongyang, being the economic and cultural centre of the DPRK with large universities, offers a huge number of qualified engineers.

Klaus-Martin Meyer: What are your plans for Nosotek’s future? How do you see your company in five years? What is your strategy?

Volker Eloesser: My plan for Nosotek is a constant growth. First of course, everybody in Nosotek has to understand the demands of our customers; not only the technical demands but also the usual communication style and habits of the western world. At the moment, we’re only fifty people and I’m starting to build up a powerful middle management, who knows their customer’s expectations. After this has been done, we can begin scaling the business volume.

Klaus-Martin Meyer: Are there other western IT companies having operations in the DPRK?

Volker Eloesser: Nosotek still is the only one. But according to Paul Tjia of GPI Consultancy who organizes business missions to the DPRK, the number of people interested into software development in the DPRK is constantly growing. I hope that Paul will bring more people here to operate software companies. With other Foreigners here, working in the same or similar field of business we together can help strengthening the DPRK to become a better known source for software development. Bangalore is still far, but I’m sure the quality delivered by the Korean IT engineers will be convincing, not only to grow Nosotek, but also to grow the country itself as an outsourcing destination.

Klaus-Martin Meyer: Mr. Eloesser, thank you for the interview.

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