钱伯斯：2022 年能源指南：石油和天然气（28 页）.pdf
Energy:Oil&Gas 2022 Definitive global law guides offering comparative analysis from top-ranked lawyers China:Law&PracticeJin Xiong,Grace Fan and Daisy Duan King&Wood MallesonsCHINA2Law and PracticeContributed by:Jin Xiong,Grace Fan and Daisy Duan King&Wood Mallesons see p.26ChinaMongoliaMyanmarIndiaKazakhstanJapanN.KoreaS.KoreaBeijingRussiaC O N T E N TS1.General Structure of Petroleum Ownership and Regulation p.41.1 System of Petroleum Ownership p.41.2 Regulatory Bodies p.41.3 National Oil or Gas Company p.41.4 Principal Petroleum Law(s)and Regulations p.52.Private Investment in Petroleum:Upstream p.52.1 Forms of Allowed Private Investment in Upstream Interests p.52.2 Issuing Upstream Licences/Obtaining Petroleum Rights p.62.3 Typical Fiscal Terms Under Upstream Licences/Leases p.72.4 IncomeorProfitsTaxRegimeApplicabletoUpstream Operations p.82.5 National Oil or Gas Companies p.82.6 Local Content Requirements Applicable to Upstream Operations p.82.7 Requirements for a Licence/Leaseholder to Proceed to Development and Production p.92.8 Other Key Terms of Each Type of Upstream Licence p.92.9 Requirements for Transfers of Interest in Upstream Licences and Assets p.112.10 Legal or Regulatory Restrictions on Production Rates p.123.Private Investment in Petroleum:Midstream/Downstream p.123.1 Forms of Allowed Private Investment in Midstream/Downstream Operations p.123.2 Rights and Terms of Access to Any Downstream Operation Run by a National Monopoly p.133.3 Issuing Midstream/Downstream Licences p.143.4 Typical Fiscal Terms and Commercial Arrangements for Midstream/Downstream Operations p.153.5 IncomeorProfitsTaxRegimeApplicabletoMidstream/Downstream Operations p.153.6 Special Rights for National Oil or Gas Companies p.163.7 Local Content Requirements Applicable to Midstream/Downstream Operations p.163.8 Other Key Terms of Each Type of Midstream/Downstream Licence p.163.9 Condemnation/Eminent Domain Rights p.163.10 Rules for Third-Party Access to Infrastructure p.163.11 Restrictions on Product Sales Into the Local Market p.173.12LawsandRegulationsGoverningExportsp.173.13 Requirements for Transfers of Interest in Midstream/Downstream Licences and Assets p.184.Foreign Investment p.184.1 Foreign Investment Rules Applicable to Domestic Investments in Petroleum p.184.2 Sanctions Applicable to Investment Abroad p.19CHINA CONTENTS35.Environmental,Health and Safety(EHS)p.195.1 Principal Environmental Laws and Environmental Regulator(s)p.195.2 Environmental Obligations for a Major Petroleum Project p.205.3 EHSRequirementsApplicabletoOffshoreDevelopment p.205.4 Requirements for Decommissioning p.215.5 Climate Change Laws p.215.6 Local Government Limits on Oil and Gas Development p.226.Miscellaneous p.226.1 Unconventional Upstream Interests p.226.2 LiquefiedNaturalGas(LNG)Projectsp.246.3 Energy Transition Considerations p.246.4 Unique or Interesting Aspects of the Petroleum Industry p.256.5 Material Changes in Oil and Gas Law or Regulation p.25LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 41.G E N E R AL S TRU C TU RE O F P E T R OL EU M O W N E R S HI P AN D R E G U L ATI O N1.1 System of Petroleum OwnershipOil and gas resources in China are owned by the state.Notably,a few state-owned enterprises have de facto control of most conventional oil and gas resources in China.Private and foreign investors now can also par-ticipate in oil and gas exploration and exploita-tion after 1 May 2020,thanks to the new policy entitled the Opinions of the Ministry of Natural Resources on Several Matters Concerning Pro-moting the Reform of Mineral Resources Admin-istration(for Trial Implementation)implemented by the Ministry of Natural Resources on 1 May 2020(the“2020 MNR Opinions”).1.2 Regulatory BodiesThe Ministry of Natural Resources(MNR)and the National Development and Reform Commission(NDRC)are the two primary Chinese regulators exercising macro-control and administration over the domestic oil and natural gas industry.Other related matters,such as production safe-ty and environmental protection involved in the process,are subject to the joint supervision and administration of the Ministry of Emergency Management(MEM)and the Ministry of Ecol-ogy and Environment(MEE).The Ministry of Commerce(MOFCOM)oversees import and export licences,among other regula-tory functions.The following are the major regulatory roles and functions of those key regulators:MNR(including its provincial and local counterparts)supervises and administers the upstream exploration and extraction of oil and gas resources,including the grant of explora-tion and mining(production)licences.The NDRC has the authority to oversee downstreamrefineryspecificationsandtheproduction scale and quota setting over resources allocation for each province.The NDRC and its National Energy Administra-tion have the authority to formulate industrial standards related to petroleum and natural gas,new energy,and renewable resources and examine,approve and verify the invest-mentinfixedenergyassets.TogetherwithMOFCOM,NDRC is also the authority to issue the so-called“Foreign Investment Access Special Administration Measures(Negative List)”(the“Negative List”),regu-lating industries that foreign investors are restricted or prohibited from investing().The MEE and its provincial and local coun-terparts are responsible for issuing approv-als for Environmental Impact Assessments(EIAs),a process which evaluates the likely environmental impact of proposed explora-tion,exploitation activities and related project constructions().MOFCOM is responsible for quality control of oil and gas products and issuing import and exportlicencesforcrudeandrefinedoiltocompanies.Together with the NDRC,MOF-COM is the authority to jointly promulgate the Negative List annually.Foreign invest-ments into those restricted sectors must be approved by MOFCOM().MEM is in charge of guiding and training for work safety in the energy sector().1.3 National Oil or Gas CompanyThe following national oil or gas companies are the main players dominating the Chinese petro-leum industry:5CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons China National Petroleum Corporation(CNPC);China Petrochemical Corporation(SINOPEC);ChinaNationalOffshoreOilCorporation(CNOOC);Sinochem Group Company Limited(SINO-CHEM);andChina Zhenhua Oil Co,Ltd.1.4 Principal Petroleum Law(s)and RegulationsThe following primary laws and regulations established the(upstream)regulatory regime of the Chinese petroleum industry.The Mineral Resources Law and its Imple-menting Rules(2009 Amendment)establish the basic legal framework for exploration and production activities(including oil and gas development).The Regulation for Registering to Explore for Mineral Resources Using the Block System(2014 Revision)provides a block registra-tion system for the exploration of mineral resources.Procedures for Administration of Registra-tion of Mining of Mineral Resources(2014 Revision)provide detailed requirements for registration of mineral resources exploitation and the issuance of exploitation licences.The Measure for the Administration of Trans-fer of Exploration Right and Exploitation Right(2014 Amendment)regulates the transfer of exploration and exploitation rights.The Regulation on Sino-foreign Cooperation in the Exploitation of Continental Petroleum Resources(2013 Revision)serves as the basis for foreign companies to participate in the exploration and exploitation of onshore blocks in China through Production Sharing Contracts(PSCs).TheRegulationontheExploitationofOff-shore Petroleum Resources in Cooperation with Foreign Enterprises(2013 Revision)serves as the basis for foreign companies to participate in the exploration and exploitation ofoffshoreblocksinChinathroughPSCs.The Measures for the administration of petro-leum prices(for Trial Implementation)provide guidance on the pricing of petroleum produc-tion,wholesale and retail operations in China.The Safe Production Law(2021 Amendment)regulates the production safety of the entities engaged in oil and gas production and busi-ness operations.The Environmental Protection Law of 2015 provides for environmental supervision,pre-vention of pollution and other issues related to oil and gas exploration and exploitation.The PRC Natural Resources Taxation Law of 2020 provides guidance on the income or profittaxregimefortheChineseoilandgassector.Oil and gas operations are further subject to local ESG regulatory regimes and provincial regulations promulgated on the provincial level.2.PRIVATE INVESTMENT IN PETROLEUM:UPSTREAM2.1 Forms of Allowed Private Investment in Upstream InterestsFrom May 2020,the oil and gas exploration and exploitation rights can be awarded to private enterprises by approval of the central MNR as a result of a licence application,bidding,auction,or listing for sale on a property right exchange or agreement.Application of LicencesChina has a licensing system in place for the exploration(which includes exploration and trial extraction)and extraction of mineral resources(including oil and gas).Private investors need to LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 6obtain a licence from the central MNR before the exploration of oil and gas.Applicants pay for exploration rights fees as part of the application,register exploration and con-verted extraction rights and obtain such licences upon approval.The licences usually have a lim-itedperiodandcoveraspecifiedarea.Bidding,Auction,Listing for SaleFornewexplorationrightswhichfitinthefol-lowing situations,the administrative department under the MNR shall grant such a right by means of invitation to bid,auction,and quotation:itisanoilfieldsurveyedwiththefundsofthestateandverifiedtobepossibleformining;itisanoilfieldwhichhaslosttheminingright;itisanoilfieldwhichhaslosttheexplorationright but is geologically available for explora-tion;the hydrocarbons and related by-products can be extracted without survey as pre-scribed by the administrative department;orother circumstances prescribed by the MNR and the administrative department at the provincial level.Foreign investor applicants are subject to a separate market/industry entry/access regula-tory regime(see 4.1 Foreign Investment Rules Applicable to Domestic Investments in Petro-leum).2.2 Issuing Upstream Licences/Obtaining Petroleum RightsProcess for Private Investors to Obtain An Upstream LicenceFile an application with the MNR and await approval(usually within 90 days)or to win in upstream licence bidding,auction or listing for sale on a property right exchange subject toatleast40daysofpublicnotification;pay for exploration fees,and once operation converts to actual extraction(trial extrac-tion is included with exploration activities),fileproofofreservesandworkplanwiththeMNR to receive the corresponding extraction licence;andregister exploration rights received with the MNR before getting the actual licence.Chinese oil and gas exploration licences are usu-ally issued for up to seven years with possible extensions.Due to Covid-19,the MNR encour-agesapplicantstoapplyonlinethroughitsoffi-cial website at.Extensions of up to three months can also be granted to appli-cants for delays caused by the pandemic.Prerequisite QualificationsThe applicant for oil and gas exploration rights must be the entity funding the explo-ration activities and be a company with an independent legal status.All companies incorporated in China with net assets value of at least CNY300 million can apply for an oil and gas exploration licence and later convert to an extraction licence.There is no longer a distinction between domestic and foreign applicants.Other Relevant Permits Required for OperationsThere is a Pollutant Discharge Permit system in China.An entity must discharge pollut-ants in accordance with the requirements of the Pollutant Discharge Permit,and pollut-ants cannot be discharged without a proper permit.For solid waste,waste water and exhaust gas,the following permits are required.(a)Pollutant Discharge Permit for Solid Waste:entities that generate industrial solid wastes must obtain this permit.(b)Water Pollutant Discharge Permit:com-panies or other operators that directly or 7CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons indirectly discharge industrial waste water into water bodies must obtain a Water Pollutant Discharge Permit,which sets out the requirements for the type,con-centration,total amount and discharge destination of the discharged water pol-lutants.(c)Air Pollutant Discharge Permit:compa-nies that discharge industrial waste gas or harmfulairpollutants(asspecifiedintheList of Toxic and Hazardous Air Pollutants)must obtain an Air Pollutant Discharge Permit.2.3 Typical Fiscal Terms Under Upstream Licences/LeasesOil and Gas Registration FeeExploration registration fee is usually based onascaleoftheunderlyingoilfield:(a)Small Field typically CNY200(Crude Oil 100,000 t/y;Natural Gas 100,000,000 m/y);(b)Medium Field typically CNY300(Crude Oil 100,000500,000 t/y;Natural Gas 100,000,000500,000,000 m/y);and(c)Large Field typically CNY500(Crude Oil 500,000t/y;NaturalGas500,000,000m/y).Exploration Rights Use Fee/Extraction Rights Use FeeAn oil and gas exploration rights or extraction rights-holder are also subject to an exploration rights use fee and an extraction rights use fee to the government,taking into consideration the economic condition,geological environment and labour reality of the oil-producing province.Exploration rights fee:(a)one to three years,typically at the annual rate of CNY100/km;and(b)four years onwards,the annual rate is typically increased by CNY100/km per year(up to CNY500/km).Depending on location,extraction fees typicallyrangefromCNY1,0003,000/km.Around certain grassland areas,such as Inner Mongolia,there is a grassland make-whole fee of up to CNY4000 for each well drilled.Special Oil Gain LevyA special oil gain levy,administered by the Min-istryofFinance,isanon-taxfiscalrevenueofthe central government.It is levied on all oil pro-duction enterprises that sell crude oil produced in China,whether sold inside or outside China.The special oil gain levy is charged at progres-sive rates,depending on the monthly weighted average of the selling price of crude oil of an enterprise.The levying threshold is set at a cer-tain price per barrel,adjusted every year(eg,in recent years,at about USD65/barrel).The levy rates and quick calculation deductions are as follows:Crude Oil Price(USD per barrel)/Levy Rate/Quick Calculation Deduction(USD per barrel)USD65 to USD70(inclusive)/20%/USD0;USD70 to USD75(inclusive)/25%/USD0.25;USD75 to USD80(inclusive)/30%/USD0.75;USD80 to USD85(inclusive)/35%/USD1.50;andOver USD85/40%/USD2.50.Signature BonusFor foreign capitals participating in the oil and gas industry through PSC with major Chinese oil and gas entities,a signature bonus paid to the state is prescribed in the PSC.The bonus is usually determined by the volume of oil and gas resourcesandtheeconomicvalueofthefield.LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 82.4 IncomeorProfitsTaxRegimeApplicable to Upstream OperationsResource TaxOil and gas extraction rights holders must pay resource tax on their sales amount derived from oil and gas sales.The resource tax rates vary fordifferenttypesoftaxableoilandgas,eg,theresource tax rate is 6%for crude oil,natural gas andshalegas,whiletherateis12%forcoal-bed methane.There is also exemption or reduc-tion of resource tax on the applicable situation(ResourceTaxLawofthePeoplesRepublicofChina).Income TaxIncometaxispayableontheprofitsforthesaleof oil and gas at the rate of 25%.Taxes and duties on importing and exporting oil and gas may vary based on any bilateral tax treaties between China and the relevant foreign country.Value-Added Tax(VAT)VAT is levied on the import and export of oil and gas at the following rates:for crude or processed oil:13%;andfornaturalgasandpetroleumliquefiedgas:9%.Consumption TaxConsumption tax is levied on the import of pro-cessedoil,andtheratesvaryforthedifferentkinds of processed oils.For example,the con-sumption tax rate for fuel oil is CNY1.2 per litre.The import of crude oil and natural gas is not subject to consumption tax,as is the export of any oil and gas.Customs DutyCustoms duty is due on the import of processed oilandtheratesaredifferentfordifferentkindsof processed oils.For example,the customs duty rate for fuel oil is 1%in 2022.The import of crude oil and natural gas is exempt from cus-toms duty,as is the export of any oil and gas.Local LeviesLocal levies,including Urban Maintenance and Construction Tax(UMCT),Educational Sur-charge(ES)and Local Educational Surcharge(LES),are levied on the amount of VAT paid(local levies do not apply to import VAT).The applica-ble rates of the local levies are as follows:UMCT 7%for taxpayers located in cities,5%for taxpayers located in towns and the country and 1%for taxpayers located in plac-es other than cities,towns and the country;ES 3%;andLES 2%.2.5 National Oil or Gas CompaniesAs explained in 1.3 National Oil or Gas Compa-ny,certain national oil companies had de facto control over the petroleum industry(upstream,midstream and downstream)until the 2020 MNR Opinion,which(legally)allows private and for-eign capital to have access to those licences exclusively held by national oil and gas com-panies.Inpractice,becausemostoilfieldblockswerealready granted to those Chinese state-owned oil majors,Chinese private and international oil companies usually partner up with the Chinese oil majors to access those blocks.2.6 Local Content Requirements Applicable to Upstream OperationsChinese PSCs generally require that Chinese personnel,materials and services be given pref-erential rights during a projects procurement process.Operators should also include Chinese employeestatisticsinspecificworkplans.9CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 2.7 Requirements for a Licence/Leaseholder to Proceed to Development and ProductionRequirements for Development PlansOncethelicenceholderfindsprovenoilorgasreserves of a certain scale calculated with a combination of factors such as quantity,scale and economic returns,extraction can begin after:filingreportstotheMNR;signs an extraction rights grant contract with the MNR;andregistersitsextractionrightswithinfive(5)years(in practice,an oil and gas operation wants to receive extraction rights if sales of crude product are contemplated).The licence holder must also submit a devel-oped plan upon registration of the extraction right.The development plan should include the following key terms:condition and level of the mineral resources;present situation and forecast of demand for crude products;determination of major construction schemes;facilities for processing and tailings;andenvironmental protection plans,etc.Requirements for Government ApprovalsThe registration authority reviews the develop-ment plans from the following key aspects:the scale of mine construction;mining programmes;reasonableness of the recoverable reserves;ore dressing and processing facilities;reasonableness of environmental protection plan,including soil and water conservation and land reclamation;andlabour safety,etc.Depending on the content and the construction stage of the project,approval from other govern-ment departments may be necessary:NDRC,for national security-related approvals;MNR,for urban and rural planning;MEE,for ecological environment protection assessments and plans;the Ministry of Water Resources(MWR),for water conservancy;andMNR,for forestry and grassland protection-related approvals,etc.Rights to Appeal Denials of ApprovalIndividual and corporate applicants of denials of approval can apply for reconsideration through the Chinese administrative review process.Chal-lengesmustgenerallybefiledwithin60dayswith the relevant regulator.The Chinese administrative review process for the oil and gas sector can cover both procedur-al and content review with respect to an appli-cants case.After such review,an applicant can fileadministrativelitigationagainsttheregula-tor in front of the Chinese State Council(which can review both procedural and content issues suchaslicencedenial,suspensionorfines)ora relevant Chinese court(which can only review procedural issues),but not both.Administrative litigation against a regulator is time-consuming and subject to higher authoritys dismissal.In practice,such appeal is hardly practical.2.8 Other Key Terms of Each Type of Upstream LicenceExploration Periods,Production Periods and ExtensionsThe exploration licence for petroleum and/or gas is valid for up seven(7)years.If there is a need toextend,thelicenseeshallfileforanextensionof the licence with the licensing authorities within 30 days prior to the expiration.The extension of LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 10an exploration licence shall not exceed two(2)years each time.The validity of an exploration or extraction licence is determined according to the construc-tionscaleofanoilfield:foralarge-sizedoilfield,thelicencemaybevalid for a maximum term of 30 years;for a medium-sized one,the licence may be valid for a maximum term of 20 years;andfor a small-sized one,the licence may be valid for a maximum term of ten years.Size is determined by the following standards:large-sized:for oil,more than 100 million tonnes,and for gas,more than 30 billion cubic metres;medium-sized:foroil,from10100milliontonnes,andforgas,from530billioncubicmetres;andsmall-sized:for oil,less than 10 million tonnes,and for gas,less than 5 billion cubic metres.Minimum Work ProgrammesThe exploration licensee is required to begin work within six(6)months of the date of issue of the exploration licence and meet a minimum expenditure for exploration according to the fol-lowing schedule:CNY2,000persquarekilometreforthefirstyear of exploration;CNY5,000 per square kilometre for the sec-ond year of exploration;andCNY10,000 per square kilometre each year thereafter,starting with the third year of exploration.Such a requirement can be prorated if the explo-ration word is interrupted due to force majeure.Any exceeding expenditure surplus can be applied to the expenditure for the following year.Liability and Risk RegimeExploration beyond the approved limits of the explorationblocksmayresultinafineofuptoCNY100,000.And the mineral products extract-edoutsidethelimitaresubjecttoconfiscation.Failure to report any circumstances change or to meet the minimum work programmes,refusing toacceptofficialexaminationorsupervision,oremployingdeceptionmayresultinafineofupto CNY50,000 and/or even the revocation of the licence.Criminal responsibility may be imposed if serious destruction is caused to the mineral resources.Lease and sale of the upstream licences are strictly regulated under the Notice of the Ministry of Natural Resources on Amending the Relevant Provisions of the Mineral Right Trading Rules(2018).Such mining rights,however,cannot be used as collateral for mortgages.Relinquishment Requirements/Withdrawal,Termination and Abandonment Rights and ObligationsIf the exploration licensee rescinds the explora-tion project for some reason,it needs to submit to the licensing authorities a report on the com-pletion or termination of the exploration project.Forms for reporting the input of capital and rel-evant documents of proof are also required to terminate the licence.If the production licence is expired or suspend-ed,the licensee must send an application to the original licence issuing organ to cancel the licence within 30 days as of the day when the decision is made for the suspension or closure of the mining licence.11CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons The licensee must also complete works regard-ing labour safety for production,water and soil conservancy,land recovery and environmental protection,or pay in full the cost for the land recovery or the environmental protection.Domestic Supply Requirements and TermsMOFCOM and its local counterparts regulate the domestic supply of oil and gas and provide goals and guidance for oil and gas companies regard-ing the domestic supply requirements.The local authorities are responsible for making sure that the goals are met.Export RightsQuota and export licences are required for com-paniestoexportcrudeorrefinedoil.Naturalgas,on the other hand,is not exportable due to the unmet domestic demand.There is a huge drop in the oil export quota in 2022.The first batch of domestic refined oilexport quotas for 2022 totalled 17.5 million tons,12 million tons(about 41%)lower than the 29.5 million tons last year.In practice,only seven state-owned oil compa-nies obtained the exporting quotas.2.9 Requirements for Transfers of Interest in Upstream Licences and AssetsMinimum Conditions of the TransferExploration and extraction rights can be trans-ferred under the following circumstances:forexplorationandsurveyrightsexpiryof two years from the date of issuance,or the discovery of mineral resources,and the fulfilmentofminimuminput;forminingrightsexpiryofoneyearofgoingintominingproduction;there is no dispute over the ownership of the right;andfull payment of the relevant fees and taxes.The original extraction rights-holder may also transfer the right as a result of the mining com-panys significant structural changes(merger,sale of assets,etc).Government Approval ProcessMNR(including its provincial and local counter-parts)is the governing agency.The transferor may apply for approval of the transfer of oil/gas exploration rights or extraction rights by submitting the following documents:a letter of application for transfer;the transfer contract concluded between the transferor and the transferee;testimonial documents of human quality of the transferee;proof of conditions of transfer listed above;anda report on mineral resources exploration and survey or exploitation.MNR(including its provincial and local coun-terparts)must notify both parties of its deci-sion within 40 days from the date of receipt of the application.If approved,both parties must modify the registration formality within 60 days from the date of receipt of the approval notice.The contract for the transfer becomes effec-tive after the approval is granted.The amended licence can then be issued to the transferee after paying the fee(Articles 4 and 10,Administrative Measures on the Transfer of Exploration Right and Exploitation Right).An evaluation must also be carried out in trans-ferring mineral exploration and mining rights formed by state-contributed exploration and survey.LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 12Retained Liabilities of TransferorThe rights and obligations of a person with a mineral exploration right or a mining right are transferred with the transfer of the mineral exploration or mining rights.There would be no retained liabilities of the transferor.Oil and gas exploration and/or extraction rights can be leased or mortgaged if the transfer condi-tions are met,and the lease or mortgage agree-ment must be approved by the issuing agency.Minimum Requirements for TransfereeA transferee of exploration right must meet the qualificationsofanoilandgasexplorationrightapplicant prescribed in the Measures for Area Registration Administration of Mineral Resourc-es Exploration and Survey or the Measures for the Registration Administration of Mineral Resources Exploitation.Special Requirements for Transfer of OperatorshipAlthough not prescribed in the statutes,it is rec-ommended that approval is obtained if there is a change of control in the company that has the oil and gas exploration or extraction rights.2.10 Legal or Regulatory Restrictions on Production RatesThere is currently no legal restriction on the pro-duction rates of oil and gas extraction.3.PRIVATE INVESTMENT IN PETROLEUM:MIDSTREAM/DOWNSTREAM3.1 Forms of Allowed Private Investment in Midstream/Downstream OperationsPrivate Investment in Midstream OperationsPrivate capital is encouraged to work with state-owned oil companies on the construction of oil/gas trunk pipelines and oil/gas branch pipelines in various ways.Notably,a separate national pipeline network company,PipeChina,was incorporated in December 2019 and played a central role in pro-viding open access to the third party in the mid-stream gas sector.PipeChina shall,without dis-crimination,provide oil and gas transportation,storage,gasification,loadingandunloading,andtranshipmentservicestoqualifiedprivateinves-tors and shall not delay or refuse to sign service contractswithqualifiedprivateinvestorswithoutjustifiedreasons.Government ApprovalsThereisabasicdifferenceintheregulatorytreat-ment between an intra-state pipeline system and an interstate pipeline system.Generally,pipeline design and construction are subject to review based on the requirements for safety,environmental protection,optimal land use and economic feasibility.Nationwide pipe-lines must be consistent with the national energy and land-use plans.An EIA must be obtained before construction(Law on the Protection of Oil and Gas Pipelines 2010).Trans-province and transboundary network projects(autonomous regions or municipalities directly under the Chinese government,exclud-ing gathering and transportation pipeline net-13CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons worksinoilfields)aresubjecttotheapprovalof the competent investment department under the State Council.Further,the transboundary projects must be submitted to the State Coun-cil for registration.Oil pipeline network projects(excluding gathering and transportation pipe-linenetworksinoilfields)otherthanthosemen-tioned above are subject to the approval of local governments(Circular of the State Council on Promulgating the Catalogue of Investment Pro-jects Subject to the Approval of Governments(2016 Version).For oil and gas transportation using cross-border pipelines,the regulations and requirements set outinMeasuresoftheCustomsofthePeoplesRepublic of China for the Administration and Supervision of the Pipeline Transportation of Imported Energy(2018 Second Amendment)must be followed.Thequalificationsoftheenterprisesandper-sonnel engaged in the design,installation,use and inspection of pipelines must be accredited by the State Administration for Market Regula-tion or its local counterpart,as the case may be(Item 249,Directory of the Projects subject to Administrative Approval according to the State Councils Decision).Private Investment Used in Downstream OperationsThedownstreamoilsector,includingrefineries,petrochemical production and gasoline retail businesses,is still dominated by the NOCs,although it is generally open to both private and foreign investment,subject to ordinary permit-ting procedures.From 2019,the approval of qualification forwholesale,storageandoperationofrefinedoilproducts has been gradually cancelled,and theapprovalrightofqualificationforretailandoperationofrefinedoilproductsdelegatedtothe local governments.Further,in the Special Administrative Measures(Negative List)for the Access of Foreign Investment(2019),it has also deleted the restrictions whereby the construc-tion and operation of gas,heat,and water supply and drainage pipeline networks in cities with a population of more than 500,000 shall be con-trolled by the Chinese parties.3.2 Rights and Terms of Access to Any Downstream Operation Run by a National MonopolyWhile the downstream oil sector,including refineries,petrochemicalproductionandgaso-line retail businesses,is still dominated by the NOCs,it is generally open to both private and foreign investment,subject to ordinary permit procedures.The storage and domestic trading of crude oil,storageanddomesticwholesaleofrefinedoilproducts were previously subject to similar spe-cificbusinesspermitsbuthavebeengraduallyliberalised since 2019(Decision of the Ministry of Commerce to Repeal Some Rules(2020).In terms of the retail business of refined oil,a refined oil business licence issued by thelocal government is required.There are cer-tain requirements for applicants to obtain such a business permit,including a certain amount of registered capital,long-term supply agree-ments,and stable sales channels and facilities.Foreign-invested enterprises may also apply for such permits.In addition,trading of oil and gas requires safety permits under,eg,the hazardous material regu-latory regime.The trading and sale of gas or liq-uefiednaturalgas(LNG)asatypeofburningfuelrequires a fuel gas business permit.LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 143.3 Issuing Midstream/Downstream LicencesMidstream/downstream licences are granted upon application to the competent authority by the interested party.The major licences mainly include the following types.Gas Business LicenceThe state shall implement the licence system for gas operation.Enterprises engaged in gas operation shall meet the following conditions:to meet the requirements of the gas develop-ment plan;there are gas sources and gas facilities that meet national standards;thereisafixedbusinesspremises,aperfectsafety management system and a sound business case;the main responsible person of the enter-prise,the safety production manager and the operation,maintenance and repair personnel aretrainedandqualifiedbyprofessionaltrain-ing;andother conditions under the laws.If the conditions mentioned in the preceding par-agraph are in accordance with the provisions of the preceding paragraph,the gas management licence shall be issued by the gas management department of the local government at or above the county level(Article 15,Regulation on the Administration of Urban Gas 2016).Special Equipment Production LicenceSpecial equipment production units shall have the following conditions and shall be responsi-ble for the supervision and administration of the management department to engage in produc-tion activities:technical personnel adapted to production;equipment,facilities and workplaces adapted to production;andsound quality assurance,safety management,and job responsibility(Article 18,Special Equipment Safety Law).Work Safety LicenceBefore production,an enterprise shall apply for the work safety licence to the department in charge of the issuance and administration of work safety licences and satisfy the following conditionsspecifiedinArticle6:establish the responsibility system for work safety;formulate internal work safety regulations and operating rules;set up administrative institutes for work safety and install full-time work safety administrative personnel;andappointaqualifiedmajorperson(s)-in-chargeand work safety administrative personnel,etc(Article 6,Regulation on Work Safety Permits 2014).The department in charge of the issuance and administration of work safety licences shall com-plete its review process within 45 days from the day of receipt of an application and issue work safety licences to those found upon review to satisfytheworksafetyconditionsspecifiedinthe present Regulation(Article 7,Regulation on Work Safety Permits 2014).Storage/Wholesale LicenceThe storage and domestic trading of crude oil,storageanddomesticwholesaleofrefinedoilproducts were previously subject to similar spe-cificbusinesspermitsbuthavebeengraduallyliberalised since 2019(Decision of the Ministry of Commerce to Repeal Some Rules(2020).Refined Oil Retail LicenceAspecificrefinedoilretaillicencebusinessper-mit issued by the local government is required.There are certain requirements for applicants 15CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons to obtain such a business permit,including a certain amount of registered capital,long-term supply agreements,and stable sales channels and facilities.Foreign-invested enterprises may also apply for permits.3.4 Typical Fiscal Terms and Commercial Arrangements for Midstream/Downstream OperationsTransportationPipeline owner and its customers:A national pipeline network company,Pipe-China,was incorporated in December 2019 and started operation in the fourth quarter of 2020.PipeChina has taken possession of all the major oil and gas pipeline assets and some LNG receiving terminals developed by the three-barrels in restructuring agreements among large Chinese state-owned enterprises and other parties in October 2020.Other pro-vincial oil and gas companies are still invest-ing in pipeline constructions,but the skeleton of the pipeline network is still expected to be constructed by PipeChina.LNG receiving terminals in China are owned by PipeChina,the state-owned oil majors and other project developers typically associated with regional gas companies.Currently,the price of natural gas pipeline transportation is subject to the principle of“one price for one enterprise”,and the price is determined by the government under the principle of“permitted cost plus reasonable income”.Pipeline transportation prices are checked and adjusted every three years.Gas PriceGas resources mainly include domestic onshore gas,domesticoffshoregas,importedLNGandimported pipeline gas.The natural gas price paid by end-users includes:resource costs;pipeline transmission fees;andgas distribution fees.Thepricesofdomesticoffshoregas,domesticunconventional gas and imported LNG gas can be freely negotiated and determined by the par-ties(however,local governments and gas com-panies may still set prices for pipeline natural gas based on the sales price of the gate station in practice).Currently,the price of natural gas pipeline trans-portation is subject to the principle of“one price for one enterprise”,which is determined by the government under the principle of“permitted cost plus reasonable income”.Pipeline trans-portation prices are checked and adjusted every three years.Gasoline PriceThe gasoline retail price is subject to a hard cap set by NDRC and adjusted every ten business days.3.5 IncomeorProfitsTaxRegimeApplicable to Midstream/Downstream OperationsMidstream refining is subject to consumptiontax,VAT and local levies,income tax,etc.Downstream sales are mainly subject to VAT,local levies,income tax,etc.Midstream and downstream pipeline transpor-tation is governed by PipeChina,mainly com-prised of CNPC,SINOPEC and CNOOC and theirrespectivesubsidiaries.Thereisnospecificapplicableincomeorprofitstaxregime.Measures to calculate the VAT on Oil-Gas Field Enterprises can be found in the Pilot Imple-menting Measures,which substituted the ear-lier Administrative Measures for the Value Added Tax on Oil-Gas Field Enterprises,issued by the LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 16Ministry of Finance and the State Administra-tion of Taxation.Some important measures are set below:Article3stipulatesthatoil-gasfieldenter-prises shall pay VAT for providing productive labour services for crude oil and natural gas production;Articles 5 and 11 stipulate that the VAT rate for the productive labour services provided byoil-gasfieldenterprisesshallbe17%,nowreduced to 13%(of that,3%VAT should be paid where the productive labour services are rendered);andArticle 9 stipulates that the input VAT on the productive labour services received by an oil-gasfieldenterprisefromanotheroil-gasfieldenterprisecouldbecreditedagainsttheoutput VAT.3.6 Special Rights for National Oil or Gas CompaniesNational oil companies have priority rights on supplements within the pipeline capacity.As mentioned in 3.3 Issuing Midstream/Down-stream Licences,pipelines owned by national oil companies(PetroChina,SINOPEC,CNOOC)are transferred to PipeChina(established in 2019),which are still entitled to access to the pipelines.3.7 Local Content Requirements Applicable to Midstream/Downstream OperationsThere is no midstream and downstream local content requirement under Chinese law,but it may be required as contractual market practice.As a matter of market reality,the state-owned national oil majors wholly own or otherwise control midstream facilities.So local content requirements are arguably not relevant.3.8 Other Key Terms of Each Type of Midstream/Downstream LicenceThe standard model of the Midstream/Down-stream Licence will normally state the following items:the entity that applies for the licence;the address of the licensee;the legal representative of the licensee;the validity period of the licence;andthe detailed type of business that the licensee is authorised to carry out.3.9 Condemnation/Eminent Domain RightsAccording to the Pipelines Protection Law and Land Management Law,a private investor shall submit the pipeline construction plan to the competent urban and rural planning department ofthelocalpeoplesgovernmentatorabovethecounty level.For the purpose of the public inter-est,the surface or land the pipeline is designed to build may be condemned based on the pipe-line construction plan.Fair and reasonable compensation shall be giv-en for the expropriation of land,and the standard shallbedeterminedbythelocalpeoplesgov-ernment at or above the county level.3.10 Rules for Third-Party Access to InfrastructureThird parties may,with certain exceptions,have accesstothepipelinesofcrudeoil,refinedoiland natural gas,LNG receiving stations,under-ground gas storage,as well as their supporting infrastructure.In May 2019,China introduced the Measures for Regulation of Fair and Open Access to Oil and Gas Pipeline Facilities.This Regulation empha-sised that operators of oil and gas pipelines and facilities within China are obliged to grant third-party users“fair and open access”to their facili-17CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons ties and provide new principles and policies to support this access.Conditions and the process for access,metering and price-related require-ments are also provided in this new regulation.It is expected to provide a more integrated and detailed legal framework to support the further development of a fair and open access regime.In line with the above national measures,Pipe-China later established its own rules for access to its facilities in PipeChina Interim Measures for the Fair and Open Management of Oil and Gas Pipeline Network Facilities in 2020.The user must,amongothertechnicalstandards,fulfilthefollowing requirements:being a PRC entity;the operation of the entity complies with national laws and regulations,local govern-ment regulations and relevant industrial poli-cies;has acquired oil and gas-related administra-tiveapprovalsandsafetyoperationcertifica-tion;andhas a good contractual performance record,soundfinancialpositionandcreditrecord.The standard Terminal Use Agreement(TUA)for receiving terminals is mostly in line with interna-tionally common practice.The remaining capac-ity information is published on PipeChinas web-site on a quarterly basis.Typical TUAs contain the following key provi-sions:minimumusagefee/fixedchargeandusage-based charge scheme;annual terminal usage plan and adjustment;LNGtankerspecification;LNGspecificationsandoff-specLNGtreat-ment;storageandregasificationservices;andallotted laytime and demurrage.3.11 Restrictions on Product Sales Into the Local MarketAfter the abolition of the Measures on the Administration of the Crude Oil Market and the Measures on the Administration of the Product Oil Market,except for the approval for the retail sales of product oil products by the local govern-ment,approvals for the wholesale and storage of petroleum products are exempted.However,the wholesale and storage operators shall com-ply with the laws and regulations on registra-tion,land resources,planning and construction,oilquality,safety,environmentalprotection,firecontrol,taxation,traffic,meteorologyandmeter-ing,and meet the relevant standards.3.12 Laws and Regulations Governing ExportsChina adopts parallel administrations on the import of crude and product oil by state trad-ing enterprises(enterprises/institutions licensed by the state to import certain types of goods subject to the state trading administration)and non-state trading enterprises.Crude oil export requires export quota approval by the MOFCOM and export licences.In prac-tice,only four state-owned oil companies can applyforrefinedoil-exportingquotas:PetroChina;Sinopec;CNOOC;andSinochem.The State Council approved the Several Meas-ures on Supporting the Opening up and Devel-opment of the Whole Oil and Gas Industry in the China(Zhejiang)Pilot Free Trade Zone on 26 March 2020,allowing the Zhejiang Pilot Free TradeZonetocarryoutrefinedoilexportstoanappropriate extent.This allows existing eligible refiningandchemicalintegrationenterprisesinLAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 18the Pilot Zone to pioneer non-state exports of refinedoil,subjecttoanannualexportquota.The MOFCOM regularly publishes a list of names of the state trading enterprises.Other enterpris-es may become a non-state trading enterprises ifthefollowingconditionsarefulfilled:haveaforeigntradebusinessqualification;meet the requirements published by the MOFCOM for dealing with commodities that are subject to the state trading administration;andregister with the MOFCOM(Trial Measures for the State Trading Administration of the Import of Crude Oil,Product Oil,and Fertilizer).In order to import crude oil,both state and non-state trading enterprises must apply to the MOF-COM for an import license.However,the import licences for non-state trading enterprises are limited to an import quantity permitted by the state.For gas,there is no restriction on the import/export quota and the right to trade.China has not yet exported natural gas due to its own shortage of natural gas.3.13 Requirements for Transfers of Interest in Midstream/Downstream Licences and AssetsThe downstream operations and relevant licenc-es can be transferred between private owners.As the power of approving retail licences is authorised by the local government,the transfer of the licences shall follow the local regulations.Where a retail outlet is transferred,the transferee retail outlet intending to continue to engage in theretailoperationofrefinedoilproductsshallapply for a retail licence from the municipal com-merce department in accordance with the provi-sions,and the operator of the transferred retail outlet shall return the retail licence to the issuing authority.As for the midstream,like LNG terminals,it is common to have a restriction against the assign-ment of rights or obligations without written con-sent under the TUA.4.FOREIGN INVESTMENT4.1 Foreign Investment Rules Applicable to Domestic Investments in PetroleumUntil 2020,foreign investors were restricted from participating in the exploration and extraction of oil and gas in China.The only way to participate was to enter into PSCs with those state-owned Chinese oil majors,who were legally permitted to apply for and hold the exploration and extrac-tionlicencesforthebenefitofallthepartiestothe PSCs.The Negative List of 2020 removed the restric-tion so that foreign investments in petroleum are encouraged.Foreign investments into the upstream sector of petroleum are further regulated by laws and regulations promulgated or administered by the MNR.As for the exploration rights,pursuant to the 2020 MNR Opinions,domestic(private)and wholly-foreign owned enterprises registered within China with net assets value of no less than CNY300 million are eligible to apply for oil and gas exploration and extraction licences.As of 2019,the restrictions on foreign invest-ment in midstream and downstream have been largely lifted.Several precedents exist in wholly foreign-operated midstream and downstream projects,suchasrefineriesandretailgassta-19CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons tions.However,as the midstream pipeline net-work in China has been consolidated under the control of PipeChina,the participation of foreign capital in pipeline investment is unlikely,if not impossible(although there are no outright statu-tory nor regulatory prohibitions).4.2 Sanctions Applicable to Investment AbroadCurrently,there is no sanction in place with respect to investing in oil and gas assets in for-eign jurisdictions or conducting business in the oil and gas sector with foreign counterparties,governments or jurisdictions.However,certain sanctions are applicable to for-eign entities that have been put on the“unreli-able entity list”for the purpose of national secu-rity.According to Article 10 of the Provisions on the Unreliable Entity List issued by MOFCOM in 2020,foreign entities listed are restricted or prohibited from engaging in China-related import and export activities,including investing in China.5.E N V I R O N MEN TAL,H E A LT H A N D S AF ETY(EH S)5.1 Principal Environmental Laws and Environmental Regulator(s)Principal environment laws:EnvironmentalProtectionLaw2014(effectivefrom 1 January 2015);Law on Environmental Impact Assessment 2018(2018 EIA Law);Law on Promotion of Cleaner Production 2012(2012 Cleaner Production Law);Circular Economy Promotion Law 2018(2018 Circular Economy Promotion Law);Law on Environmental Protection Tax 2018(2018 Environmental Protection Tax Law);Administrative Measures for Pollutant Emis-sion Permitting(for trial implementation)2019(2019 MEE Pollutant Emission Permitting Measures);Regulation on the Administration of Pollution Emission Permitting 2021(2021 Pollutant Per-mitting Regulation);Emergency Response Law 2007(2007 Emer-gency Response Law);andRegulations on the Administration of Con-struction Project Environmental Protection 1998(last amended in 2017).Laws in specialised areas:Law on the Prevention and Control of Atmos-pheric Pollution 2018(2018 Air Pollution Prevention Law);Law on Prevention and Control of Water Pol-lution 2017(2017 Water Pollution Prevention Law,witheffectfrom1January2018);Law on Prevention and Control of Soil Pollu-tion 2018(2018 Soil Pollution Prevention Law,witheffectfrom1January2019);Marine Environment Protection Law 2017(2017 Marine Environment Protection Law);Solid Waste Pollution Prevention and Control Law 2020(2020 Solid Waste Pollution Law);Water Law 2016;Grassland Law 2013(revised in 2021);Forestry Law of the PRC 2019(2019 Forestry Law,witheffectfrom1July2020);Regulations on the Control over Safety of Dangerous Chemicals 2002(last amended in 2013);andRegulations of the PRC on the Administration of Environmental Protection in the Exploration andDevelopmentOffshorePetroleum1983.Environmental RegulatorsNational Development and Reform Com-mission(NDRC).The main environmental activities of the NDRC include strategies for sustainable development and climate change LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 20and co-ordinating energy saving and emis-sions reduction(https:/).Ministry of Ecology and Environment(MEE).The MEE is responsible for national environ-mental policy and coordinating and supervis-ing major environmental projects,and it is involved in a broad range of ecological issues such as biodiversity and greenhouse gas emissions.Before April 2018,the predeces-sor regulator of the MEE was the dismantled Ministry of Environmental Protection(MEP)(https:/).Ministry of Natural Resources(MNR).The MNR was established in April 2018 to con-solidate the administration of Chinas national natural resources from various other agencies().Ministry of Emergency Management(MEM).The MEM was established in April 2018 in charge of safety production,disaster man-agement and emergency relief().MWR.The main responsibilities of the MWR include the rational development and use of water resources and drafting or promulgating various water-related legislation(of Agriculture,Fisheries Bureau.The Bureauisresponsibleforpreventinganyfish-ery calamity caused by pollution and relieving the damage so caused().5.2 Environmental Obligations for a Major Petroleum ProjectEnvironmental Impact Assessment(EIA)An EIA process must be completed before the construction of an oil or gas project begins.A private investor must prepare the EIA report,statement,or registration forms according to the classifiedlistinEIALaw.Companiesexploitingoil or natural gas must prepare the EIA report orstatementdependingonthespecificcircum-stances of the project.EIA reports must be pre-pared for projects for:crude oil processing;natural gas processing;shaleoilandotherrefinedcrudeoil;coal-to-liquid;bio-to-liquid;andother petroleum production.The EIA documents(including EIA reports,statements and registration forms)must then be submitted for approval to the environmental administration department of the central or local government.Before approving the EIA reports or statements,the environmental administration department must solicit opinions from the:administrative departments responsible for oceanicadministration,maritimeaffairsandfishery;environmental protection department of the armed forces;andpublicopinionifthereisasignificantimpacton the environment.The environmental administration department must decide whether to approve the EIA report or statement within 60 days from the date of receiving the EIA report or within 30 days from the date of receiving the EIA statement.During the operation of oil or gas projects,if any solid waste,waste water or exhaust gas is to be discharged,a Pollutant Discharge Permit must be obtained in advance.The operator must also comply with the national pollution discharge standard and pay environmental protection tax.5.3 EHS Requirements Applicable to OffshoreDevelopmentOffshore Exploration and ExtractionOffshore,the operator must provide safetytraining and anti-hydrogen sulphide safeguard measuresforlabours.Fire-fightingequipment21CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons and hazardous items must be managed accord-ing to the highest standards.Stand-by vessels and helicopters may be required for dangerous projects.The local authority would also require the oper-ator to prepare a contingency plan for safety accidents,subject to updates according to the currentconditionoftheoffshoreoperation.Anyaccident must be reported promptly to the local authority.TheoperatorsofoffshoreoilprojectsinChina,orfixedplatformsormobileplatformsandotherrelated facilities must comply with a series of environmental protection requirements,includ-ing:insurance;financialguarantee;waste management;andfisheriesprotection.5.4 Requirements for DecommissioningInanoffshoreoperation,generally,theoperatorshall submit a written application to the state competent administrative authority of marine affairs for disposal of facilities 90 workingdays prior to the cessation of production and decommissioning of infrastructure and shall not decommission infrastructure until the approval documents are obtained.Prior to the decom-missioning of infrastructure,the operators shall prepare an implementation plan for the disposal of facilities and submit it to the state competent administrativeauthorityofenergyforfiling.Please note that the Environmental Protection TechnicalRequirementsfortheDisposalofOff-shore Oil and Gas Production Facilities(Draft for Comment),released on 30 November 2021,is thelatestlegislativedevelopmentinthefieldofdecommissioning,which provides general and technical requirements for decommissioning ofoffshoreoilandgasinfrastructure,technicalpoints for ecological EIA,environmental protec-tion measures and decommissioning plans,etc.5.5 Climate Change LawsClimate Change LawsThe climate change laws for lowering green-house gas emissions and scaling up energy efficiencyandcleanenergymainlyinclude:Law on Prevention and Control of Atmospher-ic Pollution(2018 Amendment);Renewable Energy Law;Energy Conservation Law;Cleaner Production Promotion Law;Circular Economy Promotion Law;Electric Power Law;etc.Carbon Tax RegimeChina has not introduced a carbon tax regime,but an environmental protection tax has been imposed on certain types of greenhouse gas,such as nitrogen oxides.Carbon Trading RegimeThere are also regulations for trial implementa-tion in relation to carbon emission trading and emissionreportingverification,mainlyincluding:Measures for the Administration of Carbon Emissions Trading of 2020;GuidelinesforVerificationofCorporateGreenhouse Gas Emission Reports of 2021;Rules for the Administration of Registration of Carbon Emissions of 2021;Rules for the Administration of Trading of Carbon Emissions of 2021;andRules for the Administration of Settlement of Carbon Emissions of 2021.The main products of carbon emissions trading areemissionquotasandChineseCertifiedEmis-sions Reductions(CCER).The trading parties are the key emission entities and the agencies LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 22andindividualsspecifiedunderthetradingrules.Thetradingagenciesarethosequalifiedbythedepartment in charge of carbon emission trading under the State Council(currently the MEE).The specifictradingrulesaremadebythetradingagenciesandmustbereportedtoandfiledwiththe MEE.The key regulatory authorities include the MEE and environmental departments at provincial,regional and municipal levels.Nationwide trad-ing of carbon emissions allowances officiallylaunched on 16 July 2021 at the Shanghai Envi-ronment and Energy Exchange,with limited trad-ing products and limited market participants.Specific Rules in the Oil and Gas IndustryIn terms of the oil and gas industry,the Emis-sion Standard of Air Pollutants for Onshore Oil and Gas Exploitation and Production Industry isChinasfirstpollutionemissionstandardfortheoilandgasindustry,whichtookeffecton1January 2021 for new facilities and 1 January 2023 for existing facilities respectively.The Standards stipulated the requirements for the control,monitoring,supervision and admin-istration of the emission of volatile organic com-pounds(VOCs)of onshore oil and natural gas exploitation enterprises and sulphur dioxide of sulphur recovery equipment of natural gas puri-ficationplants,andalsotherequirementsontheco-ordinated control of the emission of green-house gas methane.5.6 Local Government Limits on Oil and Gas DevelopmentAs noted in 1.1 System of Petroleum Owner-ship,only the central government(through MNR)has control of petroleum resources.The explora-tion and extraction licences can only be issued by MNR without delegation to their provincial and local counterparts.The provincial and local counterparts of NDRC do have the power and authority to approve certain infrastructure projects,depending on whether a given project is on their annual cata-logue list.Also,the ecological and environmental depart-ments of the local government have the right to set local restrictions and any prohibitions on oil and gas development within the realm of national standards pursuant to the Environment Law.However,the extent of enforcement of those laws and regulations is very much“policy”driven.6.MISCELLANEOUS6.1 Unconventional Upstream InterestsShale GasChinasshalegasresourcesranksecondintheworld,and the government has established mul-tiple pilot regions for shale gas exploration and extraction,such as in the Sichuan Basin.Both domestic and foreign capitals may obtain such rightsthroughtheofficialbiddingprocess.The Chinese government has also introduced a series of shale gas supportive industry policies and development plans since 2009,including:the 12th Five-Year Plan for Natural Gas and the Shale Gas Development Plan(201115);industrypoliciesincludefinancialandtaxpolicy,technology research and development(R&D)support policy,resource management policy,shale gas price policy,pipeline net-work policy and international co-operation policy;andprovincialofficialsinSichuan,ChongqingandGuizhou have released shale gas develop-ment plans.23CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons A subsidy is granted for shale gas produc-tion.Nevertheless,the Chinese state-owned oil majors are the only shale gas explorer and producersinChinaduetotechnicaldifficultiesand the geological nature of the Chinese shale gasfields.International oil majors(Shell,BP,etc)have been interested in participating in the shale gas devel-opment opportunities in China and successful-ly won a number of blocks through the public tendering process.However,it would appear that foreign participating operations and devel-opments were hampered by the lack of water resources nearby and other environmental limi-tations.Thegeologicaldifficultiesandtechnol-ogy issues also create great challenges.Coalbed MethaneThankstotheNegativeList(2019Edition),effec-tive from 30 July 2019,foreign investment into the development of coalbed methane(CBM)no longer requires the co-operation with select qualifiedChineseenterprises.Thepolicyallowsdomestic and foreign capitals equal access to all the mineral rights related to CBM.In order to promote and encourage the devel-opment of CBM,China has given preferential policies of taxation and subsidies to the indus-try through the CBM Industrial Policy released by the NEA in March 2013.For example,the equipment,instruments,accessories and spe-cial tools used in CBM exploration and develop-ment are exempted from import duties and VAT.ThepolicyoflevyingVATfirstorwithdrawingVATfor the general taxpayers of CBM extraction and production enterprises shall be implemented.In terms of private and foreign investment for CBM exploration,development and infrastruc-ture construction,relevant laws and policies include:RegulationofthePeoplesRepublicofChinaontheExploitationofOffshorePetroleumResources in Cooperation with Foreign Enter-prises(2013 Revision);Notice of the MOFCOM;andNDRC and the Ministry of Land and Resourc-es on Issues Concerning Further Expanding the Cooperation with Foreign Parties in Min-ing Coalbed Methane.Despite the released restrictions and promotions of private and foreign investments,currently,the primary CBM regions are still dominated by state-owned enterprises.Private and foreign capitals can hardly enter the market without partnering with the top barrels.The other challenge is that those major coal mines with the greatest CMB potential are most-ly owned or controlled by state-owned enter-prises.Any holders of CBM licences must work with those coal mines to be able to explore and extract the resources.Hydraulic FracturingPolicies in respect of managing the environmen-tal risk of hydraulic fracturing include:Policy on Pollution Prevention and Control Technologies of Petroleum and Natural Gas Exploitation Industry;andPolicy on Shale Gas Industry.Thereisnospecificregulationonadministrativeconsenting and EIAs relating to hydraulic frac-turing.Oil and gas enterprises are subject to the strict technical demonstration and approval process regarding the construction design and technical measures in relation to fracturing.Preferential measures for unconventional gas or oil are mainly tax relief policies.The shale gas resource tax(at a prescribed tax rate of 6%)can be reduced by 30%(Notice on Reducing LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 24Resource Tax on Shale Gas,from 1 April 2018 to 31 December 2023).Shale oil produced from kerogen shale can enjoy a 70%VAT refund pol-icy(Catalogue of VAT Concessions for Compre-hensive Utilisation of Resources Products and Services).6.2 LiquefiedNaturalGas(LNG)ProjectsMost of the LNG receiving terminals are owned and operated by PipeChina and the state-owned Chinese oil majors.However,there is a grow-ing appetite for developing further new receiving terminals owned in whole or part by non-state-owned entities.The primary authority for approval of new receiv-ing terminals is the NDRC.Previously,the sub-mission of an application for NDRC approval was required to be accompanied by certain“pre-approval documents”.As of 2019,NDRC would accept and review applications for new LNG receiving and storage terminal facilities with-out the pre-approval documents submitted at the same time.The statutory timeline for NDRC approval is set out under the Measures for the AdministrationoftheConfirmationandRecorda-tionofEnterprisesInvestmentProjects(2017).ImportsThere is no restriction on the import of natural gas,and a series of encouraging policies are set out in the Several Opinions of the State Coun-cil on Promoting the Co-ordinated and Stable Development of Natural Gas and other regu-lations.Nevertheless,the importer still needs to secure the receiving terminal,pipeline and regasificationcapacity.ThelargestLNGtermi-nal operator in China is PipeChina.Some gas companies opt to build their own receiving ter-minals to gain a strategic advantage in the LNG value chain,but most LNG importers either use PipeChinas receiving terminal or pipelines for transit or both.Therefore,compliance with Pipe-Chinas commercial terms,technical standards andproductspecificationsarerequiredforLNGimport in China.ExportsChina has not yet exported natural gas due to its own shortage of natural gas.As of mid-2022,the prevailing pricing system for LNG and natural gas in China is still volume-based.However,the transition toward a heat-value-based pricing system is undergoing.6.3 Energy Transition ConsiderationsDuetotheimprovementoffuelefficiencyandthe transition toward an electronic or natural gas-powered transportation system,domestic natural gas exploration and production and LNG imports are expected to grow exponentially.New projects in respect of LNG receiving,storage,andregasificationwillsubstantiallyincreasetheoverall capacity after 2025.Scaling-up carbon capture,utilisation and stor-age(CCUS)are essential tools to achieve the energy transition goal.Using CCUS to improve theoilandgasproductionefficiencyhasbeenon the agenda of every Chinese NOC.For exam-ple,Sinopecs 100mn mtpa CO CCUS project entered into production stage in early 2022.In addition,CCUSmayalsoplayasignificantrolein the policy initiatives to transit toward green hydrogen production.There are also pioneer programmes across the country to use existing natural gas pipeline net-works to transit the mixture of natural gas and up to 20%hydrogen.The trial does not require modificationofanyexistingfacility.Thetechnicalstandard for long-distance pure hydrogen pipe-line is still in the drafting stage.25CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 6.4 Unique or Interesting Aspects of the Petroleum IndustryDuring the Fourteenth Five-Year Plan period,China accelerated its green and low-carbon energy transformation.China pledges to reach the carbon dioxide emissions peak by 2030 and achieve carbon neutrality by 2060.The total installed capacity of wind and solar power aims to reach 1.2 billion kilowatts or more by 2030.The worlds major oil companies have succes-sively announced net zero(or close to zero)strategies,and the Chinese oil and gas compa-nies are also increasing investments into new energy to embrace energy transition.6.5 Material Changes in Oil and Gas Law or RegulationMost notably,the 2020 MNR Opinions have pro-foundlyinfluencedtheupstreamsector.Amongother changes,it provided equal market entry for domestic and foreign investors to obtain mineral rights.Further,toreflectoperationalreality,thestatute also combined prospecting and exploi-tation rights into a single exploration(with trial extraction)right in the Chinese oil and gas sec-tor.For midstream,the 2019 Measures for Regula-tion of Fair and Open Access to Oil and Gas Pipeline Facilities stated that oil and gas pipeline facility operators should provide services to all qualifiedusersinafairandnon-discriminatorymanner.For downstream,China has gradually liberalised the control of crude and product oil in recent years.Since the State Council issued the Opin-ionsoftheGeneralOfficeoftheStateCouncilon Accelerating the Development of Circula-tion Industry and Promoting Consumer Spend-ing in 2019,wholesale,storage and operation ofrefinedoilproductsarenolongersubjecttoapproval.Theapprovalrightofqualificationforretailandoperationofrefinedoilproductsaredelegated to the local governments.LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 26King&Wood Mallesons(KWM)is an inter-nationallawfirmheadquarteredinAsiawhichoffersexpertiseinPRC,HongKong,Australia,UK,US and a range of European laws.KWM offers comprehensive legal services in cross-border M&A,securities and capital markets,bankingandfinance,litigationandarbitration,intellectual property and compliance with a team of leading practitioners.The KWM en-ergy and resource group brings together lead-ing specialists in oil and gas,mineral resources,power,renewable energy,ESG and compliance who cover the entire value chain of the energy andresourcespractice,supportedbythefirmsstrategic presence in major legal markets such as London,Singapore and Dubai.It has a track record of executing some of the most high-profilemulti-jurisdictionalenergyandresourcestransactions representing Chinese companies,such as Chinese oil majors,over the past dec-ade,as well as international companies invest-ing in Chinese energy sectors.A U T H O R SJin Xiong is one of the leading partners of the King&Wood Mallesons energy and resource team.His practice focuses on cross-border M&A and energy and resources investments,with vast experience in representing Chinese and international clients in their cross-border investments and energy and resource-related transactions.With over 20 years of multi-jurisdictional practice,Jin has substantial experience in a wide range of transactions such as private and public M&A,FDI,strategic alliance and joint ventures,and project investments.He has in-depth sector knowledge covering energy and resources,infrastructure,consumer and advanced manufacturing,and he lectures extensively on legal issues covering the energy sector.Grace Fan is one of the leading partners of the King&Wood Mallesons energy and resource team.She has a broad practice that includes the cross-border energy sector,project developmentandfinancing,internationalarbitration and private equity investments focusing on oil and gas,new energy,mineral resources,financialinstitutionsandshipbuilding/FPSO sectors.In recent years,Grace also helped design the Chinese energy companys global compliance regime,including anti-corruption,economic sanctions and data protection.With over 12 years of focus on energy,she has in-depth legal and commercial knowledge of this area and lectures extensively on energy topics.Grace is a member of AIPN.27CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons Daisy Duan is part of the team at King&Wood Mallesons and has over 19 years of experience providing comprehensive tax services for domestic and international clients.In particular,Daisy has solid experience in assisting clients in tax audit defence,transfer pricing investigation and tax appeal/litigation cases and has successfully represented clients in a number of highly challenging dispute cases.She has published several articles on various tax issues,some by international publishing houses.Daisyisacertifiedtaxagentandislicensed to practice law in the PRC.King&Wood Mallesons18th Floor,East Tower World Financial Center No 1 Dongsanhuan Zhonglu Chaoyang District Beijing 100020 PRC Tel: 86 13910814788Fax: 86 010 5878 5566Email:Web:Chambers Global Practice Guides Chambers Global Practice Guides bring you up-to-date,expert legal commentary on the main practice areas from around the globe.Focusing on the practical legal issues affecting busi-nesses,the guides enable readers to compare legislation and procedure and read trend forecasts from legal experts from across key jurisdictions.To find out more information about how we select contributors,email Katie.B
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Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained WorldW H I T E P A P E RJ A N U A R Y 2 0 2 3In collaboration with Bain&Company,University of Cambridge and INSEADContentsImages:Getty Images 2023 World Economic Forum.All rights reserved.No part of this publication may be reproduced or transmitted in any form or by any means,including photocopying and recording,or by any information storage and retrieval system.Disclaimer This document is published by the World Economic Forum as a contribution to a project,insight area or interaction.The findings,interpretations and conclusions expressed herein are a result of a collaborative process facilitated and endorsed by the World Economic Forum but whose results do not necessarily represent the views of the World Economic Forum,nor the entirety of its Members,Partners or other stakeholders.ForewordExecutive summary1 Why circular transformation?2 The current state and limitations of existing approaches to circular transformation 2.1 Operations and business models 2.2 Systems-wide partnerships2.3 Policy and regulation3 A systems-wide approach to circularity to unlock its full potential4 Innovator case studies5 MissionContributorsEndnotes3457 7881012141516Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained World2ForewordIndustries and governments have set ambitious targets for the next 1020 years.A growing number of businesses are committed to achieving net-zero emissions,dramatically reducing waste and alleviating raw materials scarcity.In parallel with the shift to a more sustainable global economy,senior executives are pledging to create more resilient and flexible supply chains and to meet rapidly changing consumer expectations.Thats already an unprecedented amount of change,and these visionary efforts are moving forward in a challenging and uncertain geopolitical landscape.Achieving such commitments will require bold moves.Transforming business models and supply chains is no easy task.It requires systems-wide adaptation in terms of how we make products,how we sell them,how we use them and how the global economy operates overall.We have a plan to help with this welcome to the Circular Transformation of Industries initiative.Circularity is not a new concept.Over the past 20 years,businesses,industries and governments have experimented with circularity initiatives,mainly focused on recycling and waste management.But very few have succeeded at large-scale implementation,according to the Circularity Gap Report 2022.1 The report states that only 8.6%of the materials that enter the global economy in 2022 will be recycled,down from 9.1%in 2018.And recycling alone will not help improve the numbers outlined and committed to by so many businesses.We must take a much deeper and systems-wide approach.Why has circularity failed to take off?To date,companies have invested in narrow circular solutions within their own four walls.Additionally,the perceived benefits of circularity have been limited to environmental sustainability,with little consideration of the systemic benefits in terms of resilience,resource efficiency and incremental economic growth.Focusing primarily on recycled inputs and redirecting waste flows is an easier and more controlled option,but it limits the potential to scale circularity initiatives.Without a holistic approach across multiple supply chains,the circularity movement has hit a fundamental barrier:the added cost and complexity of becoming circular outweighs the added benefits.The current value proposition hasnt convinced businesses and consumers to make circularity a reality.Circularity initiatives to date have shown that isolated efforts are not enough.Slow,incremental change is ineffective because real innovation struggles to prosper and has reached certain limits in a linear economy.The World Economic Forum is working in collaboration with Bain&Company,the University of Cambridge and INSEAD to accelerate the shift to circular operations and business models,leveraging circularity to unlock productivity,innovation and sustainability.Our aim is to help companies and governments fuel robust and sustainable growth in a resource-constrained world.The circular transformation of industries is critical to our future.Francisco Betti Head of Advanced Manufacturing and Value Chains,World Economic ForumJenny Davis-Peccoud Senior Partner,Head of Sustainability&Responsibility,Bain&CompanyHernan Saenz Senior Partner,Global Head of Performance Improvement,Bain&Company Spencer Harrison Associate Professor of Organisational Behaviour,INSEADKristin Hughes Director of Resource Circularity and Member of the Executive Committee,World Economic Forum Jagjit Singh Srai Director of Research in the Department of Engineering,University of CambridgeCircular Transformation of Industries:Unlocking New Value in a Resource-Constrained WorldJanuary 2023Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained World3Executive summaryWith an ever-changing landscape in the global economy,industrial companies are forced to rethink their use of resources and their contribution to economic growth.Circular transformation can help achieve robust and sustainable expansion in a resource-constrained world.However,over the past 20 years,companies have often failed to scale their circular initiatives due to a narrowly defined scope and focus on incremental changes to the operational status quo.The circular transformation of industries at large can help companies unlock productivity,innovation and sustainability,but will require systemic change within and beyond the four walls of organizations,and the involvement of all stakeholders,including government,academia and civil society.To help stakeholders navigate and accelerate this paradigm shift,the World Economic Forum,in collaboration with Bain&Company,the University of Cambridge and INSEAD,has launched the Circular Transformation of Industries initiative.The initiative takes a broad approach to shaping the dialogue between leaders,setting out to consolidate information from previous circularity initiatives and other ongoing and sector-specific efforts to understand how to bridge the gap and create peak maximization of circularity in industries and economies today.The purpose of this paper is to engage leaders across all industry sectors,government,academia and civil society to share insights,best practices and lessons learned,and forge new partnerships to accelerate the circular transformation of industries.Bold ambitions have been set by both companies and governments to drive productivity,innovation and growth,achieve supply-chain resilience,reach net zero and dramatically reduce waste.Success requires systemic change.Without commitments from all stakeholders and global collaborative efforts,circular transformation will continue to stagnate,delivering only slow and incremental shifts.To inform the global discussion on the circular transformation of industries at the World Economic Forum Annual Meeting 2023 and beyond,the following pages outline key areas for stakeholders to focus on to accelerate the shift and achieve robust and sustainable growth:Circular transformation requiring both operating and business-model changes The current state and limitations of existing approaches to circular transformation A system-wide approach to circularity,to unlock its full potentialThe authors of this paper look forward to an engaging discussion and invite all stakeholders to join forces and embark on the Circular Transformation of Industries initiative.Success requires systemic change.Without commitments from all stakeholders and global collaborative efforts,circular transformation will continue to stagnate,delivering only slow and incremental change.Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained World4Why circular transformation?1Organizations that embark on circular transformations and create more adaptable operating and business models will be better positioned to prosper,even in times of disruption,while contributing to sustainable growth.The linear economy imperils global prosperity.Resource consumption levels are not sustainable and will lead to shortages and potential conflicts.Humanity faces a triple threat:soaring population growth,diminishing resources and environmental damage.Today,humans consume 1.75 times the natural resources that the earth is capable of regenerating.2 Moreover,as highlighted in the Circularity Gap Report,the majority(70%)of greenhouse-gas(GHG)emissions come from materials handling and use.3How can the world meet the growing demands for goods with fewer resources and in a more sustainable and efficient way?Circular transformation is a critical part of the solution.Circular operations and business models address each element of this triple threat,while also offering a path to a prosperous future.Circular practices,such as recovering resources and regenerating materials,build more productive,resilient,resource-efficient,closed-loop supply chains,while bolstering sustainability and driving economic growth:Resilient supply chains:Circularity increases control of supplies and improves supply chains responsiveness to global disruptions from pandemics to geopolitical conflicts and helps address shortages.Resource efficiency:Circularity enables new operating and business models,so that all materials can be easily reused,repaired,remanufactured,recovered and recycled.Environmental sustainability:By limiting wasteful consumption and production practices,circularity reduces the climate footprint of economic activity and enables the delivery of net-zero emission goals.Economic growth:Circular operating and business models encourage market products that are looped through the value chain multiple times,which can generate new sources of revenues and profits as well as better meeting consumer needs.Consumers are increasingly searching for sustainable goods,creating a large market opportunity for companies that embrace circularity.For example,surveys suggest strong acceptance of circular consumer practices in fashion:3040%of consumers regularly repair clothes,and 2030%of consumers purchase pre-owned clothes regularly.4 Governments that provide incentives to businesses and consumers to become circular can create systems-wide benefits,including supply security,economic growth and new jobs.The EU,for example,estimates that its circular transformation legislation will deliver cost savings of 600 billion,other economic benefits of 1.2 trillion(about 10%of 2022 EU GDP)and an estimated 2 million additional jobs.5 Today,humans consume 1.75 times the natural resources that the earth is capable of regenerating.Moreover,as highlighted in the Circularity Gap Report,the majority(70%)of greenhouse-gas(GHG)emissions come from materials handling and use.Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained World5Circular marketplacesAnything-as-a-service modelsEnablingservicesTransform business modelsRecoveryservicesReduceReuseRepairRemanufacture/refurbishRecycleRegenerateTransformoperating modelsTransforming systemsCircular transformation requires both operations and business-model changesFIGURE 1Source:Bain&CompanyCircular Transformation of Industries:Unlocking New Value in a Resource-Constrained World6The current state and limitations of existing approaches to circular transformation2Circular initiatives to date have been too narrow to deliver substantial benefits,with their focus mainly on recycling and waste management and considering circularity as an end goal on its own.Companies and governments need to undergo a complete paradigm shift so they view circular operating and business models as the enablers of impact across a broader set of goals efficiency,resilience,sustainability and economic growth.Organizations and governments have experimented with circularity initiatives for two decades,with limited results.Up to now,leadership teams have viewed circularity as an improvement on traditional supply-chain processes,with its focus largely on recycling and waste-management practices as a means of meeting sustainability goals.Although there have been some exciting circularity testbeds such as the Kalundborg Symbiosis in Denmark,6 in which 14 companies systemically generate,share and reuse resources within a closed loop,most businesses have struggled to scale pilots and achieve significant financial,operational and sustainability benefits.Consortia have overlooked the real potential of circularity,and the coordination,integration and scalability required for a systems-level change.Circular transformation has so far stalled across three main areas:operating and business models;systems-wide partnerships;policy and regulation.Companies face three main challenges in relation to circular operating and business models.The first challenge is agreeing on a common definition of circularity and understanding its full potential.Many companies consider themselves to be circular if they introduce recycled materials into a well-honed,fully optimized supply chain.Executives see that shift as costly,and often it is.Adding circular elements to todays linear economic model typically does not improve a companys performance or generate sufficient momentum for change.For that to happen,leadership teams must redesign their operating and business models at large,as well as the customer engagement journeys,product design processes and supply-chain structures,to best support a new way of doing business.Tweaking an existing operating and business model to be more circular delivers incremental change.New operating and business models that are circular by design,however,can deliver the transformational change required.The second challenge is learning to design products for longer life or reuse and embracing a business model based on“buy,reuse and redeploy”.Many companies have adapted their products to a circular value chain,but initiatives that focus on materials alone are insufficient.The pace of this material shift is slower than the pace at which global economic consumption is growing.Thats why innovations in operating and business models go hand-in-hand and are key to accelerating a step change that decouples value growth from material usage.Operating and business models2.1Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained World7The third challenge is scaling new circular operating and business models:research conducted for this paper shows that 58%of new models are stuck in the planning or pilot stages due to the lack of a clear strategy,limitations in getting the right ecosystem support and insufficient technological capabilities.Instead,companies need to take a“future-back”approach.That means envisioning their place in the circular economy,identifying evolving profit pools,integrating circularity into product design and coming together to usher in a new way of creating and delivering value to customers.Partnerships to date have consisted of a small number of pioneers who band together to advance circular models within the group.Scaling circularity initiatives hasnt been economical until now because consortia generally lack broad participation that spans industry sectors,regions and value-chain stakeholders(competitors,suppliers and clients).Partnerships are ineffective if the most powerful companies in a given supply chain dont participate.Small circular partnerships restrict collaboration across businesses adjacent value chains,which reduces the ability of circular products to move through new and different sectors.Research undertaken for this paper indicates that business leaders need broader partnerships to build a vibrant ecosystem that fosters disruptive innovation.This,in turn,will shift profit pools and attract an ever-wider group of participants.Governments can accelerate the process by providing the right infrastructure and standards for circularity.Policy-makers have an important role to play.Most have not yet begun to install the policies and regulations required to support such a large-scale systems change.For example,the rate of recycled concrete that can be used in structural work varies by country,hampering its production,and use,at scale.The EU has been at the forefront of circular policy efforts,creating frameworks such as the Circular Economy Action Plan(CEAP),7 Extended Producer Responsibility(EPR)8 or the new battery directive.Other countries are creating their own programmes,including E-wasteProducer Responsibility Organisation Nigeria(EPRON)9 and Singapores Resource Sustainability Act(RSA)10 to manage electrical waste.Although these programmes are building momentum,achieving a systemic shift will require more ambitious and holistic initiatives that are broader in scope,interconnected among industries and aligned across countries and regions in order to create global standards,trade rules and consistent incentive structures.The goal is to generate a series of rapid changes that help decouple growth from resource consumption.Systems-wide partnershipsPolicy and regulation2.22.3 Policy-makers have an important role to play.Most have not yet begun to install the policies and regulations required to support such large-scale systems change.Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained World8Circular processesFocus on sustainability benefitsTarget is companys value chains IndustriesInitiatives remain in organizational silosInfrastructure developed by incumbentsPartnershipsCircularity is one net-zero initiative among manyTargeted policy for specific use casesSeparate approach developed by region or nation A new,transformative way of doing businessFocus on financial,operational and sustainability benefitsTarget is companys and adjacent value chainsBroader coalition of scalers that span multiple organizationsDisruptive innovation at scaleCircular practices are critical to net zeroHolistic policy toolkit for specific ecosystem outcomesRepeatable regulatory frameworks that support rapid step changes in circularityGovernmentsFrom:CircularityTo:Circular transformationThe shift neededThe global community needs a new approach to circularityFIGURE 2Source:Bain&CompanyCircular Transformation of Industries:Unlocking New Value in a Resource-Constrained World9A systems-wide approach to circularity to unlock its full potential3Transformative results require bold thinking.Leading organizations are starting to reimagine their businesses and build coalitions that support scalable circular models.Transforming how the global economy operates goes way beyond the first step of companies building circular networks.It entails bold thinking to reshape operating and business models,build new ecosystems and change consumer behaviour.These broader actions,in turn,will reconfigure industry value chains and set in motion a more sustainable approach to resources worldwide,while unlocking economic growth(see Figure 3).Level of transformative impactCivil-societyimperativesConsumerimperativeValue-chainsegmentsRethink operating modelNetwork ofvalue chainsFull industry ofvalue chainsCross-industry networks for broader circlesGlobal economics/supply chainsRethinkbusiness modelA systems-level approach magnifies the impact of circular transformationsFIGURE 3Source:Bain&CompanyCircular Transformation of Industries:Unlocking New Value in a Resource-Constrained World10 To continue to meet demand,organizations will need to retool and invest in procurement,manufacturing and sales,both for circular and traditional products.How does this journey begin?The first step is asking the right questions.The circular transformation of industries calls for a mindset shift in organizations,partnerships and governments.Forward-looking leadership teams are advised to focus on several key questions.What are the most effective and profitable circular models to support our growth and sustainability efforts and navigate global disruptions?How can my organization build a network of interconnected supply chains to enable new circular models?How can we achieve systems-wide change that dramatically increases the number of interconnected circular supply chains?Successful leaders start the circular journey by looking inward and designing a profitable circular business model and transforming operations accordingly and at scale.Management teams can pursue step-by-step change towards a full-scale transformation once they have a clear understanding of how new business models can create additional sources of value,reduce total material usage,improve resilience and generate measurable growth.The most challenging step for companies will be scaling their circular initiatives to meet the growing economic and sustainability ambitions.To continue to meet demand,organizations will need to retool and invest in procurement,manufacturing and sales,both for circular and traditional products.Volvo,for example,has designed a process in which worn-out products from its trucks are sent to be remanufactured;this business is quickly scaling and is run in parallel with the companys new-truck sales.In addition to being less expensive and more reliable,remanufactured truck parts reduce material use by 85%and energy use by 80%.11 To achieve their ambitions,leadership teams can learn from others in the industry and join forces to implement broader,far-reaching change.Each organization is one element in a universe of supply-chain interdependencies.By banding together,companies can create a new fabric of interconnected value chains,allowing circularity leaders to start reimagining their products and how they interact with other value chains.The next step is rethinking innovation and product development,ensuring that circular models are core to every products DNA.For example,start-up Risacca transforms old fishing nets into fabric,chairs,covers and buttons,creating jobs,designing innovative products and reducing pollution in one of Italys busiest fishing centres.12Interconnected supply-chain networks are also critical in establishing a pre-competitive agenda for systemic benefits.To build a network of linked value chains and self-sustaining ecosystems,industry coalitions need to understand the economic foundations that support circular models at scale.This requires promoting new standards and certifications,developing circular-focused capabilities within their own companies and among suppliers and consumers,and supporting new policy frameworks.Coalitions of companies can define the“rules of the game”,creating an ecosystem with standardized industry metrics and lean on governments to integrate swift policies that support the need to implement circular practices.Public-and private-sector incentives can help increase the number and scale of interconnected circular supply chains.This challenge is most apparent in the plastic value chain,where some companies do not have enough feedstock to meet their recycled PET(the most commonly used plastic material in packaging)targets,and there is a need for supportive government policies and standards on food-grade plastics to scale their efforts.Governments should therefore continue building on existing policy frameworks and strategies to promote a circular ecosystem while exploring bolder opportunities to reward first movers and bring laggards up to the new expectations.They can increase circular initiatives at a regional(CEAP),national(Dutch economic goals)13 and sector(Intergovernmental Negotiating Committee INC on Plastic Pollution)level14 by encouraging organizations to make collective commitments.Leaders are starting to create demand for circular products;the Rwandan Government shifted its federal procurement(estimated at 15%of 2017 GDP)to increase the share of circular products procured,thereby stimulating the local circular ecosystem.15 Governments must encourage companies to account for the negative impact they generate on the environment and take responsibility for their inputs,outputs and practices.The EU has led the way with its EPR programmes,16 requiring manufacturers to manage their products all the way through the post-consumer stage,shifting the financial and operational responsibility from governments and consumers to businesses.Similar frameworks are being implemented around the world(including in the US,China and Kenya)but need to be expanded and aligned across regions and materials to maximize their impact.Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained World11Innovator case studies4A group of leading World Economic Forum members are forging ahead to scale their circularity initiatives and create systemic change.Here are several success stories.The fashion industry has historically struggled to establish a credible,secondary marketplace that minimizes the risk posed by low-quality,counterfeit products.Ralph Lauren addressed this challenge through a partnership with resale platform Vestiaire Collective(along with the World Economic Forum and Bain&Company)that created a digital architecture for reselling authenticated products.17 The partnership,which uses digital ID technology developed by Digimarc(formerly EVRYTHNG),has benefited all parties.18 Ralph Lauren has broadened its brand exposure,enhanced its brand equity and is an early mover in the emerging resale market.Vestiaire Collective has increased its customer volume and reduced the risks and costs associated with inauthentic products.Consumers have benefited,too,as they can confidently purchase authenticated second-hand products.Partnerships provide the opportunity to elevate and scale circular models beyond one product,value chain or company.Schneider Electric incorporates circular design principles into the core of its business to meet sustainability goals,while ensuring growth and greater supply-chain resilience.The leadership team has launched scalable pilot projects that reimagine the entire value chain for a given product,with a focus on producing products with a longer lifespan that are more easily repaired to further extend the product life.Company-wide circularity training helps all employees understand why circularity is a priority and how initiatives affect their work.In one early pilot,called ECODRIVE,Schneider Electric launched a programme to collect its used Altivar Process drives for refurbishment and resale.Customers submit their products for return on a digital take-back platform,resulting in a smooth and efficient recycling process.CASE STUDY Partnership to scale a circular ecosystemCASE STUDY Designing a circular business strategyCircular Transformation of Industries:Unlocking New Value in a Resource-Constrained World12To fully realize the benefits of circular transformation requires systems-level initiatives that create value for all stakeholders.While it is early days for systems-level initiatives across industries,battery recycling has emerged as an early example of a fast-growing ecosystem that requires a broader,systemic approach.Vehicle industry leaders,such as Volkswagen,are pioneering a circular business model around batteries for electric cars.Volkswagens new battery company,PowerCo,takes a systems-level approach to establishing a green battery cell business with a resilient remanufacturing loop.These green battery cells will be manufactured only with green energy,with a recycling rate of at least 90%.Partnerships in the public and private sectors are a critical enabler of this business model.PowerCos partnership with Umicore provides battery recycling technical support and strengthens its operational capabilities.Volkswagen has also joined a research consortium with other industry leaders,academics and the German government to design processes that allow for materials used in electric-vehicle batteries to be recaptured and redeployed.PowerCo is an example of an established player building a large-scale,collaborative ecosystem that unlocks new revenue streams,limits resource consumption and minimizes the externalities associated with electric-vehicle production.Its smart approach to ecosystem development is a model for scalable,sustainable,systems-level circular transformation.Deep,long-standing circular transformation of industries requires a broad group of stakeholders to partner across the public and private sectors.The Consumer Goods Forum,19 a CEO-led organization that brings together 400 consumer goods retailers and manufacturers globally(including Walmart and Unilever),provides guidance on how EPR schemes can move the responsibility for waste management from governments and consumers to manufacturers through producer responsibility organizations(PROs).One of the pioneering PROs,ReCarton,20 is a non-profit that supports and incentivizes companies to recapture and recycle beverage cartons,while providing them with support to identify new markets for the recycled products.This encourages companies to innovate,while also creating a closed,resilient loop of recyclable packaging raw materials for local manufacturers during a period of growing global demand.CASE STUDY Industry-wide collaboration across the public and private sectorsCASE STUDY Systems-level circular transformationCircular Transformation of Industries:Unlocking New Value in a Resource-Constrained World13Mission5The world needs stakeholders to come together to build the“operating system”for the circular economy and follow in the footsteps of industry innovators.The time to embrace a circular transformation at scale is now.Many companies,organizations and governments have begun to explore what this systems-level change means for them,but few have made strategic commitments and developed clear strategies.The world needs stakeholders to come together to build the“operating system”for the circular economy and follow in the footsteps of industry innovators.To achieve this and more,the World Economic Forum has launched the Circular Transformation of Industries initiative,in collaboration with Bain&Company,University of Cambridge and INSEAD.The initiative brings together cross-functional leaders to share best practices,develop critical enablers across industries and drive action in high-impact areas such as:developing systems-wide partnerships;establishing data-sharing norms;building innovative circular practices and technology;influencing global regulation and policy;equipping companies to build a circularity-oriented organizational culture;developing circular upskilling capabilities;and providing access to financing for catalytic solutions.This community of leaders aims to achieve four key milestones in the year ahead:Unite:Bring together global leaders committed to fundamentally changing their organizations and industries,adopting circular operating and business models that break away from the linear status quo Solve:Crack the toughest obstacles to circular transformation,including economic,policy and technological barriers Commit:Start forming collective commitments to mobilize the resources and efforts needed to accelerate and scale the circular transformation of industries Act:Convene circular economy pioneers to stimulate cross-value chain collaboration and set a pre-competitive agenda that aids in scaling circular transformations The authors of this paper look forward to an engaging discussion and invite all stakeholders to join forces and embark on the Circular Transformation of Industries initiative.Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained World14ContributorsAcknowledgementsWorld Economic Forum Maria Basso Platform Curator,Advanced Manufacturing and Value Chains Francisco BettiHead of Advanced Manufacturing and Value Chains Mel HuaHoffman Research Fellow;Research Fellow,INSEAD UniversityKristin HughesDirector of Resource Circularity Christian KaufholzHead of Community Engagement and Impact Anis NassarLead,Resource Circularity Lisa RossiResearch Fellow;PhD candidate,University of CambridgeAlex ViladegutProject Fellow;Manager,Bain&Company Stacey WeismillerInitiatives and Community Lead,Advanced Manufacturing and Value Chains Bontu YousufIndustry Transformation Specialist,Resource Circularity Xiaoming ZhongInitiatives and Community specialist,Advanced Manufacturing and Value Chains Bain&CompanyTessa BysongPartnerJenny Davis-PeccoudSenior Partner,Head of Sustainability&ResponsibilityArnab HazraSenior ManagerJosh HinkelSenior PartnerHernan SaenzSenior Partner,Global Head of Performance Improvement ArelikCelonisGEA GroupHolcimRalph LaurenRemanufacturing GroupSchneider ElectricSiemensVolkswagenWe thank the CEOs and executives who have already started the journey of circularity through existing initiatives and communities at the World Economic Forum and outside.We look forward to supporting these communities and to build on their work with them to take circularity to an unprecedented scale.Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained World15Endnotes1.Circle Economy,“The Circularity Gap Report 2022”,2022:https:/Footprint Network,“Global Footprint Network Promotes Real-World Solutions that#MoveTheDate,Accelerating the Transition to One-Planet Prosperity”,23 July 2019:https:/www.footprintnetwork.org/2019/07/23/press-release-july-2019/.3.Circle Economy,“The Circularity Gap Report 2022”,2022:https:/from Consumers:How Shifting Demands Are Shaping Companies Circular Economy Transition”:https:/Commission,“Circular Economy Action Plan”:https:/environment.ec.europa.eu/strategy/circular-economy-action-plan_en.6.Kalundborg Symbiosis,“Surplus from Circular Production”:http:/www.symbiosis.dk/en/.7.European Commission,“Circular Economy Action Plan”:https:/environment.ec.europa.eu/strategy/circular-economy-action-plan_en.8.Europen,“Extended Producer Responsibility”:https:/www.europen-packaging.eu/policy-area/extended-producer-responsibility/.9.EPRON,“Welcome to EPRON”:https:/epron.org.ng/.10.National Environment Agency,“Extended Producer Responsibility(EPR)System for E-waste Management System”:https:/www.nea.gov.sg/our-services/waste-management/3r-programmes-and-resources/e-waste-management/extended-producer-responsibility-(epr)-system-for-e-waste-management-system.11.Volvo,“Sustainability:Circular Economy”:https:/Project,Promoting Innovative Solutions for Recycling Waste from the Fishing Industry”:https:/of the Netherlands,“Circular Dutch Economy by 2050”:https:/www.government.nl/topics/circular-economy/circular-dutch-economy-by-2050#:text=The Netherlands aims to have,and raw materials are reused.14.United Nations Environmental Assembly of the United Nations Environmental Programme,“Draft Resolution:End Plastic Pollution:Towards an International Legally Binding Instrument”,2 March 2022:https:/wedocs.unep.org/bitstream/handle/20.500.11822/38522/k2200647_-_unep-ea-5-l-23-rev-1_-_advance.pdf?sequence=1&isAllowed=y.15.Republic of Rwanda,“2019 Rwanda:Voluntary National Review(VNR)Report”,2019:https:/sustainabledevelopment.un.org/content/documents/23432Rwanda_VNR_Document_Final.pdf.16.Europen,“Extended Producer Responsibility”:https:/www.europen-packaging.eu/policy-area/extended-producer-responsibility/.17.World Economic Forum,“Circular Value Chains in Fashion:Strengthening Trust in Second Hand Markets”:https:/www.weforum.org/impact/strengthening-trust-in-second-hand-markets/.18.Digimarc,“Ralph Lauren”:https:/Consumer Goods Forum,“Extended Producer Responsibility”:https:/fr die Verwertung gebrauchter Getrnkekartons”(in German):https:/www.getraenkekarton.de/recarton/.Circular Transformation of Industries:Unlocking New Value in a Resource-Constrained World16World Economic Forum9193 route de la CapiteCH-1223 Cologny/GenevaSwitzerland Tel.: 41(0)22 869 1212Fax: 41(0)22 786 2744contactweforum.orgwww.weforum.orgThe World Economic Forum,committed to improving the state of the world,is the International Organization for Public-Private Cooperation.The Forum engages the foremost political,business and other leaders of society to shape global,regional and industry agendas.
4 人看过 2023-02-15 17页 5斯特恩
敏捷：2023 年敏捷新兴市场物流指数报告（69 页）.pdf
A G I L I T Y E M E R G I N G M A R K E T S L O G I S T I C S2023Supply chains battle with higher costs,Covid lows,the Ukraine war and major location shiftsProduction moves out of ChinaSaudi Arabia to spend$24.7bn on tech by 20252023 recession:What are the odds?2ContentsContentsOverall Index 13China 13India 14United Arab Emirates 15Malaysia 16Indonesia 17Saudi Arabia 18Qatar 20Thailand 21Mexico 22Vietnam 24Domestic Logistics Opportunities 25China top again but storm clouds gather 25Make in India policy brings rewards and costs 25Brazil falls but Egypt soars 26Egypt prioritises port investment 26International Logistics Opportunities 28Chinas zero Covid policy still causing supply chains chaos 28Asian countries to benefit from China plus 29Highest climbers 29Business Fundamentals 30Rule of law essential 30Smuggling and counterfeiting risks 31Digital Readiness 33Adopting Industry 4.0 33Digital finance and broadband penetration key to e-commerce adoption 34Education and skills lay foundations 35The Agility Emerging Markets Logistics Index 2023 Survey 36152433343Contents42.3%of respondents believe that air freight rates will normalise in 2023,although at higher levels than pre-Covid;compared to 46.8%who think that sea freight rates will normalise in 2023,but at higher levels than pre-Covid.The most important driver of demand is the US economy.Consumer confidence in the US seems weak at present resulting in less vigorous retail spending.Read more on p.41Supply chains increasingly bypassing ChinaFrom 2023 onward,Southeast Asia,India,Europe and North America will be more attractive production and sourcing destinations than China,according to survey findings.Southeast Asia followed by India will be the most attractive re-location destinations,with 13.6%and 13.4%of respondents respectively stating their companies will move production or sourcing activities to these destinations.Read more on p.53Key FindingsFrom freight rates to start-up ecosystems,our key findings section offers a brief look at some of the facts and data to emerge from our research.Kenya features one of the most mature start-up ecosystemsKenya has advanced its structural reform agenda focused on improving governance and has reinforced oversight of state-owned enterprises.The countrys progress towards creating a stronger business environment in the last several years has also been evident.Kenya belongs to the big four African countries that account for about a third of the continents start-up incubators and accelerators,according to the WEF.GDP growth in Kenya is forecasted to be amongst the strongest in the region in 2023 according to the IMF.The peaceful conclusion of the 2022 presidential vote is a good signal for Kenyas institutional strengthening and political stability.Read more on p.394Contents66.4%of respondents says a global recession is certain or likely in 2023.This number increased by 6 percentage points in December compared to October.The forecast comes amidst sharp growth slowdowns across the largest economies.Read more on p.37Reconfiguration challenging for electronics and machineryMoving production out of China is easier for some industries than others.Supply chains for products like furniture,apparel and household goods will be relatively easy to diversify because the inputs are relatively easy to obtain.The process of supply chain reconfiguration will be more challenging for industries such as electronics and machinery,as they require components which are more difficult to source.More challenging,but not impossible as many electronics companies have already demonstrated.Read more on p.54Green economy provides Thailand with competitive advantageThailand has become a beneficiary of the China plus risk mitigation sourcing strategies being increasingly employed by global manufacturers.Whilst other Southeast Asian countries,such as Vietnam,may have lower labour costs,Thailand is more technologically advanced,especially in the green economy including the manufacture of electric vehicles(EVs).This has provided the country with a significant competitive advantage in the region.Read more on p.215Contents2/3 of respondents agree or strongly agree that the African Continental Free Trade Area(AfCFTA)will generate new employment opportunities across the continent.Even though the African Continental Free Trade Agreement has in theory been operational since the start of 2021.Read more on p.57The Ukraine Russia War triggers costsThe war is having broad implications for global businesses it has triggered an increase in business costs among 30%of the surveyed companies,whilst 29%saw an increase in logistics costs.Indeed,the war only amplified the economic impact of the pandemic and triggered an increase in the cost of energy,shipping and commodities as well as supply chain disruptions,causing businesses around the world to feel the ripples closer to home.The war in Ukraine was a reminder for businesses that geopolitical risks should be factored in supply chain risk management.Geopolitical risks are always present,but the range of issues they present is creating extremely significant challenges for businesses to grapple with.Read more on p.45Digital forwarders have developed a sound business modelSurvey findings show that digital forwarders have been successful at eroding the competitive advantages of forwarders across several areas.The areas in which digital forwarders perform particularly well include tracking and visibility,Invoicing and Payment,and Speed of service.Respondents suggest that digital forwarders are yet to consistently improve their offering when compared to traditional forwarders in some areas.Looking ahead to 2027,the volumes shipped and booked through digital forwarders will further increase from the current average of 47.7%to almost 60.1%.The adoption rate is likely to increase over time as the technology matures and the digital forwarders gain scale.Read more on p.606Contents18%Climate-change events are already affecting around 1 in 5 organizations according to survey respondents.18%of the respondents are already feeling the impact of this type of disruption and state that climate change events are affecting their business.Read more on p.63The wave of multinationals announcing ambitious net zero targets made headlines in 2021Large corporations around the world pledged to cut their greenhouse gas emissions to zero,usually by the distant 2050.These announcements gave the impression that the corporate world is moving fast to tackle climate change.But the reality is more nuanced.According to our survey findings,more than 50%of respondents have committed to a net zero target,but around a third of respondents havent set a net zero target deadline.Read more on p.62Saudi Arabia has the potential to become a digital and innovation-based economyInnovation and technological development is the most important driver of economic diversification in the Gulf countries according to survey respondents.Saudi Arabia will spend$24.7bn on technology by 2025.This is reportedly the highest government spending on technology in the world.The country is investing$6.4bn in future technologies and start-ups.By 2025 the digital economy is expected to contribute over 19%GDP of Saudi Arabia.Read more on p.507Contents17%Asia Pacific remains the most attractive global manufacturing hub,with 23.1%of respondents producing their products in the region.But a certain degree of relocation of international supply chains appears to be under way and global supply chains are on the move.Survey findings show that 17%of the respondents that have already moved production/sourcing activities have chosen China as their alternative destination.Read more p.52Wage in Mexico$3.90 per hour compared to$5.58 in ChinaThe Mexican economy will significantly benefit from the deteriorating relationship between US and China.However,this will only occur if the Mexican government is able to build a more attractive business case for foreign investment.According to IHS Markit,the average manufacturing industry wage in 2022 in Mexico is$3.90 per hour,compared with$5.58 in China.The security situation in Mexico is one of the biggest headwinds to economic growth.Read more on p.22Technology adoption&e-commerce growthTechnology adoption,including internet and mobile phone usage is the most important digital readiness factor when deciding whether to invest in an emerging market,according to survey findings.Speed and reliability of internet connectivity as well as financial and banking ecosystem to support e-commerce sales are the second and third most important digital readiness factors.Digitalisation has become one of the most significant growth engines for many emerging economies.For instance,digital readiness and connectivity played a crucial role in overcoming the difficulties of conventional trade during the pandemic and facilitating recovery in Southeast Asia.Read more on p.498Contents13.5%The proportion of businesses that will pass on higher energy prices to customers is not insignificant:13.5%of the respondents stated that their companies will increase their prices by 6-10%,further contributing to inflationary pressures.Read more on p.44West establishes factory network in light of China Taiwan tensionsThere is an impending crisis related to Chinas claims on Taiwan.The escalating tensions between Taiwans ally,the USA,and China which can,and already is,having an impact of trade flows.Given the reliance of the global semiconductor industry on Taiwanese manufacturers,especially in terms of the most advanced technologies,the West has taken steps to try to establish its own factories,whilst simultaneously preventing China from gaining access to technology which could be used for military purposes.Read more on p.13The impact of multi-nationals on retailers in IndiaWhen Prime Minister Modi came to power many in the global community hoped that he would reduce barriers to international trade.However his policy response has been to raise duties further to encourage global suppliers to establish Indian operations.There are those which fear the impact which the entry of multinational corporations into the Indian market would have on small businesses,in particular retailers.The risk is,as the world approaches a period of sustained economic downturn,that a neo-protectionist regime will isolate India further from globalized supply chains rather than integrate within them.Read more on p.149ContentsIntroduction from Tarek Sultan,Vice Chairman,AgilityThis is the 14th edition of our annual Agility Emerging Markets Logistics Index.If all you did was flip through the overall rankings,you would see little year-to-year change at the top,and you might conclude it had been a period of relative stability for the 50 countries examined in this report.It was not.2022 was a year of unprecedented volatility in the logistics industry and in the affairs of the emerging markets countries in our Index.At the outset of the year,shipping rates were at record highs.By years end,they had plummeted and the industry moved into 2023 with a glut of capacity and ocean containers.China,No.1 in this Index every year since it was launched,was struggling to cope with shrinking output,falling export demand and,after ending its zero-Covid policies,a huge surge in infections.Spiking energy prices sparked global inflation that sapped recovery efforts in all but a few energy-exporting economies.Meanwhile,Russia and Ukraine were battered by the effects of war and,in Russias case,economic sanctions and brain drain.To see evidence of all this volatility,take a look at the rankings for International Logistics,Domestic Logistics,Business Fundamentals,and Digital Readiness.The countries making significant moves up or down in relative competitiveness were almost too numerous to name:India,Ghana,Argentina,Iran,Mexico,Pakistan,Lebanon,Colombia,Jordan,Sri Lanka,Bahrain,Cambodia,South Africa,Bangladesh,Tanzania,Turkey,Ethiopia,Bolivia and Paraguay,among others.What lies ahead in 2023?There are plenty of clues in the Index survey of nearly 800 logistics industry executives.A large majority see the prospect of global recession as certain or likely in 2023.More than 90%have been hit by higher logistics costs.More than 80%blame the Russia-Ukraine war for at least some of their increased costs and supply chain disruption.Efforts by companies to strengthen resiliency by diversifying production and sourcing appear to be gathering steam.Nearly 75%of respondents said their companies have reduced supply chain risk by sourcing from more locations or by moving production to their home markets,nearby countries,or countries that are political allies(“friend-shoring”).Another 14.5%took other steps to reduce supply chain risk.The country most directly affected by sourcing diversification is China,but the proportion of respondents with plans to continue expansion in China is roughly equal to those planning to move out or slash investment there.The biggest factors for those leaving:Chinas strict anti-Covid policies and overall difficulty of doing business.In spite of the turmoil and uncertainty confronting emerging markets and the industry,most industry leaders are looking through a long lens.Fifty-four percent of respondents say they will be more aggressive with emerging markets investments or leave existing expansion plans in place.Meanwhile,most foresee strong growth in the use of digital freight forwarding,especially if error management can be improved.Few believe that e-commerce growth has reached a plateau.Most see expanded opportunity for their companies and for small business with the implementation of the African Continental Free Trade Area(AfCTA).Signals in the area of sustainability and climate change are heartening,too.Only a small minority of respondents about 20%are resisting or ignoring the imperative to set net-zero targets and commitments.Sixty-seven percent say their businesses are planning for the effects of climate change or already feeling its impact.For shippers,carriers,distributors,policymakers,marketers and others focused on the supply chain,the annual Agility Emerging Markets Logistics Index has been a useful guide to the worlds emerging markets and an accurate indicator of where the global economy and value chains are headed.Im confident you will find that to be the case again this year.10ContentsIntroduction from John Manners-Bell,CEO,Transport IntelligenceIt is not possible to overemphasise the challenges which many Emerging Markets have faced in the past year.A tightening post-pandemic fiscal environment in the West has resulted in a downturn in investment as well as constrained global export markets.Russias invasion of Ukraine has led to sky-high energy bills and food shortages,especially across Africa.China,meanwhile,has suffered its own problems as the economy has struggled with its governments zero tolerance approach to Covid.This has created production bottlenecks,disruption to logistics systems and distorted supply chains right around the world.Whilst many of these problems will be transient,it would be well to avoid complacency.The previous global crisis in 2008 left many politicians in Emerging Markets feeling badly let down by Western governments and corporations,their economic and societal predicament trumped by domestic pressures.As a result,many turned to China,which was,of course,eager to fill the void left by the Wests retreat.The ramification of this failure in Western policy is still being felt keenly to this day.Chinas soft power now reaches deep into countries in the emerging world,not least into Africa and even the USAs backyard,Latin America.Combined with tensions over Taiwan and the calls for re-shoring of production to North America and Europe,there is a real risk that supply chains will become fragmented or balkanised,as it has been termed.Political intervention and growing protectionism would not only bring about diseconomies of scale and lead to higher inflation but would also deny access to essential markets,exacerbating an already challenging environment.It is not all bad news,however,as these same political tensions have created opportunities for Emerging Markets resulting from China plus sourcing strategies as manufacturers look to mitigate risks,avoid US tariffs and comply with new legislation,especially in the electronics sector.What is clear is that the supply chain environment is set to become increasingly complex,with the prospect of globalized open markets now looking remote.If policy makers are not careful,Emerging Markets could be denied previously promised benefits as they find themselves caught in a power play between China and the West.Even well-meaning carbon reduction legislation such as the EUs Carbon Border Adjustment Mechanism risks further disaffection as Emerging Markets are made to shoulder the cost of climate change.Geo-political tensions have combined with financial uncertainty to create an ever more challenging business and investment environment.The role the Agility Emerging Market Logistics Index plays in providing insight into these complexities is more critical than ever.11ContentsTo assess and understand these trends and their effects on 50 of the worlds most promising emerging logistics markets,the Agility Emerging Markets Logistics Index 2023 examines four key areas for logistics market development:Domestic Logistics Opportunities International Logistics Opportunities Business Fundamentals Digital Readiness It presents a data-driven analysis of 50 of the worlds most promising emerging logistics markets,reflecting the complexity,connectedness and opportunities each market provides.As data visibility increases,the Ti Data Team is able to improve the accuracy of the models for each Index which,along with unprecedented volatility in the industry,instability in the global economy and effect of digital acceleration post Covid-19 has led to more movement in some areas of the Index than we are used to seeing.Domestic Logistics Opportunities measures the performance of each emerging market and its potential to sustain and develop domestic demand that requires competitive logistics markets:Domestic logistics markets size&growth Economy size&growth Population size&growth Income equality Urbanisation Development of business clusters International Logistics Opportunities measures internal and external demand for trade intensive logistics services and the capacity of individual emerging markets to facilitate cross-border logistics operations:International logistics markets size&growth Logistics intensive trade size&growth Infrastructure quality and connectedness Border procedures time&cost Business Fundamentals measures the openness,robustness,fairness and strength of each emerging markets business environment,rule of law and market independence:Regulatory environment Credit rating Contract enforcement&anti-corruption frameworks Inflation&price stability Cost of crime&violence Market accessibility&domestic stability Digital Readiness measures the potential and progress of an emerging market in becoming a digitally-led,skills rich,innovation-oriented and sustainable economy for the future:Emissions intensity Renewable energy mix Digital business models&online commerce Entrepreneurial risk Digital skills&human capital Availability of enterprise financing Each year,the Agility Emerging Markets Logistics Index utilises a unique set of variables that measure current,short-and medium-term performance across structural and cyclical factors in each countrys logistics markets and key vertical sectors.As a result,the Index provides a snapshot of each countrys current performance and future potential as a globally significant logistics market and investment destination.To determine the ranking of the 50 leading global emerging logistics markets,current and forecast data from world-leading institutions including Transport Intelligence(Ti),the World Bank,the International Monetary Fund(IMF),the World Economic Forum(WEF)and others are used.By combining current and forecast data,this 2023 edition of the Index continues to assess each markets recovery from the impact of the Covid-19 pandemic,as well as its ability to survive or thrive in a period of unprecedented volatility.With the addition of the Digital Readiness ranking introduced in 2022,and the subsequent enhancements of this model through more data visibility,the Agility Emerging Markets Logistics Index 2023 also provides a unique perspective on the suitability and preparedness of each emerging market to participate in the still challenging,post-pandemic global economy.It is within this sub-Index that we have seen the most change,often due to the significant adoption of e-commerce resulting from the Covid-19 pandemic.In addition,by ranking each emerging market against the 49 others,the Index highlights strong performers and demonstrates where markets have developed enduring advantages.It also reveals those markets which have seen performance and potential erode.Key Measures12ContentsThe Agility Emerging Markets Logistics Index 2022 Overall RankingRankRank ChangeCountryOverall ScoreLast Years ScoreDomestic OpportunitiesInternational OpportunitiesBusiness FundamentalsDigital Readiness10China8.319.758.479.757.116.6320India7.437.238.047.455.947.6130UAE6.595.735.605.899.107.3740Malaysia6.165.925.295.887.856.7250Indonesia6.085.516.345.895.776.2160Saudi Arabia6.075.955.385.747.866.3070Qatar6.024.895.914.967.926.3880Thailand5.676.015.115.985.776.0490Mexico5.556.405.376.324.935.11101Vietnam5.525.875.026.035.615.4311-1Turkey5.496.015.145.705.805.50122Oman5.464.894.954.887.245.8113-1Chile5.435.174.835.187.015.55141Bahrain5.314.684.994.707.155.34152Kuwait5.254.575.074.646.235.76163Jordan5.195.674.884.756.725.1417-4Russia5.185.255.015.415.135.14180Philippines5.185.435.025.284.315.9919-3Brazil5.174.735.425.424.135.19200Morocco5.084.654.645.096.454.69210Egypt5.065.005.154.725.625.00220Kazakhstan4.994.414.664.666.195.10230Uruguay4.984.704.784.456.145.22240South Africa4.944.954.815.004.995.01253Kenya4.864.614.604.654.975.56261Pakistan4.814.585.164.634.135.0627-1Peru4.785.104.725.124.484.5828-3Colombia4.755.024.675.084.554.53293Ghana4.724.234.614.445.005.14303Sri Lanka4.664.724.494.734.325.12310Argentina4.664.614.874.634.244.68324Tunisia4.604.604.614.485.064.39332Lebanon4.584.424.814.613.794.80340Nigeria4.554.485.154.393.624.61354Bangladesh4.534.385.024.483.534.6336-6Iran4.504.474.574.114.385.15375Tanzania4.474.354.624.144.704.58382Cambodia4.464.284.454.484.164.7339-1Ecuador4.464.464.504.654.494.03401Paraguay4.464.224.454.384.304.7241-4Algeria4.454.634.884.244.613.9142-13Ukraine4.404.974.344.383.954.91430Uganda4.294.394.414.383.914.24440Bolivia4.144.464.444.463.743.45450Ethiopia4.074.364.424.403.213.64460Mozambique3.764.404.254.392.173.22471Venezuela3.754.264.483.961.563.9948-1Angola3.713.484.374.301.903.11490Myanmar3.684.254.444.272.042.79500Libya3.352.594.483.811.961.8413ContentsWhilst China has once more retained its position at the top of the Agility Emerging Markets Logistics Index,the past year has been one characterized by political,economic and social upheaval,a new and worrying state of affairs for a government which prides itself on continuity and advancement.At the root of its problems is the effect of the Covid pandemic and the zero tolerance policy it has adopted to prevent the spread of the disease throughout the population.This has had severe consequences for the economy which is forecast to grow only weakly(by Chinas standards)in 2022.Its prospects for 2023 will be influenced by whether the government loosens its regulations.If it does(and there are positive signs of this)then considerable pent up demand could be released,driving forward once again the Chinese and global economy.There is also the risk,however,that a return to normality will precipitate the spread of the disease overwhelming healthcare systems and throwing the governments policy response into confusion.Geo-political tensionsDomestic concerns are only part of the countrys problems.Whilst the fall out from the governments Covid response may be transient,albeit costly to domestic and worldwide supply chains,there are more strategic global challenges ahead.At the top of these is the impending crisis related to Chinas claims on Taiwan.There is already a pathway of escalating tension between Taiwans ally,the USA,and China which can,and already is,having an impact on trade flows.The breakdown of relations started with the tariffs imposed on China by President Trump and continued under President Biden.Specifically regarding Taiwan,the visit of the Speaker of the US House of Representatives,Nancy Pelosi,to Taiwan in August 2022 prompted Chinas military to undertake live firing exercises in the waters around the island,disrupting air and shipping lanes.This was a clear signal to the international community that a blockade of Taiwan could be used as a diplomatic and economic lever.Given the reliance of the global semiconductor industry on Taiwanese manufacturers,especially in terms of the most advanced technologies,the West has taken steps to try to establish its own factories,whilst simultaneously preventing China from gaining access to technology which could be used for military purposes.Capturing supply chain valueA further pillar of Chinese government policy has been the capture of supply chain value by increasing the domestically-sourced proportion of intermediate goods.In the Factory Asia model,intermediates produced across the region have typically been transported to China for final assembly.This means that Chinese manufacturers lose out on much of the value adding process,the final assembly being a low cost and commoditized undertaking dependent on cheap labour.The government has recognized that for its industry to ascend the value chain it has to invest in the know how and facilities which would obviate the need to import components from competitors throughout the region a calculated,strategic and successful move.A so-called In China,for China production strategy has also been developed.Encouraged by the countrys political leaders,consumers are purchasing Chinese-made rather than foreign goods in increasing volumes,a significant shift in behaviour from only a few years ago.This trend is particularly evident in the younger demographic which takes pride in buying domestically produced goods.These trends will result in China both becoming more self-sufficient in intermediate goods as well as finished products.Supply chain de-couplingWhether zero-tolerance Covid policy,the establishment of dual technology supply chains,Made In China value capture or the fall out from its treatment of the Uighur community,China is slowly becoming de-coupled from global supply chains.This will be a very long process given the importance of the market to the rest of the world but it is a trend which cannot be ignored.This will create massive tension between the worlds largest military and economic powers but it will also bring opportunities for smaller countries in the region so-called China plus sourcing locations.These include many of the countries in the Indexs Top Ten which will expect to close the gap on China in the coming years.Overall IndexChina14ContentsAt number two in the ranking,India has made significant progress in the last decade to modernize its logistics and supply chain industry and,by doing so,deliver strong economic growth.This has included introducing a Goods&Services Tax(GST)as well as an electronic waybill for transportation providers crossing state borders which has reduced corruption and transit times.At the same time,the government has looked at ways of making logistics more efficient by addressing bottlenecks,introducing technology and streamlining major transport infrastructure projects,often plagued by delays and mismanagement.In 2022 the government introduced a National Logistics Policy which has been developed to build on this progress to date.This will include the creation of a unified digital platform that will provide end-to-end visibility for importers and exporters as well as the creation of a multi-modal network that will leverage an under-utilized rail system.However,there is much to do if India is to attract more manufacturing from China although the country has made a good start(see feature on Apples decision to move some production to India on page 29).In terms of logistics,for example,the average turnaround time at an Indian port is 20-40 hours higher than the global average and considerable investment is required in Indias port,airport,road and rail infrastructure.While most developed countries have a single digit logistics cost to GDP ratio,the Indian costs have been in the 14 to 18%range for years.Raising barriers to capture supply chain valueHistorically,protectionist policies have meant that India has excluded itself from many Global Value Chains,thereby losing the economic benefits which these can bring.When Prime Minister Modi came to power many in the global community hoped that he would reduce barriers to international trade,opening up the market to foreign competition.However,in fact his policy response has been to raise duties further(up to 25%)on many imported intermediate products in order to encourage global suppliers to establish Indian operations and hence increase domestic value add.The so-called Phased Manufacturing Programme(PMP)started raising duties on specific components used in mobile phones in 2016 and rapidly expanded this list in subsequent years.The ambition of the PMP was to ensure that up to 50%of the value of a mobile phone assembled in India was generated by Indian-based suppliers(rather than imports),thereby establishing an eco-system for foreign investment and(although it may sound counter-intuitive)allow Indian high tech companies to better participate in Global Value Chains.This forms part of a broader Make in India policy discussed in more detail later in this document.The stance of the Indian government towards trade policy is complicated by internal politics.There are those which fear the impact which the entry of multinational corporations into the Indian market would have on small businesses,in particular retailers.Regulations have consequently constrained the ambitions of international retailers such as Walmart and e-commerce players such as Amazon.There are also those who believe that China provides the greater threat,dumping cheap,subsidized exports on the Indian market to destabilize the economy and support its political goals of expansionism.It is worth noting that Prime Minister Modi has ensured that India is one of the few countries in the Asian region to oppose Chinas Belt&Road Initiative,unlike its major rival and neighbour,Pakistan.Either way,foreign companies are finding it increasingly difficult to navigate the regulatory framework in India.The risk is,as the world approaches a period of sustained economic downturn,that a neo-protectionist regime will isolate India further from globalized supply chains rather than integrate within them.This could counteract the impressive progress which India has made under Modis leadership towards becoming an advanced,Industry 4.0 enabled economy.India 15ContentsWhilst the investments made by the UAE over the last few decades in its transport and logistics infrastructure have propelled the country to the top echelons of the Agility Emerging Markets Logistics Index,there is no sign of any complacency,despite signs of global recession and deglobalization.Digitalization,the foundation of progressWhilst the development of ports,airports,road and rail networks are on-going,the government is also prioritizing its digital capabilities.It sees the growth of the e-commerce market as a major opportunity,facilitated by its already developed internet capabilities and advanced digital payment systems.Digitalization is regarded as being key to address many of the inefficiencies which exist in the UAEs international logistics and supply chain sector.A significant proportion of air and sea freight bookings are still undertaken by phone or fax;containers are often lost;20%of boxes do not turn up for their booked departure time;terminals are often congested;ships depart later due to problems with Customs or paperwork and there is poor visibility of ship arrival times.Many of these issues were laid bare by the Covid pandemic and this has created an imperative for investment in new Port Community Systems(PCS).However,there are also projects to develop disruptive technologies such as the Internet of Things,autonomous trucks and ships,artificial intelligence as well as cybersecurity tools,all with the aim of creating high levels of supply chain visibility and resilience.Embracing trade liberalizationWhilst many countries have taken the political decision to turn their back on globalization,the UAE has doubled down on its long standing commitment to free international trade.This is hardly surprising given that its economy has benefited so much from the governments decision to develop the country as a major international hub serving Europe,the Middle East,India and parts of Africa.To this end the UAE has signed several significant trade deals with major emerging markets across the region and elsewhere.Amongst these include a wide-reaching deal with India,the UAE-India Comprehensive Economic Partnership Agreement(CEPA),which is hoped will increase trade from$60 billion to$100 billion over the next five years.The agreement will remove 10,000 tariff lines from goods and commodities including oil&gas,textiles,agriculture and jewellery.In addition,a number of initiatives to facilitate cross-border trade between the two markets will be adopted;data will be shared with the goal of adopting Authorised Economic Operator(AEO)mutual recognition;there will be greater access to each others pharmaceutical markets;enhanced transparency on government procurement and a shared commitment to digital trade.The agreement will also allow the UAEs partners in the Gulf Cooperation Council(GCC)to join if their own negotiations with India which commenced in 2022 are delayed.Additionally the UAE has made,or is in the process of making deals with Turkey,Israel,Indonesia and even Colombia,demonstrating the political priority which is being given to ensuring the UAEs position in world trade.United Arab Emirates16ContentsMalaysia has retained its fourth place ranking in this years Index.The country has not been immune to the fall out from the global pandemic and many manufacturers were impacted by the whiplash effect of supply and demand sourcing decisions by their overseas customers.This has resulted in a policy decision by the Malaysian government to place resilience at the heart of its next five year supply chain plan.This involves a focus on what it calls local sourcing facilitation,that is,encouraging and facilitating major manufacturers in the country to use domestic suppliers,often SMEs,rather than those located in other countries.The government believes that buy local policy will reduce supply chain disruptions such as export bans,border closures or,indeed,the impact of Chinas zero tolerance approach to Covid which has been so damaging to GVCs across Asia.This will not only increase resilience,but the government believes that it will also create spillover benefits cascading down to local businesses in the country.At the same time as this,investment in transport and digital infrastructure is on-going from a wide-range of sources including government,non-governmental and commercial financial institutions and foreign businesses.The Port of Tanjung Pelepas(PTP)provides a good example of this with the announcement in 2022 that it was expanding its capacity by a million twenty-foot equivalent units(TEUs)through a joint investment by its owners,Malaysias MMC group and the Netherlands APM Terminals.A significant proportion of Malaysias foreign investment has also come from Chinas Belt&Road Initiative(BRI).This has attracted considerable controversy with fears that Malaysia would fall into a debt-trap leaving it beholden to China.Indeed these fears resulted in a change of government.Nevertheless,since the programmes creation,national and local governments in Malaysia have looked to the BRI for investment in critical infrastructure including ports,rail lines and industrial parks.As is the case with many of the top ranking countries in the Index,Malaysia has developed an Industry 4.0 policy to focus its future supply chain strategy.This involves using digital technologies to increase productivity(by 30%by 2030)whilst improving what it calls its ecological integrity and the quality of life of its people.This will involve:Equipping the workforce with Industry 4.0 skill sets Developing enhanced digitalized logistics systems to promote interoperability Increasing the robustness of the regulatory framework to support adoption of transportation and logistics-related technologies Improving mobility through development and adoption of centralized and open transport-related database,including traffic management Support R&D for Industry 4.0 technologies to develop low carbon mobility solutions Enhance efficiency in cyber security management to mitigate cyber risksMalaysia 17ContentsWhilst offering impressive opportunities,Indonesia has many supply chain and logistics challenges,a fact illustrated by its high proportion of logistics costs to GDP.Despite its strong position in the top ten of the rankings,many in the country believe that progress is not being made as quickly as might be expected,especially given the governments aim to reduce the logistics cost ratio to 17%from 24%by 2024.In order to provide the basis for an economy-wide transformation,the Indonesian government has adopted a Making Indonesia 4.0 programme.This will focus innovation and development on five key sectors comprising electronics,chemicals,automotive,food and beverage and textiles,all underpinned by enhanced logistics and supply chain processes.However,whilst the intention may be very sound,considerable progress will need to be made before companies in the market will have Industry 4.0 capabilities.One way to facilitate this would be to remove many of the regulations relating to foreign investment.The easier entry of international companies into Indonesia would allow local businesses to benefit from the transfer of advanced technologies,especially those in the logistics sector which would gain from the introduction of digital platforms,GPS and IoT sensor technology,robotics and automation to name just a few.Indonesia has recently adopted a digital National Logistics Ecosystem(NLE)plan which is designed to improve the flow of logistics data and goods,domestically and internationally.Its aim is to simplify business and government processes;enhance public and private collaboration as well as creating a digital payment service.Two of its major goals are to reduce transit times from arrival at port to arrival at warehouse and reduce congestion on Indonesias roads through better planning.However,according to reports,take up has been slow and connectivity with other platforms low,showing the progress that still has to be made if the government is to fulfill its ambitions.Indonesia has very close links with China which is its largest trading partner(both in terms of imports and exports)and second largest provider of foreign direct investment.Chinas zero tolerance approach to Covid and the disruption this caused for its manufacturing and supply chain industry has had a significant impact on Indonesias economy.Whilst China plus sourcing strategies may have mitigated the effects of the policy to some extent,the renewed growth of the Chinese economy;the relaxation on mobility restrictions for Chinese business travelers;increased investment activity and the cessation of stop-start production would far outweigh these benefits.Indonesia 18ContentsThe high oil prices caused by Russias invasion of Ukraine and the positive impact which this has for the Saudi economy suggests that the country will make considerable progress up the rankings over the coming years.However,despite the short term gains,the Saudi government has been mindful of the prospect that at some stage its oil reserves will run out(although not for many decades)and that there is a political imperative in the global economy to transition to non-fossil fuels.Consequently there have been significant moves to diversify into alternative sectors.Logistics has been one of these priority areas which has attracted considerable government and foreign investment.Planning for the futureTo achieve its ambition of economic diversification,in 2016 the country adopted what it called the Saudi Vision 2030 programme.As part of that effort,Saudi Arabia has spent more than$100billion on infrastructure and related projects intended to position it as a global logistics hub at the crossroads of Asia,Europe and emerging Africa.Its targets include developing 60 logistics zones to support exports,e-commerce and re-exports,in addition to encouraging trade through land ports;the growth of re-export revenues from SAR 42 billion to SAR 520 billion riyals;export growth from SAR 185 billion to SAR 507 billion;and the expansion of the e-commerce sector from 6%to 23%of retail sales.In October 2022,a further initiative,Global Supply Chain Resilience,was launched which included the promise of a SAR 10 billion package of inducements to attract foreign investment of up to SAR 40 billion to the market.According to a statement by the Saudi government,The Covid-19 pandemic,trade disputes and the geopolitical landscape have broken or weakened global supply chains,driving up commodity prices and disrupting production and distribution.This initiative aims to strengthen the position of the Kingdom of Saudi Arabia in the global economy,and to mitigate the impact of global disruptions.The Global Supply Chain Resilience Initiative will leverage the Kingdoms resources,infrastructure and location to bring greater resilience to economies and companies across Europe,the Americas and Asia.In effect,Saudi is positioning itself as a low risk,low cost and low carbon economy which would enable investors to access a large domestic market as well as reaching regional and global customers through its transport and logistics infrastructure links.Oil will obviously be a major factor in the economys development for many years to come.But the government wants to increase its level of value add(in a similar way,perhaps,to China and India)by using this resource to supply home-grown processing industries such as chemicals,pharmaceuticals,plastics and rubber.Building regional and global linksAs well as encouraging FDI,Saudi has also been an active investor in other emerging countries creating and developing strategic trade corridors.For instance,trade with India is expected to grow threefold by 2030.Whilst exports of crude petroleum will be an important element of this growth(Saudi is looking to invest$100 billion in Indias refining,energy and petrochemical industry)it will also target infrastructure and agriculture sectors.Likewise,the government also intends to develop its relationship with China,with trade expected to double by 2030.Its national oil company,Saudi Aramco,already has long term agreements to supply Chinas refineries and chemical plants.However,it intends to align its own 2030 Vision with the aims of Chinas Belt and Road Initiative and has signed deals in a range of sectors including logistics and transport,energy,manufacturing,e-commerce and petrochemicals,mining and housing.There is no doubt that Western markets will continue to be critical to the success of Saudi Arabias strategic vision.It is still heavily reliant on the price of oil for economic growth and a recession in Europe and the USA will inevitably depress oil revenues.However,in the medium term,emerging economies in Latin America,Africa and of course Asia will become increasingly important for Saudis economy as they will become relatively more important customers for oil.The decarbonizing West will still require an array of petrochemical products,including plastics,chemicals and pharmaceuticals which Saudi will also be able to supply.In summary,Saudi Arabia has the resources and ambition to become a major regional and global hub over the next decade,becoming a conduit for trade between some of the fastest growing markets in Asia and Africa,as well as serving the rest of the Middle East and parts of Europe.Its large domestic and export market will give it an advantage over other hub ports in the region which focus largely of transshipments.Its manufacturers will benefit from access to low cost oil and energy although investors should be cognizant of security risks,especially if relations with Iran deteriorate further.Saudi Arabia 19ContentsAgilitys Takeon Saudi ArabiaThe most exciting logistics markets in the world for logistics investment today is the Kingdom of Saudi Arabia(KSA).With the government investing heavily in the sector as one of the key pillars of its Vision 2030 plan,Saudi Arabias ambition and execution are both helping the country make rapid progress.In 2021,the government announced that more than SAR 500 billion will be spent in the next decade on the development of airports,seaports,rail and other infrastructure.In 2022,Saudi launched the Global Supply Chain Initiative,with the aim of attracting$10 billion from investors to position the country as a global supply chain hub.The initiative included SAR 10 billion($2.66B)worth of financial incentives.KSAs new Special Integrated Logistics Zones,as well as the development of 40 industrial clusters and five economic zones,are expected to further help position the country as a leader in the region and beyond.Agility is investing heavily in developing high-quality supply chain infrastructure in the Kingdom,and has developed more than 1 million sqm of logistics parks across Riyadh and Damam.(Agilitys Riyadh warehousing complex was the first in the GCC to receive EDGE Advanced green building certification;the complex had to be 40% more energy efficient than others in the market in order to earn the designation.)In 2022,Agility announced that it would invest$163 million to further develop a warehousing complex on a 576,760 SQM parcel south of Jeddah,with construction starting in Q1 2023.20ContentsAlthough Qatar has recently been thrust into the glare of the worlds media by the global energy crisis and its hosting of the 2022 FIFA World Cup,its development as an important regional and global supply chain and logistics hub has been many years in the making.As with many countries in the region,it has made efforts to diversify from its dependence on hydrocarbon based revenues and,perhaps paradoxically,the present high price of Liquid Natural Gas(LNG)will provide the government with more resources to pursue this ambition.The development of the Qatar Freight Master Plan was due for completion by the end of 2022 as part of the countrys 2030 Vision policy.This sets out a long term transition to sustainable logistics,balancing population growth and urban development with the demand for transport and logistics services.Encouraging more manufacturers to base their operations in the country will also be critical in order to rebalance trade which is presently heavily weighted in favour of imports.A priority for the country is investment in Cold Chain facilities and services,catering for food and pharmaceuticals.Qatar has become a major hub for the region,with the majority of its temperature controlled warehouses based in Free Zones and distributed internationally by land.Qatars government has recognized the importance of digitalization to its economy and the supply chain sector in particular.It has entered into strategic partnership with major global technology players such as Google and Microsoft to develop cloud services which will allow customers to run workloads locally,creating a regional digital hub.This will be important as the country adopts a range of Industry 4.0 initiatives to digitalize and automate its supply chains.In the shorter term the World Cup has provided a major boost to the countrys logistics industry.Not only was Qatars population expected to rise by 1.8 million people throughout the tournament,translating into demand for hotel,food and medical requirements,but billions of dollars were spent in the run up on the construction of football stadia,transport infrastructure and hospitality facilities.This has resulted in a huge surge in demand for domestic and international transport services,warehousing and distribution as well as freight management and border processes.Obviously,hydrocarbons continue to play the dominant role in Qatars economy and intense competition for LNG on a global basis has led to significant new investment in gas fields and the transport infrastructure required to move the gas to global markets.For example,Qatars liquefaction capacity will increase from 77 million tonnes per year in 2022 to 126 million tonnes per year by 2027.As well as investment at home,the government has been keen to invest in port infrastructure around the world targeting the UK,US,Egypt and Germany,amongst others.This will provide the country with exclusive long term markets for its gas products,with commensurate economic and political leverage.Qatar 21ContentsCategorized as a Southeast Asian Lost Cost Country(LCC),Thailands economy has over the past two decades become increasingly integrated within Global Value Chains(GVCs)as companies have increasingly unbundled and out-sourced parts of their production.Although this has created many opportunities,the trend has meant that its economy has also become highly vulnerable to rising costs and supply chain disruption,such as that resulting from the Covid-19 pandemic.It was particularly affected by the capacity challenges faced by the shipping industry on the transpacific lanes and the resultant high rates.However,the country has also become a beneficiary of the China plus risk mitigation sourcing strategies being increasingly employed by global manufacturers.Its high value production ecosystems,especially important in the electronic manufacturing services(EMS),medical equipment and agritech sectors,have provided a ready alternative for companies wishing to migrate away from or complement their Chinese suppliers.Whilst other Southeast Asian countries,such as Vietnam,may have lower labour costs,Thailand is more technologically advanced,especially in the green economy including the manufacture of electric vehicles(EVs).This has provided the country with a significant competitive advantage in the region.For Thailand to continue its development as a major supply chain hub in the region the government recognizes that it will need to promote further investment in its transport and digital infrastructure at the same time as ensuring inclusive and sustainable growth.The government also believes that small and medium-sized enterprises(SMEs)can play a major role in the growth of the economy if it is able to integrate them within GVCs.The government has developed what it calls Thailand 4.0 strategy which has the goal of creating a high-income status country by 2036.This includes prioritizing 12 sectors,not least those of logistics and digital,as well as focusing investment on infrastructure in the Eastern Economic Corridor(EEC)area which it intends will become a gateway to both Southeast Asia and the Asia Pacific region.Internationally,Thailands membership of the ASEAN group of countries and its signing of the Regional Comprehensive Economic Partnership(RCEP)Agreement(which includes ASEAN members,Australia,China,Japan,Republic of Korea and New Zealand)will liberalize market access.As a result,Thai exporters will see lower or zero rate tariffs on tens of thousands of products and they will also benefit from more advantageous rules of origin regulations which will encourage global manufacturers to source within the region.Thailand 22ContentsMexico is at number nine in the Agility Emerging Market Logistics Index.However,given its location,scale and proximity to the worlds largest consumer market,USA,there is plenty of potential for it to move higher in the rankings.Due to the growing interest in near-sourcing as a result of the challenging conditions and relationship with China,it has often been said that this should be a golden era for investment in Mexico.For years,large parts of the Mexican economy have been integrated within US supply chains leading to economic growth in border cities and states.The Covid pandemic has encouraged a new wave of investment in cross-border factories as manufacturers have sought to avoid the problems on transpacific routes caused by congestion,delays and exceptionally high freight rates.With around 88%of exports to the US routed by road and rail,land-based logistics networks were not as badly affected as those reliant on movements of containers through the West Coast ports,although Mexican shippers were certainly not immune from the wider supply chain chaos caused by bottlenecks and congestion across the region.Setting aside the short term disruption which had largely subsided by the end of 2022,it would seem evident that the Mexican economy will significantly benefit from the deteriorating relationship between US and China.However,this will only occur if the Mexican government is able to build a more attractive business case for foreign investment.Despite being the 15th largest recipient of FDI in 2019,its record in this respect is mixed,as indicated by the stagnating of exports to the USA even prior to the Covid pandemic.Opportunities and challenges for MexicoMexicos proximity and access to the US market through the United States-Mexico-Canada Agreement(USMCA)(the successor to the North America Free Trade Agreement(NAFTA)has long made it a near-sourcing location for manufacturers looking to supply the US market cheaply,quickly and with easier oversight of production processes and quality control.Moving goods from Mexico to the USA takes only weeks compared with several months spent in transit from China.Recent duty increases on goods imported to the USA from China have reinforced Mexicos position as an attractive alternative:the composite tariff rate imposed on Mexican goods is just 0.04%compared with 19.2%on Chinese imports.However,the market is far from straightforward and Mexico has challenges to overcome if it is to maximize the opportunities which China plus sourcing strategies offer.Mexico 23Contents LabourThe low cost of labour in Mexico is one of the main reasons why foreign manufacturers have chosen to base their production operations in the country.According to IHS Markit,the average manufacturing industry wage in 2022 in Mexico is$3.90 per hour,compared with$5.58 in China.The comparable wage in the USA is$30 per hour.Mexico also has an abundant and growing resource of labour with an estimated 7 million people available for work.However,wages are rising both as a result of market forces and government policy.The statutory minimum wage jumped by 20%in 2022 and pension reforms will increase employer contributions.The government will have an important role to play in creating a well-educated and skilled workforce.This will help employers as well as workers who will benefit from longer term and better remunerated positions within the formal jobs market.Growth is presently being constrained by a lack of managerial calibre candidates with manufacturers competing to hire from a small top-talent pool.The market also lacks skills which would allow the economy to break into high tech,advanced manufacturing such as semi-conductors.Security&CorruptionThe security situation in Mexico is one of the biggest headwinds to economic growth.One of the greatest risks related to supply chain involves the theft of cargo from trucks en route to the border with the US.Drug cartels also target legitimate shipments in which to infiltrate illicit goods.Corruption is also a major problem.Government officials,including Customs officers and law enforcement agents,can work in collaboration with organized crime.Mexicos position in Transparency Internationals Corruption Perception Index has fallen every year since 2012 and it is now ranked 124th out of 180 countries.Government investment policyThe Mexican government is prioritizing investment in transport infrastructure,with a financial package of$38.6 billion planned in 2022 to improve roads,bridges and railways.In addition,the US government has committed to invest$1.4 billion to build and modernize land ports on the US-Mexican border,matching that promised by President Obrador.However,the criticism has been levelled that Mexico has the lowest level of public investment amongst Organization for Economic Cooperation and Development(OECD)countries.The government also intends to spread its investment across the country,not just on the regions which already have a focus on manufacturing and logistics,but poorer areas especially to the south.Although politically popular,this has meant a misalignment between industry needs and the infrastructure development which may not be in the long term economic interests of the country given its limited resources.24ContentsIn 2022,Vietnam moved into the Top Ten of the Index,illustrating the success which the country has had at developing its supply chain industry as well as showing how it has been able to benefit from China plus sourcing strategies of major multinational manufacturers.It has been able to attract many of the worlds most prestigious companies to its market,particularly those in the high tech sector.Electronics and consumer electricals accounted for 42%of exports in 2020,soaring from just 13%in 2010.Apple has been at the forefront of moving production to the market.In 2020 it began planning to expand assembly operations in Vietnam,asking Foxconn to expand its assembly operations in the country.Sony,Samsung and LG have also expanded production in Vietnam,building airfreight infrastructure in Hanoi to support their assembly of mobile phones.Certainly,Vietnam is at the front of the queue for the relocation of electronics production from China.However,whilst the country is exploiting these opportunities,it faces a major challenge to move up the value chain.For example,whilst Apple has created a production eco-system in the market,sourcing from 21 different companies,none of these is Vietnamese.Whilst China and India have focused their industrial policy on the creation of national champions,building brands instead of providing services to global OEMs,the Vietnamese market can be characterized as a low-cost assembly location.This may suit global manufacturers,looking for cheap labour in the region as wages and risk rises in China,but it means that it is not able to create value which would enable its manufacturing industry to develop.This will mean that it risks becoming stuck in a cycle of decline,faced with:High energy usage Low labour productivity Low efficiency High levels of pollution Low investmentHowever,there is also the risk that the market would get stuck in the middle income gap,where rising labour costs force foreign manufacturers to look elsewhere.If Vietnam is to move further up the rankings it will have to provide investors with a complete package of production eco-systems comprising multiple suppliers,strong ICT links,well trained workers and good logistics.The latter will be critical to its success with logistics costs presently running at 20%of GDP,7 percentage points higher than the average in Asia.Transport infrastructure projects are often slow to come to fruition plagued by delays,bureaucracy,mismanagement and a culture which penalizes risk taking.Even though Vietnam is exceptionally well placed to benefit from Chinas difficulties,the government has much work to do if it is to create a robust industrial environment which will attract high quality manufacturers and create value adding local suppliers.Vietnam25Contents1China8.4702India8.0403Indonesia6.3404Qatar5.9105UAE5.6006Brazil5.4217Saudi Arabia5.3818Mexico5.37-29Malaysia5.29010Pakistan5.16611Nigeria5.15112Egypt5.15213Turkey5.14-314Thailand5.11-115Kuwait5.07316Vietnam5.02117Bangladesh5.02418Philippines5.02119Russia5.01-820Bahrain4.99021Oman4.95122Jordan4.88223Algeria4.88324Argentina4.87125Chile4.83-226Lebanon4.81327South Africa4.81428Uruguay4.78029Peru4.72130Colombia4.67231Kazakhstan4.66232Morocco4.64233Tanzania4.62434Tunisia4.61135Ghana4.61136Kenya4.60237Iran4.57-2238Ecuador4.50239Sri Lanka4.49040Venezuela4.48141Libya4.48442Paraguay4.45443Cambodia4.45044Myanmar4.44045Bolivia4.44-346Ethiopia4.42247Uganda4.41048Angola4.37149Ukraine4.34-2250Mozambique4.250Domestic Logistics OpportunitiesChina top again but storm clouds gatherOnce again the top three ranking in the Domestic Opportunities sub-Index remain unchanged with China,India and Indonesia retaining their positions.Despite the well documented problems faced by China,the Index shows how important the market is in terms of size of economy,population and growth prospects.Other attributes such as urbanization,distribution of income and the size of the contract logistics and parcels delivery sector make the market impossible to ignore.The sheer scale of the country will mean that it will remain an investment priority in terms of logistics and supply chain for many years to come,especially once the governments zero tolerance Covid policy has been removed.However,the impact of intermittent lockdowns of various Chinese cities is inflicting considerable pain on the economy with many manufacturers reporting falls in output of up to 40%in affected regions.Economist Global Data believes that Chinas GDP will reach just 4.5%in 2022,well below the governments target.Its share of the world export market is also likely to decline.Global fashion brands,such as Nike,have faced the double hit that,as well as closing factories,they have also been forced to shut their retail outlets for the duration of each lockdown.One estimate suggests that sales have dropped by more than 50%in affected areas.Looking ahead,there are a range of other headwinds facing the country,including not least the recent societal unrest,its stance on Taiwan and security concerns in the West as it flexes its economic,political and military muscles on the global stage.This has led to other markets benefiting from so-called China plus sourcing strategies which have been implemented by manufacturers and retailers in an attempt to avoid US tariffs,legislation on the export of advanced technologies to China from the West and the ethical fall out from the treatment of the Uyghur community in the Xinjiang region.Make in India policy brings rewards and costsIndia has retained its position at number two in the rankings.The Make in India policy,initiated by Prime Minister Modi in 2014 as a way of encouraging investment in advanced manufacturing as well as fostering innovation and skill development,has been highly successful at promoting advanced manufacturing capabilities.In much the same way as China,India has prioritised the capture Domestic Logistics Opportunities26Contentsof higher levels of supply chain value by encouraging the development of Indian-based suppliers rather than relying on other Asian countries for the import of intermediate goods.The aim of the policy has been to propel double digit economic growth,create 100 million additional manufacturing jobs and increase manufacturings share of the economy to 25%by 2022(a target now pushed back to 2025).At the same time as encouraging Indian industry to become more integrated with Global Value Chains,the policy has been designed to protect local manufacturers and retailers by putting up barriers to market entry and increasing tariffs.At the very least,this sends out mixed messages to potential investors which will not be conducive to economic development.As we highlight below,Amazon is pulling out of the market partly due to protectionism,whilst in the section on International Logistics Opportunities,we show that paradoxically Apple is increasing its investment.India is an example of how many countries in the Emerging World view globalization.Many want to reap the undoubted rewards of integrating with global markets,but at the same time they want to protect their own markets from global competition.Whilst China has successfully blazed this trail,it is unclear if other markets,such as India,will have the economic and political heft to have it both ways.Brazil falls but Egypt soarsBrazil saw its ranking fall by three places as it undergoes a period of economic and political upheaval.According to foreign affairs think tank,Chatham House,the country is experiencing rising poverty and food insecurity with more than 33 million Brazilians in famine conditions and 63 million below the World Bank poverty threshold.The country is also split following a narrow victory in the polls by leftist Luiz Incio Lula da Silva over the conservative Jair Bolsonaro.GDP is expected to be very weak in the coming years whilst inflation has already taken hold.Domestic investment in infrastructure will be difficult to maintain with the countrys fiscal position so precarious.The biggest mover in the top ten was Egypt which climbed five places to number nine,displacing Turkey.Egypt has been one of Africas success stories over the past decade,outperforming most markets in the Middle East,North Africa and Sub-Saharan region,despite the impact which Covid has had upon its economy,especially tourism.The country now accounts for over a fifth of the continents manufacturing value add and the governments business friendly approach has been particularly successful at attracting international investors,not least in the high tech sector.The government has identified that embracing Industry 4.0 will be critical to the future success of its economy and its efforts so far have been focused on modernizing business processes fostering technological expertise to achieve this goal.Egypts government has initiated a$4 billion investment programme aimed at modernizing and increasing the capacity of the countrys ports on the Red Sea and the Mediterranean.This will not only aid the throughput of container traffic but is also designed to turn the country into an energy hub,including Liquid Natural Gas(LNG)terminals.The development of industrial parks,both public and private,will play an important role in the countrys economic growth.Many of these parks form part of specialized sector clusters,such as furniture or technology,helping to develop an eco-system of relevant competences and foster co-ordination between companies.The government hopes that they will facilitate the development of continental value chains.Global e-tailing platform,Amazon,announced in November 2022 that it was intending to discontinue its Amazon Distribution business which serves retail customers in Bengaluru,Mysore and Hubli with e-commerce wholesaling services.The service was largely aimed at kiranas,neighbourhood nanostores based in urban areas.Part of Amazons problems in the market come from well-resourced local competitors,such as Reliance Retail,Meesho and DealShare.However,the government has also put many barriers in its way including legislation which bans foreign retailers from holding inventory.This means that multinational retailers can only do business in India if they do so through stakes in local companies.Proposed legislation may even remove this loophole.Amazon retreats from IndiaEgypt prioritises port investment27ContentsAgilitys TakeThe Gender Gap:132 Years to Close?How big is the gap between men and women when it comes to economic opportunity,education,health and survival,and political empowerment?Big enough that it would take 132 years to erase at current rates.That is the sobering news in the World Economic Forums 2022 Gender Gap Report.It is especially alarming at a time when developed and developing countries alike are looking for ways to unlock their potential and spur sustainable,inclusive growth.Global gender parity in labor force participation is actually moving backwards,widening sharply since the pandemic struck in 2020.Thats when unemployment spiked in most countries.Across the board,jobless rates among women have been higher as millions had to prioritize child care and other care-giving roles that often left them homebound.The report says women are occupying a growing percentage of leadership roles.But that good news is tempered by the fact that female leaders are overrepresented in a small handful of sectors such as Non-Governmental Organization(NGO)and education while being almost absent from others,such as infrastructure and manufacturing.With the possibility of a global slowdown looming,emerging markets would do well to remember that theres a powerful correlation between the prosperity and stability of a society and the equality of opportunity it affords women.28Contents1China9.7502India7.4503Mexico6.3204Vietnam6.0315Thailand5.98-16Indonesia5.8907UAE5.8928Malaysia5.88-19Saudi Arabia5.74210Turkey5.70-211Brazil5.42112Russia5.41-213Philippines5.28014Chile5.18015Peru5.12016Morocco5.09117Colombia5.08-118South Africa5.00119Qatar4.96120Oman4.88121Jordan4.75122Sri Lanka4.73123Egypt4.72324Bahrain4.70125Kazakhstan4.66-126Ecuador4.65127Kenya4.65128Kuwait4.64429Pakistan4.63230Argentina4.63-131Lebanon4.61-132Tunisia4.48133Bangladesh4.48834Cambodia4.48035Bolivia4.46136Uruguay4.45237Ghana4.44038Ethiopia4.40439Mozambique4.39040Nigeria4.39341Uganda4.38-142Paraguay4.38-743Ukraine4.38-2544Angola4.30045Myanmar4.27046Algeria4.24147Tanzania4.14148Iran4.11-249Venezuela3.96050Libya3.810International Logistics OpportunitiesUnsurprisingly given its dominant position in world trade,China heads up the rankings for International Logistics Opportunities.It has an unassailable position in terms of its trade;air and sea freight forwarding and international express markets;its level of air cargo and shipping connectedness with other countries around the world and the efficiency of its border processes.However,there is no room for complacency as this year has shown.Political priorities in the shape of zero tolerance of Covid have had a disastrous effect on Chinas reputation as a reliable sourcing location for global manufacturers and retailers and this is leading to the rebalancing of global value chains across the region.Chinas zero Covid policy still causing supply chains chaosIn October 2022,disturbing pictures emerged from China showing workers at Foxconns Zhengzhou plant responsible for making around 60%of Apples iPhones staging a break out by scaling walls in order to avoid being locked down within the factory.A report in the Financial Times suggested that although production would be switched to alternative facilities,up to 10%of Apples global output was likely to be affected.Lockdowns are having disastrous consequences for international logistics.A reduction in trucking capacity in Shanghai of 45%in spring 2022 resulted in 80%of vessels being delayed,compared with just 20%two years earlier.Imports were also affected with containers waiting for up to 12 days for collection compared with pre-lockdown 4-5 days,according to digital forwarding platform,Freightos.Most recently in October authorities locked down the north eastern port city of Ningbo resulting in the closure of terminals and warehouses.They also instituted a whitelist of Covid-clear truck drivers although this did not prevent a subsequent outbreak amongst the driving community.Such disruptions and capacity constraints as these have led to falling export volumes which have combined with weaker demand in the US and Europe to put downward pressure on shipping rates.Air cargo volumes and rates also remain weak for the same reasons.International Logistics Opportunities29ContentsThe stand out climber in this years top ten of the International Logistics Opportunities rankings is the United Arab Emirates(UAE).The UAE has embraced trade liberalisation measures at a time when many other countries are once again embracing protectionist policies.For instance,the India-UAE Comprehensive Economic Partnership Agreement(CEPA)entered into force in May 2022,which is steadily boosting the volumes of trade between the two countries.The main commodities between these two countries benefiting from the trade agreement include electronics,perishables,retail goods(including textile and apparel),and chemicals.This is driving increased shipping and air cargo services,such as Maersks Shaheen Express which will rotate throughout the India-UAE-Saudi Arabia corridor.Outside of the top ten,one of the biggest movers is Egypt rising four places to number 22.Despite being one of Africas largest markets,its focus lies very much on trade with Europe,Asia and North America.Links with the rest of the continent,with the exception of its North African neighbours,are weak and only 15%of its exports overall are shipped to African destinations.However,its membership of the African Continental Free Trade Area(AfCFTA),which will reinforce its connections with 32 new trade partners,could be the catalyst for a change in emphasis in trade policy and deliver a host of new opportunities.These problems have resulted in significant volatility and uncertainty for global manufacturers and retailers and this in turn has led to increasing levels of inventory;orders being placed earlier and most critically for Chinas economy the use of suppliers based in neighbouring countries.Vietnam has been a key beneficiary of this trend,its furniture industry,for example,grew its share of global exports from 11%in 2019 to 17%in 2022 at the same time as Chinas has fallen from 61%to 53%(source:MDS Transmodal).Although rising Chinese labour costs,the imposition of Trumps tariffs and a whole host of risk mitigation measures taken by manufacturers have also been responsible for China plus sourcing strategies,lockdowns for many are proving to be the final straw.Perhaps the most high profile company to look elsewhere has been Apple for so long synonymous in many peoples minds with the trend of low cost out-sourcing from China.Asian countries to benefit from China plusHighest climbersApple has announced that it is to manufacture its latest iPhone 14 in India,marking a significant evolution in its production strategy with implications for its and its competitors supply chains.The move is part of the global tech giants plans to diversify its production base from China,a market which has seen considerable disruption over the past two years due to zero-Covid lockdown policies.Tensions between the US and China have also cast doubts over the longer term prospects of US high tech companies manufacturing products in China.For instance,new US legislation has allowed for the banning of the export of advanced semi-conductor chip technology to China.It is believed that as well as assembly operations,Apple will use more Indian suppliers(presently many intermediate components are sourced from China)helping to develop a production eco-system and reduce input costs.This will,in turn,encourage other high tech manufacturers to the country as levels of know-how,a skilled work force,technology and transport infrastructure improve.Many competitors,such as Samsung,may also follow,keen not to lose competitive advantage in a fast growing market.Apples move shows a high degree of confidence in the Indian market both as a design and production hub as well as a consumer market.It also forms part of an industry-wide trend of increasing resilience through optionalization or China plus supply chain strategies.It is not clear what proportion,if any,of Apples iPhones will be exported to the global market.However,it certainly gives the company more options should manufacturing in China become more difficult or,indeed,impossible.Apple ramps up production in India30ContentsBusiness FundamentalsAs opposed to scale and prospects,the Business Fundamentals Index measures how easy it is do business in a particular market from a regulatory,operational and commercial perspective.Therefore,it takes into account such metrics as the burden of governmental regulations,the robustness of legislation pertaining to property rights,the ability to enforce contracts as well as levels of crime and violence,corruption,quality of infrastructure and access to credit.Consequently,whilst the two previous sub-indices were dominated by large markets such as China and India,smaller but well run countries make up a large part of the top ten.The UAE once again can claim to provide the most robust framework in which to do business,followed this year by Qatar and Saudi Arabia.Other Middle East/North African countries in the top ten include Oman,Bahrain,Morocco and Jordan.Rule of law essentialOne of the reasons for the preponderance of Middle Eastern countries in the top ten is the stability provided to companies by a robust legal system.The application of international law is a prerequisite for business confidence and the UAE has received a boost in this regard from increased cooperation with English courts.Abu Dhabi and Dubai courts will be recognised by their English counterparts,upholding principles of reciprocity.Although this agreement will have specific legal implications,more generally it provides international businesses with trust in the processes of the UAE legal system,something which cannot be said for all emerging markets.Saudi Arabia has also passed a new Companies Law which it is claimed will boost investment in the market in line with Saudi Vision 2030.The new law will provide investors greater flexibility and protection of their business interests as well as allowing some forms of companies to raise finance through the issue of bonds.At the other end of the scale,6 of the bottom 10 emerging markets are located in Africa,including Angola,Mozambique,Libya,Ethiopia,Nigeria and Uganda.This highlights the lack of governance,the incidence of crime,the fragile security environment as well as weak infrastructure throughout the region.However,there are shining examples of more successful African countries,not least Ghana which rose 6 places in the index to 22nd position just ahead of South Africa in 23rd and Kenya in 24th.Unlike many of its neighbours,Ghana has been 1UAE9.1002Qatar7.9223Saudi Arabia7.8604Malaysia7.85-25Oman7.2416Bahrain7.15-17China7.1118Chile7.01-19Jordan6.72110Morocco6.45-111Kuwait6.23112Kazakhstan6.19-113Uruguay6.14014India5.94015Turkey5.80116Indonesia5.77-117Thailand5.77018Egypt5.62119Vietnam5.61120Russia5.13-221Tunisia5.06122Ghana5.00623South Africa4.99024Kenya4.97125Mexico4.93-426Tanzania4.70027Algeria4.61-328Colombia4.55229Ecuador4.49-230Peru4.48-131Iran4.38432Sri Lanka4.32133Philippines4.31-134Paraguay4.30235Argentina4.24536Cambodia4.16137Brazil4.13238Pakistan4.13-439Ukraine3.95-840Uganda3.91141Lebanon3.79-342Bolivia3.74043Nigeria3.62044Bangladesh3.53045Ethiopia3.21046Mozambique2.17047Myanmar2.04148Libya1.96149Angola1.90-250Venezuela1.560Business Fundamentals31Contentsable to create an attractive economic and regulatory environment for investors and domestic companies not least due to its stable government and liberalising policies.However,there are still high levels of bureaucracy in the market which stifle innovation and which will prevent businesses from benefiting from greater integration with the worlds economy.A lack of governance and the absence of a policing or security framework can lead to a rise in criminality which compromises supply chains,both from the perspective of cargo crime and theft as well as from smuggling and counterfeiting.Even global logistics hubs in best-in-class markets such as the UAE and Saudi Arabia are vulnerable to these risks.Smuggling and counterfeiting risksIt is noticeable that of the Latin American countries in the Index,Mexico has fallen the fastest,by 4 positions to 25th.The security situation in Mexico is one of the greatest headwinds to its economic growth.One of the greatest risks related to supply chain involves the theft of cargo from trucks en route to the border with the US.Drug cartels also target legitimate shipments in which to infiltrate illicit goods.Corruption is also a major problem.Government officials,including Customs officers and law enforcement agents,often work in collaboration with organized crime.Given that Mexico appears in the top ranks of both domestic and international logistics opportunities,the country is clearly being held back by its challenging security and governance environment.Spotlight:Emerging Market hub vulnerability to illicit tradeOne of the major challenges faced by many logistics hubs is how to deal with the high levels of smuggling which can occur at such locations.Some countries are particularly vulnerable not only due to the high volumes of cargo flows which are concentrated at their ports and airports but also due to the number of Free Trade Zones(FTZs)located in their markets.FTZs,by their very nature,have lower administrative oversight as well as simplified customs procedures which can facilitate illegal activity by criminal gangs such as trafficking contraband.High level of re-exports make busy shipping hubs particularly attractive for criminals as locations to infiltrate counterfeit goods or drugs into shipping containers in order to hide their true point of origin.In much the same way as they function for legitimate trade,ports and airports in emerging markets can act as transit points for the movement of illicit goods to Western countries.In this respect the growth of small parcel volumes driven by the importance of e-commerce is clearly of significance.The Organization for Economic Cooperation and Development(OECD)estimates that 84%of seized shipments of counterfeit footwear and two thirds of electronic devices involved postal parcels or express shipments.As parcels volumes climb,this problem will only become worse unless the root cause is addressed.Overall,it can be concluded that counterfeiters prosper in markets where there is poor governance;little oversight of free trade areas and high levels of corruption.Once they have accessed the global logistics networks through sea,air and then injected fake goods into post and parcels networks there is little that the authorities in developed markets can do.Their own agencies are being overwhelmed by the sheer volume of parcels which are being generated.In order to help address the problem,the UAE has put in place a range of measures including better physical security;training security professionals and comprehensive screening standards.Through Dubai Customs,it is working alongside the European Anti-Fraud Office(OLAF)to investigate incidences of counterfeiting and implement robust systems which reduce their probability.32ContentsKenya has been a trailblazer in African start-up initiatives.As a result,it accounts for about a third of the continents start-up incubators and accelerators,according to the World Economic Forum.The Kenyan government has been quick to enable and implement new legislation when required to encourage development,and this has resulted in faster start-up execution.The leading example is the legal framework put in place to allow for the widely adopted payment platform M-Pesa.M-Pesa transformed the mobile banking service sector initially in Kenya,but has now grown to Tanzania,Mozambique,DRC,Lesotho,Ghana,Egypt and South Africa.Kenya has also been very entrepreneurial and embraced an incubator hub ecosystem,where start-ups can access knowledge,advice and funding helping to support the growth and implementation of innovative solutions.GDP growth in Kenya is forecasted to be amongst the strongest in the region in 2023,according to the IMF.Kenya continues to develop as the regional centre for trade,and the gateway for the East Africas landlocked markets.The expansion of the EAC to include the Eastern DRC is a further step in Kenyas dominance in regional trade.The peaceful conclusion of the 2022 presidential vote is a good signal for Kenyas institutional strengthening and political stability.Agilitys TakeKenya33ContentsDigital Readiness1India7.6142UAE7.37-13Malaysia6.72-14China6.63-15Qatar6.3826Saudi Arabia6.30-27Indonesia6.2118Thailand6.04-29Philippines5.99110Oman5.81511Kuwait5.76112Kenya5.56513Chile5.55-414Turkey5.50-315Vietnam5.43-116Bahrain5.34617Uruguay5.22218Brazil5.19-219Iran5.15120Jordan5.14721Ghana5.14222Russia5.14-923Sri Lanka5.12724Mexico5.11-625Kazakhstan5.10326Pakistan5.06-227South Africa5.01-628Egypt5.00-229Ukraine4.91330Lebanon4.80831Cambodia4.73632Paraguay4.72333Morocco4.69334Argentina4.68-935Bangladesh4.63-136Nigeria4.61-537Peru4.58-438Tanzania4.58139Colombia4.53-1040Tunisia4.39141Uganda4.24-142Ecuador4.03143Venezuela3.99144Algeria3.91-245Ethiopia3.64046Bolivia3.45047Mozambique3.22048Angola3.11049Myanmar2.79050Libya1.840Digital ReadinessAdopting Industry 4.0This category,introduced for the first time last year,looks at a range of what could be termed Industry 4.0 measures to assess how equipped a country is to face the challenges of a digital yet more sustainable future.It uses metrics which provide an insight into how well a country fosters entrepreneurs and start ups;access to banking amongst the population;levels of adoption of renewable energies;digital skills and the importance of e-commerce to its economy.This year India tops the ranking for digital readiness,moving up four places.Its rise to the top has largely been driven by the increasing importance of e-commerce in the country at a time when adoption has slowed in other emerging markets.Six Indian e-commerce companies became unicorns in 2022 with a total valuation of$7.9 billion and three went public,Ethos,Delhivery and Fone4.34ContentsThe adoption of e-commerce is not just related to the technology which underpins the platforms.Other factors,measured by the sub-index,are just as critical,such as the number of people who have access to bank accounts.Although Cash On Delivery(COD)is frequently used in many parts of the world where buyers do not have accounts,this is costly and inefficient.The buyer often refuses the delivery which nevertheless is paid for by the retailer and even if the delivery is successfully made,the cash then needs to be repatriated up the supply chain.Additionally,no access to a bank account prevents micro-retailers from engaging with platforms which could allow them access to world markets.Despite the traditional prevalence of cash in many emerging market societies,the Covid pandemic has been a catalyst for change in the use of COD in the e-commerce supply chain.Governments such as Indonesias(7th in digital readiness index and rising one place)introduced countermeasures to prevent the spread of germs on notes and coins and,consequently,the COD rate is expected to drop from 16%to 11%by 2025.In contrast,use of mobile wallets has grown from 23%in 2019 to 28%in 2022.58%of e-commerce transactions in Indonesia are carried out on a mobile device.Of course,access to Broadband is also essential for the growth of the e-commerce market.Nine out of ten of the leading countries in the Index have 4G penetration rates of 80%or over(Saudi Arabia being the exception with a rate of 79.2%).At the other end of the scale,the penetration rate of many of the lowest ranked countries is in the mid-50%range.Clearly investment in ICT infrastructure will be essential if these markets are to reap the economic rewards of Industry 4.0.Digital finance and broadband penetration key to e-commerce adoptionSpotlight:Indias double edged swordSince the election of Prime Minister Narendra Modi,the Indian government has been committed to a Make in India policy and to achieve these goals ensuring that the economy becomes digitally ready is critical.Creating manufacturing ecosystems which support advanced manufacturing is part of its strategy,and this involves the encouragement of a vibrant start up and Micro,Small and Medium Enterprises(MSME)sector.To this end a specialist ministry has been established,coordinating a range of schemes and support packages which includes financing such as the Startup India Seed Fund.Whilst encouraging technology start ups,the government is also pursuing a protectionist policy to discourage global platforms and more specifically ban 59 Chinese apps from the market.These have included ByteDances TikTok,Tencent Holdings WeChat and Alibabas UC Browser.In addition,Modi has imposed a tax on digital services affecting global platforms.This policy has been enthusiastically embraced by Mukesh Ambani,the chairman of Indian conglomerate Reliance Industries and a supporter of Modi.He is quoted as saying,“We have to collectively launch a new movement against data colonization.For India to succeed in this data-driven revolution,we will have to migrate the control and ownership of Indian data back to India in other words,Indian wealth back to every Indian.”Whilst it is positive that India is fostering local talent and supporting the development of home grown industries,building barriers to foreign technology carries its own risk.The market will be denied efficiencies and capabilities which are available to companies in other parts of the world as India seeks to build its own alternatives.Whilst justified on the basis of national sovereignty and protecting nascent Indian start ups,this policy is likely to be counterproductive.35ContentsAgilitys TakeThe Path to Recovery Runs through Small BusinessSmaller enterprises are critical to the worlds two most pressing challenges.The first of those is how to spur broad-based,equitable and sustainable economic growth,especially in emerging markets.The second is how to decarbonize to meet net-zero climate goals.When the pandemic struck in 2020,small and medium-sized businesses were quickly targeted with direct government assistance,public loan guarantees,tax relief and other aid intended to keep them afloat and provide them with incentives to avoid shedding workers.Despite the help,a look at SMEs in 32 countries found that most lost 30%to 50%of their revenue between February 2020 and April 2021.Small businesses represent 90%of all companies and generate nearly 70%of jobs and GDP globally.They are the bedrock of developed and developing economies alike,and at the heart of economic growth strategies for most emerging markets looking to climb the development curve.The long-term viability of many micro-enterprises,startups,entrepreneur-led organizations and other SMEs will be determined by their ability to 1.)go digital and 2.)plug into global value chains by selling to domestic market customers engaged in cross-border trade.Digital transformation remains underway in businesses of all sizes,and in all sectors and geographies.But small enterprises are generally less digitalized than medium-sized companies,which in turn are less digitalized than big corporations.One reason,of course,is that so many digital tools and solutions are priced and tailored to the needs of larger organizations.In the case of small businesses,the challenge of going digital is especially difficult but the need to do so is increasingly apparent.Research shows that the largest 10%of companies in digital channels reap 60%to 95%of digital revenues.If we want a future with shared prosperity and sustainable growth,we must make sure small businesses are part of digital transformation.On the trade front,the deck is stacked against smaller enterprises.Half of all free trade agreements contain at least one provision explicitly mentioning small businesses,“but all of them will reflect the priorities of larger companies who are often seen as national champions,”says the European Centre for International Political Economy.For smaller companies that cant easily absorb the costs and risks entailed in exporting,whats important is to look at their potential as“indirect”exporters producers whose goods reach international markets through sales in their home markets.Education and skills lay foundationsDigital readiness critical to social cohesionDigital skills in the work force will also be a major factor in the ability of emerging markets to leverage future opportunities.This is reflected in the sub-index by the high ranking of many of the richer Middle Eastern countries(e.g.UAE(2nd),Qatar(5th),Saudi Arabia(6th),Oman(10th)and Kuwait(11th)which have in the last two decades invested heavily in their human capital.This includes the establishment of universities;increasing years of schooling;a focus of maths literacy and STEM subjects and staff training in the work place.A survey undertaken by publisher,Wiley,revealed that governments in the UAE,Qatar and Saudi Arabia had a particularly strong understanding of the digital skills landscape and the engagement which was required between government,industry and academia.Industry is evolving at a fast pace and it is clear that those countries which are not digitally ready to embrace the new market environment risk falling even further behind their competitors.This is a huge problem,not just for the digital have nots but for the international community as a whole.At a time of global food shortages and increasing levels of poverty,the gap between those digitally connected and unconnected can create and amplify social and economic inequality leading to unrest and the risk of failed states.It will also delay adoption of green technologies,essential to the arrest of climate change which is of critical importance to many countries in the Emerging World.36ContentsThe Agility Emerging Markets Logistics Index 2023 Survey IntroductionRecoveryWhich of the following statements most closely matches your opinion on global economic prospects for 2023?2023 will see moderate to strong growth in the global economyA global recession in 2023 is likelyA global recession in 2023 is unlikely to happenThere is little or no chance of global recession in 2023There will be a global recession in 20232022 was meant to be the year that global trade and supply chains recover and return to normality,but instead the world has faced a series of black swan events,including:The war in Ukraine,which has impacted global trade flows and oil and energy prices A zero-Covid policy in China that has caused port congestion and delays More extreme climate eventsThese factors have caused prolonged issues along global supply chains.Add to the pressure pot the urgent need to invest in decarbonisation,digitalisation and technology,as well as a looming global recession,the challenge for logistics supply chain executives will be to brace for more challenging times ahead.Note:Transport Intelligence and Agility surveyed 750 logistics industry professionals between November and December 2022,with an additional 503 surveyed specifically on global economic prospects in October,November and December 2022.To measure logistics executives sentiment on the state of the global economy,respondents were asked whether they anticipate a global recession in 2023.Combining all responses that predict a recession shows that two thirds of respondents expect a global recession in the year ahead.This highlights the intensity of the uncertainty gripping the global economy.13.9B.7.1%7.6#.77ContentsWorsening economic sentiment between October and December 2022Which of the following statements most closely matches your opinion on global economic prospects for 2023?The results also show that economic sentiment has worsened between October and December 2022,with the proportion of respondents that are certain a global recession in 2023 is inevitable increasing by 6 percentage points in December compared to October.The forecast of a recession from 66.4%of respondents comes amidst sharp growth slowdowns across the largest economies.The global economy has been characterized by strong demand at the start of 2022 with the re-opening effect resulting from the end of Covid-19 measures,and the stimulus packages working at full speed.Overall,a generally firm but incomplete recovery from Covid-19 was shaping the global economies before the war in Ukraine.However,demand started to soften as early as Q2 2022 and the global economy entered the slow lane.The war acted as a major setback to recovery,causing a global slowdown.In October 2022,the IMF marked GDP growth down for 2023 to 2.7%,the“weakest growth profile”since 2001,excluding the acute phase ofCovid-19pandemic and the global financial crisis.Downward forces will gain more of an upper hand across the world in 2023 and a confluence of headwinds will halt the recovery and growth momentum of global economies-the war in Ukraine,an energy crisis,high inflation,and the possibility of further pandemic-related supply-side disruptions.A global recessionin 2023 is likelyThere will be aglobal recessionin 20232023 will see moderateto strong growth inthe global economyA global recessionin 2023 is unlikelyto happenThere is little orno chance of globalrecession in 202301020304050Oct 22Nov 22Dec 2238ContentsWhich of the following statements best describes each regions current stage of economic recovery from the Covid-19 pandemic?01020304050Asia PacificMiddle East&North AfricaRussia,Caucasus&Central AsiaSouth AmericaSub-SaharanAfrica18.43.1.3%8.2.44.99.5.3.69.96.0.5.4A.40.9.2%9.99.8).3!.0%Fully recovered AND stronger than pre-pandemicEconomy is still hindered by the pandemicRecovered but not yet to pre-pandemic levelThe worst economic impacts of the pandemic are still to comeOf the five regions examined,Asia Pacifics regional economy exhibits the strongest economic recovery from the Covid-19 pandemic,but is still below the pre-pandemic level,according to survey respondents.Growth in most countries in Asia Pacific rebounded in the first half of 2022,on the back of a revived domestic demand after the Covid-19 Delta wave.However,China lost momentum and the public health measures to contain outbreaks of Covid reduced consumption.Most of the region was projected to grow faster and have lower inflation in 2022 than other regions according to the World Bank.This resilience of the region very much stems from its positioning along global value chains and in particular its prominent role in high-value industries such as electronics,where the region has gradually upgraded its global value chain participation by doing the higher value-added stages like design and production.Recent increases in Chinas production costs have created opportunities for other countries in the region,including Malaysia,Singapore,Thailand,and Vietnam,to increase their participation in the electronics sector global value chain.A third of respondents believe that Asia Pacific economy is still hindered by the pandemic,highlighting the considerable heterogeneity across the region and the varying rates at which individual economies are recovering from the pandemic.Growth in the regions advanced economies remains above potential at 2.3%in 2022 and is expected to fall to 2.0%in 2023 and to 1.9%in 2024 according to the IMF.By contrast,Asia Pacifics developing economies will see a drop in growth to 4.4%in 2022 largely due to the slowdown in Chinaand will rise to 4.9%in 2023 and 5.2%in 2024,according to the IMF.Beyond 2022,global deceleration and the resulting slowdown of external demand,as well as rising debt could drag on growth in Asia Pacific.Measures aimed at containing inflation and debt could also inhibit growth.While Asia Pacific remains a relative bright spot in an i
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贝恩公司：2023 年全球并购报告（140 页）.pdf
Global M&A Report 2023 When M&A is the answer:In an uncertain market,bold moves will define the futureAcknowledgmentsThis report was prepared by the leadership team of Bain&Companys Global M&A and Divestitures practice,with special direction from Les Baird,partner;David Harding,advisory partner;Andrew Grosshans,partner;Kai Grass,partner;Suzanne Kumar,practice vice president;Madhurima Bhattacharya,associate partner;Joerg Ohmstedt,practice director;and an editorial team led by David Diamond.The authors wish to thank the many members of the Bain leadership team who contributed articles to this years report.Additionally,we wish to thank the following colleagues for their help with this report:Bain Partners Peter Horsley,Harshveer Singh,Colleen von Eckartsberg,Sam Rovit,Dale Stafford,Adam Haller,Jeff Haxer,and Joost Spits;Practice Directors Dahlnae Yu and Scott Nancarrow;Practice Senior Managers Amy Wall and Dustin Rohrer;Senior Knowledge Specialist Dominika Adamaszek;Practice Senior Analyst Amol Mathur;Consultants Connie Cai,Michelle Tucker,and Arsalan Bukhari;and Associate Consultants Eliza Wright,Ben Thomas,and Virginia Miller.This work additionally benefited from the support of Bain Capability Networks Abhishek Jain,Siddharth Sharma,Ekaparna Ghosh,Divyam Dewan,Mohit Gupta,and Jayant Singh;as well as Bain Research and Data Services Emily Lane,John Peverley,Laura Caringella,Brandon Riney,Piotr Szostakowski,and Olgierd Kotylo.Copyright 2023 Bain&Company,Inc.All rights reserved.This work is based on secondary market research,analysis of financial information available or provided to Bain&Company and a range of interviews with industry participants.Bain&Company has not independently verified any such information provided or available to Bain and makes no representation or warranty,express or implied,that such information is accurate or complete.Projected market and financial information,analyses and conclusions contained herein are based on the information described above and on Bain&Companys judgment,and should not be construed as definitive forecasts or guarantees of future performance or results.The information and analysis herein does not constitute advice of any kind,is not intended to be used for investment purposes,and neither Bain&Company nor any of its subsidiaries or their respective officers,directors,shareholders,employees or agents accept any responsibility or liability with respect to the use of or reliance on any information or analysis contained in this document.This work is copyright Bain&Company and may not be published,transmitted,broadcast,copied,reproduced or reprinted in whole or in part without the explicit written permission of Bain&Company.iGlobal M&A Report 2023ContentsLetter from the M&A Team.1State of the Market.3Looking Back at M&A in 2022.4Looking Ahead to M&A in 2023.12Hot Topics.18M&A in Times of Turbulence:Lessons from the Last Recession.19When Buying(vs.Building)Is the Right Move for Engine 2.24Tougher Times:Putting the Diligence Back in Due Diligence.30How to Avoid the Fault Lines Sending Tremors through Cultural Integration in M&A.35Industries.43M&A in Aerospace and Defense:New Types of Deals in a Dynamic Industry.45M&A in Automotive and Mobility:Finding Alternative Routes to the Future.50What Consumer Goods Companies Are Learning from Alternative Deals.55Retails New M&A Balancing Act.60M&A in Diversified Industrials:ESG Plays Drive Breakthrough Capabilities.65M&A in Energy and Natural Resources:Beating the Odds in Energy Transition Deals.69M&A in Banking:Three Types of Deals for 2023.75iiGlobal M&A Report 2023ContentsM&A in Insurance:There Are Insurtech Deals to Be Done,but Proceed with Caution.79M&A in Payments:Four Ways That M&A Will Propel This Dynamic Sector.84 M&A in Wealth and Asset Management:How Deals Will Shake Up the Industry.88M&A in Healthcare and Life Sciences:Why the Industrys Wait-and-See Days Will End.93M&A in Media and Entertainment:To Interactivity and Beyond.99M&A in Technology:Never Waste a Good Crisis.102M&A in Telecommunications:How the End of Free Money Opens Up New Opportunities.106Regions.112M&A in Brazil:A Nation Prepares for Changes.113M&A in India:How Long Can This Hotspot Buck the Global Downturn?.117M&A in Japan:Pressing Pause on Transformative M&A.122M&A in the Middle East:How a Region Grows with M&A.125Methodology.130Key Contacts.1341Global M&A Report 2023Letter from the M&A TeamDear friends,Last year was a challenging one for all dealmakers as inflation,interest rates,geopolitical tensions,and increased regulatory oversight placed unprecedented demand on the skills of deal executives.Throughout it all,though,M&A perseverednot always in the same numbers or with the same processes as in the past,but deals got done.Overall deal value fell during the year,with multiples dropping from record highs in 2021 and fewer large deals.But the pace of small deals was surprisingly resilient.And dealmaker sentiment as we enter 2023 is optimistic.History tells us that companies making bold moves during times of turbulence tend to win over the long term.The mission of this,our fifth annual report:Improve M&A by sharing the insights of the worlds best dealmakers.Les BairdLeader of Bains Global M&A practiceState of the MarketLooking Back at M&A in 2022.4Looking Ahead to M&A in 2023.124 4Even as macroeconomic uncertainty reset the M&A market,dealmakers persisted.By David Harding,Kai Grass,Andrew Grosshans,Suzanne Kumar,and Madhurima BhattacharyaAt a Glance After a strong first half of 2022,the market slowed in the second half,although fundamental deal activity persisted.Declines in multiples and a midyear pause in megadeals were the key contributors to a 36cline in deal value in 2022 from a record high in 2021.Geopolitics,regulation,and other external factors also continued to impact deal activity patterns.The year 2022 was a tale of two halves.After a blockbuster year for M&A in 2021,the first five months of 2022 reflected continued strong dealmaking activity.The big turning point occurred on June 16,2022,when an interest rate hike by the US Federal Reserve Bank,combined with heightened macroeconomic uncertainty,put a chill on the deal market.Megadeals greater than$10 billion went on pause while smaller deals slowed.Deal multiples tempered.The midyear correction resulted in a 36cline in annual M&A deal value,to$3.8 trillion(see Figures 1 and 2).Yet volumes dropped by only 12%,suggesting resilience and commitment among dealmakers.State of the MarketLooking Back at M&A in 20225Global M&A Report 2023Figure 1:Global M&A deal value fell by 36%in 2022 Note:Categorizations based on deal technique,industry,and acquirer business descriptionSource:Dealogic M&A deal market value(in trillions of US dollars)024$6TCompound annual growth rate for all M&A(20212022),36 003.320011.720021.320031.520042.120053.020063.920074.620083.220092.320102.720112.820122.720132.820143.620154.620163.820173.620184.120194.020203.620215.920223.8Corporate M&A,30%PE portfolio add-ons,50%Financial investors,27%Special purpose acquisition companies,80%Venture capital/corporate venture capital,41%Figure 2:The year 2022 was a tale of two halves Notes:Strategic deals include corporate M&A and PE portfolio add-ons;categorizations based on deal technique,industry,and acquirer business descriptionSource:Dealogic 2022 M&A deal market value(in billions of US dollars)Corporate M&APE portfolio add-onsFinancial investorsSpecial purpose acquisition companiesVenture capital/corporate venture capital0100200300400$500BJanuary391February345March382April442May454June254July269August246September248October231November245December2836Global M&A Report 2023As the market reset,we observed some unanticipated shifts in dealmaking and,at the same time,a persistence of longer-term trends.On the one hand,the sudden drop in megadeals and deal multiples reflected the impact of structural uncertainty on M&A.Yet M&A remained central to corporate strategies for growth and profitability as evidenced by the relatively consistent levels of deal volume and balanced mix of scale and scope deals.Structural uncertaintyInflation,interest rates,capital availability,industrial policy,national security,geopolitical tension,supply chain uncertaintyin 2022,dealmakers faced new levels of volatility everywhere they looked as well as risks from variables that previously werent a focus in many deal models.Junes interest rate hike marked a new phase in the era of capital superabundance.In the face of rising inflation,the Feds move to raise rates happened more quickly than many expected.The implications were felt internationally as other central banks followed suit.The role of the US dollar in global trade amplified the impact.Dealmakers across the globe suddenly confronted an unfamiliar unknownnamely,the cost and availability of capitalamid a weakening economic environment.After decades of low and predictable interest rates,however,acquirers told us they were shaken less by the rising cost of capital and more by the uncertainty they now faced.The interest rate warning shot impacted financial investors and strategic buyers differently.Private equity investors,reliant on debt for financing deals,were more immediately exposed to capital constraints and costs,which particularly impacted large deals.Lenders increased scrutiny on new offers as banks absorbed loan commitments that they could no longer syndicate.By comparison,corporates tend to be shielded from the near-term effects of interbank interest rate changes.Moreover,as we explored in our Global M&A Report Midyear 2022,corporates have more options to finance M&A than leverage alonenamely,stock and cash.Regardless,the new level of uncertainty about the economic outlook revealed by the interest rate hike led to a secular reset in M&A value and volume for all players in the second half of 2022.Acquirers faced a variety of other external factors besides interest rate ambiguity.Inflation and the emerging recessionary environment challenged assumptions about base business trajectories for strategic acquirers and targets alike.Supply chain disruptions continued to impact the accuracy of projections,and industrial policy reemerged as a swing factor for sector economics.Western government responses to climate and geopolitical crises presaged shifts in corporate profit pools.In Europe,amid growing concern about the Russia-Ukraine war,the likely need to subsidize winter energy costs for consumers forced a pullback on funding for other social needs such as healthcare.In the US,the Inflation Reduction Act placed bets on renewables at the cost of fossil fuels,and national security concerns prompted a decoupling of the semiconductor industry from China.7Global M&A Report 2023Figure 3:2022 overall strategic deal value and volume by month 010020030001,0002,0003,000248202248278335158205180177157194216$400BNotes:Total for year=strategic value total;strategic deals include corporate M&A and PE portfolio add-ons;categorizations based on deal technique,industry,and acquirer business descriptionSource:DealogicJanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovember DecemberStrategic deal value(in billions of US dollars)Strategic deal volumeDeal valueDeal volumeStrategic dealmaking during an uncertain yearDespite a healthy start to 2022,the strategic deal market closed at$2.6 trillion,a 32cline from the all-time high in 2021.Strategic deal volumes dropped 9%and continued to hold steady during the last few months of 2022,particularly in smaller to midsize deals(see Figure 3).Divestments held steady at 33%of deals.Deal multiples declined as higher discount rates caused companies to put a premium on near-term cash flows over long-term growth.Multiples fell from record highs in 2021 to a 10-year low median multiple of 11.9 times enterprise value to EBITDA(see Figure 4).The drop-off was most notable in the high-growth industries of tech and healthcare and life scienceseach fell by more than five turns(see Figure 5).Its worth noting that this decline mirrored changes in public market valuations.For example,the S&P 500 was off by 20%during the same time period.M&A practitioners tell us that they respond to deal multiple volatility with lower valuations and changes to deal structure,but few are waiting on the sidelines for multiples to stabilizeas evidenced by sustained deal volume.A midyear pause in megadeals(valued at more than$10 billion)also had a significant impact on total deal value for the year.The year began with more than a few headline deals such as Microsofts 8Global M&A Report 2023Figure 4:Strategic M&A multiples fell to nearly 12 times from 2021s historic high of 15.4 timesNotes:Median deal multiples for announced strategic deals in which valuation data was available;strategic deals include corporate M&A and PE portfolio add-onsSource:Dealogic51015XMedian enterprise value to EBITDA multiples2022=11.9x2021=15.4x19990001020304050607080910111213141516171819202122Figure 5:Technology and healthcare and life sciences multiples fell by more than five turnsNotes:Median deal multiples for announced strategic deals in which valuation data was available;strategic deals include corporate M&A and PE portfolio add-onsSource:Dealogic0102030XMedian enterprise value to EBITDA multiples per industry(strategic deals)Technology19.723.328.923.4Healthcare and life sciences 15.015.920.315.1Consumerproducts15.313.915.911.9Advancedmanufacturing and services12.414.114.811.6Media10.011.315.813.2Retail10.911.412.78.8Energyand naturalresources 10.89.112.09.3Financial services8.59.212.610.7Telecommu-nications7.111.612.38.62019202020212022$69 billion bid for the gaming company Activision Blizzard,Broadcoms$61 billion offer for VMware,and the Prologis-Duke Realty logistics real estate deal for$23 billion.After a blockbuster May,the strategic megadeal market dried up temporarily in June.The rest of the year saw a steady(if more moderated)pace of megadeals.The healthcare and life sciences sector led the way for large deals,with Johnson&Johnsons nearly$17 billion offer for Abiomed,a medtech company;the$27.8 billion Amgen-Horizon Therapeutics biotech deal;and,most recently,the Novozymes-Chr.Hansen merger for around$12 billion(see the chapter“M&A in Healthcare and Life Sciences:Why the Industrys Wait-and-See Days Will End”).Overall,large strategic M&A deals were nearly evenly split between scale and scope theses(see Figure 6).We believe,over the long run,the relative balance of scale and scope observed during the first three quarters of 2022 is consistent with the winning strategies of corporate outperformersnamely,a balancing of growth in revenue and profits.An examination of the largest deals reveals diverging sector dynamics and strategies.In 2022,advanced manufacturing and services,energy and natural resources,and financial services companies were most likely to strengthen their core business via scale deals(see Figure 7).For advanced manufacturing and services and financial services,this continues a focus on efficiency and operations via scale deals.Energy and natural resources companies,however,showed a new shift toward scope M&A as energy transitions prompted large renewables deals(see the chapter“M&A in Energy and Natural Resources:Beating the Odds in Energy Transition Deals”).Technology and healthcare and life sciences appetite for scope and capability deals remained constant as companies in both industries pursued top-line growth.The healthcare and life sciences sector led the way for large deals.Taking a geographic lens,we continued to see a preference for in-region targets as supply chain shocks,China-US decoupling,and geopolitical risks focused acquirer attention on targets closer to home.Europe shifted to intraregional deals,representing more than three-quarters of deal value in 2022 compared with about two-thirds in recent years.Meanwhile,China and India remained largely domestic markets(more than 90%of value).In India,the most notable takeaway for the year was not flow directionality but rather the overall explosive growth in M&A.By the end of October,total deal value was nearly 140%higher than in all of 2021.The rest of Asia and the Americas held steady in their balance of target by geography.In 2022,the regulatory environment reflected the longer-term trend of increased scrutiny on antitrust and national security grounds.For example,regulators in the UK,Europe,and the US raised both antitrust and national security concerns about Nvidias scrapped purchase of UK semiconductor maker Arm.And in the US,the Biden administration has adopted a more expansive 9Global M&A Report 202310Global M&A Report 2023Figure 6:Deals continue to be split evenly between scope and scaleNotes:If more than 250 deals had a value greater than$1 billion in a given year,then only the top 250 deals were included;if fewer than 250 deals,only thosegreater than$1 billion were included;the top 250 announced strategic deals of the year from 2015 to 2021 exclude nonstrategic deals such as asset or property acquisitions,financial investment deals,government acquisitions,internal reorganizations,or minority stake acquisitions;deals classified by rationale using a proprietary classification framework,as per stated strategic rationale at the time of announcementSource:Bain M&A database 2022(N=2,845 companies)250 largest strategic deals with deal value greater than$1 billionPercentage of scale deals2015201620172018201920202021Q1Q32022Percentage of scope and capability deals59415446505050504852495151494951Figure 7:Consumer products and healthcare and life sciences primarily saw scope deals,while financial services and advanced manufacturing were driven by scale dealsNote:Based on the 197 deals valued at greater than$1 billion as of September 30,2022Source:Bain M&A database 2022(N=2,845 companies)ScaleScope020406080100%Percentage of scale and scope deals greater than$1 billion split by industryConsumerproductsHealthcare and life sciencesRetailMediaTechnologyTelecommu-nicationsEnergy andnaturalresourcesAdvancedmanufacturingand services Financialservicesdefinition of“anticompetitive”and has been more likely to challenge large consolidation deals in court.Consider the successful case against Bertelsmann-owned Penguin Random Houses proposed acquisition of Simon&Schuster on the grounds that authors,not just consumers,would be harmed.While many scrutinized deals are ultimately approved,a longer pre-close period introduces the risk of deterioration in the base business and employee morale.On the margin,this risk may have tempered boardroom appetite for large transformative deals over the past year.In the following chapter,“Looking Ahead to M&A in 2023,”we explain why savvy executives will keep their feet on the M&A accelerator even as competitors slam on the brakes.11Global M&A Report 202312In an uncertain market,executives are making the bold moves that will define the future.By David Harding,Kai Grass,Andrew Grosshans,and Suzanne KumarState of the MarketLooking Ahead to M&A in 2023At a GlanceWeve identified five M&A themes to watch for in the year ahead:Cash-rich companies making strategic,bold moves.A continued prevalence of small to midsize deals.A balance of scale and scope deals.Valuations coming under further pressure.Companies reshaping portfolios through separations and divestitures.In 2023,savvy executives will keep their feet on their M&A accelerators,even as competitors slam on the brakes in the face of turbulence.Experienced dealmakers are familiar with the cyclical nature of the M&A market.Deal values and deal multiples decline as sellers hold back and acquirers lose conviction.As uncertainty impacts both the base business of acquirers and targets,it becomes harder to make decisions about deals.Its no wonder why many executives lose their appetites for the deal process during turbulent times.13Global M&A Report 2023Yet history tells us that winners dont pause M&A during downturns,rather they take advantage of opportunities to reshape their industries.Companies that move quickly when others hesitate are rewarded.Bain research on M&A in times of turbulence validates how M&A was part of the winning response in previous down cycles.We examined the acquisition activity of 2,845 companies from around the world during the global financial crisis and economic downturn of 20082009.We found that in the long run,companies that executed at least one deal per year during the economic downturn earned 120 basis points more in total shareholder returns than companies that were inactive in M&A.Moreover,as we explore in the chapter“M&A in Times of Turbulence:Lessons from the Last Recession,”many industry-defining deals were made throughout the last downturn.Deal practitioners are prepared to take advantage of this moment.We surveyed around 300 M&A executives globally about their outlook and priorities for dealmaking in 2023.Respondents anticipate closing a similar number of deals,if not more,in the year ahead,encouraged by more attractive asset availability and decreased competition.They express confidence in the ability for M&A to create value.Nearly two-thirds of respondents report that acquisitions completed in the previous three years have met or exceeded expectations.Based on our observations from earlier down cycles,we have identified five themes to keep an eye on in 2023:cash-rich companies making strategic,bold moves;continued prevalence of small to midsize deals;a balance of scale and scope deals;further pressure on valuations;and portfolio reshaping through separation and divestitures.Cash-rich companies making strategic,bold movesIn 20082009,numerous industry-defining deals positioned acquirers for faster,more profitable growth out of the downturn.In the current cycle,too,companies with a strong market position,cash on hand,and debt capacity will have the upper hand to execute transactions.These companies should be confirming their strategic M&A roadmaps,revisiting deal models,and laying the groundwork to move fast on desirable targets(large and small).Nearly every sector has a few cash-rich market leaders.Energy,industrials,and technology stand out as sectors in which the top players have solid balance sheets to make bold moves.Strong performing companies with an experienced track record of M&A will be the best positioned to do the largest transformational deals.Sectors with struggling assets may find more tolerance among regulators for large consolidation deals.14Global M&A Report 2023Continued prevalence of small to midsize dealsThousands of deals valued at less than$500 million make up the bulk of M&A activity each year.We expect this to continue.Companies look to M&A to address strategic needs to expand markets,build new engines for growth,and fill capability gaps.Smaller to midsize deals will be easier than megadeals to complete given relatively lower risk,less reliance on financing,and less regulatory scrutiny.Dealmakers in many industries may shy away from pursuing deals that could wind up in regulatory crosshairs as extended pre-close periods incur many direct and indirect costs.Sectors with struggling assets,such as banking in Europe and telcos in developing economies,may find more tolerance among regulators for large consolidation deals.A balance of scale and scope dealsA high interest rate environment and weak economy put a premium on assets with cash flow and a line of sight to rapid synergies,supporting a near-term shift to scale deals.For example,in healthcare,moves such as Johnson&Johnsons$16.6 billion acquisition of Abiomed in November 2022 signal a return to category leadership.At the same time,our M&A Practitioners 2023 Outlook Survey indicates that appetite will continue for deals to build and grow new businesses.These“Engine 2”deals offer speed to market and efficiency that organic moves cant matchsee“When Buying(vs.Building)Is the Right Move for Engine 2.”Energy companies are likely to be a prime example of this approach as they use cash to consolidate in existing markets while shifting to renewables via scope dealssee“M&A in Energy and Natural Resources:Beating the Odds in Energy Transition Deals.”Similarly in retail,while we expect to see retailers pursue scale deals,such as the$25 billion Kroger-Albertsons deal announced in October 2022,they are also likely to use scope M&A to establish“beyond trading”Engine 2 businessessee“Retails New M&A Balancing Act.”Further pressure on valuationsUncertainty regarding cost and availability of capital,as well as the overall macroeconomic outlook,will likely cause dealmakers to be more conservative in valuations.History suggests that valuations typically find a floor at around 9 times to 10 times enterprise value to EBITDA,another 2 to 3 turns lower than the 2022 median.Yet strategic buyers hoping for a steal should be prepared for increased competition from financial buyers as the year unfolds.Private equity firms are resilient in fragile economic environments and will continue to have record amounts of dry powder,an appetite for deals,and a willingness to pay for desired assets.15Global M&A Report 2023Portfolio reshaping through separation and divestituresDown cycles and uncertainty force companies to reevaluate their portfolios under new scenarios.While we expect boards to consider divestitures more seriously,it takes a lot of conviction to do one in a downturn.Corporate executives often drag their feet on selling underperforming assets“at a loss.”Yet this fear is often misplaced:at some point,no amount of multiple expansion can offset declining performance in the business itself,especially one that is no longer receiving attention or investment.We expect to see the most divestiture activity in sectors in transition,where divestitures can help fund new investments.For example,the shift to renewable energy from fossil fuels and internal combustion engines could spur more divestment activity in the energy and automobile industriessee“M&A in Automotive and Mobility:Finding Alternative Routes to the Future.”Moreover,a quick sale unlocks not only capital but also leadership focus.For this reason,we expect the relatively high level of divestiture activity in consumer products to continue.What does this mean for the M&A practitioner?In a challenging macroeconomic environment and deal market down cycle,M&A executives should customize their toolkits to accelerate decision making,gain conviction in potential deals,and preserve value through integration(see Figure 1).Figure 1:A strong M&A capability requires strategy-driven enablers to deliver value across the M&A value chainSource:Bain&Company Transaction processSeparation planningCarve-out executionEvaluation and learningsDuediligenceStrategyM&A and divestituresSourcing and screeningIntegration planningIntegration executionFinding the right dealM&A operating modelValidating the dealDelivering the valueSeparability assessmentand blueprintAcquisitionsDivestitures16Global M&A Report 2023That means confirming portfolio strategies and refreshing M&A roadmaps to enable nimble decision making.Now is the time to revise scenario planning to account for cost and availability of capital,geopolitical disruptions,and other uncertainties.The best companies devote energy to scrutinize their competitors,determining which of them have both the cash and motivation to make bold moves.Winners also identify where and how they can use M&A to accelerate or scale innovation or build an Engine 2.And they expand the pipeline with a broader view of prospective targets.That gives them a faster response time when those targets come to market and prepares them with viable alternatives if their top choices dont work out.They gain conviction quickly through rapid and strategic diligence and valuation.Market volatility means buyers need to be confident that their target will be resilient in several future scenarios,for example.And increasing interest rates mean buyers need to determine how to accelerate synergies.Moreover,at a time when speed counts more than ever,nearly 40%of surveyed M&A practitioners tell us that a volatile market is making the deal process take longer.All of this implies that companies need to come armed with proprietary insights from due diligence that is faster,deeper,and better focused than the approach taken in a more stable environment.Among the necessary moves:getting more detailed on the sources of value in the marketplace,revenue,costs,talent,and technologyand laying integration plans during the diligence,not afterward(see“Tougher Times:Putting the Diligence Back in Due Diligence”).Its also now more critical to preserve and amplify value through integration.Our M&A Practitioners 2023 Outlook Survey found that while culture is an early focus area for 80%of integrations,75%of acquirers still struggle with cultural issues that require serious interventions.The answer is to focus on the specific issues most likely to disrupt the integration rather than the broader cultural landscape that could take years to address.We call these specific issues“cultural fault lines,”which,similar to fault lines between tectonic plates,cause foreseeable,frequent,and disruptive frictions when and where they conflict.There are three common types of cultural fault lines in merger integrations:differences in purpose,decision making,and engagement(see“How to Avoid the Fault Lines Sending Tremors through Cultural Integration in M&A”).Some companies may consider bigger portfolio moves such as a spin-off.Such companies should develop a well-crafted separation thesis that helps them to focus and provides a roadmap to value creation.Bains recent Spinoff Performance Study(2021)revealed that top-quartile separations performed exceptionally well,with 75%higher combined market caps two years after the separation.The other three-quarters of separations either failed to create value or destroyed value two years down the road(see the HBR.org article“Research:Few Corporate Spinoffs Deliver Value”).The existence of a clear and robust separation thesis was the single biggest difference between top-and bottom-quartile performers.The following chapters in this report explore the insights that executives can learn from the best dealmakers and how M&A activity within industries and select regions reflects evolving sector strategies.Hot TopicsM&A in Times of Turbulence:Lessons from the Last Recession.19When Buying(vs.Building)Is the Right Move for Engine 2.24Tougher Times:Putting the Diligence Back in Due Diligence.30How to Avoid the Fault Lines Sending Tremors through Cultural Integration in M&A.3519The opportunity cost is huge for companies that stay on the sidelines.By Andrew Grosshans,David Harding,Suzanne Kumar,and Joerg OhmstedtHot TopicsM&A in Times of Turbulence:Lessons from the Last RecessionAt a Glance Many companies are wary about acquiring during this downturn,but 20082009s active acquirers outperformed their less-active competitors over the long haul.More specifically,they achieved a greater compounded average annual total shareholder return than that of their less-active competitors.Being an active acquirer is not an end in itself.The most important objective is to execute the strategybe it strengthening the core and increasing scale or creating strategic options via a scope deal.Bains bedrock beliefs on how to create value from M&A rest on fundamental truths that have stood the test of time:If you want to be successful at M&A,develop a repeatable model.Do it often,learn from your mistakes,and make it a material part of your business.Done right,it will generate higher shareholder returns.This year,we look back at the global financial crisis of 20082009 and ask what lessons can be learned from different M&A behavior during times of turbulence.20Global M&A Report 2023Stay in the game through tough times to come out aheadWe assessed the returns to shareholders of different M&A strategies employed by a universe of 2,845 publicly traded companies from around the world for the period between 2007 and 2017.In 2007,worldwide deals surpassed 40,000 for the first time;their cumulative value hit$4.6 trillion,40ove the dotcom peak in 2000.It seemed like the M&A party might never stop.But when the global financial crisis brought the boom to an abrupt end and most economies went into recession sometime during 20082009,the hangover set in.Many business leaders grew leery of any kind of dealmakingdeal volume dropped by 14%from 2007 to 2009.The reaction was understandable,but the opportunity cost for many was huge.Companies that were active in M&A during turbulent times,the data shows,consistently outperformed those that stayed away from deals.Companies that acquired during the last economic downturn achieved an average annual total shareholder return(TSR)of 5.9%compared with 4.7%for those that did not(see Figure 1).Figure 1:Companies that acquired during the last economic downturn have tended to outperform significantly over the long term Sources:Dealogic;Bain M&A database 2022(N=2,845 companies)Average total shareholder return(compound annual growth rate 20072017)4.7%5.9%No acquisitionin 20082009One or more acquisitionsin 2008200921Global M&A Report 2023Of course,being an active acquirer is not an end in itself.The most important objective of M&A is to help execute a companys strategybe it strengthening the core business and increasing scale or creating strategic options via a scope deal.During a recession,M&A also serves another purpose:creating strategic options.The post-recession landscape will be very different,and no one really knows how supply chains may change,what the financial system will look like,or to what degree consumers will have changed their spending patterns.Several industry-defining deals were made throughout the last economic recession.In 2008,BASF acquired Ciba for$5.4 billion in what accounted for the largest acquisition in BASFs company history until that point,with the aim to fully integrate Ciba into BASF and a focus on realizing cost synergies initially targeted at 10%of sales(and subsequently raised).In 2009,Stanley Worksnow Stanley Black&Deckerleveraged its strong M&A capability to significantly grow share by acquiring the larger Black&Decker.The merger was well-timed as the construction cycle exposure made Black&Decker vulnerable in 2009,leading to a 22%drop in revenue and a 41%drop in earnings before interest and taxes,which,in turn,lowered its valuation.Stanley was able to leverage a proven integration capability that it had built from an aggressive M&A program started in 2002 with the acquisition of 33 companies over the next several years.Some companies used their resources to expand their strategic options through acquisitions despite the downturn.For example,Pfizers agreement to acquire Wyeth for$68.4 billion in early 2009 bought some time for Pfizer as patents were about to expire on several of its leading medicines,and it gave Pfizer an opportunity to diversify its pharmaceuticals portfolio and expand its pipeline(with a particular focus on biopharmaceuticals and vaccines).In the second half of 2009,Disney acquired superhero stable Marvel for$4.2 billion,with the aim of putting these characters to work in its television shows,video games,theme parks,and movies.Should companies adjust their M&A behavior during times of turbulence?We have outlined the returns of different types of acquirers regarding their prerecession and recession-era M&A activity.Those companies that were active acquirers before the recession performed best by staying activetheir average annual TSR was 6.1%compared with 3.8%for those that decided to move to the sidelines(see Figure 2,left).For those companies that were inactive before the recession,a change in their M&A behavior toward becoming an active acquirer resulted in an annual TSR of 5.5%compared with 5.0%for those that remained inactive(see Figure 2,right).Several industry-defining deals were made throughout the last economic recession.22Global M&A Report 2023Figure 2:Active acquirers outperformed bystanders during the last economic downturnSources:Dealogic;Bain M&A database 2022(N=2,845 companies)Average total shareholder returns(compound annual growth rate 20072017)One or moreacquisitionsNoacquisitionPrerecession M&A activity6.1%3.8%5.5%5.0%M&A activity during recessionOne or more acquisitionsOne or more acquisitionsNo acquisitionNo acquisition200820092007What can be learned from the most successful acquirers?The core research underlying our belief in the concept of repeatable M&A(replicated multiple times over the past 20 years)shows that frequency(how many deals you do)and materiality(how much of it you do)define a lot of what differentiates M&A performance(see Figure 3).It does not take a lot of deals to become a frequent acquirer,about one per year.To be a material acquirer does require heft:75%or more of your market cap from acquired companies over a decade.Those companies that are both frequent and material acquirers over a 10-year periodwe call them“mountain climbers”(see Figure 3,top right)create the greatest TSRs.Consistent M&A activity over economic cycles contributes to higher TSR.This finding holds up year after year,across industries.Deal success and deal failure is more a matter of cumulative experience and capability in making a deal and less a function of standalone deal circumstances.23Global M&A Report 2023Figure 3:Companies that do M&A frequently and at scale outperform Notes:Cumulative relative deal value is the sum of relative deal size(deal value divided by market capitalization three months prior to announcement)across all deals between 2007 and 2017;deal size for deals with undisclosed value is estimated using median deal value benchmark calculated for each sector from disclosed deal values as a percentage of acquirer market capitalization;deals involving partial stake acquisitions,increase in controlling interest,and remaining interest acquisitions are excluded;multistep deals have been consolidated into a single deal;consortium,intracompany,and property portfolio deals excludedSources:Dealogic;Bain M&A database 2022(N=2,845 companies)Average total shareholder returns(compound annual growth rate 20072017)Cumulative relative deal valueSerial bolt-ons6.7%Mountain climbers7.9%Selected fill-ins4.6%Selective large bets3.7quisitionfrequencyAbove-average deal activity(greater than or equalto one deal per year)Below-average deal activity(less than one deal per year)Less than or equal to 75%of buyers market capGreater than 75%of buyers market capAverage total shareholder returnActives5.4%Inactives4.3%A big learning from our study comes from the failure of companies that are infrequent acquirers but that undertake large deals relative to their market capitalizationwe refer to such companies as“selective large bets”(see Figure 3,bottom right).While we outlined above why we are encouraging M&A during turbulent times,companies that have not been doing deals to build their M&A muscle should be more cautious when the opportunity of a lifetime comes along.Among all companies studied,selective large bets are the worst performers over time as their limited acquisition experience,combined with investment in a large deal,usually results in poor deal outcomes.They generated only 3.7%in annual TSR from 2007 to 2017.Similar to most things in life,you get better at what you do when you do it repeatedly.Companies that acquire frequently,“serial bolt-ons”(see Figure 3,top left),tend to outperform the average company on TSR(6.7%annual).Mountain climbers,those companies that not only acquire frequently but that also develop the capabilities to undertake larger deals,do even better.Their 7.9%annual TSR leads the class.Investors have come to recognize this.With the drop of M&A activity in 2022 and all the current turbulence,some executives will no doubt sit on the sidelines thinking it is safer not to play.Experience suggests that their performance will suffer accordingly.The winners will be those that stay in the gameand learn how to play it well.24Three ways that companies turn to M&A to scale new businesses faster,cheaper,and more effectively.By Alexandra Ramanathan,Vincent Vandierendonck,and Mikaela BoydHot TopicsWhen Buying(vs.Building)Is the Right Move for Engine 2At a Glance Companies looking for a new“Engine 2”to prepare for future growth are considering the best ways to make the move amid macroeconomic uncertainty.Our analysis found that among the 58 most successful Engine 2 businesses,40 used M&A as a significant part of their scaling plans.Most Engine 2 deals are rolling up businesses with similar cores,buying capabilities to create a new core,or buying the new core already at scale.As they face macroeconomic uncertainty in their industry,most business leaders acknowledge that its more vital than ever to develop and accelerate an alternative engine of growth for the future.We refer to these new businesses within existing companies that use the scale benefits of the core business to grow faster than an independent start-up could as“Engine 2s.”And downturns are the times when companies make the bold moves that enable them to emerge stronger than their competitors.25Global M&A Report 2023While it can be tempting to build a new business from the ground up,our new research strongly supports the case for buying.We looked at hundreds of Engine 2 businesses over the past 25 years,and of the 58 most successful,40 used M&A as a significant part of their scaling plans.Its an important finding at a time when lower valuations and less competition for deals makes it a buyers market(see Figure 1).The first major advantage to buying involves speed.Building a team organically can take years longer than buying,which may put the company behind in a fast-moving competitive environment,allowing others to secure a strategic edge.The speed advantage is multiplied for acquirers that are skilled at integration and that design ways to begin delivering shared value on day one.The second advantage involves effectiveness.Without in-house expertise for the new business,a company could be set back by several mistakes along the scaling journey.Integration and alignment challenges are typically easier to overcome than trying to build a new business without the veteran insights.A final advantage is cost.M&A comes with premiums,for sure,but there are high premiums required to lure critical talent away individually.And building a business also often comes with costs associated with false starts,reorganizations,and executive interventions that may be necessary before the organically built organization begins to deliver on its mission.Figure 1:M&A has been used to accelerate roughly two-thirds of the most successful Engine 2 businesses Source:Bain analysisStrategies of the largest Engine 2 business attempts020406080100%Successful Engine 2 businessesEnd-to-end organicsetup and expansion M&A played a smallor negligible role M&A played a significant roleRole of M&ABuying the new corealready at scaleBuying capabilities to create a new coreRolling up businesseswith similar cores Single major acquisition of an existing end-to-end engine(e.g.,Dell/EMC)Acquirer buys targets with capabilities or assets that will help in the formation of the desired new engine(e.g.,Disney/BAMTech)Build scale rapidly through multiple acquisitions of existing players(e.g.,Atlas Copcos vacuum techniquebusiness unit)26Global M&A Report 2023Figure 2:Three common archetypes for successfully buying and scaling an Engine 2123Buying capabilities to create a new coreBuying a new core already at scaleRolling up businesses with similar coresSource:Bain&CompanyThe key to successfully buying and scaling an Engine 2 starts with understanding that the unique assets of the target and the scaling journey of the acquirer will vary.Most,however,will generally fall into one of three common archetypes.While these archetypes all share the ultimate goal of scaling a new business,they use different acquisition strategies to get thereand each requires tailored priorities and areas of focus.Well look at these archetypes one by one(see Figure 2).Rolling up businesses with similar coresIn these cases,an acquirer typically has some experience in the desired Engine 2 business and is looking to build scale rapidly through multiple acquisitions of existing players.This traditional business-building strategy has been more difficult in recent years because of mounting competition from well-funded private equity acquirers.To succeed,the buyer needs to be especially strong in diligence,confirming the strength of the business and how well the asset fits with the new engine.Its also critical to emphasize integrating the new asset into the larger engine with minimal IT dis-synergies and minimal losses of customers and key talent.Atlas Copco was interested in moving beyond its core of compressors with a new Engine 2 in vacuum technique.It knew from experience in similar industries that the market was poised for growth and that there would be great value in scale leadership.To build out quickly,the company 27Global M&A Report 2023acquired Edwards Group,and the subsequent success reinforced its conviction.Atlas Copco added verticals and geographic coverage to the engine with acquisitions of Leybold,CSK,Brooks Automations semiconductor cryogenics business,and more than 10 service and distribution assets over the past three years.Success was the result of a combination of the right strategic plan and outstanding execution,including extensive due diligence and efficient integration to scale up the new engine and build a leadership position in a growing market.There are a few critical steps for boosting the odds of success in roll-up acquisitions.Buyers need to assess process and technology alignment to prevent deal-breaking IT/systems surprises that could add major expenses or delay integration after signing.Its also critical to be cautious about any changes that could have possible negative impacts with customers or sales teams,especially those resulting from IT/systems integration.The best buyers craft the systems integration roadmap with intentional choices that prioritize the long-term goals of the new engine over short-term desires for speed.Buying capabilities to create a new coreIn these situations,the M&A target is strategically attractive for capabilities or assets that will expand a new growth engine the company has in mind.The target may have critical talent,data,infrastructure,or domain knowledge that the acquirer lacks and that can be applied to existing or future new growth engines.These acquisitions are most common in technology,in which serial acquirers such as Google and Microsoft have bought hundreds of smaller companies with the aim of applying learnings and expertise into new and enhanced products and services.For example,Google Maps resulted in large part from the acquisitions of several mapping,visualization,and routing companies.Using this approach,assets may be smaller and have relatively lower price points,allowing for more attempts and variation in outcomes.The most skilled practitioners apply lessons from these acquisitions across multiple engines and business units,creating new value in unpredictable ways.Running this strategy successfully requires excellent talent retention,culture integration,and a patient board willing to wait out a possible multiyear journey with twists and turns.Consider the route taken by Disney when it envisioned the potential for streaming content as a new growth engine.Disney started on that path in 2009 by investing in Hulu,but its direct-to-consumer ambitions were greatly accelerated with its 2017 acquisition of BAMTech,a technology service and video streaming company previously formed by Major League Baseball.Disney started by applying BAMTech expertise to WatchESPN,which became ESPN .That set the stage for ambitions beyond live sports,including the potential to distribute its flagship content through proprietary streaming.The BAMTech acquisition gave Disney several vital elements for what would eventually become Disney ,including robust back-end technology,insights into customer needs,and essential talent to tie together the value proposition with the new technology.These and other capabilities acquired through BAMTech enabled Disney to become a vital Engine 2 for the iconic media company.28Global M&A Report 2023So what are some of the differentiators for successful capability acquirers?They test the degree to which the value of the asset can be lost if critical talent leaves.They use available data to look for the cultural fault lines that could make culture integration and talent retention more challenging.They invest in culture integration that goes far beyond day one.And they test and learn new ways of working together in the integration management office and integration environment before broadening to the entire company.Buying the new core already at scaleIn these deals,a company makes a single,major acquisition of an Engine 2 business that it plans to aggressively grow.Chinas TCL ran this motion successfully when it bought Zhonghuan Semiconductor to add a large-scale Engine 2 of solar materials and modules with runway to grow even larger under the consumer electronics leaders direction.Instead of rolling up smaller businesses or engineering a new core through a“string of pearls,”this approach involves buying the whole necklace.For example,if Disney had pursued this strategy,it might have considered buying Netflix to build its streaming business.Using this strategy,the acquirer must feel confident that it can rely on its existing resources and capabilities to grow the new business in ways that make the high acquisition costs worthwhile.Thats typically achieved by adding value that wasnt possible when the target was on its own.For example,the acquirer may have sales relationships,R&D resources,unique assets,access to data or users,or operational excellence that can be used to bring the target to new heights.While this approach usually is the fastest path to scaling a new Engine 2,it also can be the most expensive,incurring the largest acquisition premiums.Additionally,it requires the highest degree of integration difficulty because of the complexities of large-scale transactions and change.Dells purchase of EMC in 2016 set the standard for large-scale Engine 2 acquisitions,and it still stands as one of the most successful in history.Dell knew the market was moving toward connected storage and servers,but it struggled to get traction with its organically developed storage products.EMC looked to be a perfect target.It was the market leader not only in storage and virtualization(with VMware)but also with enterprise customers,which Dell wanted so that it could make more of a push for its existing core.Among many potential integration priorities,Dell started with cross-selling and moved rapidly to enable its sales team to bring EMCs storage and VMwares solutions into Dell accounts(and vice versa),turbocharging both Dells traditional core and the acquired businesses.Again,the acquisition and integration strategy were viewed as huge successes,achieving synergy targets in half the expected time and hastening Dells ability to realize its Engine 2 ambitions in a fast-moving and highly competitive environment.Companies that are most successful when buying a new growth engine at scale test specific value creation theses with potential customers to confirm the magnitude of the potential benefit.They also build an operating model and management system that enable the right points of overlap to deliver new Engine 2 value while retaining the unique elements that made the asset valuable in the first place.29Global M&A Report 2023Four fundamental steps to successful executionThese archetypes for buying vs.building are all viable approaches to accelerating a new growth engine.What separates the success stories from the also-rans is execution.Many companies have learned that the priorities and choices that work for core businesses do not always translate to establishing and scaling a new business.Regardless of the archetype a company chooses,we see four fundamental steps that no acquirer should overlook.Start with a laser-focused due diligence that tests the assets fit with the elements that will be most important to your scaling.Draft a clear integration thesis,and perform the integration with the aim of preserving the unique assets and capabilities that made the target desirable while also moving rapidly to the new customer value proposition for Engine 2.Design the integration plan to focus on the pivotal decisions that unlock customer value for the new engine,not just for the fastest path to day one.Work backward from the clear killer app you envisioned at deal signing,and invest integration energy in the choices and functions that will bring that vision to life.This may require a more deliberate integration with more executive attention than in-core integrations.Go beyond merely financial incentives for the critical talent you identified in the integration.Include them in planning the integration and defining the vision for how to scale the new engineboth to increase retention and to leverage their unique insights,which may not exist elsewhere.As more companies opt to buy to speed Engine 2 growth,more success stories are emergingand the details that contribute to that success are coming into sharper focus.Winning companies will be those that take these lessons to heart as they make bold moves in the downturn.Theyll take advantage of lower premiums and less competition for deals to accelerate their new growth engine,outpacing competitors more effectively and for less total cost.30Uncertain economic times call for more robust diligence to support a deals price tagor identify risks that warrant walking away from a deal.By Benjamin Farmer,Adam Haller,and Amy WallHot TopicsTougher Times:Putting the Diligence Back in Due DiligenceAt a Glance To succeed in a volatile market,be armed with proprietary insights from a world-class diligence that goes deeper,with more focus,and in less time than your competitors.Initiating diligence before entering the M&A process helps companies avoid being distracted by potential deals that may not be a good fit.Winners go beyond high-level benchmarks in diligence,using the full universe of data available to confidently underwrite deal value.The most successful acquirers think through integration implications(how long,what cost,who to engage)during,not after,diligence.A manufacturing company relied on its historical experience to estimate cost synergies for a potential acquisition.Facing competition for the deal,it realized it needed to dig deeper for potential sources of value and conducted an outside-in diligence,drawing on additional benchmarks,primary research,and scraping external data sources.The extra effort led the company to uncover more than twice the original estimate of cost synergies and make an offer that allowed it to win the asset.Ultimately,the combined company exceeded the synergies estimated in diligence,making the deal an unqualified success for shareholders.31Global M&A Report 2023A technology companys investment thesis for a potential acquisition relied on the capabilities of the targets talent base.The acquirer used outside-in mapping of the talent base(more than 10,000 employees)to understand the technical skills and training of the targets employees.The analysis uncovered that the talent base was missing many of the technical skills that they were looking to acquire.It was a key factor in convincing the company to walk away from the deal.Multiples are in extremely volatile territory,and if history tells us anything,its that winning companies dont sit on the M&A sidelines,waiting for the market to bottom out;they do deals.But in the race to acquire in a volatile market,its more important than ever to have confidence in your deals.The surest way to succeed is to come armed with proprietary insights from a diligence that is faster,deeper,and more focused than your competitors.Better diligence allows you to be bold where others might hesitate.Market leaders use due diligence in three ways to win(or avoid)deals in todays environment:Theyre proactive;they amplify value through proprietary insights;and they plan for successful integration during diligence,not afterward.Be proactiveMarket leaders will not be reactive,but will initiate diligence before even entering the M&A process.This helps them avoid being distracted by potential deals that may not be a good fit with their strategy.Our M&A Practitioners 2023 Outlook Survey found that a clear deal thesis and clear alignment to strategy are the two most important factors leading to successful deals(see Figure 1).Developing that thesis as early as possible allows the acquirers to move quickly when deals are available.The best companies regularly refresh their sector screen and have an evergreen short list of priority targets that are aligned to strategy.They develop an outside-in view of value so that they can move quickly if opportunity arisesor take the offensive and approach the target proactively with conviction,understanding that the industry may be forever changed if a competitor makes the first move.A leading life sciences company maintains a running list of its top 15 to 20 targets.Using outside-in diligence,the company systematically creates a deal thesis and detailed financial model for each potential deal,updating that view as market conditions change.The company regularly refreshes its short list,looking at more than a hundred targets a year to understand the market landscape and assess its priorities.Similarly,a leading global beverage company uses a data-driven view of its market to stay focused on core targets.This includes understanding competitive positioning and whitespace by geography and maintaining a view of potential synergies,cost to achieve,and speed bumps(regulatory review,capital availability,management bandwidth).The disciplined process ensures that resources are focused on the deals they want to make happen without wasting time on deals that dont move the ball forward on strategic priorities.32Figure 1:A clear deal thesis is the top contributor to successful acquisitions Note:Answered only by respondents who indicated that they had made acquisitions that exceed expectationsSource:Bain M&A Practitioners 2023 Outlook Survey Considering all the targets that your company has acquired over the past three years,for any deals that exceeded expectations and created value,what were the main reasons?Select up to three.01020304050%Enabled functional capability sharing early in the integrationEffective sizing and capture of cost synergiesEffective sizing and capture of revenue synergiesAligned top leadership and decision rights earlyDeployed(or developed)a proven playbook for integrationEvaluated culture/strategic fit earlyRetained critical talent of acquired targetDeveloped the right operating model to integrate and scalethe businessClear integration thesisConducted high-quality due diligenceClear alignment on strategyClear deal thesisGlobal M&A Report 2023Amplify value through proprietary insightsWith increasing interest rates and macroeconomic volatility,acquirers need to sharpen their pencils,ensuring real confidence in the deal thesis and looking past the obvious to identify all possible sources of value.Winners go beyond high-level benchmarks in diligence,using the full universe of data available to them to create proprietary insights that will allow them to confidently underwrite deal value.This includes using advanced analytics tools,scraping external data sources,and applying primary research creatively to address blind spots.A major consumer goods company recently explored the potential for expanding into the alternative milk space.Lacking visibility into the out-of-home market that represented more than half of the targets business,it conducted in-person barista interviews and observations at coffee shops in major metro areas.In only five days,the company was able to unlock insights that allowed it to measure a statistically significant share of alternative milk offerings in the coffee shop channel and truly understand the market opportunity.A medical diagnostic company recently considered walking away from a deal when it couldnt agree with the target on price.When it decided to conduct additional diligence on pipeline products not yet in the market using extensive expert and customer interviews,it was able to build enough confidence in the potential value to put forward a sweetened offer and complete the acquisition.33Global M&A Report 2023Plan for successful integration during diligence,not afterwardIn diligence,the focus is often on getting the deal done,with execution an afterthought.We see the most successful acquirers thinking through integration implications,including how long integration will take,what it will cost to achieve,as well as who to engage in the process.The best companies identify the critical issues that underpin the value and build an early integration thesis.They strive to be realistic about costs to achieve,building estimates into the financial model and setting aside the requisite funds solely for the intended integration purposes.Unfortunately,this area of diligence is one that frequently falls short.In fact,our recent M&A practitioners survey found that the integration roadmap was the most underdeveloped aspect of diligence(see Figure 2).One helpful solution is to engage leaders who have led prior integrations in the deal process,especially if they focused on synergy valuation and timing.Ideally,these companies sign one of them up to lead the integration during diligence and have them weigh in on the deal thesis/financial model along the way.Figure 2:The most inaccurate areas of diligence are integration roadmaps,revenue synergies,and people issuesSource:Bain M&A Practitioners 2023 Outlook SurveyOver the past three years,how often were the following estimates meaningfully inaccurate during the due diligence process?Please rate them on a scale from 1(almost never inaccurate)to 5(almost always inaccurate).01020304050%Percentage rating 4 or 5 Environmental,social,and governancerisks or value captureStrategic fitOperations and supply chain benefitsTechnology,IT risk,and cybersecurityrisksCost synergiesCombined target operating modelTalent quality and retentionCultural alignment and integrationRevenue synergies and go to marketOverall integration roadmap34Global M&A Report 2023In a recent diligence,an alcoholic beverage company focused primarily on the market fundamentals,brand health,and synergies.It became apparent during the process,however,that the target had a very different culture and ways of working(see“How to Avoid the Fault Lines Sending Tremors through Cultural Integration in M&A”).The company quickly focused resources on culture integration and change management to anticipate key friction points and prioritize integration considerations,which then were connected back to synergy values based on what areas of the business would or would not be combined.To integrate cultures,a key decision was made to bring together leadership from different regions into a single headquarters.Past recessions have been shown to be pivotal times for companies.Our long-term research proves that proactive dealmakers are more likely to emerge from downturns as winners.But in the race to make bold moves,companies need to not only invest in the diligence process but also use the diligence process to outpace the competition.35Its possible to predict the ways in which cultural differences can upend a promising deal.By Marc Berman,Erin Gillman,Sinead Mullen,and Scott NancarrowHot TopicsHow to Avoid the Fault Lines Sending Tremors through Cultural Integration in M&AAt a Glance Difficulty with integrating the cultures of merging companies is one of the most common factors contributing to failed M&A.Although there are countless potential cultural differences in an integration,a smaller set of identifiable fault lines causes the most disruptive frictions.Companies need a systematic plan for addressing differences,with a clear,actionable approach to ensure successful integration.Cultural integration is hard.In Bains M&A Practitioners 2023 Outlook Survey,nearly half of the respondents listed cultural fit or difficulty integrating management teams as a primary reason why their past deals had failed.Todays workplace dynamics have made the joining of cultures even more difficult for several reasons.For many,the recent shift to remote work environments limits personal interactions and amplifies the differences that teams encounter when theyre working face-to-face.On top of this,a companys purpose and values have become more important to employees,with specific concerns rising regarding an employers positions and actions on social and political issuesand merging 36Global M&A Report 2023Figure 1:Although culture is an early focus area for 80%of integrations,most acquirers still struggle with cultural issues that require serious interventions Source:Bain M&A Practitioners 2023 Outlook Survey80%of integrations address culture at or before the start of the diligence processHow early in the deal-making process do companies assess cultural fit?N/A,no cultural assessmentAt deal closing/during integrationAfter beginning diligence and before deal signingHigh impacts,including reduced value or failure of the dealAt the beginning of due diligenceMedium impacts,including changes to deal timing or personnelBefore due diligenceFew or no impacts on integrationHow much impact have difficult cultural issues had on deal outcomes?75%of integrations still have cultural issues that lead to program delays,personnel changes,or worse01000060402080604020companies dont always see eye to eye.We also see critical talent more willing to look elsewhere becoming a key risk for scope and capability deals.Finally,regulatory review sometimes extends the pre-close period,creating a sense of limbo that leaves key talent uncertain about staying.Our M&A practitioners survey found that while culture is an early focus area for 80%of integrations,75%of acquirers still struggle with cultural issues that require serious interventions(see Figure 1).Three steps to successful cultural integrationCan companies overcome these challenges plus the many familiar obstacles to cultural integration?The answer is yes,but doing so requires companies to focus on the specific issues most likely to disrupt the integration rather than the broader cultural landscape,which could take years to address.We call these specific issues“cultural fault lines,”which,similar to fault lines between tectonic plates,cause foreseeable,frequent,and disruptive frictions when and where they collide(see Figure 2).There are three common types of cultural fault lines in merger integrations:differences in purpose,differences in decision making,and differences in engagement.Many integrators push forward without addressing these fault lines directly,but doing so creates frustration and resentment that taxes every interaction,creating setbacks that either seriously delay integration,drive away talent,or lower the odds of a deals ultimate success.37Global M&A Report 2023We see three steps companies can take to navigate cultural fault lines in any integration.Step No.1:Identify and mitigate the innate fault lines most likely to cause integration disruptions.Among the countless differences across companies,certain types are more likely to create integration difficulties:differences between the underlying purposes and values that guide each merging company(beyond the written mission statement);differences between the expectations and processes for decision making,which typically reflect deeply rooted norms on data,risk,and power;and differences between working styles on how to interact to accomplish goals,along with the expectations each company has for employee engagement.These fault lines are the most difficult and most important to address in an integration setting.If unaddressed,teams feel like they are talking past each other,ultimately stalling progress,and can drive away critical talentsometimes taking their team with them.Figure 2:Focus your integration efforts on cultural fault lines Values and purpose:Our philosophies and objectives are so different that we dont understand each other Decision making:We use different processes and standards to come to a conclusion Ways of working:How we engage,our expectations of each other,and what we celebrate vary widelyFault linesResults Diagnose which fault lines are active and a threat to the integration Make intentional choices about which approach to follow while working together Use the integration management office as a test-and-learn laboratory to see what needs adjustment Teams recognize that their cultural differences do not necessarily reflect differences in talent or effort Companies experience less internal conflict and better talent retention for roles that cross cultures Companies build a better foundation for long-term working relationships and make joint progress toward goalsWhat to do about itSource:Bain&Company38Global M&A Report 2023Identifying innate fault lines starts with looking for relevant differences during due diligence and continues throughout the pre-close period.Leaders who pinpoint these fault lines can help teams tackle them directly and realize that the issues are cultural and not personal before divisions become too great and limit the deals success.When two professional services firms in the same field integrated,they were surprised by how differently they approached decision making.Although both saw themselves as collaborative,the acquirer lived that value by teaming individually with clients to make careful decisions only after securing broad consensus.The acquired company was more accustomed to solving urgent problems of financial distress by getting vital players in the room to make hard choices fast.These innate differences,shaped by the diverse portfolios of clients that they served,meant it was important to establish norms for the integration teams to use and to be clear that the more consensus-driven approach was an intentional,well-considered change vs.how the acquired company was accustomed to operating.Doing so helped take blame,confusion,and frustration out of the process and made it clear that this was a cultural(not personal)approach within the new parent company.Identifying innate fault lines starts with looking for relevant differences during due diligence.In an integration of two technology companies,a sticking point about benefits revealed a potential fault line on values.Although both companies had generous benefits packages,the acquired companys package was truly exceptional in its generosity.The acquirer saw reducing these down to be in line with its own benefits(still well above average for the industry)as a potential source of value,but every employee conversation seemed to gravitate back to the benefits package.The acquirer realized that the targets benefits package was actually central to its identity;its conception of environmental,social,and corporate governance;and a part of how it sold its external brand.It was also clear that there was a lot to lose on culture and critical talent by picking a fight on the issue.The company created momentum for the integration when it announced that,instead of reducing the targets generous benefits,it would be extending those benefits to all employees as one of many steps in preserving and expanding its unique culture.The best companies identify fault lines as part of diligence,assessing the degree of difficulty and potential impact to the value of the deal.They evaluate the ownership structure as well as how the company creates and measures value;they also consider outside-in data on employee engagement 39Global M&A Report 2023and company priorities,historical norms ingrained over decades,and other factors.Although it may sound extreme to walk away from a deal over innate cultural issues,that may be the best move for companies that dont invest in a mitigation plan.Step No.2:Act before misperceptions deepen the fault lines.Misperceptions can be a major obstacle to integrating teams.Teams that start with misperceptions of the other side(“they are arrogant”)may incorrectly reinforce them during the many ambiguous situations common to integrations(“theyre never available to meet live”).If not addressed early,these misperceptions will be cemented and create huge rifts.Integrators must surface misperceptions early,and quickly create opportunities for teams to interact and demonstrate how they are inaccurate.The acquiring company team was blunt,with one asserting,“You see us as old white dudes.”In a large software integration,there were clear differences between the leadership teams.The smaller,acquired company was passionate about issues of race,gender,and equal voice,and the composition of its leadership team reflected these priorities.But,at first glance,the acquirers leadership team didnt look like they had the same priorities regarding diversity,equity,and inclusion(DEI).There were troubling undercurrents until the companies held a perceptions workshop in which both teams were able to get the issue on the table.In the first exercise,each team separately wrote their perceptions of the other team and what they thought the other team perceived in them.The acquired company team raised the issue politely,while the acquirer team was more blunt,with one asserting,“You see us as old white dudes.”The acquirer CEO was able to handle this masterfully by simply acknowledging the gap:“Youre way ahead of us,and we cant wait to learn from you,”he said.By acknowledging the difference,he was able to demonstrate authenticity and win over the other side while also dispelling the false perception that only one side cared about diversity.The acquirer companys leadership committed to being open about issues of representation and to take the lead from the acquired company,while also empowering both sides to talk about the issue without fear or awkwardness.In this example,a situation that could have created a barrier to integration instead became a way for the leadership team to gain new credibility by embracing DEI efforts.40Global M&A Report 2023How to surface perceived fault lines?Use the right kind of surveys and interviews early(well before close)that allow for the sharing of unfiltered views about the other companyits culture,skills,geographic differences,demographic differences,and priorities based on its reputation or interactions the companies had prior to integration.Talk about it.Foster dialogue.Blow up the myths.That means discussing perceptions head-on,ideally in the supportive environment of a workshop.Comparing how we perceive ourselves,how we perceive the other side,and how we think the other side perceives us opens the dialogue and enables teams to move past the wrong ideas that can be debunked by working together.Step No.3:Use the integration itself to foster cultural alignment and mend fault lines.Integrations are moments of truth that can either advance how teams work together or destroy credibility.Success requires building alignment among the leaders who will carry messages to their teams and ensuring they project that alignment.Ideally,they use the integration to role model the new culture and help the teams move forward.The trouble is that integrations often aggravate fault lines.All integrations create stress for teams,both in terms of additional work and unanswered questions about how their jobs will change or if they even continue.Certain elements and messages are more highly charged and,if not managed well,can lead to resentment and cultural conflicts.These self-inflicted wounds often result from insufficient planning and a basic lack of insight into the potential impact.For example,communications that are late,ambiguous,or absent will cause teams to assume the worst.Integration team planning,if not inclusive,may favor certain teams or fail to build strong relationships.And actions that are inconsistent with previous messaging create mistrust.What to do about it?Invest more integration effort into crucial moments of truth for employees.This spans integration activities but is especially true for communications that set the tone for the integration.Follow through with consistent actions.Also important:Use the integration as a culture lab to test and learn which cultural choices and adaptations will work best for the combined company.When two trade service providers merged,leadership chose to prioritize one culture and move all employees over to it.To accelerate the assimilation,every manager from the company being assimilated was fast-tracked through the other companys leadership training.The companies created a group of integration ambassadors that became a sounding board for the field.In addition to engaging the newly trained leaders,it provided the integration team with a vital source of information(which included its blind spots)in areas such as IT integration and synergies.This was information that integration planners likely would never be able to get from a survey.41Global M&A Report 2023Integration is also an opportunity to use the integration management office as a laboratory to test and learn how to work through issues together before the broader team faces them on day one.This can include mitigations such as agreeing to explicit decision-making norms and reminding teams of the desired attitude toward risk and stretch goals when target setting.Not all integrations present the same number of cultural fault lines and extent of risk.And many companies can muscle through with only the limited insights from traditional assessments.That approach,however,typically makes the entire process of integration harder.Unaddressed innate cultural fault lines and misperceptions as well as integration missteps result in slowed progress and diminished work quality.The traditional approach may require years(and sometimes several personnel changes)before teams are working with pre-integration efficiency and satisfaction.The best integrators address fault lines early.Those that wait until teams are openly complaining have a much larger problem to solveand less credibility with which to solve it.IndustriesM&A in Aerospace and Defense:New Types of Deals in a Dynamic Industry.45M&A in Automotive and Mobility:Finding Alternative Routes to the Future.50What Consumer Goods Companies Are Learning from Alternative Deals.55Retails New M&A Balancing Act.60M&A in Diversified Industrials:ESG Plays Drive Breakthrough Capabilities.65M&A in Energy and Natural Resources:Beating the Odds in Energy Transition Deals.69M&A in Banking:Three Types of Deals for 2023.75M&A in Insurance:There Are Insurtech Deals to Be Done,but Proceed with Caution.79IndustriesM&A in Payments:Four Ways That M&A Will Propel This Dynamic Sector.84 M&A in Wealth and Asset Management:How Deals Will Shake Up the Industry.88M&A in Healthcare and Life Sciences:Why the Industrys Wait-and-See Days Will End.93M&A in Media and Entertainment:To Interactivity and Beyond.93M&A in Technology:Never Waste a Good Crisis.102M&A in Telecommunications:How the End of Free Money Opens Up New Opportunities.10645With defense missions and commercial flight markets being disrupted,historic leaders risk losing portions of their profit pools if they dont react.By Clark Herndon,Mike Sion,and Austin KimIndustriesM&A in Aerospace and Defense:New Types of Deals in a Dynamic IndustryAt a Glance With challenges to volume and margins,commercial aviation profit pools have been under pressure.Despite relative stability in the defense market,budgets still face a crowding-out effect from inflation,sustainment needs,and competing fiscal priorities.Companies in both commercial aviation and defense will pursue deals to diversify or consolidate.We anticipate private capital to participate more(less antitrust risk,substantial dry powder),seeking out pockets of undermanagement and stable/growing volumes.For years,aerospace and defense(A&D)was a relatively stable industry with steady air travel penetration growth,long-term increases in defense budgets,and long-duration programs.Now,executives and investors face new strategic questions as the industry changes due to the lasting impact of the Covid-19 pandemic,macroeconomic and geopolitical uncertainties,and technological and regulatory disruptions.Companies must confront disruption,consider diversifying exposure,and grow volume and scale within an environment of lower volumes and margin pressure.M&A is likely to be a key tool many employ to achieve these objectives.46Global M&A Report 2023As commercial aerospace rose above the most acute pandemic clouds,it emerged into a less-than-hospitable macro environment.Chinas recovery has been uneven at best.In Europe,environmental,social,and corporate governance pressures and potential regulation stand to intensify air travel headwinds.Worldwide,pilot shortages are creating a bottleneck.These and other changes hurt volumes at a time when margins are already feeling the impact of cost inflation and the growth of risk-transfer products such as power-by-the-hour maintenance.Commercial aviation profit pools have been under pressure(see Figure 1).Conversely,the defense market has been relatively stable throughout Covid-19,and changes in the geopolitical environment along with lower levels of fiscal constraint have led to volume and budget tailwinds.Prepayments and government support helped stabilize the supply base during pandemic closures and supply chain disruptions.Russias invasion of Ukraine has increased spending commitments in Europe,and rising competition with China has the US and close allies(particularly Japan,South Korea,and Australia)shifting their spending priorities and increasing total spending.These countries are collectively building their own defense capabilities and deterrents,which will diversify what has been a US-oriented market.Using military aircraft suppliers as a proxy for the broader industry,profit pools have been much more stable as a result of these trends(see Figure 2).Figure 1:Commercial aviation profit pools have been severely affected by the pandemicNotes:OEM=original equipment manufacturer;public company financials used to estimate margins at the business segment level;aftermarket/maintenance,repair,and overhaul businesses kept in other categories unless explicitly split as reported segment;Tier 1 and Tier 2/3 overall sizing estimated based on overall OEM engine and OEM airframe total sizeSources:S&P Capital IQ;IATA;Bain analysisPreCovid-19 Covid-19s effectEarnings before interest and taxes margin percentage(20172019)05101520%Tier 2/31714146Airlines8Maintenance,repair,and overhaulTier 1OEM engineOEM airframeEarnings before interest and taxes margin percentage(20202021)01020 10AirlinesMaintenance,repair,and overhaulTier 1OEM engineOEM airframeTier 2/31449923311Dropped from 9%in20172018 becauseof Boeing 737 MAXgroundingGreaterresilience insupplier basebecause ofdiversification47Figure 2:Defense aircraft profit pools have remained relatively stableNotes:2022 data is annualized for each company;some company financials may include nonmilitary/defense or nonaircraft data because of the lack of publiclyavailable information;preCovid-19 data for primes has been collected from 2015 to 2019 to account for abnormal business events;sustainment/maintenance,repair,and overhaul market size includes only labor cost but is not military or defense specificSources:S&P Capital IQ;Airframer;Forecaster International;Bain analysisPreCovid-19Covid-19s effectEarnings before interest and taxes margin percentage(20212022)51517171690481216208121620rnings before interest and taxes margin percentage(20182019)716141416 7Airframe/structuresEngineElectricalSustainment/maintenance,repair,and overhaulAvionics/mission systemsMechanicalAirframe/structuresEngineElectricalSustainment/maintenance,repair,and overhaulAvionics/mission systemsMechanicalGlobal M&A Report 2023The shift to near-peer competition in the defense market has broader implications for the supply base.Requirements are growing,but budgets still face a crowding-out effect from inflation,sustainment needs,and competing governmental fiscal priorities.A macroeconomic downturn would likely exacerbate this disconnect between requirements and funding.The challenge for primes and suppliers is to meet demand for new capabilities in areas where commercial innovation and foreign spending are outpacing government investmentfor example,cyber,autonomy,artificial intelligence,computing,and connectivity.Companies with exposure to these markets will find meaningful tailwinds,though they will also see competitive pressure from commercial players with innovative solutions that government buyers are increasingly willing to purchase.We see several important M&A trends as companies and financial investors navigate the marketplace.Platform/segment diversification:Financial and strategic acquirers alike will continue to turn to M&A to diversify in attractive segments in commercial aviation(e.g.,narrowbody,next-generation engines)and stable/growing segments in defense(e.g.,major programs of record,advanced mission systems).48Global M&A Report 2023 Defense adjacency growth/capability acquisitions:Companies in the defense industry will look to buy or partner for the capabilities they need to compete in nascent,high-growth markets.That was the reported objective of Raytheon Technologies acquisition of Blue Canyon in 2020 and SEAKR Engineering in 2021 in the space market as well as L3Harriss 2022 purchase of Viasats tactical data links.We will see continued deals and partnerships seeking to benefit from faster time to market and lower development costs.Commercial value chain consolidation:Scale matters in the aerospace supply chain,and consolidation is likely in segments that are fragmented despite benefits to site-or company-level scale.The recently announced Paradigm Precision and Whitcraft deal is a good example of this trend,and it is reasonable to expect further activity in Tiers 2 and 3.Another likely area of consolidation is maintenance,repair,and overhaul(MRO),which is fragmented today despite customer and operational benefits to site-level scale.Consolidation in maturing markets:As nascent defense and commercial markets continue to grow,we expect to see consolidation as winners and losers emerge in crowded and highly competitive markets.For example,with space launch frequency increasing,vehicles and services will become more commoditized and smaller players will look for scale deals to lower costs and preserve margins.Given these trends,M&A is likely to be a critical tool in A&D in 2023 and beyond.We expect some activity in prime contracting/original equipment manufacturers and Tier 1 players(for example,L3Harriss recent announcement of an agreement to acquire Aerojet Rocketdyne),although dealmaking is likely to be more muted vs.the past few decades because the degree of consolidation that regulators will permit remains an open question.We also expect more deals further down the supply chain,where margins can be attractive and there is fragmentation despite benefits to scale.And private capital will likely increase its participation in the sector,in line with recent trends.We expect more activity from both generalist funds as well as those that have traditionally focused on the sector.Private equity has less antitrust risk,substantial dry powder to invest,and is likely to seek out pockets of undermanagement and stable or growing volumes.And the industry has some fundamental traits that financial investors likefor example,enduring customer relationships,high backlog visibility,and stable cash flows.But not all investments will be winners.Below are the factors that can boost the odds of a successful deal.Diversified exposure across platforms,programs,geographies:Recent disruptions caused by Covid-19 highlighted the advantages of diversified exposure.But the act of buying a company just to diversify wont work unless there is a distinct parenting advantagethe acquirer wont be able to justify the deal competitions high multiple.Companies must have a clear deal thesis tied to a specific parenting advantage that unlocks value.49Global M&A Report 2023 Exposure to narrowbody(commercial)and large programs of record such as the F-35(defense):Backlogs are large and stable in major narrowbody and defense programs of record(e.g.,Airbuss A320,CFMs LEAP,Pratt&Whitneys PW1000 and F135,Lockheed-Martins F-35,and Northrop Grummans B-21);companies with exposure to these programs will tend to have scale advantages,higher margins,and more cash to reinvest in next-generation technologies.Defensible intellectual property(IP):Suppliers that own critical design IP will continue to have an advantage and are more attractive targets,demanding higher multiples compared with contract manufacturers.Proprietary components and systems tend to generate higher margins,both in production and in the aftermarket.Operational excellence:Operational excellence is the differentiator in this industry and a key to margin expansion,particularly with long-running programs.Yet acquirers need to ensure that the operations expertise is fit for the mission.Some programs maintain low rates for long periods of time,and others benefit from high-rate production expertise that drives out cost through scale.M&A/integration as a capability:The most successful acquirers in any industry are those that repeatably drive value and growth from acquisitions.From due diligence through to post-merger integration,a sound M&A strategy and execution capabilities that are disciplined and thesis focused are critical.M&A can be a valuable tool for diversification and access to new capabilities in aerospace and defense.For example,more diverse end-market exposure can help stabilize earnings and expose companies to higher growth segments(such as commercial narrowbody aircraft and major defense programs of record).In industries characterized by long program durations and sticky customer relationships,M&A can be a critical growth lever.And disruptions in both markets make acquisitions that deliver new capabilities to improve defensibility in a companys core potentially attractive.For all of these reasons,winning aerospace and defense companies will develop focused,tailored investment theses that support and reinforce their broader corporate strategiesand pursue acquisitions that strengthen resilience and add value.50Companies that make the right deal decisions now can massively benefit over the long haul.By Dominik Foucar,Klaus Stricker,Ingo Stein,Ping Yi,and Pedro CorreaIndustriesM&A in Automotive and Mobility:Finding Alternative Routes to the FutureAt a Glance Real customer focus,autonomous driving,connected and digitized vehicles,electric powertrains,and shared mobility will define the industrys future.With stakes so high,substantial capital requirements,and the need to speed up R&D,teaming is helping companies to advance after years of many going it alone.Access to financing has tightened,so cash-rich original equipment manufacturers,major suppliers,and tech companies will account for most of traditional M&A.During this decisive time,anything is possibleand necessary.The automotive and mobility industry is advancing in different directions as part of a full value chain transformation,and companies are steaming ahead to deliver what we call the“5 Races”:Real customer focus;Autonomous driving;51Global M&A Report 2023Some companies are making electric vehicle adjacency moves,seeking out new profit pools and critical technology control points.Connectivity and digitization of vehicles;Electrification of powertrains;and Shared mobility.The changes required to compete in the 5 Races are so broad and dramatic that companies will benefit by not going it alone.On this path,leading companies are quickly leveraging the full array of M&A.That means both traditional acquisitions and mergers,as well as a growing mix of alternative deals.Original equipment manufacturers(OEMs),suppliers,technology companies,and mobility players are forging alliances and partnerships,spinning out divisions,and investing in corporate venture capital(CVC)to get a head start on technology development.Anything is possible(and necessary)depending on a companys strategy.Lets look at the range of activities and the strategies behind them.Legacy internal combustion engine component suppliers are consolidatingthat is,when regulatory constraints and the ability to implement harvest strategies allow.In partially commoditizing segments,such as lighting,for example,companies can stay profitable from scale synergies and harvest cash to fund the development of next-generation products or build up new engines of growth.Plastic Omnium acquired AMLS and Varroc Lighting Systems to integrate lighting and provide a differentiated offer that meets the growing demands of OEMs,for example.In some areas of the industry,companies are making electric vehicle(EV)adjacency moves,seeking out new profit pools and critical technology control points.This requires not only evaluating what to buy but also how to integrate a new asset.In some cases,such as in EV batteries,the minimum scale needed to play is too large and risky for one player,and many are turning to partnerships.Consider the strategic partnership that allowed British company GKN Automotive to move into the e-drives business:GKN is contributing its expertise in engines and transmissions,while Delta Electronics,based in Taiwan,is manufacturing the power electronics.52Global M&A Report 2023Figure 1:M&A activity dipped slightly in 2022,with a first-half surge in deal value giving way to significant contraction in the third quarterNotes:2019 includes Stellantis deal;deals classified by rationale using a proprietary classification framework,as per stated strategic rationale at the time of dealannouncement;numbers may not sum due to rounding Sources:Dealogic;Bain analysisDeal value(in billions of US dollars)SupplierTechnologyDealerOriginal equipment manufacturerDeal count729915102324128101621223225102635393545321210811411258981476273431855383162725217281315182912281736143019269491925Dip induced by Covid-19 and chip shortage21H120223011H120211910Q3202214202020295320216432Q1Q320224436Q32021293520164750201756482018567520195420153238Companies from Ford to Harley-Davidson are also separating electric vehicle assets to get share price appreciation and to access growth capital for the business.That was the objective of Ampere,Renaults new standalone company for its EV and software activities.The spin-off will allow the company to get better valuation and access to capital,attract talent,and have better focused teams.Renault has carved out its internal combustion engine business to build a 50/50 company with Geely that will be a worldwide automotive supplier producing combustion and hybrid propulsion engines and targeting an annual revenue of 15 billion per year.The intent is to share maintenance and R&D costs,rationalize capacity,and tap the slower-to-decline Chinese market.Its not as if automotive and mobility companies arent engaging in traditional M&A.Similar to their counterparts in other industries,auto companies put deals on pause during Covid-19plagued 2020.Activity resumed in 2021,a comeback year that saw 64 deals worth a total of$53 billion.Then 2022 brought with it a host of new economic challenges.Overall,deal volume dropped slightly during the first nine months of 2022 compared with the same period a year earlier,with a strong first half that cooled off in the early weeks of the third quarter(see Figure 1).While some scale deals were announced,the majority of the activity,73%,represented scope deals(see Figure 2).Figure 2:Over the past five years,expanding scope has been the major impetus for strategic M&A deals in the industryNote:Deals classified by rationale using a proprietary classification framework,as per stated strategic rationale at the time of deal announcementSources:Dealogic;Bain analysisStrategic deals with greater than$100 million in deal valueQ1Q3 202227s 2133g 2031i 1939a 1845U 1745U 16664%Percentage of scale dealsPercentage of scope deals201555ESGlobal M&A Report 2023But across the value chain,from suppliers to OEMs to technology companies to dealers,the industry is finding that partnerships can be a suitable option,depending on the situation.For example,joint ventures can be a first step toward reining in noncore assets and sharing risks.Alliances can enable purchasing to cope with increasing market pressures from material costs.Cost synergies,benefiting both companies,have been a key objective of Hino and Tratons procurement agreement.These alternatives to traditional acquisitions are less binding and can be easier and quicker to set up.They also come with limitations.Among the most important potential shortcoming:a lack of control.In areas with high technology uncertainty and where heavy investments are required,such as autonomous driving,companies are finding that participating in CVC can help them secure early access to technology and accelerate development.Going forward,we expect the number of M&A deals to continue increasing,though likely with a smaller average deal value.As access to financing has tightened with rising interest rates,cash-rich OEMs,major suppliers,and tech companies are expected to account for the largest share of acquisitions.These players see it as a good time to strengthen themselves even more,and there will be affordable targets in the form of companies looking to divest to focus on a core business or revitalize capital structures.Market turbulence will result in more companies falling into distress and becoming potential targets.54Global M&A Report 2023This is a decisive time,and companies that make the right decisions now can massively benefit over the long haul.To succeed in this new M&A game,automotive and mobility players must reinforce their M&A capabilities,adjust structures and processes,and build up resources and capabilities for CVC.Five important areas will help ensure M&A success:Embed M&A in corporate strategy,and take a thorough future-back view of your portfolio.Broaden your screening,including early detection systems and investment opportunities via a venture capital approach.Expand your M&A toolkit,tailoring the tools and approaches you use to the situation,including strategic divestments,spin-offs to drive valuation,and alternative partnering options.Improve your commercial diligence skill set and integration capabilities,particularly for evaluating adjacency moves and partnerships.Capture the full potential,which,in some cases,will be heavily focused on managing down costs and capital employed;in other situations,it will mean taking on the marketing of acquired software or hardware from the smaller company,preserving the core of an acquired business.55As more companies try corporate venture capital deals and alliances,theyre also learning how to avoid the pitfalls.By Peter Horsley,Joost Spits,Sam Rovit,and Maria KurenovaIndustriesWhat Consumer Goods Companies Are Learning from Alternative DealsAt a Glance Our survey found that a vast majority of consumer goods c
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波士顿咨询集团：2023 年芬兰绿色增长登月计划报告（英文版）(23 Seiten).pdf
Finlands Moonshots for Green Growth Maximizing Finlands Growth and Handprint in the Green TransitionFebruary 2023 By Boston Consulting Group and Climate Leadership CoalitionBoston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it was founded in 1963.Today,we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholdersempowering organizations to grow,build sustainable competitive advantage,and drive positive societal impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change.BCG delivers solutions through leading-edge management consulting,technology and design,and corporate and digital ventures.We work in a uniquely collaborative model across the firm and throughout all levels of the client organization,fueled by the goal of helping our clients thrive and enabling them to make the world a better place.Climate Leadership Coalition is the largest non-profit climate business network in Europe.CLC has 93 organizational members.CLC believes that profound transition to a sustainable world can be economically beneficial,viable and financeable.Together we aim to make a significant positive climate impact through business solutions.CLC encourages decision makers to speed up the green transition and the green recovery by attracting investments via predictable and ambitious policies and systemic market-driven solutions.2FINLANDS MOONSHOTS FOR GREEN GROWTH3MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITIONContents06|Executive Summary 08|Introduction:An Opportunity Finland Cannot Afford to Miss12|Global Value Chains:Where are the Opportunities for Green Growth14|Finlands Competetive Advantages and Regulatory Tailwinds18|Finlands Green Growth Opportunities 20|The Five Moonshots for Green Growth:Business as Unusual 32|The Acceleration Roadmap:What Government Can Do 36|Conclusion5MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION4FINLANDS MOONSHOTS FOR GREEN GROWTHExecutive SummaryThe green transition is one of the biggest drivers of change during the on-going and coming decades,and an opportunity Finland cannot afford to miss Globally,it is estimated that required climate-aligned investments will total between$100 trillion and$150 trillion by 2050,representing an average of$3 trillion to$5 trillion per year1 EU regulation(e.g.,Fit for 55)reinforces the transition,triggering green demand across industries Finland needs to seize this growth opportunity to secure its future welfare;over the past decade,Finlands GDP growth has been trailing other Nordic countries2 and its budget deficit has increased3 Finland has several competitive advantages to tap into the growing green demand,and surprisingly many green innovations and growth opportunities across key value chains Advantages comprise of tangible resources(such as forests,minerals,and rapidly growing renewable energy capacity),competitiveness in industrial process efficiency and digitalization,and national commitment to a green future-climate neutral by 2035 target set in law Finland can maximize its growth and handprint by providing solutions to the five consumer-facing value chains(Housing,Food,Travel,Fashion,and Consumer Products),that account for nearly all global GHG emissions when considering end-to-end value chains from raw materials to end-of-life Research revealed in total 28 green growth opportunities for Finnish companies across key value chains,energy,and industrial processesIn this report,we identify five Moonshots for green growth to future-proof Finlands existing export sectors and create new industrial mainstays,having a total export potential of 85 billion to 100 billion by 2035:1.NET-POSITIVE LIVING,incl.wooden construction,net-zero living solutions,and demand response systems 2.BIO-BASED PRODUCTS AND MATERIALS,incl.circular textile fibers,circular consumer packaging,long-lasting consumer products,and advanced lightweight biomaterials3.DECARBONIZATION TECHNOLOGY AND SERVICES,incl.electrification,lifecycle services,and energy system optimization 4.CIRCULAR BATTERIES AND GREEN METALS,incl.circular battery ecosystem,and green specialty steel for advanced applications5.GREEN HYDROGEN-ENABLED SOLUTIONS,incl.green steel,synthetic fuels,green ammonia-based fertilizers,and food proteins Finlands ultimate success in the green transition depends on actions taken now.There are several levers to catalyze green growth and unlock the full potential of the Moonshots Levers include accelerating green investments,catalyzing domestic green demand,ensuring prerequisites for green growth,and positioning Finland as the forerunner in green solutions To ensure that Finland seizes this opportunity,Boston Consulting Group(BCG)and Climate Leadership Coalition(CLC)initiated the Moonshot work and interviewed over 60 stakeholders comprising company and industry representatives,researchers and academia with sustainability expertise,senior ministry officials,and representatives from the largest political parties.This report showcases how,through the five Moonshots,Finland can simultaneously drive growth and thereby well-being,reach its own ambitious climate targets,and become greater than its size in solving the climate crisis.6FINLANDS MOONSHOTS FOR GREEN GROWTH7MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITIONIntroduction:An Opportunity Finland Cannot Afford to Miss Finland has several competitive advantages to tap into the growing green demand.First,Finland possesses rich natural resources such as forests,minerals,and growing renewable energy capacity that are valuable assets in the green transition.Second,the countrys export sectors,focused mainly on industrial processes and technologies,have for decades relied on process efficiency,optimization,and digitalization.Third,Finlands government and corporations have set an ambitious target to be climate neutral by 2035,backed up by citizens that highly value nature.Tapping into new areas of growth is an opportunity that Finland cannot afford to miss.GDP growth for the past decade has been weak:Finlands average GDP growth was 0.7%per annum between 2012 and 2021,trailing other Nordic countries with average annual GDP growth between 1.6%and 1.9%.2 Over the same period,Finlands budget deficit increased from 42%of GDP to 51%.3 The Organization for Economic Co-operation and Development(OECD)has highlighted that Finland is falling behind its Nordic peers in attracting direct foreign investments.5 Most worryingly,the foundations upon which Finlands future welfare is built are beginning to show cracks:the level of basic education,healthcare,public R&D,and youth well-being are not where they used to be.The green transition is one of the biggest drivers for change during the on-going and coming decades.Globally,it is estimated that the required climate-aligned investments will total between$100 trillion and$150 trillion by 2050,representing an average of$3 trillion to$5 trillion per year.1 Switching to renewable energy will not be enough to reach the 1.5C target set by the Paris Agreement a reduction in energy demand is also needed.4 In addition,the loss of biodiversity in marine,freshwater,and terrestrial ecosystems sets further limitations on future demand.The required change is reinforced by an unprecedented amount of new regulation,with the EU leading the way,including an extended energy trading scheme and more stringent requirements for energy efficiency.The rules of the game are fundamentally changing for companies across value chains.Companies must rapidly adapt and future-proof their businesses for a new era in which an increasing amount of goods and services must be produced using fewer resources and less energy,and value creation maximized within the planetary boundaries.Across all major value chains,demand for green solutions will grow,ranging from more sustainable and circular raw materials to net-zero production technology to smarter and more energy-efficient end products.To ensure that Finland seizes the unique opportunity at hand and maximizes its growth in the green transition,Boston Consulting Group(BCG)and Climate Leadership Coalition(CLC)have initiated an effort to identify the countrys Moonshots for green growth and the prerequisites needed for them to reach their full potential.(See the Sidebar“Whats a Moonshot?”).This work builds on BCGs Nordic Net Zero:The Green Business Opportunity report that presented how Finland,as part of the Nordics,can meet its own net zero targets through smart decarbonization.6 Now,the focus is on how Finland can maximize its export growth in the global green transition.Besides optimizing economic growth,the objective is to identify potential new sources of competitive advantage for Finland that could enable developing new industrial mainstays.Moreover,by enabling decarbonization of the worlds highest-emitting value chains,Finland can become greater than its size in solving the global climate crisis.8FINLANDS MOONSHOTS FOR GREEN GROWTH9MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITIONWHATS A MOONSHOT?The Moonshot,a term originating in the 1960s from the US project to send men to the moon and return them safely to earth,essentially means focusing collective attention and effort to achieve highly ambitious,outside-the-box goals to serve the greater good.Finlands Moonshots for green growth have four distinctive characteristics(See Exhibit 1).LASTING COMPETITIVE ADVANTAGE enabled by unique resources or capabilities Unique resources or strong domestic capabilities and knowhow providing strong starting position and sustainable advantage,making moonshots long-term growth drivers for FinlandECOSYSTEM with potential to become more than the sum of its parts Comprising more than one strong company,bringing together leading corporate,academic and public players while providing a growth platform for smaller playersSIGNIFICANT LEAP in terms of export growth and carbon handprint Future-proofing existing export sectors or converting emerging green opportunities into new industrial mainstaysGOVERNMENT CATALYZATION OR COORDINATION needed to realize full potential Government with possibility to accelerate the growth opportunities that would otherwise take longer to takeoff due to lack of coordination in the ecosystem,limited domestic demand,insufficient investments and R&D,challenges in scaling,or limited go-to-market effortsSignificant leap Ecosystem Government catalyzation or coordinationLasting competitive advantageEXHIBIT 1The five Moonshots that we have identified for Finland are the following:NET-POSITIVE LIVING Finland as the leader in providing holistic net-positive living offering(e.g.,wooden construction,net-zero living solutions,and demand response systems).BIO-BASED PRODUCTS AND MATERIALS Finland as the global leader in developing and supplying bio-based solutions(such as circular textile fibers,circular packaging materials,long-lasting consumer products,and advanced lightweight biomaterials e.g.,for automotive).DECARBONIZATION TECHNOLOGY AND SERVICES Finland as the forerunner in providing smart technology solutions for high-emitting industrial processes(e.g.,electrification,lifecycle services,and energy system optimization).CIRCULAR BATTERIES AND GREEN METALS Finland with a circular battery ecosystem,and Finland as the leading supplier of green specialty steel,and other metals in Europe(e.g.,for automotive and aviation).GREEN HYDROGEN-ENABLED SOLUTIONS Finland as a competitive country for producing green hydrogen-enabled solutions(e.g.,green steel,synthetic fuels,green ammonia-based fertilizers,and food proteins).In this report,we will detail these Moonshots and outline the research that led to their identification,as well as offer deep dives on the following topics:Finlands competitive advantages in the green transition;the regulatory tailwinds that will trigger green demand;and the actions that the Finnish government can take to unlock the full potential of the Moonshots and Finlands green growth.Finland has an opportunity to be at the forefront of the green transition and become a leader in green technology and solutions.Given the magnitude of change,how Finland plays its cards in the green transition should be high on the national agenda.Finlands main export sectors machinery,forest products,metals,and chemicals will remain the same,but they need to transform within to remain competitive in the green transition-Antti Herlin Chair,KONE,Chair,Tiina and Antti Herlin Foundation10FINLANDS MOONSHOTS FOR GREEN GROWTH11MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITIONEXHIBIT 2|Global GHG emissions along the highest-emitting value chainsFor example,the housing value chain,which includes residential and commercial buildings along with infrastructure,represents more than one-third of all emissions globally.Reducing emissions from the production of building materials such as steel and concrete,and day-to-day living(usage),has very high leverage in terms of GHG emission reduction.In food production,the greatest impact comes from renewing agricultural or aquacultural practices and switching to alternative food products(raw materials).Meanwhile,in the travel sector,reduction of emissions from driving,flying,and shipping(usage)provide the greatest opportunities for decarbonization.In fashion and consumer products,the production of goods has the highest leverage,followed by usage,which includes emissions generated,for example,by washing,using,and charging products.Energy,industrial processes,and transportation of goods serve all value chains,accounting for roughly 80%of global emissions.Some of the highest-leverage measures involve shifting away from fossil fuels through renewable power and heat generation,and decarbonizing industrial processes through,for example,electrification,energy efficiency improvements and process optimization.Currently,process industries represent about 75%of Finnish product exports.34 With the right solutions,Finnish companies can tap into green growth and support decarbonization of the highest-emitting value chains.Global Value Chains:Where Are the Opportunities for Green Growth?Finland can make the greatest contribution to reducing global GHG emissions by providing solutions to the five consumer-facing value chains that account for nearly all global GHG emissions:housing(35%),food(30%),travel(20%),fashion(10%),and consumer products(5%).(See Exhibit 2).The first three are responsible for roughly 80%of GHG emissions around the world.A value chain,in this context,is the sum of all activities that cause GHG emissions during a products lifecycle from raw material extraction to production,transportation,distribution,and usage by consumers,until the end-of-life stage,where products are discarded,recycled,or reused in some other form.In identifying Finlands Moonshots,we considered which parts of the value chain generate the most emissions,and hence provide the greatest opportunities for decarbonization.(See the sidebar“Guiding Principles for Identifying Green Growth Opportunities”).FOODHOUSINGTRAVELFASHIONCONSUMER PRODUCTSTransportationDistributionProductionUsageEnd-of-Life5%5-10%5-10%5-105-455-40%5-10%5%5%5%5-10-70%5%5%5p-90%5-10%5-15%5%-35P0B1 Finland the only European country with access to all minerals needed for batteries(esp.cobalt)Significant base,ferrous and precious metal reserves COMMITTED SOCIETYOne of the worlds highest corporate SBTi engagements2Climate action backed up by society with 90%of people highlighting natures importance to themselves3AFFORDABLE RENEWABLE AND CARBON NEUTRAL ELECTRICITY90%of electricity generation carbon neutral,of which already 50%renewable and increasing through growing wind power capacity4Nuclear baseload stabilizes productionPROCESS EFFICIENCYLong legacy in industrial process excellence and technology exportsHigh material efficiency and integrated process circularity provide solid building blocks for green productionAMBITIOUS GOVERNMENT AGENDA Finland climate neutral by 2035 worlds first carbon neutrality target that is set in lawFORESTSOver 75%of land area is forest5,total value 240-510B6 Strong commitment to biodiversity from corporates and the government(National Forest Strategy 2035)Can be utilized for carbon sequestration,buildings,various bioproducts,and biogenic CO2WATERWater richest country in the world7Existing 5B water sector with leading expertise(e.g.,wastewater to X,hydrogeology and water infra)8GREEN BRAND2nd best cleantech expertise globally and positioned in the forefront of green economy9Pure,green and healthy Nordic brand supporting green export business EDUCATED,SKILLED,DIGITALIZED SOCIETY1st most digitally skilled workforce(Digital Economy and Society Index)10 Worlds leading testing ground for new technologies(e.g.,IoT,Smart Grid-solutions,and 6G network)STABLE BUSINESS ENVIRONMENT1st most stable country and business environment increase investor predictability11Strong innovation environment(top 10 in resident patent applications per GDP)12 and available venture capital(highest VC-capital per GDP in the world)13Finland Has Several Competitive Advantages to Tap into Green Demand1.Estimate by Geological Survey of Finland;2.Report by The Science Based Targets initiative(SBTi);3.Survey by Finnish Innovation Fund Sitra;4.Statistics Finland;5.Estimate by Metsteollisuus;6.Estimate by BCG;7.Keele University;8.Estimate by Finland Toolbox:9.Global Cleantech Innovation Index;10.EU Digital Economy and Society Index;11.Global Innovation Index;12.World Intellectual Property Indicators;13.European Venture Capital Statistics16FINLANDS MOONSHOTS FOR GREEN GROWTH17MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITIONEXHIBIT 3|Finlands green growth opportunities along key value chains,energy,and industrial processesTo identify the Moonshots for Finland,CLC and BCG conducted an analysis involving three phases of work.First,we mapped the sources of global emissions across key value chains,identifying a long list of green growth opportunities,particularly noting those where Finnish anchor companies or spearhead offerings existed.We then assessed the impact of each opportunity along six criteria:export potential,GHG handprint(and other environmental benefits),competitive advantages,maturity level of technology,regulatory pressure,and other potential economic or national benefits for Finland.In addition,as part of this initiative,we interviewed more than 60 stakeholders comprising company and industry representatives,researchers and academics with sustainability expertise,senior ministry officials,and representatives from the largest political parties.Our findings revealed more opportunities than initially expected a total of 28 green growth opportunities for Finnish companies across sectors.(See Exhibit 3).Common themes include,for example,innovative materials,sustainable production processes,supply chain optimization to reduce waste,sustainable product design,and more energy-efficient usage of goods and services.In housing,emerging opportunities for Finland include low-carbon building materials(e.g.,green steel and sustainable alternatives for cement),net-positive wooden Finlands Green Growth Opportunitiesbuilding materials(e.g.,cross-laminated timber)that could replace conventional carbon-intensive building materials,and net-zero living solutions that reduce energy-related emissions.In the food sector,identified opportunities comprise solutions that reduce emissions from existing agri-and aquaculture practices,such as net-zero fertilizers and advanced animal feed additives that reduce methane emissions from livestock.Other opportunities include waste-to-x solutions that turn manure and food waste to biogas,biochar,or alternative fertilizers,and data-driven demand forecasting that optimizes food flows in the supply chain.These solutions represent significant abatement potential since between 60-70%of emissions are caused by agricultural practices the first step in the food value chain.Additionally,alternative proteins and food products provide a significant opportunity to reduce the need for land,farming,and livestock altogether.In travel and transportation,green growth opportunities include circular batteries and lightweight bio-based materials for automotive and aviation industries.Moreover,solutions in sustainable marine transport have the potential to abate emissions from shipping and cruise operations for example low carbon marine solutions(e.g.,hybrid propulsion systems and data-driven routing optimization),sustainable port operations(e.g.,electric lifting machinery),and climate-neutral shipbuilding.In fashion and consumer products,green growth opportunities cover innovations in raw materials,such as sustainable textile fibers from biomaterials(e.g.,cellulose)and textile waste,as well as bio-based,circular consumer products and packaging.Other opportunities include AI-enabled systems that reduce overproduction and waste across the value chain,as well as platforms for reuse and sharing that increase the utilization rate of products and extend their useful lifetime.In energy and industrial processes the sectors serving all the industry value chains opportunities with the highest abatement potential enable the shift away from fossil fuels to renewable energy sources and raw materials.Globally,fossil fuels still account for roughly 80%of primary energy sources used for power and heat,according to the International Energy Agency(IEA).32 In energy,green growth opportunities for Finland include renewable fuels(e.g.,sustainable transport fuels,biogases,power-to-x),as well as fossil-free heat supply(e.g.,district heating through geothermal,nuclear,or circular heat generation).Other opportunities contribute to optimized energy generation(e.g.,combined heat and power)and consumption(e.g.,demand response systems)that minimize energy losses and enable a shift to distributed renewable energy generation(e.g.,advanced,connected smart grid systems).Within industrial processes,opportunities include,for example,the electrification of carbon-intensive processes,(e.g.,high-temperature process heating)and smart machinery designed for energy,process,and material efficiency.%of total global or value chain GHG emissions30 %55%Net-zero/low-carbon building materialsFOODTRAVELFASHIONCONSUMER PRODUCTSRaw materialsTransportationDistributionProductionUsageEnd-of-LifeENERGYAdvanced agri-&aquacultureAlternative food productsBio-based,circular consumer packages&long-lasting productsPlatforms for circularity&sharingData driven supply chain optimization(to reduce food waste)Waste to X modular refineriesCircular,low carbon battery production&recyclingCarbon neutral shipbuildingLow carbon marine solutionsSustainable port&airport solutionsLow carbon&circular materials for automotive&aviationNet-positive,bio-based&circular textile fibresZero-waste supply chain solutions(demand forecasting&distribution planning)Wooden constructionFossil-free&circular district heatingINDUSTRIAL PROCESSESGreen metalsAdvanced wood-based materialsSustainable chemicalsCarbon negat.paper&board w/BECCUTech.for process decarbonizationSustainable machineryDemand flexibility solutionsCircular gas productsMinimal-loss energy supplySustainabletransport fuelsGreen energy from Power-to-XNet-zero living HOUSINGAs a result of climate change and biodiversity loss,resources are becoming increasingly scarce circular economy and circular business models are significant opportunities for Finland-Minna Halme Professor of Sustainability Management,Aalto University School of Business Energy transition is very much a connectivity challenge when the whole energy system is moving from a one-directional pipe,large generating units,and passive consumers,to a much more decentralized system-Pekka Lundmark President and CEO,Nokia18FINLANDS MOONSHOTS FOR GREEN GROWTH19MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITIONThe Five Moonshots for Green Growth:Business as UnusualThe five Moonshots we have identified fulfill the Moonshot characteristics introduced at the beginning of this report:they lean on Finlands lasting competitive advantages and have the potential to help the country make significant leaps in terms of exports and carbon handprint.(See Exhibits 4-8).In addition,the Moonshots are not the province of one or two companies but of a larger stakeholder ecosystem,bringing businesses in the value chain together and leveraging academia and research institutions.Finally,the government can play a role as a catalyst,enabling the Moonshots to realize their full potential.BIO-BASED PRODUCTS&MATERIALSFinland as the global leader in developing&supplying bio-based solutions(such as circular textile fibers,long-lasting consumer products,advanced lightweight biomaterials)NET-POSITIVE LIVINGFinland as the leader in providing holistic net-positive living offering(e.g.,wooden construction,net-zero living solutions,and demand response systems)DECARBONIZATION TECHNOLOGY&SERVICESFinland as the frontrunner in providing smart technology solutions for high-emitting industrial processes(e.g.,electrification,lifecycle services,and energy system optimization)CIRCULAR BATTERIES&GREEN METALSFinland with a circular battery ecosystem,and Finland as the leading supplier of green specialty steel,and other metals in Europe(e.g.,for automotive&aviation)GREEN HYDROGEN-ENABLED SOLUTIONSFinland as a competitive country for producing green hydrogen-enabled solutions(e.g.,green steel,synthetic fuels,green ammonia-based fertilizers,and food proteins)20FINLANDS MOONSHOTS FOR GREEN GROWTH21MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION2035e2027e202013858%9-12B EUR6%Net-zero livingWooden constructionConventional exportsDemand response systems280HANDPRINT OF WOODEN CONSTRUCTIONof kg CO2/m3 of built spacedifference between carbon footprints of concrete frame and CLT frameSIGNIFICANT LEAP IN TERMS OF EXPORTS AND HANDPRINT Potential to abate emissions in Housing(35%of global GHG emissions)by shifting to wooden construction and net-zero living and energy solutions.900 billion projected global market by 2030 driven by regulatory push.Within the EU,Fit-for-55 forcing more stringent requirements on energy efficiency both for new and existing buildings.The total export potential for Finnish net-positive living products and services is from 9 billion to 12 billion by 2035,based on the countrys current exports and market expansion for green alternatives that are projected to grow at a 10%-20GR until 2035(vs.conventional by only 2%-5%).33 34 35 Moreover,the Moonshot has a significant handprint potential.For example,within wooden construction,a cross-laminated timber(CLT)frame has a carbon handprint of 280 kg CO2 per m3 compared to a concrete frame(carbon footprint of CLT 200 kg CO2 per m3 vs.480 kg CO2 per m3 for concrete frame)while storing 800-900 kg CO2 per m3).36 37LASTING COMPETITIVE ADVANTAGE Finland has a lasting right-to-win as one of worlds most forested(75%of land area)and digitally advanced country(#1 in EUs Digital Economy and Society Index).ECOSYSTEM PLAYERS The Moonshot brings together housing sector players(providers of wooden building materials,constructors,and energy solutions providers)to create a holistic net-positive living offering.HOW COULD GOVERNMENT CATALYZE1.Ensure world-leading know-how in net-positive architecture and wooden construction 2.Accelerate domestic demand through public-sector procurement,zoning,and urban planning3.Coordinate the net-zero living industry through a Center of Excellence to accelerate the exchange of ideas,drive innovation,and facilitate coordination among corporate,academic and research organizations NET-POSITIVE LIVINGMoonshot 1EXHIBIT 4|Finlands export potential,B EUR VISION Become a leader in aggregating net-positive living offering Wooden construction:Become a leading supplier of wooden building components(e.g.,glue laminated timber,laminated veneer lumber,and cross laminated timber)in the global construction market Net-zero living:Be a world-leading provider of net-zero solutions that minimize operational emissions in new and existing buildings through renewable energy solutions(e.g.,geothermal heating,wastewater heat recovery)and smart solutions and design for energy efficiency(e.g.,controls and sensors,insulation)Demand response systems:Develop demand response solutions and be a leading networks provider and operator(e.g.,generation and storage,ICT systems),enabling a shift to distributed renewable energy generation Net-positive buildings:Position as a leader in aggregating wooden construction,net-zero living and demand response systems into a holistic,net-positive living offering Wooden construction is a low hanging fruit for Finland with significant CO2 reduction,indoor air improvement and aesthetic potential,but change in the construction industry is painfully slow-Antti Mkinen Chair,Stora Enso(c)PLP Architecture,Smith&Wallwork Engineers,and Cambridge Centre for Natural Material Innovation23MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION22FINLANDS MOONSHOTS FOR GREEN GROWTH2027e20202035eBio-based chemicalsConsumer products&packagingBiomaterials for auto.&aviationNet-positive textile fibresConventional exports5%3$191410-13B EUR3.3HANDPRINT OF SUSTAINABLETEXTILE FIBERSof kg CO2/kg of textile fiberdifference between carbon footprints of cotton fibers and bio-based circular fiberSIGNIFICANT LEAP IN TERMS OF EXPORT AND HANDPRINT Potential to abate 5%-10%of global GHG emissions by shifting to bio-based materials.1 trillion projected global market by 2030 that needs sustainable alternative materials(800 billion commodity plastics,100 billion engineering plastics,100 billion textiles).By 2035,the overall export potential of bio-based and circular products and materials is between 10 billion and 13 billion.The green alternatives are projected to grow at a 6%-12GR up to 2035(vs.conventional only 1%-4%).33 34 35 As replacements for emission-intensive and non-degradable materials and products in many industries,these products will have a positive carbon handprint and environmental impact.For example,sustainable textile fibers have a carbon handprint of 3.3 kg CO2 per kg of textile fiber compared to conventional cotton fibers.38LASTING COMPETITIVE ADVANTAGE Finland has a lasting right-to-win as one of the worlds most forested(75%of land area)countries(assuming logging is done within set boundaries,to retain forests role as carbon sinks).ECOSYSTEM PLAYERS The Moonshot forms a foundation for bio-based and circular products and materials,bringing together players producing specialized bio-based products and materials for different industries.HOW COULD GOVERNMENT CATALYZE1.Accelerate transition to advanced bio-based materials and higher value-add products through e.g.,incentives,securing forest industrys competitiveness in the future2.Speed up innovation of high-tech solutions from wood and other bio-based materials through collaborative innovation programs among the ecosystem players(incl.corporate,academic,and public institutions)3.Position Finland as the global R&D hub for bio-based innovations,attracting foreign investment and leading capabilities,e.g.,through facilitated pilot and demonstration processes4.Revise higher-level education programs to future-proof talent,ensuring world-leading know-how and sufficient resources in bioeconomy.Attract international students and workforce to Finland BIO-BASED PRODUCTS AND MATERIALS Moonshot 2EXHIBIT 5|Finlands export potential,B EURVISION Finland as the global leader in developing and supplying advanced bio-based solutionsBio-based consumer products and packaging:Position as a main supplier of bio-based and circular consumer packaging materials and long-lasting products,enabling the phase-out of commodity plastics and increasing the use of circular materials in the global FMCG market Circular textile fibers:Become a leading supplier of bio-or waste-based,circular textile fibers to global fashion brands,later moving further in value chain to fiber processingAdvanced biomaterials for automotive and aviation:Be a leading supplier of advanced,lightweight biomaterials for global vehicle and airplane production,replacing engineering plastics in the marketsBio-based chemicals:Become a pioneering supplier of advanced bio-based alternatives for fossil-based chemicals e.g.,in global resins,cosmetics,and pharma marketsThe forest industry already has the most significant sustainable material flows,but we need to increasingly shift towards higher value-add products and materials,especially now with biodiversity loss and scarcity of raw materials-Antti Arasto,Vice President,VTT25MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION24FINLANDS MOONSHOTS FOR GREEN GROWTH30-32BEUR12252035e20202027e235%5%Conventional exportsDecarbonization servicesDecarbonization technology5236251.3HANDPRINT OF ELECTRIFIED CRACKING&POLYMERIZATION TECHNOLOGYof kg CO2/kg of plasticdifference between carbon footprints of conventional plastic production and production using electrified cracking&polymerization techSIGNIFICANT LEAP IN TERMS OF EXPORTS AND HANDPRINT Industrials account for 18%of global GHG emissions,a majority of which are process related.With a 2 trillion industrial machinery market that needs to decarbonize,the export potential of decarbonization technology and services is between 30 billion and 32 billion by 2035 based on Finlands current exports and projected market growth for the green solutions.The green alternatives will grow at a projected 8%-15GR until 2035(vs.conventional only 3%-6%).33 34 35Both decarbonization technology and services have a significant carbon handprint.As an example,electrified cracking and polymerization technology in plastic production has an estimated handprint of 1.3 kg CO2 per kg of plastic,reducing the emissions from plastic production by more than 30%.39LASTING COMPETITIVE ADVANTAGE Finland has an established industrial machinery sector that represents a significant share of its exports(30%of total exports)and leans on strong engineering,process efficiency,and digitalization capabilities.ECOSYSTEM PLAYERS Brings together established machinery players and emerging players with pioneering green technology solutions,taking the existing Finnish machinery industry to the next level through decarbonization.HOW COULD GOVERNMENT CATALYZE1.Provide coordinated support(R&D and investment funding)for first movers in scaling emerging technologies and capabilities e.g,around process machinery electrification,sustainable process heat,smart lifecycle solutions,and energy optimization2.Accelerate domestic demand for decarbonization technologies and services through regulation and subsidies,enabling Finnish companies to pilot technologies and services domestically3.Mobilize technology partnerships across industrial sectors to enable new holistic decarbonization-as-a-service business model DECARBONIZATION TECHNOLOGY AND SERVICES Moonshot 3EXHIBIT 6|Finlands export potential,B EURVISION Finland as the forerunner in providing smart technology solutions for high-emitting industrial processes,such as electrification and decarbonization-as-a-serviceDecarbonization technology:Become the leading provider of decarbonization technology,such as efficient,smart motors and drives that improve energy efficiency,and smart electrification technology that replaces fossil fuels and reduces CO2 emissions in heat-intensive manufacturing(e.g.,steel)Decarbonization solutions and services:Be a forerunner in decarbonization-as-a-service,such as energy system optimization(e.g.,energy management and demand response systems),smart lifecycle solutions(to decarbonize existing process operations),or designing sustainable industrial processes and plant retrofitting(e.g.,oil refineries to produce renewable fuels)Finland already has a strong multibillion-euro industrial machinery sector but there is still significant growth potential the green transition is a natural growth opportunity for Finland-Jukka Leskel Managing Director,Finnish Energy(c)Coolbrook,RotoDynamic Technology,202227MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION26FINLANDS MOONSHOTS FOR GREEN GROWTHConventional exportsCircular,green batteriesGreen steel2035e20202027e27-29BEUR6)16938,000HANDPRINT OF ELECTRIC VEHICLESof kg CO2/cardifference between carbon footprints of gasoline car and electric vehicleSIGNIFICANT LEAP IN TERMS OF EXPORTS AND HANDPRINT The iron and steel industry alone cause 7%of global GHG emissions.In travel and transport,electrification is the most significant lever to reduce emissions as the usage phase is responsible for 70%-90%of emissions.For EVs,existing battery manufacturing accounts for up to 50%of the footprint.Global steel market is 1 trillion,with growing demand for decarbonization driven by carbon border taxes and emission trading.The EU battery market is estimated to reach 25 billion by 2030.The total export potential for green steel and green batteries is estimated to be between 27 billion and 29 billion by 2035.The green alternatives are estimated to grow at a 15%-20GR until 2035(vs.conventional only 3%-4%).33 34 35In the steel industry,green steel produced using an electric arc furnace(EAF)and green hydrogen-based direct reduced iron(DRI)can reduce CO2 emissions from steel production by up to 100%,representing a carbon handprint of 1.9 kg CO2 per kg of steel produced.39 Similarly,a medium-sized EV,powered by a sustainable battery produced in the Nordics,has an estimated handprint of 38,000 kg CO2 over the cars lifecycle compared to a conventional gasoline car.40LASTING COMPETITIVE ADVANTAGE Finland has comprehensive mineral reserves,access to increasing renewable electricity,and bio-based raw materials(e.g.,lignin)to leverage in alternative battery materials and technology.ECOSYSTEM PLAYERS The Moonshot brings together players to enable green metal and circular battery production(leveraging green hydrogen),building on the existing Responsible Mining network.HOW COULD GOVERNMENT CATALYZE1.Through permits and regulation,enhance importance of sustainable mineral extraction and processing of mineral reserves as a building block for green transition2.Evaluate capability gaps to a green,end-to-end battery ecosystem,and coordinate its development through a Center of Excellence,focusing on circularity and capability development beyond raw materials(e.g.,processing of cathode active materials and bio-based anode materials)3.Support academic research and first movers in scaling emerging electrification technology in metals industry as well as biochar and hydrogen utilization.Promote circularity as an integral part of the emerging battery ecosystem CIRCULAR BATTERIES AND GREEN METALS Moonshot 4EXHIBIT 7|Finlands export potential,B EURVISION Finland with a circular battery ecosystem,and Finland as the leading supplier of green specialty steel,and other metals in Europe(e.g.,for automotive and aviation)Nordic end-to-end sustainable and circular battery ecosystem:Form a leading end-to-end sustainable battery ecosystem with sustainable extraction,green manufacturing,and circularity together with Nordic peers,such as SwedenAlternative battery technologies:Position as a leader in alternative battery technologies,e.g.,by leveraging bio-based lignin-materials in lithium-ion batteries to replace graphitic carbon Green steel for consumer products:Become the leading European producer of green steel for consumer products(e.g.,cooking products),helping brand owners broaden their sustainable offeringGreen specialty steel for automotive:Become a leading European producer of green specialty steel for demanding end-use applications,helping e.g.,automotive OEMs meet their net zero targetsFinland is potentially the only European country with the opportunity to establish a sustainable circular battery ecosystem for European Markets-Markku Kivist Head of Industry,Cleantech,Business Finland29MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION28FINLANDS MOONSHOTS FOR GREEN GROWTH54Green fertilizers;Sustainable marine&aviation fuelsConventional exportsAlternative proteins10-12BEUR2035e20202027e1485135HANDPRINT OF ALTERNATIVEPROTEINSof kg CO2e/kg of proteindifference between carbon footprints animal protein and alternative proteinSIGNIFICANT LEAP IN TERMS OF EXPORTS AND HANDPRINT Green hydrogen is key in decarbonizing hard-to-abate industries that contribute to the three most emitting value chains Housing,Food and Travel which account for 80%of global GHG emissions.Globally,green hydrogen and its derivatives will be an estimated 1 trillion market by 2050.The EU has set a target to produce 10 Mt of green hydrogen within the region by 2030,of which Finland has the conditions to produce 10%.This would translate to a 50 billion investment in wind power and green hydrogen within this decade.41 The total export potential for green fertilizers,sustainable marine,and aviation fuels,as well as for alternative proteins is between 10 billion and 12 billion.The green alternatives will grow at a projected 16%-20GR up to 2035(vs.conventional only 3%-7%).33 34 35The carbon handprint potential is substantial:for example,green hydrogen-based alternative proteins alone have an estimated carbon handprint of 270 kg CO2e per kg of protein produced compared to beef.42 43LASTING COMPETITIVE ADVANTAGE Finland is uniquely positioned with access to growing renewable electricity,biogenic CO2,freshwater,and strong engineering capabilities.ECOSYSTEM PLAYERS The Moonshot forms a full green hydrogen economy comprising production,infrastructure,conversion,and utilization,contributing to decarbonization across industries.HOW COULD GOVERNMENT CATALYZE1.Prepare an ambitious and comprehensive industrial strategy on green hydrogen and ensure its execution,building on the National Climate and Energy Strategy2.Eliminate unnecessary regulatory barriers,accelerate permits and zoning processes,and catalyze investments to reach sufficient renewable electricity generation(wind power)3.Provide coordinated support(R&D and investment funding)for first movers in scaling emerging technologies around industrial electrolysis,BECCU,and green hydrogen transportation and storage4.Stimulate demand by broadening national“blending mandates”and implementing national targets for e.g.,low-carbon fertilizers and green shipping corridors domestically GREEN HYDROGEN-ENABLED SOLUTIONS Moonshot 5EXHIBIT 8|Finlands export potential,B EURVISION Finland as a competitive country for producing green hydrogen-enabled solutions,such as green steel,synthetic fuels,green ammonia-based fertilizers,and food proteinsGreen steel for consumer and industrial applications:Finland producing green steel for consumer products,such as kitchen ware,and green specialty steel for demanding end-use applications,such as automotiveSustainable marine and aviation fuels for the green Nordic corridors:Finland producing green ammonia-based fuels for marine and aviation,creating a lighthouse green corridor in the Nordics Green fertilizers:Finland producing green ammonia-based fertilizers for the EU market,utilizing green hydrogen and bio-based ingredients Alternative proteins:Finland supporting European food resilience by producing and supplying low carbon green hydrogen-based proteins to the EU marketFinland has a geographical advantage for green hydrogen and its derivatives production through affordable wind power,large amounts of biogenic carbon dioxide,and rich water resources-Herkko Plit,CEO,P2X Solutions31MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION30FINLANDS MOONSHOTS FOR GREEN GROWTHGOVERNMENT HAS ALREADY TRIGGERED GREEN EXPORTSThe Finnish government and cities already have experience in successfully applying these levers to catalyze green exports.For example,in the 1970s,the city of Helsinki decided to publicly procure development of the metro line,which led ABB,Valmet and other industrial technology companies to co-develop the trains.44 Through R&D investments,ABB became a global leader in driver technology,and continues to export drive technology to this date.Furthermore,the national biofuel blending obligations first introduced in 2008 and the bioeconomy strategy launched in 2014 catalyzed domestic demand for biofuels.Finnish players,such as Neste,started to invest early on in biofuel R&D,which gave them a first mover advantage and enabled them to become the worlds leading renewable diesel and jet fuel provider.45 46 More recently,government provided financial grants for growing the national EV charging infrastructure,enabling players,such as Kempower and Virta,to scale and successfully expand beyond the domestic market.47Each Moonshot represents a major export and carbon handprint opportunity for Finland.Besides generating new sources of growth for Finland,these five Moonshots would ensure that Finlands existing export industries future-proof themselves for the green transition.However,it is not set in stone that these Moonshots will realize their full potential Finlands ultimate success in the green transition depends on actions taken now.There are several levers to unlock the full potential:accelerating green investments,catalyzing domestic green demand,ensuring prerequisites for green growth,and positioning Finland as the forerunner in green solutions.Finland has already used several of these levers in the past.(See Sidebar“Government has Already Triggered Green Exports”).Accelerating green investments In order to attract green investments,predictable and profitable operating environment is needed,e.g.,in terms of taxation(such as electricity tax).Moreover,as recommended by the OECD,Finlands government could more actively remove bottlenecks for foreign direct investments by streamlining inefficient and burdensome policies and reducing bureaucracy.5 Permit processes could be streamlined in construction and operational areas,such as wind power development.Finally,private-sector funding is often tied to short-term projects,and investors expect rapid returns.Yet government can support academia and first movers in scaling emerging technologies and bringing them to the point of commercialization by sharing the risk in pilot and demonstration stages.Fertile areas for R&D funding include,e.g.,industry electrification,energy use optimization,and circularity especially in the emerging battery value chain.Catalyzing domestic green demand To gain first-mover advantage and achieve economies of scale,sufficient demand for new offering is required.Often,companies scale abroad after first having conquered the home market.In the green transition,government can accelerate domestic demand through procurement policies,e.g.,government can increase demand for zero-emission buildings and wooden construction by renovating existing public buildings and opting for wooden building materials in new public construction(e.g.,schools).Government can also encourage private-sector demand and investments through incentives and policies.For example,zoning rules can promote wooden construction and net-zero living.With blending mandates,government can catalyze the development and adoption of new sustainable fuels.Furthermore,subsidies can enable Finnish solution providers to pilot decarbonization technology and services domestically before scaling abroad.Ensuring prerequisites for growth Any one of the five Moonshots will require expertise and R&D to successfully take off.For example,wooden construction requires architects specialized in building with wooden materials,such as cross-laminated timber,while bio-based products and materials will need increasing know-how and resources in bioeconomy across industrial use cases.Consequently,revised or new higher-level education pathways and degrees are required to address the emerging expertise needs driven by the green transition.In addition to educating its own workforce,Finland should attract international students and workforce.Acknowledging that the full potential of the Moonshots will require national coordination and strategic planning across ministries and public institutions,the Finnish government can build on its existing National Climate and Energy Strategy.For example,it can provide planning support for green hydrogen efforts that need access to renewable energy and fresh water.Finally,developing competitive green offerings requires co-development and collaboration among different value chain players.Ideally,universities and research institutions also contribute to the broader ecosystem.Centers of Excellence can significantly accelerate the exchange of ideas,drive innovation,and facilitate coordination among ecosystem players.These Centers can also support in attracting investment,talent,and partners.By placing the Centers outside the capital region,close to the relevant natural resources,Finland can create jobs and drive attractiveness of less populated areas in Finland.The Acceleration Roadmap:What Government Can Do There will be significant amount of climate-aligned investments globally and it is important to attract some of these investments to Finland.Also,Finland needs to shift its R&D funding increasingly to more disruptive green technologies incremental improvements in productivity will not be enough-Juha Majanen Permanent State Secretary,Ministry of Finance33MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION32FINLANDS MOONSHOTS FOR GREEN GROWTHEXHIBIT 9NET-POSITIVE LIVINGNet-zero livingGreen hydrogen production,conversion,storage&distributionRenewable energy generationRenewables integrationLignin-based solutionsCellulose-based materialsWaste-based materialsEnergy efficient material handlingSustainable extraction&processingSustainable process heat systemsEnergy efficient material handlingDecarbonization as-a-serviceBio-based,circular consumer products&packagingNet-positive textile fibresCircular,low carbon batteriesNet-zero materials for automotive&aviationAdvanced agricultureAlternative food productsDemand response systemsWooden constructionRENEWABLE ENERGY&GREEN HYDROGENINNOVATIVE BIO-BASED MATERIALSDECARBONIZATION TECHNOLOGY&SERVICESSUSTAINABLE FOOD-TECHNET-ZERO TRAVEL&TRANSPORTSUSTAINABLE FASHION&CONSUMER PRODUCTSWELCOME TO GREEN TECH FINLAND THE WORLDS LEADING EVENT FOR GREEN TECH The Nordics have an opportunity to create a Green Silicon Valley.We have a strong reputation,but there is still unclarity on how to realize this-Minna Aila EVP,Sustainability&Corporate Affairs,Neste Accelerating the green transition is integral for the Finnish economy,and innovation on its own is not enough enabling scaling,ensuring talent and resources,and forming ecosystems is needed.”-Pekka Ala-Pietil CLC Board,Chair,Huhtamki and Sanoma We should have a Green Tech Slush in Finland an annual green tech expo to match tech providers,investors and companies that are looking for green solutions-Antti Herlin-Chair,KONE Chair,Tiina and Antti Herlin FoundationPositioning Finland as the forerunner in green solutions Finland can generate and channel green demand by positioning itself as a leader in green technologies.First,an easy-to-navigate online platform could showcase Finlands comprehensive offering in green tech and decarbonization solutions in one place(similar to the one Denmark has on its State of Green website).By structuring offering according to key sectors,global companies could learn about the latest green technology and solutions applicable to their businesses,and Finlands numerous green tech companies would get an effective go-to-market platform.Second,Finland could organize an annual,world-leading Green Tech event in Finland(such as Slush)to gather green tech companies,foreign investors,and global companies looking for green solutions together.(See Exhibit 9).Finally,a green growth PR strategy promoting Finlands spearhead offering and key milestones such as the first circular battery or the worlds first net-positive high-rise building would earn valuable presence in international media and attract further interest toward Finlands green offerings.(C)Samuli Pentti,Slush 201835MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION34FINLANDS MOONSHOTS FOR GREEN GROWTHConclusion From these green growth opportunities,five areas emerge as the Moonshots for Finland,the must-win-battles that Finland cannot afford to lose.These Moonshots lean on Finlands lasting competitive advantages such as forests,mineral reserves,and growing renewable energy capacity and ensure that established export sectors future-proof themselves.If fully realized,these Moonshots would lift Finlands exports,and thereby its GDP growth,to a permanently higher level.In total,the Moonshots have an export potential of 85 billion to 100 billion by 2035.Finlands ultimate success in the green transition depends on actions taken now.There are several levers to catalyze green growth and unlock the full potential of the Moonshots,including removing bottlenecks for green investments,securing the required enablers for growth,accelerating domestic demand,and ensuring that existing subsidies and funding are aligned with green growth.In addition,Finland can position itself as the forerunner in green tech and channel green demand to Finland through collective go-to-market efforts.Through the Moonshots,Finland can simultaneously drive growth and thereby well-being,reach its own ambitious climate targets,and become greater than its size in solving the climate crisis.The green transition provides significant new growth opportunities for Finland,whose economy needs healthy GDP growth for the coming decades to secure its welfare and balance fiscal deficit.Finland is particularly well-positioned to tap into green growth given its natural resources,export sectors that are focused on industrial processes and technology,and nationwide green ambition.Finland already has a vast number of green solutions and spearhead offerings to support decarbonization of the worlds highest emitting value chains,including housing,food,travel,fashion,and consumer products.36FINLANDS MOONSHOTS FOR GREEN GROWTH37MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITIONContributorsELINA IBOUNIG is a Partner in BCGs Helsinki office and part of the Climate&Sustainability leadership team in the Nordics.She is BCGs global expert in holistic sustainability transformations,focusing on sustainability strategies that build competitive advantage and consider the planetary boundaries.You may contact her at Ibounig.E.ANTTI BELT is a Managing Director and Partner in BCGs Helsinki office and part of the Climate&Sustainability leadership team in the Nordics.He leads the Energy practice in Finland and acts as a global expert in digital trading.You may contact him at Belt.A.WERA WILKKO is a Consultant in BCGs Helsinki office and a core member of Climate&Sustainability and Energy practices in the Nordics.You may contact her at Wilkko.W.TUULI KASKINEN is the CEO of CLC.She has developed 1.5C strategies with corporations and has been actively shaping climate policies for 20 years.Prior to CLC Kaskinen worked at think tank Demos Helsinki in several positions,including chief executive.You may contact her at Tuuli.Kaskinenclc.fi.OLLI KANGAS is an Associate in BCGs Helsinki office and a core member of Climate&Sustainability practice in the Nordics.You may contact him at Kangas.O.JUHA TURKKI is a Development Director at CLC.He has a long background on energy-and climate policy issues in public and private sectors.You may contact him at Juha.Turkkiclc.fi.LAURI SAARELA is a Managing Director and Partner in BCGs Helsinki office and part of the Nordic Climate&Sustainability leadership team.He leads the materials and process industries work in the Nordics,focusing on corporate finance&strategy,digital and transformations topics.You may contact him at Saarela.L.SANNI INOVAARA is a Project Leader in BCGs Helsinki office and part of the Nordic Climate&Sustainability team.Shes also a core member of the Social Impact practice.You may contact her at Inovaara.S.BOSTON CONSULTING GROUPCLIMATE LEADERSHIP COALITION38FINLANDS MOONSHOTS FOR GREEN GROWTH39MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITIONAcknowledgmentsINDUSTRY,RESEARCH AND NON-PROFIT REPRESENTATIVESAalto University Business Finland Confederation of Finnish Industries(EK)Finnish Energy Finnish Industry Investment(Tesi)Finnish Climate FundHydrogen Cluster FinlandTechnology Industries FinlandThe Finnish Innovation Fund SitraThe Chemical Industry Federation of FinlandTiina and Antti Herlin FoundationVTT AFRYCoolbrookFiskars GroupHelen VenturesHuhtamkiKeskoKONE CorporationMets SpringNesteNokiaNordic Foodtech VCP2X SolutionsSanomaSEBStora EnsoUPMWrtsilMINISTRY AND GOVERNMENT REPRESENTATIVESMinistry of Economic Affairs and Employment Ministry of EnvironmentMinistry of FinanceFinns PartyNational Coalition PartySocial Democratic Party of FinlandThe authors would like to extend a thank you to the CLC Board of 2022 and to the CLC Advisory Board for their support in the making of this report.In addition,they would like to especially thank CLC founding CEO,Jouni Keronen for creating a solid ground for their work.They thank Matti Heikonen,Guye Sancho,and Jessica Collado from BCG Design Studios,Francesca Bressan from the Web team and the Editorial team for their valuable contributions in design and production of this report.Furthermore,they want to thank Debbie Lagus and Julia Viitasaari for their extensive work in marketing and communications for the publication.In addition,they want to acknowledge Esben Hegnsholt,Peter Jameson,Maurice Jansen,Trine de Nully,Joonas Pivrinta and Henrik Suikkanen for their contributions as BCGs Climate&Sustainability topic experts.Boston Consulting Group 2023.All rights reserved.For information or permission to reprint,please contact BCG at.To find the latest BCG content and register to receive e-alerts on this topic or others,please visit.Follow Boston Consulting Group on Facebook and Twitter.41MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION40FINLANDS MOONSHOTS FOR GREEN GROWTH1.Boston Consulting Group and Global Financial Markets Association,Climate Finance Markets and the Real Economy,December 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2021,https:/paaomasijoittajat.fi/en/ie_2020_en/(link as of 19/01/2023).19.WIPO,World Intellectual Property Indicators 2022,https:/www.wipo.int/edocs/pubdocs/en/wipo-pub-941-2022-en-world-intellectual-property-indicators-2022.pdf(link as of 03/02/2023).20.Metso Outotec,Metso Outotec Flash Smelting Technology,https:/as of 07/02/2023).21.Finnish Government,New Climate Change Act into force in July,June 2022,https:/valtioneuvosto.fi/en/-/1410903/new-climate-change-act-into-force-in-july(link as of 23/01/2023).22.Science Based Targets,Science-based Targets Initiative Annual Progress Report 2021,June 2022,https:/sciencebasedtargets.org/resources/files/SBTiProgressReport2021.pdf(link as of 03/02/2023).23.Sitra,Survey:Almost 90 per cent of Finnish people consider nature important to themselves,December 2021,https:/www.sitra.fi/en/news/survey-almost-90-per-cent-of-finnish-people-consider-nature-important-to-themselves-there-is-a-wide-range-of-relationships-with-nature-no-single-right-one/(link 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the European Parliament and of the Council amending Directive 2003/87/EC establishing a system for greenhouse gas emissions allowance trading withing the Union,Decision(EU)2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation(EU)2015/757,July 2021,https:/eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021PC0551(link as of 16/01/2023).28.European Commission,Proposal for a regulation of the European Parliament and of the Council on ensuring a level playing field for sustainable air transport,July 2021,https:/ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12303-Sustainable-aviation-fuels-ReFuelEU-Aviation_en(link as of 16/01/2023).29.European Commission,Proposal for a regulation of the European Parliament and of the Council for establishing a framework for setting ecodesign requirements for sustainable products and repealing Directive 2009/125/EC,March 2022,https:/environment.ec.europa.eu/document/download/11246a52-4be4-4266-95b1-a15dbf145f51_en?filename=COM_2022_142_1_EN_ACT_part1_v6.pdf(link as of 16/01/2023).30.European Commission,Directive(EU)2019/904 of the European Parliament and of the Council on the reduction of the impact of certain plastic products on the environment,June 2019,https:/eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32019L0904(link as of 16/01/2023).31.European Commission,Proposal for a regulation of the European Parliament and of the Council on shipments of waste and amending Regulations(EU)No 1257/2013 and(EU)No 2020/1056,https:/eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021PC0709&qid=1642757230360(link as of 16/01/2023).32.IEA,World Energy Outlook 2022,November 2022,https:/www.iea.org/reports/world-energy-outlook-2022(link as of 23/01/2023).33.Statistics Finland,International trade in services by region and service 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2022,https:/www.kauppalehti.fi/uutiset/strombergin-rettelointiosaston-insinoorit-tekivat-1970-luvulla-mahdottomana-pidetyn-lapimurron-joka-mullisti-junien-ja-valtamerilaivojen-moottorit/b9da3117-e098-4b64-9848-dba079ad44c9(link as of 02/02/2023).45.Verohallinto,Biopolttoaineiden jakeluvelvoite,November 2020,https:/www.edilex.fi/verohallinnon_ohjeet/2020_1116.html(link as of 03/02/2023).46.Biotalous,Suomen biotalousstrategia,May 2014,https:/biotalous.fi/wp-content/uploads/2014/07/Julkaisu_Biotalous-web_080514.pdf(link as of 03/02/2023).47.Energiavirasto,Tieliikenteen pikalatausverkosto rakentuu valtion tuella,May 2022,https:/energiavirasto.fi/-/tieliikenteen-pikalatausverkosto-rakentuu-valtion-tuella(link as of 03/02/2023).42FINLANDS MOONSHOTS FOR GREEN GROWTH43MAXIMIZING FINLANDS GROWTH AND HANDPRINT IN THE GREEN TRANSITION
1人浏览过 2023-02-15 23页 5斯特恩
Ipsos：2023年用户体验未来展望报告（英文版）（26页）.pdf
Ipsos UX Capability Deck Ipsos|Ipsos UX Global Capabilities Overview 1. 什么是 UX，为什么它与您的业务相关？ 2. 如何打造一流的用户体验？ 3. 我们的用户体验流程 4. 为什么选择 Ipsos UX？2 Ipsos|Ipsos UX - Global Capabilities Ipsos|Ipsos UX - Global Capabilities3 什么是 UX，为什么它与您的业务相关？1 Ipsos|Ipsos UX - Ipsos Global Capabilities |Ipsos UX -Global Capabilities Ipsos|Ipsos UX-Global Capabilities4 基于证据的方法来开发超出用户期望的产品和服务.这意味着我们的复杂性容忍度非常低。我们使用的一切都必须简单易行，否则就会被拒绝。变革时代人类技能技术5 Ipsos|Ipsos UX-Global Capabilities我们关注的示例接触点6WebsiteAppUnboxingServiceDeviceVehicleVoice InterfaceConsumer Electronics/Durables Ipsos|Ipsos UX-Global Capabilities Ipsos|Ipsos UX-Global Capabilities7，一次仅使用了 25%。由于糟糕的用户体验，这是对时间和金钱的巨大浪费。糟糕的在线体验 2of 用户表示糟糕的移动体验使他们不太可能与公司互动 3of UX 投资导致 100 美元的回报 4 11 $2-Ipsos：n=1050 个成年人在英国各地的样本复制（2021 年 5 月） , 3 Think with Google Research 2012.4-2016 Forrester 报告，标题为“打造更好的用户体验的六个步骤”%Ipsos|Ipsos UX – Global Capabilities Ipsos|Ipsos UX – Global Capabilities9 如何打造行业领先的用户？体验？2 Ipsos|Ipsos UX Global Capabilities Ipsos|Ipsos UX Global Capabilities10 我们需要快速、简单和直观的体验。但简化事情并不像看起来那么容易。必须做出艰难的设计决策。必须仔细考虑每个交互。 UX 就是在幕后进行艰苦的工作，因此用户在与您的业务交互时不必费力工作。伟大的经历不是偶然发生的，而我们为他们解决的问题。我们使用的设计流程经过数十年的改进，借鉴了许多学科，包括工业设计、应用心理学、人机交互和人体工程学。卓越的用户体验需要不懈地关注用户 Ipsos| Ipsos UX-Global Capabilities12行业领导者首先关注用户3.technology2.problem1.user3.technology2.problem1.user很容易对技术感到兴奋，这也是许多公司首先关注的。作为主持人来解决他们的问题。 Ipsos|Ipsos UX-Global Capabilities13 行业领导者将 UX 研究作为其产品设计过程中的关键要素。 o 他们运营一种服务模式，团队可以根据需要访问研究结果。我们目前与世界上最先进的公司合作，以确保他们推出的产品和服务将用户置于设计过程的核心。我们提供基于 UX 模型的服务 Ipsos|Ipsos UX-Global Capabilities Ipsos|Ipsos UX-Global Capabilities14 我们的 UX Process3 Ipsos|Ipsos UX-Global Capabilities Ipsos|Ipsos UX-Global CapabilitiesDesignExperiencesImplementExperiencesExploreExperiences15 Ipsos 以用户为中心的设计方法我们的方法始于了解用户和使用环境 目前的目标用户是谁？使用上下文是什么？现在的用户体验如何？有哪些差距和机遇？理想的结果是什么？一旦我们知道用户是谁，我们就会开发和迭代我们的设计。我们如何解决这个问题？我们如何从其他经验中学习？我们应该进一步开发哪些解决方案？继续进行的最佳选择是什么？当我们对我们的方法充满信心时，我们就会启动、监控和改进。解决方案是否简单且令人满意？设计是否符合业务目标？我们的解决方案是否提供改进？我们如何定制和改进体验？体验探索 Ipsos|Ipsos UX-Global Capabilities 体验设计 体验实施 体验探索16 Ipsos 以用户为中心的设计方法 体验探索 聆听和观察：专家评论/启发式 民族志 体验期刊 情境访谈 社区需求能力：基准测试 发现映射 用户角色 战略研讨会 可访问性构思和设计 信息架构 服务设计 教学设计线框图和原型设计用户界面设计共创研讨会迭代评估原型测试（实验室、现场、远程）设计验证验证/启动前测试质量保证分析和监控指南培训UI 设计材料数字分析A/B 测试Ipsos|Ipsos UX-UX-I 功能 Ipsos|Ipsos UX- UX-I 功能全球特性17 为什么选择 Ipsos UX？4 Ipsos|Ipsos UX 全球特性 Ipsos|Ipsos UX 全球特性Ipsos UX 可以通过将用户放在首位来帮助您转变用户体验。了解新市场，我们就能了解他们的目标、动机、需求和愿望。确定您的痛点，发现您可以帮助解决的问题。通过发现实现理想体验的障碍和障碍，我们可以帮助您找到取悦用户的新方法。并测试真正有效的想法 通过与用户一起测试并根据他们的反馈进行迭代开发，我们可以帮助您自信地将创新的移动银行体验推向市场。 en el futuro19Autoservicio digitalAumentada y realidad virtualEconomía de bajo contactoConfianza, privacidad y éticaInclusividad y vulnerabilidadUnboxingVoice UserInterfacesHiperpersonalización CapabilitiesUnderstanding consumers is in our DNA22BehaviouralScienceHuman Factors&HMI DesignSemioticsService DesignCustomerExperienceTrends&FuturesInnovationEthnography Ipsos|Ipsos UX-Global CapabilitiesALBANIA ALGERIA ARGENTINA AUSTRALIA BAHRAIN BELGIUM BOLIVIA BOSNIA BRAZIL BULGARIA CANADA CHILE CHINA COLOMBIA COSTA RICA CROATIA CYPRUS捷克共和国 丹麦 多米尼加共和国 厄瓜多尔 埃及 法国 德国 加纳 Grieceguatemala 香港 匈牙利 Indonesius 伊拉克 爱尔兰 意大利象牙海岸 约旦 肯尼亚科索沃 科威特 黎巴嫩 马其顿马来 montenongra -Philitan -Pantaga -Philitan -Pantaga -Philitan -Norwayo -Philitan西班牙 瑞典 瑞士 泰国 突尼斯 土耳其 乌干达 英国 乌克兰 美国 委内瑞拉 越南 赞比亚 益普索设有办事处的国家 89 个我们运营的国家 100 用户体验研究通过我们的益普索用户体验合作伙伴团队和专家网络覆盖 100 多个国家 UXWe 提供独一无二的全球产品23 24 益普索|Facebook DHH 和 PHY用户要求面对面测试的参与者研究人员演讲活动自定义 UX 研究实验室世界办公室用户研究书籍全球研究接触点115,0004,500275150140251021我们的 UX 团队拥有创造我们生成的出色研究体验所需的专业知识。我们的团队充分了解情况，并将确保我们为我们的用户体验工作带来前沿的见解。查看最新的 UX 思想领导力。我们的全球思想领导力将我们引向 RYana Beranek 全球用户体验主管，Ipsos UXImogen Brickman 全球用户体验运营主管，Ipsos UXImogen.B
5 人看过 2023-02-15 26页 5斯特恩
HARD美股IPO招股说明书（214页）.pdf
2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm1/214F-1 1 ff12023_hardentech.htm REGISTRATION STATEMENTAs filed with the Securities and Exchange Commission on February 14,2023Registration No.333-_UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549_FORM F-1REGISTRATION STATEMENTUNDER THE SECURITIES ACT OF 1933_Harden Technologies Inc.(Exact Name of Registrant as Specified in its Charter)_British Virgin Islands 3559 Not applicable(State or Other Jurisdiction ofIncorporation or Organization)(Primary Standard IndustrialClassification Code Number)(I.R.S.Employer Identification Number)_Building 8,No.6 Jingye RoadTorch Development ZoneZhongshan CityPR China 52840086-760-89935422 Vcorp Agent Services,Inc.25 Robert Pitt Dr.,Suite 204Monsey,New York 10952(888)528-2677(Address,including zip code,andtelephone number,including area code,of principalexecutive offices)(Name,address,including zip code,andtelephone number,including area code,of agent forservice)_Copies to:Bradley A.Haneberg,Esq.Haneberg Hurlbert PLC1111 East Main StreetSuite 2010Richmond,Virginia 23220Telephone:804-554-4941 Fang Liu,Esq.VC Law LLP1945 Old Gallows RoadSuite 630Vienna,Virginia 22182Telephone:(301)760-7393_Approximate date of commencement of proposed sale to the public:As soonas practicable after this Registration Statement becomes effective.If any of the securities being registered on this Form are to be offered on adelayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933,check the following box.If this Form is filed to register additional securities for an offering pursuantto Rule 462(b)under the Securities Act,check the following box and list theSecurities Act registration statement number of the earlier effective registrationstatement for the same offering.If this Form is a post-effective amendment filed pursuant to Rule 462(c)underthe Securities Act,check the following box and list the Securities Act registrationstatement number of the earlier effective registration statement for the sameoffering.If this Form is a post-effective amendment filed pursuant to Rule 462(d)underthe Securities Act,check the following box and list the Securities Act registrationstatement number of the earlier effective registration statement for the sameoffering.Indicate by check mark whether the registrant is an emerging growth company asdefined in Rule 405 of the Securities Act of 1933.Emerging growth company If an emerging growth company that prepares its financial statements inaccordance with U.S.GAAP,indicate by check mark if the registrant has elected notto use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 7(a)(2)(B)of the Securities Act._ The term“new or revised financial accounting standard”refers to any update issued by theFinancial Accounting Standards Board to its Accounting Standards Codification after April 5,2012.The registrant hereby amends this Registration Statement on such dateor dates as may be necessary to delay its effective date until the2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm2/214registrant shall file a further amendment which specifically states thatthis Registration Statement shall thereafter become effective in accordancewith Section 8(a)of the Securities Act of 1933,as amended,or until theRegistration Statement shall become effective on such date as theSecurities and Exchange Commission,acting pursuant to such Section 8(a),may determine.2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm3/214Table of ContentsThe information in this prospectus is not complete and may be changed.Wemay not sell these securities until the registration statement filed withthe Securities and Exchange Commission is effective.This prospectus is notan offer to sell these securities and is not soliciting an offer to buythese securities in any state or other jurisdiction where the offer or saleis not permitted.PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION,DATED FEBRUARY 14,20232,500,000 Ordinary SharesHarden Technologies Inc.This is the initial public offering of Harden Technologies Inc.We expect theinitial public offering price will be between$5.00 to$7.00 per ordinary share.Nopublic market currently exists for our ordinary shares.We have applied for approvalof the listing our ordinary shares on the Nasdaq Capital Market and have reserved thesymbol“HARD”for such listing for the ordinary shares we are offering.We believethat upon the completion of the offering contemplated by this prospectus,we willmeet the standards for listing on the Nasdaq Capital Market.We cannot guarantee thatwe will be successful in listing our securities on Nasdaq;however,we will notcomplete this offering unless we are so listed.We are an“emerging growth company,”as that term is used in theJumpstart Our Business Startup Act of 2012(the“JOBS Act”),and will besubject to reduced public company reporting requirements.See“ProspectusSummary Implications of Being an Emerging Growth Company”and“RiskFactors We are an emerging growth company,and we cannot be certainif choosing to elect the reduced reporting requirements applicable toemerging growth companies will make our ordinary shares less attractive toinvestors.”Investing in our ordinary shares involves significant risks.See“RiskFactors”beginning on page 21 of this prospectus for a discussion ofinformation that should be considered before making a decision to purchaseour ordinary shares.We are a holding company incorporated in the British Virgin Islands.As a holdingcompany with no material operations of our own,we conduct a substantial majority ofour operations through our subsidiaries in the PRC.The ordinary shares offered inthis offering are shares of the British Virgin Islands holding company.Investors ofour ordinary shares should be aware that they may never directly hold equityinterests in our subsidiaries in the PRC.As all our operations are conducted in China through our subsidiaries,theChinese government may exercise significant oversight and discretion over the conductof our business and may intervene in or influence our operations at any time.Suchgovernmental actions:could result in a material change in our operations;could hinder our ability to continue to offer securities to investors;and may cause the value of our securities to significantly decline or beworthless.Recent statements by the Chinese government have indicated an intent to exertmore oversight and control over offerings that are conducted overseas and/or foreigninvestments in China based issuers.Any future action by the Chinese governmentexpanding the categories of industries and companies whose foreign securitiesofferings are subject to government review could significantly limit or completelyhinder our ability to offer or continue to offer securities to investors and couldcause the value of such securities to significantly decline or be worthless.Recently,the PRC government initiated a series of regulatory actions and madeseveral public statements on the regulation of business operations in China withlittle advance notice,including cracking down on illegal activities in thesecurities market,enhancing supervision over China-based companies listed overseasusing a variable interest entity structure,adopting new measures to extend the scopeof cybersecurity reviews,and expanding efforts in anti-monopoly enforcement.Webelieve that we are not directly subject to these regulatory actions or statements,as we do not have a variable interest entity structure and our business does notinvolve the collection of user data,implicate cybersecurity,or involve any othertype of restricted industry.As these statements and regulatory actions are new,however,it is highly uncertain how soon legislative or administrative regulationmaking bodies in China will respond to them,or what existing or new laws or2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm4/214regulations will be modified or promulgated,if any,or the potential impact suchmodified or new laws and regulations will have on our daily business operations orour ability to accept foreign investments and list on an U.S.exchange.2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm5/214Table of ContentsOur ordinary shares may be prohibited to trade on a national exchange or in theover-the-counter trading market in the United States under the Holding ForeignCompanies Accountable Act(the“HFCA Act”)and the Accelerating Holding ForeignCompanies Accountable Act(the“AHFCA Act”)if the Public Company AccountingOversight Board(United States)(the“PCAOB”)determines that it cannot inspect orfully investigate our auditors for two consecutive years beginning in 2021.As aresult,an exchange may determine to delist our securities.Additionally,oursecurities may be prohibited from trading if our auditor cannot be fully inspected asmore stringent criteria have been imposed by the SEC and the PCAOB recently.OnDecember 2,2021,the SEC issued amendments to finalize rules implementing thesubmission and disclosure requirements in the HFCA Act,which became effective onJanuary 10,2022.The rules apply to registrants that the SEC identifies as havingfiled an annual report with an audit report issued by a registered public accountingfirm that is located in a foreign jurisdiction and that the PCAOB is unable toinspect or investigate completely because of a position taken by an authority inforeign jurisdictions.For example,on December 16,2021,the PCAOB issued a reporton its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong,because of positions taken by PRC authorities in those jurisdictions.On December 15,2022,however,the PCAOB vacated its previous 2021 determinations that the PCAOB wasunable to inspect or investigate completely registered public accounting firmsheadquartered in mainland China and Hong Kong.As of the date of the prospectus,theCompanys auditor,Friedman LLP,headquartered in New York,New York,with nobranches or offices outside the United States,has been inspected by the PCAOB on aregular basis,with the last inspection in August 2020.As a result,we do not expectto be identified as a“Commission Identified Issuer”under the HFCA as of thedate of this prospectus.Friedman LLP was merged with Marcum LLP on September 1,2022and filed its application to withdraw the PCAOB registration on December 30,2022.However,whether the PCAOB will continue to be able to satisfactorily conductinspections of PCAOB-registered public accounting firms headquartered in mainlandChina and Hong Kong is subject to uncertainties and depends on a number of factorsout of our and our auditors control.The PCAOB continues to demand complete accessin mainland China and Hong Kong moving forward and is making plans to resume regularinspections in early 2023 and beyond,as well as to continue pursuing ongoinginvestigations and initiate new investigations as needed.While our auditor is basedin the U.S.and is registered with PCAOB and subject to PCAOB inspection,in theevent it is later determined that the PCAOB is unable to inspect or investigatecompletely our auditor because of a position taken by an authority in a foreignjurisdiction,then such inability could cause trading in our securities to beprohibited under the HFCA Act and the AHFCA Act,and ultimately result in adetermination by a securities exchange to delist our securities.If trading in ourordinary shares is prohibited under the HFCA Act and the AHFCA Act in the futurebecause the PCAOB determines that it cannot inspect or fully investigate our auditorat such future time,Nasdaq may determine to delist our ordinary shares,which maycause the value of our securities to decline or become worthless.See.“RiskFactors Our ordinary shares may be prohibited from being trading on and wouldrequire delisting from a national exchange under the HFCA Act and the AHFCA Act ifthe PCAOB is unable to inspect our auditors for two consecutive years beginning in2021.The delisting of our ordinary shares,or the threat of their being delisted,may materially and adversely affect the value of your investment.”Cash dividends,if any,on our ordinary shares will be paid in U.S.dollars.Asof the date of this prospectus,(1)no cash transfers nor transfers of other assetshave occurred among the Company,and its subsidiaries,except that we transferred$12,990 from Harden International to WFOE as a working capital loan during the yearended December 31,2021,(2)no dividends nor distributions have been made by asubsidiary,and(3)the Company has not paid any dividends nor made any distributionsto U.S.investors.We intend to keep any future earnings to finance the expansion ofour business,and we do not anticipate that any cash dividends will be paid in theforeseeable future,or any funds will be transferred from one entity to another.Assuch,we have not installed any cash management policies that dictate how funds aretransferred among Harden,its subsidiaries,or investors.For further details,pleaserefer to the consolidated financial statements included elsewhere in thisregistration statement of which this prospectus is a part.Under British VirginIslands law,the directors of the Company may,by resolution of directors,authorizea dividend by the Company to the members at such time and of such an amount,as thedirectors think fit if they are satisfied,or reasonable grounds,that the companywill,immediately after the payment of the dividend,satisfy the solvency test.A BVIcompany satisfies the solvency test if(a)the value of the companys assets exceedsits liabilities,and(b)the company is able to pay its debts as they fall due.Our business belongs to the waste management and recycling equipmentmanufacturing industry in China,which does not involve the collection of user data,implicate cybersecurity,or involve any other type of restricted industry.Based onthe advice of our PRC counsel,King&Wood Mallesons,and our understanding ofcurrently 2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm6/214Table of Contentsapplicable PRC laws and regulations,our registered public offering in the U.S.isnot subject to the review or prior approval of the Cyberspace Administration of China(the“CAC”)or the China Securities Regulatory Commission(the“CSRC”).Uncertainties still exist,however,due to the possibility that laws,regulations,orpolicies in the PRC could change rapidly in the future.Any future action by the PRCgovernment expanding the categories of industries and companies whose foreignsecurities offerings are subject to review by the CSRC or the CAC could significantlylimit or completely hinder our ability to offer or continue to offer securities toinvestors and could cause the value of such securities to significantly decline or beworthless.Neither the Securities and Exchange Commission nor any state securitiescommission has approved or disapproved of these securities or passed uponthe accuracy or adequacy of this prospectus.Any representation to thecontrary is a criminal offense.Per Share Total WithoutOver-Allotment Option Total WithOver-Allotment OptionInitial public offering price(1)$6.00$15,000,000$17,250,000Underwriting discounts andcommissions(2)$0.39$975,000$1,121,250Proceeds to us,before expenses$5.61$14,025,000$16,128,750_(1)Initial public offering price is assumed to be$6.00 per ordinary share,which is the midpointof the range set forth on the cover page of this prospectus.(2)See“Underwriting”for more information regarding underwriting compensation.Excludes feesand expenses payable to our underwriters.We expect our total cash expenses for this offering(including cash expensespayable to our underwriters for their out-of-pocket expenses)to be approximately$1,400,000,exclusive of the above discounts and commissions.In addition,we willpay additional items of value in connection with this offering that are viewed by theFinancial Industry Regulatory Authority,(“FINRA”),as underwriting compensation.These payments will further reduce proceeds available to us before expenses.See“Underwriting.”This offering is being conducted on a firm commitment basis.The underwriters areobligated to take and pay for all of the ordinary shares,if any such shares aretaken.We have granted the underwriters an option for a period of forty-five(45)days after the closing of this offering to purchase up to 15%of the total number ofour ordinary shares to be offered by us pursuant to this offering(excluding sharessubject to this option),solely for the purpose of covering over-allotments,at theinitial public offering price less the underwriting discounts and commissions.If theunderwriters exercise the option in full and originate all investors in the offering,the total underwriting discounts and commissions payable will be$1,121,250 based onan assumed initial public offering price of$6.00 per ordinary share(the midpoint ofthe price range set forth on the cover page of this prospectus),and the total grossproceeds to us,before underwriting discounts and commissions and expenses,will be$17,250,000.If we complete this offering,net proceeds will be delivered to us onthe closing date.We will not be able to use such proceeds in China,however,untilwe complete capital contribution procedures which require prior approval from each ofthe respective local counterparts of Chinas Ministry of Commerce,the StateAdministration for Market Regulation,and the State Administration of ForeignExchange.See remittance procedures in the section titled“Use of Proceeds”beginning on page 49.We have agreed to issue to the underwriter ordinary share purchase warrants,exercisable from the date of commencement of sales of this offering for a period ofthree years after such date,to purchase ordinary shares equal to 5%of the totalnumber of ordinary shares sold in this offering,exercisable at a per share priceequal to 125%of the public offering price(the“Warrants”).The registrationstatement of which this prospectus is a part covers the ordinary shares issuable uponthe exercise thereof.The underwriters expect to deliver the ordinary shares to purchasers in thisoffering on or about March _,2023.US Tiger Securities,Inc.Prospectus dated,2023 2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm7/214Table of ContentsTABLE OF CONTENTS PagePROSPECTUS SUMMARY 1RISK FACTORS 21FORWARD-LOOKING STATEMENTS 48USE OF PROCEEDS 49DIVIDEND POLICY 50EXCHANGE RATE INFORMATION 51CAPITALIZATION 52DILUTION 53POST-OFFERING OWNERSHIP 54MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS 55CORPORATE HISTORY AND STRUCTURE 70OUR BUSINESS 72REGULATIONS 82MANAGEMENT 93RELATED PARTY TRANSACTIONS 102PRINCIPAL SHAREHOLDERS 105DESCRIPTION OF SHARES 107SHARES ELIGIBLE FOR FUTURE SALE 116TAX MATTERS APPLICABLE TO U.S.HOLDERS OF OUR ORDINARY SHARES 118ENFORCEABILITY OF CIVIL LIABILITIES 125UNDERWRITING 126EXPENSES RELATED TO THIS OFFERING 130LEGAL MATTERS 131EXPERTS 131INTERESTS OF NAMED EXPERTS AND COUNSEL 131DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION 131WHERE YOU CAN FIND MORE INFORMATION 131INDEX TO FINANCIAL STATEMENTS F-1Through and including,2023(25 days after the commencement ofthis offering),all dealers effecting transaction in these securities,whether or not participating in this offering,may be required to deliver aprospectus.This delivery requirement is in addition to the obligation ofdealers to deliver a prospectus when acting as underwriters and withrespect to their unsold allotments or subscriptions.You should rely only on the information contained in this prospectus and any freewriting prospectus we may authorize to be delivered to you.We have not,and theunderwriters have not,authorized anyone to provide you with information differentfrom,or in addition to,that contained in this prospectus and any related freewriting prospectus.We and the underwriters take no responsibility for,and canprovide no assurances as to the reliability of,any information that others may giveyou.This prospectus is not an offer to sell,nor is it seeking an offer to buy,these securities in any jurisdiction where the offer or sale is not permitted.Theinformation contained in this prospectus is only accurate as of the date of thisprospectus,regardless of the time of delivery of this prospectus and any sale of ourordinary shares.Our business,financial condition,results of operations andprospects may have changed since that date.For investors outside the United States:Neither we nor the underwriters havedone anything that would permit this offering or possession or distribution of thisprospectus in any jurisdiction,other than the United States,where action for thatpurpose is required.Persons outside the United States who come into possession ofthis prospectus must inform themselves about,and observe any restrictions relatingto,the offering of the ordinary shares and the distribution of this prospectusoutside the United States.i2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm8/214Table of ContentsWe are incorporated under the laws of the British Virgin Islands as a companylimited by shares,and a majority of our outstanding securities are owned by non-U.S.residents.Under the rules of the U.S.Securities and Exchange Commission(the“SEC”)we currently qualify for treatment as a“foreign private issuer.”As aforeign private issuer,we will not be required to file periodic reports andfinancial statements with the SEC as frequently or as promptly as domesticregistrants whose securities are registered under the Securities Exchange Act of1934,as amended(the“Exchange Act”).ii2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm9/214Table of ContentsPROSPECTUS SUMMARYThis summary highlights certain information contained elsewhere in thisprospectus.You should read the entire prospectus carefully,including ourconsolidated financial statement and related notes,and especially the risksdescribed under“Risk Factors”beginning on page 21 hereof.We note that ouractual results and future events may differ significantly based upon a number offactors.The reader should not put undue reliance on the forward-looking statementsin this document,which speak only as of the date on the cover of this prospectus.Our CompanyHarden is a waste management and recycling equipment manufacturer in China,specializing in the manufacture of customized industrial shredders and materialsorting machines and production lines.We were founded on May 10,2010 by ourchairman of the board of directors,director and chief executive officer,Mr.Jiawen Miao.We are located in Zhongshan City in Chinas Guangdong Province.Wecurrently employ 237 people on a full time basis 20 people in managementpositions;31 in sales and marketing positions;29 in research and developmentpositions;35 people in technical engineering positions;26 in after-sale servicepositions and 96 in manufacturing and installation positions.Industry and Market BackgroundAccording to Grand View Research,an international market research company,theglobal industrial recycling equipment market size was estimated at$852 million in2019 and is anticipated to reach$1.3 billion by 2027,expanding at a compoundannual growth rate(“CAGR”)of 5.8%.The Asia Pacific regions market is forecastto exceed$450 million by 2025,with China as a major revenue earner.We expect growing awareness pertaining to the economic and environmentalbenefits of recycled processed materials to significantly impact our market.Inaddition,we expect growing concerns over the increasing carbon footprint alongwith rising government efforts in numerous countries in order to promote recyclingof material to create significant opportunities for manufacturers.Industrialrecycling equipment plays a significant role in this process.Scrap materialsincluding discarded electrical and electronic goods,automobile parts,paper,andconstruction materials are collected from numerous sources for further processing.Industrial recycling equipment,including baler presses,granulators,shredders,and shears are then used to reduce the shape and size of the waste materials,whichare further used for recycling.Due to the increasing awareness towards the sustainable advantages and benefitsof reusing and recycling waste materials,we believe the end-use utilization ofrecycled materials will further benefit the industry.We anticipate that recycledmaterial such as steel,iron,plastic,rubber,and concrete in the industriesincluding automotive,electrical and electronics,building and construction,andpackaging will drive the market.Our ProductsWe manufacture industrial shredders and waste sorting equipment for wastemanagement and material recycling industries.We create equipment for customersaccording to their requirements depending upon applications and needs.Samples of our industrial recycling equipment include the following:Single Shaft Shredders Single shaft shredders are often referred to asgrinders and efficiently shred large quantities of materials unattended.Dual Shaft Shredders Dual shaft industrial shredders have oppositerotating rotors that pull the material between the two rotors.In a dual-shaftshredder,the cutters or knives cut the material when it passes over the cutter andthe opposing counter-knife.Quad Shaft Shredders Quad shaft shredders can shred a wide-range ofmaterials and produce a consistent small material.Quad shaft shredders are able toshred and recirculate material within the machine until it is reduced to the propersize to pass through a filtering screen.12023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm10/214Table of ContentsPrimary Shredders Primary shredders allow for the reduction of toughmaterials and are made with a hydraulic transmission.The shredders can be adjustedto different sizes to obtain the desired size of the shredded product.Mobile Shredders Mobile shredders are equipped with the same shreddingunits as stationary shredders.However,different mobile shredder models are builteither on crawlers or a trailer,which makes them easy to move at a production siteor transport between sites when needed.Granulators Granulators turn materials into flakes or granules,which canbe sold as raw material for remanufacturing.Disk Screens Disk screens are used to separate waste according to piecesize.Air Separators Air separators employ blowers and other mechanisms toseparate lighter fractions of recyclable material.Our Competitive StrengthsWe believe the following competitive strengths differentiate us from ourcompetitors and contribute to our ongoing success.Focus on technology and research and development.We believe weemploy a strong research and development team.We own 93 patents that we utilize inthe production of our products,and we are committed to researching and developingnew industrial recycling equipment,and an additional 36 patents that are pendingapproval.Ability to Grow Our Brand Awareness.We believe that the Harden brandis a well-known,respected global brand in our industry.Our brand name and imageare integral to the growth of our business and to the implementation of ourstrategies for expanding our business.Strong Cash Flow Management.We believe that our cash flow management,driven by our low accounts receivable balance as compared to our competitors,allows us to compete effectively in a rapidly changing and increasingly complexChinese market.Effective quality control.In every step,we have fully trained,experienced and skilled employees that are working in concert to ensure the qualityof our industrial recycling equipment.Experienced Management Team and Personnel with a Demonstrated TrackRecord.Our management team,led by our chairman of the board,director andchief executive officer,Mr.Jiawen Miao,has extensive industry experience and ademonstrated track record of developing new products,adapting to changing marketconditions,and managing manufacturing companies.Pricing strategy.We strive to provide our customers with the best valueproposition by offering our industrial recycling equipment at competitive prices onour platform.Our Challenges and RisksWe recommend that you consider carefully the risks discussed below and underthe heading“Risk Factors”beginning on page 21 of this prospectus beforepurchasing our ordinary shares.If any of these risks occur,our business,prospects,financial condition,liquidity,results of operations and ability tomake distributions to our shareholders could be materially and adversely affected.In that case,the trading price of our ordinary shares could decline and you couldlose some or all of your investment.These risks include,among others,thefollowing:You may experience difficulties in effecting service of legal process,enforcing foreign judgments or brining actions in China against us or ourmanagement named in the prospectus based on foreign laws;We must remit the offering proceeds to China before they may be used tobenefit our business in China,this process may take a number of monthsand we will be unable to use the proceeds to grow our business in themeantime.We face a wide range of competition that could affect our ability tooperate profitably,and we believe that our European competitors aresearching for opportunities to enter the China market;22023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm11/214Table of Contents If we become directly subject to the recent scrutiny,criticism andnegative publicity involving U.S.-listed China-based companies,we mayhave to expend significant resources to investigate and resolve the matterwhich could harm our business operations,this offering and our reputationand could result in a loss of your investment in our shares,especially ifsuch matter cannot be addressed and resolved favorably;Introduction of new laws and regulations or changes to existing laws andregulations by the Chinese government may occur quickly with littleadvance notice,and such new laws,regulations or changes thereto mayadversely affect our business;Our ordinary shares may be prohibited from being traded on and wouldrequire delisting from a national exchange under the HFCA Act and theAHFCA Act if the PCAOB is unable to inspect our auditors for twoconsecutive years beginning in 2021.Our auditor is currently subject toPCAOB inspections,and the PCAOB is able to inspect our auditor.Additionally,our securities may be prohibited from trading if our auditorcannot be fully inspected as more stringent criteria have been imposed bythe SEC and the PCAOB recently.On December 2,2021,the SEC issuedamendments to finalize rules implementing the submission and disclosurerequirements in the HFCA Act,which became effective on January 10,2022.The rules apply to registrants that the SEC identifies as having filed anannual report with an audit report issued by a registered publicaccounting firm that is located in a foreign jurisdiction and that thePCAOB is unable to inspect or investigate completely because of a positiontaken by an authority in foreign jurisdictions.Any decline in the availability or increase in the cost of raw materials,including steel and copper,could materially impact our earnings;We are an“emerging growth company,”and we cannot be certain ifchoosing to elect the reduced reporting requirements applicable toemerging growth companies will make our ordinary shares less attractive toinvestors;and The novel coronavirus could have a material adverse impact upon ourbusiness,results of operations,financial condition,cash flows orliquidity.Our StrategiesWe intend to increase our revenue and market share by expanding ourbusiness network internationally.In the short term,we intend to increaseour revenue and market share by expanding our business network to other provincesin China.Over the long term,however,we believe that significant businessopportunities exist outside of China particularly in the United States andEurope.Pursue Strategic Acquisitions.We intend to continue to pursue expansionopportunities in existing and new markets,as well as in core and adjacentcategories through strategic acquisitions.Market Opportunity.Chinas 14th Five Year Plan(2021-2025)promotes thereduction on the reliance on foreign technology and dependence on importedresources,and to increase industrial modernization and technological innovation.We plan to capitalize on the opportunities presented by the 14th Five Year Plan byassisting in the recycling and reuse of materials along with lowering wastedisposal fees of our existing and potential customers through the use of ourshredder equipment.Continue to develop new products.We are committed to researching anddeveloping new products according to market trends.Target the solid waste management and recycling industrymarket.According to IBISWorld,an international market research company,thesolid waste recycling industry in China has developed rapidly over the past fiveyears and industry revenue is expected to increase at an annualized 9.6%over thefive years through 2022,to$25.2 billion.In addition to the China market,theglobal waste management market is also growing at a rapid rate in both developedand developing countries.According to Allied Market Research,a market researchcompany based in the US,global waste management market is expected to grow fromapproximately$1.6 trillion in 2020 to approximately$2.5 trillion by 2030,growingat a CAGR of 3.4%.As a result of such growth,Allied Market Research alsodetermined that the global waste management equipment market,in which we compete,will increase from$45.75 billion in 2019 to$55.63 billion by 2027,growing at aCAGR of 4.1%.32023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm12/2142023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm13/214Table of ContentsForeign Private Issuer StatusWe are incorporated in the British Virgin Islands,and more than 50 percent ofour outstanding voting securities are not directly or indirectly held by residentsof the United States.Therefore,we are a“foreign private issuer”as defined inRule 405 under the Securities Act and Rule 3b-4(c)under the Exchange Act.As aresult,in accordance with the rules and regulations of The Nasdaq Stock Market,wemay comply with home country governance requirements and certain exemptionsthereunder rather than complying with Nasdaq corporate governance standards.We maychoose to take advantage of the following exemptions afforded to foreign privateissuers:Exemption from filing quarterly reports on Form 10-Q,from filing proxysolicitation materials on Schedule 14A or 14C in connection with annual orspecial meetings of shareholders,or from providing current reports onForm 8-K disclosing significant events within four(4)days of theiroccurrence,and from the disclosure requirements of Regulation FD.Exemption from Section 16 rules regarding sales of ordinary shares byinsiders,which will provide less data in this regard than shareholders ofU.S.companies that are subject to the Exchange Act.Exemption from the Nasdaq rules applicable to domestic issuers requiringdisclosure within four(4)business days of any determination to grant awaiver of the code of business conduct and ethics to directors andofficers.Although we will require board approval of any such waiver,wemay choose not to disclose the waiver in the manner set forth in theNasdaq rules,as permitted by the foreign private issuer exemption.Exemption from the requirement that our board of directors have acompensation committee that is composed entirely of independent directorswith a written charter addressing the committees purpose andresponsibilities.Exemption from the requirements that director nominees are selected,orrecommended for selection by our board of directors,either by(i)independent directors constituting a majority of our board ofdirectors or independent directors in a vote in which only independentdirectors participate,or(ii)a committee comprised solely of independentdirectors,and that a formal written charter or board resolution,asapplicable,addressing the nominations process is adopted.Furthermore,Nasdaq Rule 5615(a)(3)provides that a foreign private issuer,such as us,may rely on our home country corporate governance practices in lieu ofcertain of the rules in the Nasdaq Rule 5600 series and Rule 5250(d),provided thatwe nevertheless comply with Nasdaqs Notification of Noncompliance requirement(Rule 5625),the Voting Rights requirement(Rule 5640)and that we have an auditcommittee that satisfies Rule 5605(c)(3),consisting of committee members that meetthe independence requirements of Rule 5605(c)(2)(A)(ii).If we rely on our homecountry corporate governance practices in lieu of certain of the rules of Nasdaq,our shareholders may not have the same protections afforded to shareholders ofcompanies that are subject to all of the corporate governance requirements ofNasdaq.If we choose to do so,we may utilize these exemptions for as long as wecontinue to qualify as a foreign private issuer.Although we are permitted to follow certain corporate governance rules thatconform to British Virgin Island requirements in lieu of many of the Nasdaqcorporate governance rules,we intend to comply with the Nasdaq corporategovernance rules applicable to foreign private issuers,including the requirementto hold annual meetings of shareholders.Corporate InformationOur principal executive office is located at Xingda Street,Torch DevelopmentZone,Zhongshan City,Guangdong Province,528400,PR China.Our telephone number is86-760-89935422.Our registered office in the British Virgin Islands is located atthe office of Vistra Corporate Services Centre,Wickhams Cay II,Road Town,Tortola,British Virgin Islands,VG 1110.Our agent for service of process in the United States is Vcorp Agent Services,Inc.25 Robert Pitt Dr.,Suite 204,Monsey,New York 10952.Our websites arelocated at www.industrial-shredder.info and.Information containedon,or that can be accessed through,our website is not a part of,and shall not beincorporated by reference into,this prospectus.42023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm14/214Table of ContentsCorporate StructureHarden Technologies Inc(“Harden”).We formed Harden TechnologiesInc.,our British Virgin Islands holding company,on April 8,2021.Harden International Limited(“Harden International”)We formedHarden International,our wholly-owned Hong Kong subsidiary,on April 20,2021.Harden International solely serves as a holding company for WOFE.Harwell Technologies Ltd.(“WFOE”)We formed WFOE,our principaloperating company in China and wholly-owned subsidiary of Harden International,onMay 13,2021.WFOE solely serves as a holding company for Harden Machinery.Harden Machinery Ltd.(“Harden Machinery”)We formed HardenMachinery,our former operating company in China and wholly-owned subsidiary ofWFOE on May 10,2010.Its business scope includes the design and manufacture ofcustomized industrial recycling equipment.Dr.Shredder Technologies Ltd.(“Dr.Shredder”)Dr.Shredder is acompany incorporated on September 29,2017 in China and is a 55%owned subsidiaryof Harden Machinery.The remaining 45%of Dr.Shredder is owned by three formeremployees of Harden.Dr.Shredder is engaged in the manufacture and sale of smalland medium-sized industrial shredders and data destruction shredders.52023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm15/214Table of ContentsAs used herein the term“China Operating Companies”shall refer to WFOE,Harden Machinery and Dr.Shredder.Implications of Being an Emerging Growth CompanyAs a company with less than$1.07 billion in revenue during our last fiscalyear,we qualify as an“emerging growth company”as defined in the Jobs Act,andwe are eligible to take advantage of certain exemptions from various reportingrequirements that are applicable to other public companies that are not“emerginggrowth companies,”including but not limited to,being permitted to present onlytwo years of audited financial statements and only two years of relatedManagements Discussion and Analysis of Financial Condition and Results ofOperations in our filings with the SEC,not being required to comply with theauditor attestation requirements of Section 404 of the Sarbanes-Oxley Act,reduceddisclosure obligations regarding executive compensation in our periodic reports andproxy statements,and exemptions from the requirements of holding a non-bindingadvisory vote on executive compensation and stockholder approval of any goldenparachute payments not previously approved.We have not decided whether to takeadvantage of any or all of these exemptions.If we do take advantage of any ofthese exemptions,we do not know if some investors will find our ordinary sharesless attractive as a result.The result may be a less active trading market for ourordinary shares and the price of our ordinary shares may be more volatile.In addition,Section 107 of the JOBS Act also provides that an“emerginggrowth company”can take advantage of the extended transition period provided inSection 7(a)(2)(B)of the Securities Act of 1933,as amended(the“SecuritiesAct”),for complying with new or revised accounting standards.In other words,an“emerging growth company”can delay the adoption of certain accounting standardsuntil those standards would otherwise apply to private companies.However,we arechoosing to“opt out”of such extended transition period,and as a result,we willcomply with new or revised accounting standards on the relevant dates on whichadoption of such standards is required for non-emerging growth companies.Section 107 of the JOBS Act provides that our decision to opt out of the extendedtransition period for complying with new or revised accounting standards isirrevocable.We will remain an“emerging growth company”until the earliest of(i)thelast day of the first fiscal year in which our annual gross revenues exceed US$1.07billion,(ii)the last day of our fiscal year following the fifth anniversary ofthe completion of this offering;(iii)the date that we become a“largeaccelerated filer”as defined in Rule 12b-2 under the Exchange Act,which wouldoccur if the market value of our ordinary shares that is held by non-affiliatesexceeds$700 million as of the last business day of our most recently completedsecond fiscal quarter,or(iv)the date on which we have issued more than$1billion in non-convertible debt during the preceding three year period.Implications of the HFCA ActOur ordinary shares may be prohibited to trade on a national exchange or in theover-the-counter trading market in the United States under the HFCA Act and theAHFCA Act if the PCAOB determines that it cannot inspect or fully investigate ourauditors for two consecutive years beginning in 2021.As a result,an exchange maydetermine to delist our securities.Additionally,our securities may be prohibitedfrom trading if our auditor cannot be fully inspected as more stringent criteriahave been imposed by the SEC and the PCAOB recently.On December 2,2021,the SECissued amendments to finalize rules implementing the submission and disclosurerequirements in the HFCA Act,which became effective on January 10,2022.The rulesapply to registrants that the SEC identifies as having filed an annual report withan audit report issued by a registered public accounting firm that is located in aforeign jurisdiction and that the PCAOB is unable to inspect or investigatecompletely because of a position taken by an authority in foreign jurisdictions.For example,on December 16,2021,the PCAOB issued a report on its determinationsthat it is unable to inspect or investigate completely PCAOB-registered publicaccounting firms headquartered in mainland China and in Hong Kong,because ofpositions taken by PRC authorities in those jurisdictions.On December 15,2022,the PCAOB vacated its previous 2021 determinations that the PCAOB was unable toinspect or investigate completely registered public accounting firms headquarteredin mainland China and Hong Kong.As of the date of the prospectus,the Companysauditor,Friedman LLP,headquartered in New York,New York,with no branches oroffices outside the United States,has been inspected by the PCAOB on a regularbasis,with the last inspection in August 2020.As a result,we do not expect to beidentified as a“Commission Identified Issuer”under the HFCA as of the date ofthis prospectus.However,whether the PCAOB will continue62023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm16/214Table of Contentsto be able to satisfactorily conduct inspections of PCAOB-registered publicaccounting firms headquartered in mainland China and Hong Kong is subject touncertainties and depends on a number of factors out of our and our auditorscontrol.The PCAOB continues to demand complete access in mainland China and HongKong moving forward and is making plans to resume regular inspections in early 2023and beyond,as well as to continue pursuing ongoing investigations and initiate newinvestigations as needed.While our auditor is based in the U.S.and is registeredwith PCAOB and subject to PCAOB inspection,in the event it is later determinedthat the PCAOB is unable to inspect or investigate completely our auditor becauseof a position taken by an authority in a foreign jurisdiction,then such inabilitycould cause trading in our securities to be prohibited under the HFCA Act and theAHFCA Act,and ultimately result in a determination by a securities exchange todelist our securities.If trading in our ordinary shares is prohibited under theHFCA Act and the AHFCA Act in the future because the PCAOB determines that itcannot inspect or fully investigate our auditor at such future time,Nasdaq maydetermine to delist our ordinary shares,which may cause the value of oursecurities to decline or become worthless.See“Risk Factors Our ordinary sharesmay be prohibited from being traded on and would require delisting from a nationalexchange under the HFCA Act and the AHFCA Act if the PCAOB is unable to inspect ourauditors for two consecutive years beginning in 2021.The delisting of our ordinaryshares,or the threat of their being delisted,may materially and adversely affectthe value of your investment.”Implications of Chinese RegulationsAs of the date of this prospectus,each of our Chinese subsidiaries hasreceived all requisite permissions and approvals from Chinese authorities toconduct and operate our business as currently conducted under relevant PRC laws andregulations,and none of our Chinese subsidiaries has been denied by relevantChinese authorities due to its business qualifications.The following tableprovides details on the licenses and permissions held by our Chinese subsidiaries.Company License/Permission Issuing Authority Validity/ExpirationHarwell Technologies,Inc.Business License Zhongshan MarketSupervisionAdministration UnlimitedHarden Machinery Ltd.Business License Zhongshan MarketSupervisionAdministration UnlimitedDr.ShredderTechnologies Ltd.Business License Zhongshan MarketSupervisionAdministration UnlimitedHarden Machinery Ltd.Safety ProductionPermit Guangdong ProvincialDepartment ofHousing and Urban-rural Development January 20,2025Harden Machinery Ltd.Third-gradeProfessionalContractingQualification forEnvironmentalProtection Projects Zhongshan Housingand Urban-ruralDevelopment Bureau June 30,2026Harden Machinery Ltd.High-techEnterpriseCertificate Science&TechnologyDepartment ofGuangdong ProvinceGuangdong ProvincialFinance DepartmentGuangdong ProvincialTax Service,StateTaxationAdministration December 20,202472023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm17/214Table of ContentsNeither we nor our subsidiaries are currently required to obtain permissions orapprovals from Chinese authorities,including the China Securities RegulatoryCommission(“CSRC”),the Cybersecurity Administration Committee(“CAC”),or anyother Chinese authorities to list on a foreign stock exchange or issue securitiesto foreign investors.As of the date of this prospectus,we have not received anyinquiry,notice,warning,sanctions or regulatory objection to this offering fromthe CSRC,CAC or any other Chinese authorities.However,if our subsidiaries or the holding company were required to obtainpermissions or approvals in the future and were denied permission from Chineseauthorities to list on U.S.exchanges,we will not be able to continue listing onU.S.exchange,which would materially affect the interest of the investors.It isuncertain when and whether the Company will be required to obtain permissions orapprovals from Chinese authorities to list on a foreign stock exchange in thefuture,and even when such permission is obtained,whether it will be denied orrescinded.We have been closely monitoring regulatory developments in Chinaregarding any necessary approvals from the CSRC,CAC or other Chinese authorities.However,there remains significant uncertainty as to the enactment,interpretationand implementation of regulatory requirements related to overseas securitiesofferings and other capital market activities.Although the Company is currently not required to obtain permission from any ofChinese authorities and has not received any denial to list on the U.S.exchange,our operations and financial conditions could be adversely affected,and ourability to offer securities to investors could be significantly limited,directlyor indirectly,by existing or future laws and regulations relating to its businessor industry;if we inadvertently conclude that such permissions or approvals arenot required when they are,or applicable laws,regulations,or interpretationschange and we are required to obtain permissions or approvals in the future.The New“M&A Rule”On August 8,2006,six Chinese regulatory agencies,including the Ministry ofCommerce of the PRC(“MOFCOM”),jointly issued the Regulations on Mergers andAcquisitions of Domestic Enterprises by Foreign Investors(the“New M&A Rule”),which became effective on September 8,2006,and was amended on June 22,2009.TheNew M&A Rule contains provisions that require that an offshore special purposevehicle(“SPV”)formed for the purpose of seeking a public listing on an overseasstock exchange through acquisitions of PRC domestic companies and controlleddirectly or indirectly by Chinese companies or individuals to obtain the approvalof the CSRC prior to the listing and trading of such SPVs securities on anoverseas stock exchange.On September 21,2006,the CSRC published proceduresspecifying documents and materials required to be submitted to it by an SPV seekingCSRC approval of overseas listings.However,the application of the New M&A Rule remains unclear with no consensuscurrently existing among leading Chinese law firms regarding the scope andapplicability of the CSRC approval requirement.Our Chinese counsel,King&WoodMallesons,has given us the following advice,based on their understanding ofcurrent Chinese laws and regulations:WFOE was established by means of direct investment and not through amerger or requisition of the equity or assets of a“PRC domesticcompany”as defined under the New M&A Rule,and at the time of our equityinterest acquisition,Harden was a foreign-invested enterprise rather thana“PRC domestic company”before it was acquired by WFOE;and In spite of the lack of clarity on this issue,the CSRC currently has notissued any definitive rule or interpretation regarding whether offeringslike the one contemplated by this prospectus are subject to the New M&ARule.The CSRC has not issued any such definitive rule or interpretation,and we havenot chosen to voluntarily request approval under the New M&A Rule.If the CSRCrequires that we obtain its approval prior to the completion of this offering,theoffering will be delayed until we obtain CSRC approval,which may takeseveral months.There is also the possibility that we may not be able to obtainsuch approval.If prior CSRC approval was required,we may face regulatory actionsor other sanctions from the CSRC or other Chinese regulatory authorities.Theseauthorities may impose fines and penalties upon our operations in China,limit ouroperating privileges in China,delay or restrict the repatriation of the proceedsfrom this offering into China,or take other actions that could have a materialadverse effect upon our business,financial condition,results of operations,reputation and prospects,as well as the trading price of our ordinary shares.TheCSRC or other Chinese regulatory agencies may also take actions requiring us,ormaking it advisable for us,to terminate this offering prior to closing.82023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm18/214Table of ContentsThe Opinions on Strictly Cracking Down Illegal Securities Activities inAccordance with the LawOn July 6,2021,The General Office of the Central Committee of the CommunistParty of China and the General Office of the State Council jointly issued Opinionson Strictly Cracking Down Illegal Securities Activities in Accordance with the Law(“Opinions”)which require(i)speeding up the revision of the provisions onstrengthening the confidentiality and archives management relating to overseasissuance and listing of securities and(ii)improving the laws and regulationsrelating to data security,cross-border data flow,and management of confidentialinformation.As of the date of this prospectus,no official guidance or relatedimplementation rules have been issued.As of the date of this prospectus,itremains unclear as to how the Opinions will be interpreted,amended and implementedby the relevant Chinese authorities.The Provisions of the State Council on the Administration of OverseasSecurities Offering and Listing by Domestic Companies(Draft forComments)and the Administrative Measures for the Filing of OverseasIssuance and Listing of Securities by Domestic Companies(Draft forComments)On December 24,2021,the CSRC issued Provisions of the State Council on theAdministration of Overseas Securities Offering and Listing by Domestic Companies(Draft for Comments)(the“Administration Provisions”),and the AdministrativeMeasures for the Filing of Overseas Issuance and Listing of Securities by DomesticCompanies(Draft for Comments)(the“Measures”).The Administration Provisions and Measures for overseas listings lay outspecific requirements for filing documents and include unified regulationmanagement,strengthening regulatory coordination,and cross-border regulatorycooperation.Domestic companies seeking to list abroad must carry out relevantsecurity screening procedures if their businesses involve such supervision.Companies endangering national security are among those off-limits for overseaslistings.According to Relevant Officials of the CSRC Answered Reporter Questions(“CSRCAnswers”),after the Administration Provisions and Measures are implemented uponcompletion of public consultation and due legislative procedures,the CSRC willformulate and issue guidance for filing procedures to further specify the detailsof filing administration and ensure that market entities could refer to clearguidelines for filing,which means it will still take time to put theAdministration Provisions and Measures into effect.As the AdministrationProvisions and Measures have not yet come into effect,the Company is currentlyunaffected by them.However,according to CSRC Answers,only new initial public offerings andrefinancing by existing overseas listed Chinese companies will be required to gothrough the filing process;other existing overseas listed companies will beallowed a sufficient transition period to complete their filing procedure,whichmeans the Company will certainly go through the filing process in the future,perhaps because of refinancing,or after being given a sufficient transition periodto complete the filing procedure as an existing overseas listed Chinese company.The Measures for Cybersecurity ReviewOn December 28,2021,the CAC,the National Development and Reform Commission(“NDRC”),and several other administrations jointly issued the revised Measuresfor Cybersecurity Review,or the Revised Review Measures.According to the RevisedReview Measures,if an“online platform operator”that is in possession ofpersonal data of more than one million users intends to list in a foreign country,it must apply for a cybersecurity review.Given the recency of the issuance of theRevised Review Measures,there is a general lack of guidance and substantialuncertainties exist with respect to their interpretation and implementation.Our business belongs to the waste management and recycling equipmentmanufacturing industry in China,which does not involve the collection of userdata,implicate cybersecurity,or involve any other type of restricted industry.Based on the advice of our PRC counsel,King&Wood Mallesons,and ourunderstanding of currently applicable PRC laws and regulations,our registeredpublic offering in the U.S.is not subject to the review or prior approval of theCAC or the CSRC.Uncertainties still exist,however,due to the possibility thatlaws,regulations,or policies in the PRC could change rapidly in the future.Anyfuture action by the PRC government expanding the categories of industries andcompanies whose foreign securities offerings are subject to review by the CSRC orthe CAC could significantly limit or completely hinder our ability to offer orcontinue to offer securities to investors and could cause the value of suchsecurities to significantly decline or be worthless.92023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm19/2142023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm20/214Table of ContentsFor more detailed information,see“Risk Factors Risks Associated with thisOffering and Ownership of Our Ordinary shares Our failure to obtain priorapproval of the China Securities Regulatory Commission(“CSRC”)for the listingand trading of our ordinary shares on a foreign stock exchange could delay thisoffering or could have a material adverse effect upon our business,operatingresults,reputation and trading price of our ordinary shares.”“RiskFactors Risks Related to Doing Business in China If the Chinese governmentchooses to exert more oversight and control over offerings that are conductedoverseas and/or foreign investment in China based issuers,such action couldsignificantly limit or completely hinder our ability to offer or continue to offersecurities to investors and cause the value of such securities to significantlydecline or be worthless.”and“Risk Factors Risks Related to Doing Business inChina We are subject to a variety of laws and other obligations regardingprivacy,data security,cybersecurity,and data protection,and any failure tocomply with applicable laws and obligations could have a material and adverseeffect on our business,financial condition and results of operations.”102023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm21/214Table of ContentsThe Offering(1)Ordinary shares offered by us:2,500,000 ordinary sharesOrdinary shares outstandingimmediately prior to thisoffering:10,000,000 ordinary sharesOrdinary shares outstandingimmediately after thisoffering:12,500,000 ordinary sharesOffering price per ordinaryshare:We estimate the initial public offering priceper share to be in the range of$5.00 to$7.00per ordinary shareUse of proceeds:We expect to receive gross proceeds ofapproximately$15.0 million in the offering,assuming an initial public offering price of$6.00 per ordinary share,the midpoint of theestimated price range set forth on the coverpage of this prospectus.In addition,we expectto receive net proceeds of approximately$13.0million in this offering,assuming an initialpublic offering price of$6.00 per share,themidpoint of the estimated price range set forthon the cover page of this prospectus,and afterdeducting the estimated underwriting discountsand commissions and offering expenses payable byus.The net proceeds from this offering must beremitted to China before we will be able to usethe funds to grow our business.We intend to use the net proceeds of thisoffering as follows after we complete theremittance process:approximately$7.0 million for thedevelopment of a new manufacturingfacility;approximately$3.0 million for research anddevelopment related to design of mobileshredding and mobile screening machines,waste robotic sorting technologies andpilot recycling plant development;and any remaining balance for additionalworking capital.For more information on the use of proceeds,see“Use of Proceeds”on page 49.Risk factors:Investing in our ordinary shares involves a highdegree of risk.Below is a summary of materialfactors that make an investment in our ordinaryshares speculative or risky.Importantly,thissummary does not address all the risks that weface.Please refer to the information containedin and incorporated by reference under theheading“Risk Factors”on page 21 of thisprospectus.Risks Relating to Our Business The impact of a novel strain of coronavirus(“COVID-19”)has significantly impactedChina and the rest of the world.We arecurrently unable to predict the full effectof COVID-19 upon our business andoperations._(1)Unless otherwise indicated,all information contained in this prospectus assumes noexercise of the underwriters over-allotment option and is based upon 10,000,000 ordinaryshares outstanding immediately prior to the closing of this transaction and/or 12,500,000ordinary shares outstanding as of the closing of this offering.2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm22/214112023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm23/214Table of Contents To the extent the Chinese economy slows,our business may be materially andnegatively impacted.We may not be able to maintain effectivebusiness relationships with our suppliersand customers with whom we have aninterdependent relationship.Wage increases in China may prevent us frommaintaining competitive advantages andcould reduce our profit margins.Our senior executives have not managed apublicly traded company in the past,andthey have no prior experience with legalcompliance issues related to U.S.orBritish Virgin Islands law.We may require additional financing in thefuture,and there can be no guarantee thatsuch financing will be available whenneeded.We may not be able to attract and retainqualified and skilled employees.Our bank accounts in China are not insuredor protected against loss.Risks Relating to Our Corporate Structure Our subsidiaries are subject torestrictions on paying dividends or makingother payments to us,which may have amaterial adverse effect on our ability toconduct our business.See“Risk Factors We will likely not pay dividends in theforeseeable future”and“DividendPolicy.”Risks Relating to Doing Business in China There are uncertainties in theinterpretation and enforcement of PRC lawsand regulations that could limit the legalprotection available to you and us.You may experience difficulties ineffecting service of legal process,enforcing foreign judgments,or bringingactions in China against us or ourmanagement named in the prospectus based onforeign laws.It may also be difficult foryou or overseas regulators to conductinvestigations or collect evidence withinChina.Changes in Chinas economic,political,orsocial conditions or government policiescould have a material adverse effect on ourbusiness and operations.As a business operating in China,we aresubject to the laws and regulations of thePRC,which can be complex and evolverapidly.The PRC government has the powerto exercise significant oversight anddiscretion over the conduct of ourbusiness,and the regulations to which weare subject may change rapidly and withlittle notice to us or our shareholders.See“Risk Factors-Because all ouroperations are in China,our business issubject to the complex and rapidly evolvinglaws and regulations there.The Chinesegovernment may exercise significantoversight and discretion over the conductof our business and may intervene in orinfluence our operations at any time,which2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm24/214could result in a material change in ouroperations and/or the value of our ordinaryshares.”122023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm25/214Table of Contents Under Chinese law,the proceeds of thisoffering must be sent back to China,andthe process for sending such proceeds backto China may take several months after theclosing of this offering.In order to remitthe offering proceeds to China,we must:open a special foreign exchange accountfor capital account transactions.Toopen this account,we must submit toState Administration of ForeignExchange approval(“SAFE”)certainapplication forms,identity documents,transaction documents,form of foreignexchange registration of overseasinvestments by domestic residents,andforeign exchange registrationcertificate of the invested company;remit the offering proceeds into thisspecial foreign exchange account;and apply for settlement of the foreignexchange.In order to do so,we mustsubmit to SAFE certain applicationforms,identity documents,paymentorder to a designated person,and abusiness certificate.See“Risk Factors We must remit theoffering proceeds to China before they maybe used to benefit our business in China,this process may take a number of monthsand we will be unable to use the proceedsto grow our business in the meantime.”The Chinese government may intervene orinfluence our operations at any time or mayexert more control over offerings conductedoverseas and foreign investment in Chinabased issuers,which could result in amaterial change in our operations and/orthe value of our ordinary shares.Additionally,the governmental andregulatory interference could significantlylimit or completely hinder our ability tooffer or continue to offer securities toinvestors and cause the value of suchsecurities to significantly decline or beworthless.See“Risk Factors If theChinese government chooses to exert moreoversight and control over offerings thatare conducted overseas and/or foreigninvestment in China based issuers,suchaction could significantly limit orcompletely hinder our ability to offer orcontinue to offer securities to investorsand cause the value of such securities tosignificantly decline or be worthless.”132023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm26/214Table of Contents Chinese law relating to listing on foreign stockexchanges or issuing securities to foreigninvestors is rapidly evolving and can changerapidly.Although the Company is currently notrequired to obtain permission from any ofChinese authorities and has not received anydenial to list on the U.S.exchange,ouroperations and financial conditions could beadversely affected,and our ability to offersecurities to investors could be significantlylimited,directly or indirectly,by existing orfuture laws and regulations relating to itsbusiness or industry;if we inadvertentlyconclude that such permissions or approvals arenot required when they are,or applicable laws,regulations,or interpretations change and weare required to obtain permissions or approvalsin the future.See“Risk Factors RisksAssociated with this Offering and Ownership ofOur Ordinary shares Our failure to obtainprior approval of the China SecuritiesRegulatory Commission(“CSRC”)for the listingand trading of our ordinary shares on a foreignstock exchange could delay this offering orcould have a material adverse effect upon ourbusiness,operating results,reputation andtrading price of our ordinary shares.”“RiskFactors Risks Related to Doing Business inChina If the Chinese government chooses toexert more oversight and control over offeringsthat are conducted overseas and/or foreigninvestment in China based issuers,such actioncould significantly limit or completely hinderour ability to offer or continue to offersecurities to investors and cause the value ofsuch securities to significantly decline or beworthless.”and“Risk Factors Risks Relatedto Doing Business in China We are subject toa variety of laws and other obligationsregarding privacy,data security,cybersecurity,and data protection,and any failure to complywith applicable laws and obligations could havea material and adverse effect on our business,financial condition and results of operations.”We may become subject to a variety of lawsand regulations in the PRC regardingprivacy,data security,cybersecurity,anddata protection.We may be liable forimproper use or appropriation of personalinformation provided by our customers.See“Risk Factors If the Chinese governmentchooses to exert more oversight and controlover offerings that are conducted overseasand/or foreign investment in China basedissuers,such action could significantlylimit or completely hinder our ability tooffer or continue to offer securities toinvestors and cause the value of suchsecurities to significantly decline or beworthless.”Risks Relating to this Offering The trading price of our ordinary sharesmay be volatile,and you may incur losses.You may experience immediate andsubstantial dilution in the net tangiblebook value of ordinary shares purchased.We have not previously paid any cashdividends,and we do not anticipate payingany dividends on our ordinary shares in theforeseeable future.See“Risk Factors Wewill likely not pay dividends in theforeseeable future.”2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm27/214142023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm28/214Table of ContentsOver-Allotment Option We have granted to the underwriter an option,exercisable within 45 days from the closing ofthis offering,to purchase up to an additional15%of the total number of the ordinary sharesoffered by us at the initial public offeringprice,less underwriting discounts.Underwriters Warrants We have granted US Tiger Securities,Inc.theWarrants,exercisable from the date ofcommencement of sales of this offering for aperiod of three years after such date,topurchase ordinary shares equal to 5%of thetotal number of ordinary shares sold in thisoffering,exercisable at a per share price equalto 125%of the public offering price.Lock-up:All of our directors,officers and certainshareholders(defined as owners of 5%or more ofour ordinary shares)have agreed with theunderwriters,subject to certain exceptions,notto sell,transfer or dispose of,directly orindirectly,any of our ordinary shares orsecurities convertible into or exercisable orexchangeable for our ordinary shares for aperiod of six(6)months after the date of thisprospectus.See“Shares Eligible for FutureSale”and“Underwriting”for moreinformation.Proposed Nasdaq Capital Market symbol:We have applied to have our ordinary shareslisted on the Nasdaq Capital Market under thesymbol“HARD”.152023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm29/214Table of ContentsProspectus ConventionsExcept where the context otherwise requires,“we”,“us”,“Company”,“our”and“Harden”collectively refer to:Harden,our British Virgin Islands holding company;Harden International,our wholly-owned Hong Kong subsidiary;WFOE,a company incorporated in China and a wholly-owned subsidiary ofHarden International;Harden Machinery,a company incorporated in China and a wholly-ownedsubsidiary of WFOE;and Dr.Shredder,a company incorporated in China and is a 55%ownedsubsidiary of Harden Machinery.As used in this prospectus,“PRC”or“China”refers to the PeoplesRepublic of China,excluding,for the purpose of this prospectus,Taiwan,Hong Kongand Macau.“RMB”or“Renminbi”refers to the legal currency of China and“$,”“US$,”or“U.S.Dollars”refers to the legal currency of the United States.Unless otherwise indicated,all share amounts and per share amounts in thisprospectus have been presented on a pro-forma basis to reflect a recapitalizationof the authorized and outstanding shares of the Company effected upon June 3,2021.As a result of the recapitalization,the shares of the Company increased from10,000,000 ordinary shares,par value$0.001 per share,to 100,000,000 ordinaryshares,par value$0.001 per share.As used herein the term“Chinese Operating Companies”shall include WFOE,Harden Machinery and Dr.Shredder.This prospectus contains translations of certain RMB amounts into U.S.dollaramounts at a specified rate solely for the convenience of the reader.Unlessotherwise noted,all translations made in this prospectus are based on a rate ofRMB 6.6981 to$1.00,which was the exchange rate on June 30,2022.Unless otherwisestated,we have translated balance sheet amounts,with the exception of equity,atJune 30,2022 at RMB 6.6981 to$1.00 as compared to RMB 6.5250 to$1.00 at December31,2020.We have stated equity accounts at their historical rates.The averagetranslation rates applied to income statement accounts for the six months endedJune 30,2022 and 2021 were RMB 6.4791 and RMB 6.4702,respectively.The averagetranslation rates applied to income statement accounts for the years ended December31,2021 and 2020 were RMB 6.4508 and RMB 6.9042,respectively.We make norepresentation that the RMB or U.S.dollar amounts referred to in this prospectuscould have been or could be converted into U.S.dollars or RMB,as the case may be,at any particular rate or at all.On January 31,2023,the Forex exchange rate wasRMB 6.7547 to$1.00.See“Risk Factors Fluctuation of the Renminbi couldmaterially affect our financial condition and results of operations”fordiscussions of the effects of fluctuating exchange rates on the value of ourcapital shares.Any discrepancies in any table between the amounts identified astotal amounts and the sum of the amounts listed therein are due to rounding.For the sake of clarity,this prospectus follows the English naming conventionof first name followed by last name,regardless of whether an individuals name isChinese or English.For example,the name of our chairman of the board,directorand chief executive officer will be presented as“Jiawen Miao,”even though,inChinese,his name would be presented as“Miao Jiawen.”Cash Flows through Our OrganizationAs a holding company,we may rely upon dividends paid to us by our subsidiariesin the PRC to pay dividends and to finance any debt we may incur.As of the date ofthis report,none of our subsidiaries have issued any dividends or distributions tous and we have not made any dividends or distributions to our shareholders as ofthe date of this report.Our subsidiaries in the PRC generate and retain cashgenerated from operating activities and re-invest it in our business.Under BVI law,we may pay a dividend on our shares out of either profit,provided that in no circumstances may a dividend be paid if this would result in usbeing unable to pay our debts due in the ordinary course of business.If wedetermine to pay dividends,as a holding company,we will be dependent on receiptof funds from our subsidiaries in PRC.162023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm30/214Table of ContentsCurrent PRC regulations permit our subsidiary in mainland China to paydividends to the Company only out of its accumulated profits,if any,determined inaccordance with Chinese accounting standards and regulations.Therefore,under ourcurrent corporate structure,we rely on dividend payments or other distributionsfrom our subsidiaries to fund any cash and financing requirements we may have,including the funds necessary to pay dividends and other cash distributions to ourshareholders or to service any debt we may incur.If our subsidiary incurs debt onits own behalf in the future,the instruments governing such debt may restrict itsability to pay dividends to us.In addition,our subsidiaries are permitted to paydividends to us only out of their accumulated profits,if any,as determined inaccordance with PRC accounting standards and regulations.Under PRC laws andregulations,each of our Chinese subsidiaries are required to set aside a portionof their net income each year to fund a statutory surplus reserve until suchreserve reaches 50%of its registered capital.This reserve is not distributable asdividends.As a result,our PRC subsidiaries are restricted in their ability totransfer a portion of its net assets to us in the form of dividends,loans oradvances.The PRC government also imposes controls on the conversion of RMB into foreigncurrencies and the remittance of currencies out of the PRC.Therefore,we mayexperience difficulties in completing the administrative procedures necessary toobtain and remit foreign currency for the payment of dividends from our profits,ifany.Furthermore,if our subsidiaries in the PRC incur debt on their own in thefuture,the instruments governing the debt may restrict their ability to paydividends or make other payments.If we are unable to receive funds from oursubsidiaries,we may be unable to pay cash dividends on our ordinary shares.Cash dividends,if any,on our ordinary shares will be paid in U.S.dollars.Ifwe are considered a PRC tax resident enterprise for tax purposes,any dividends wepay to our overseas shareholders may be regarded as China-sourced income and as aresult may be subject to PRC withholding tax at a rate of up to 10%.A 10%PRCwithholding tax is applicable to dividends payable to investors that are non-resident enterprises.Any gain realized on the transfer of ordinary shares by suchinvestors is also subject to PRC tax at a current rate of 10%which in the case ofdividends will be withheld at source if such gain is regarded as income derivedfrom sources within the PRC.Pursuant to the Arrangement between Mainland China and the Hong Kong SpecialAdministrative Region for the Avoidance of Double Taxation and Tax Evasion onIncome,or the Double Tax Avoidance Arrangement,the 10%withholding tax rate maybe lowered to 5%if a Hong Kong resident enterprise owns no less than 25%of a PRCproject.However,the 5%withholding tax rate does not automatically apply andcertain requirements must be satisfied,including without limitation that(a)theHong Kong project must be the beneficial owner of the relevant dividends;and(b)the Hong Kong project must directly hold no less than 25%share ownership inthe PRC project during the 12 consecutive months preceding its receipt of thedividends.In current practice,a Hong Kong entity must obtain a tax residentcertificate from the Hong Kong tax authority to apply for the 5%lower PRCwithholding tax rate.As the Hong Kong tax authority will issue such a tax residentcertificate on a case-by-case basis,we cannot assure you that we will be able toobtain the tax resident certificate from the relevant Hong Kong tax authority andenjoy the preferential withholding tax rate of 5%under the Double TaxationArrangement with respect to dividends to be paid by our PRC subsidiary to itsimmediate holding company.As of the date of this report,we have not applied forthe tax resident certificate from the relevant Hong Kong tax authority.Oursubsidiaries in Hongkong intends to apply for the tax resident certificate when oursubsidiaries in mainland China plans to declare and pay dividends to theirimmediate holding companies in Hong Kong.As an offshore holding company,we will be permitted under PRC laws andregulations to provide funding from the proceeds of our offshore fund-raisingactivities to our subsidiaries in China only through loans or capitalcontributions,subject to the satisfaction of the applicable governmentregistration and approval requirements.Before providing loans to our PRCsubsidiaries,we will be required to make filings about details of the loans withthe State Administration of Foreign Exchange of the PRC(the“SAFE”)in accordancewith relevant PRC laws and regulations.Our PRC subsidiaries that receive the loansare only allowed to use the loans for the purposes set forth in these laws andregulations.Under regulations of the SAFE,Renminbi is not convertible intoforeign currencies for capital account items,such as loans,repatriation ofinvestments and investments outside of China,unless the prior approval of the SAFEis obtained and prior registration with the SAFE is made.Under PRC law,we may provide funding to our PRC subsidiaries only throughcapital contributions or loans,and prior to the dismantling of our PRCconsolidated affiliated entities only through loans to our former consolidatedaffiliated entities,subject to satisfaction of applicable government registrationand approval requirements.2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm31/214172023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm32/214Table of ContentsFor the year ended December 31,2021,we transferred$12,990 from HardenInternational to WFOE as a working capital loan.We have not declared or paid any cash dividends,nor do we have any presentplan to pay any cash dividends on our ordinary shares in the foreseeable future.Wecurrently intend to retain most,if not all,of our available funds and any futureearnings to operate and expand our business.Also,as of the date of this report,we do not anticipate any difficulties onour ability to transfer cash between subsidiaries.We have not installed any cashmanagement policies that dictate the amount of such funds and how such funds aretransferred.Summary Consolidated Financial InformationIn the table below,we provide you with historical selected financial data forthe six months ended June 30,2022,which have been derived from our unauditedconsolidated financial statements for the same period and for financial datathe years ended December 31,2021 and 2020,which have been derived from ourconsolidated financial statements for those years.Historical results are notnecessarily indicative of the results that may be expected for any future period.When you read this historical selected financial data,it is important that youread it along with the historical financial statements and related notes and“Managements Discussion and Analysis of Financial Condition and Results ofOperations”included elsewhere in this prospectus.Condensed Consolidating Schedule Statement of Operations For the Six Months Ended June 30,2022 Harden HardenInternational Subsidiaries Eliminations ConsolidatedTotalRevenues$14,548,072$14,548,072Cost$10,079,664$10,079,664Gross profit$4,468,408$4,468,408Income(loss)fromoperations$442,556$(442,556)$Income for equitymethod investment$572,518$(16)$(572,503)$Net income$571,891$(16)$553,164$(572,503)$552,537 For the Year Ended December 31,2021 Harden HardenInternational Subsidiaries Eliminations ConsolidatedTotalRevenues$31,606,067$31,606,067Cost$21,962,617$21,962,617Gross profit$9,643,450$9,643,450Income(loss)fromoperations$1,461,199$1,461,199Income for equitymethod investment$1,794,702$(10)$(1,794,692)$Net income$1,766,645$(10)$1,761,228$(1,794,692)$1,733,171 For the Year Ended December 31,2020 Harden HardenInternational Subsidiaries Eliminations ConsolidatedTotalRevenues$21,901,699$21,901,699Cost$14,676,004$14,676,004Gross profit$7,225,695$7,225,695Income(loss)fromoperations$1,794,162$1,794,162Income for equitymethod investment$2,429,947$(2,429,947)$Net income$2,429,947$2,398,741$(2,429,947)$2,398,741182023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm33/214Table of ContentsCondensed Consolidating Schedule Balance Sheet As of June 30,2022 Harden HardenInternational Subsidiaries Eliminations ConsolidatedTotalCash$111$2,822,914$2,823,025Total currentassets$111$25,816,108$1,301,442$27,117,661Investments insubsidiaries$10,150,201$12,990$(10,163,191)$Total non-currentassets$10,150,201$12,990$4,406,654$(11,451,643)$3,118,202Total assets$10,150,312$12,990$30,222,762$(10,150,201)$30,235,863Total liabilities$28,795$13,016$20,123,051$20,164,862Totalshareholdersequity$10,121,517$(26)$10,099,711$(10,150,201)$10,071,001Total liabilitiesandshareholdersequity$10,150,312$12,990$30,222,762$(10,150,201)$30,235,863 As of December 31,2021 Harden HardenInternational Subsidiaries Eliminations ConsolidatedTotalCash$723$3,120,513$3,121,236Total currentassets$723$19,360,834$1,234,531$20,596,088Investments insubsidiaries$10,085,388$12,990$(10,098,378)$Total non-currentassets$10,085,388$12,990$3,469,598$(11,319,919)$2,248,057Total assets$10,086,111$12,990$22,830,432$(10,085,388)$22,844,145Total liabilities$28,780$13,000$12,778,442$12,820,222Totalshareholdersequity$10,057,331$(10)$10,051,990$(10,085,388)$10,023,923Total liabilitiesandshareholdersequity$10,086,111$12,990$22,830,432$(10,085,388)$22,844,145 As of December 31,2020 Harden HardenInternational Subsidiaries Eliminations ConsolidatedTotalCash$2,383,833$2,383,833Total currentassets$19,016,156$19,016,156Investments insubsidiaries$10,482,845$(10,482,845)$Total non-currentassets$10,482,845$1,923,181$(10,482,845)$1,923,181Total assets$10,482,845$20,939,337$(10,482,845)$20,939,337Total liabilities$10,456,026$10,456,026Totalshareholdersequity$10,482,845$10,483,311$(10,482,845)$10,483,311Total liabilitiesandshareholdersequity$10,482,845$20,939,337$(10,482,845)$20,939,337Condensed Consolidating Schedule Statement of Cash Flows For the Six Months Ended June 30,2022 Harden HardenInternational Subsidiaries Eliminations ConsolidatedTotal2023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm34/214Net cash(used in)provided byoperatingactivities$(612)$(16)$(1,783,730)$(1,784,342)Net cash used ininvestingactivities$(203,880)$(203,880)Net cash providedby(used in)financingactivities$28,780$16$1,828,455$1,828,455 Inter-companycash transfers:None$192023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm35/214Table of Contents For the Year Ended December 31,2021 Harden HardenInternational Subsidiaries Eliminations ConsolidatedTotalNet cash(used in)provided byoperatingactivities$(28,057)$(10)$848,014$819,947 Net cash used ininvestingactivities$(12,990)$(238,080)$(251,070)Net cash providedby(used in)financingactivities$28,780$13,000$59,487$101,267 Inter-companycash transfers:Transfer fromHarden toSubsidiaries$(12,990)$12,990$For the Year Ended December 31,2020 Harden HardenInternational Subsidiaries Eliminations ConsolidatedTotalNet cash(used in)provided byoperatingactivities$(1,618,583)$(1,618,583)Net cash used ininvestingactivities$(501,465)$(501,465)Net cash providedby(used in)financingactivities$441,640$441,640 Inter-companycash transfers:None$202023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm36/214Table of ContentsRISK FACTORSInvestment in our securities involves a high degree of risk.You shouldcarefully consider the risks described below together with all of the otherinformation included in this prospectus before making an investmentdecision.The risks and uncertainties described below represent our knownmaterial risks to our business.If any of the following risks actuallyoccurs,our business,financial condition or results of operations couldsuffer.In that case,you may lose all or part of your investment.Youshould not invest in this offering unless you can afford to lose yourentire investment.Risks Related to Our BusinessThe novel coronavirus could have a material adverse impact upon ourbusiness,results of operations,financial condition,cash flows orliquidity.In the last few years the outbreak of a novel strain of coronavirus(“COVID-19”)in China has spread rapidly throughout the world.COVID-19 and has resulted inquarantines,travel restrictions,and the temporary closure of stores and facilitiesthroughout China and the rest of the world.In March 2020,the World HealthOrganization declared COVID-19 a pandemic.Government efforts to contain the spreadof the coronavirus and responses by businesses and individuals to reduce the risk ofexposure to infection have caused significant disruptions to the global economy andnormal business operations across a growing list of countries and business sectors.These efforts are likely to adversely affect business confidence and consumersentiment,and have been,and may continue to be,accompanied by significantvolatility in financial and commodity markets.The spread of the coronavirus andvarious variants also may have broader macro-economic implications,including reducedlevels of economic growth and possibly a global recession,the effects of which couldbe felt well beyond the time the spread of infection is contained.In terms of the impact on us and the industrial recycling machinery,parts andequipment industry in China,after the COVID-19 outbreak began in China in December2019,many Chinese cities and villages were locked down to control the spread of thedisease.Our facilities as well as those of our suppliers were closed down for a fewmonths in early 2020.On December 7,2022,China announced 10 new rules thatconstitute a relaxation of almost all of its stringent COVID-19 pandemic controlmeasures.Shortly after their announcement,additional mobility restrictions issuedby local governments were also scrapped.While such measures effectively reopenedbusiness within China,COVID-19s continued existence may have significant and stillnot well-understood impacts on our industry.Although our supply chains and our ability to produce parts and machinery are upand running,the foregoing developments could adversely affect our ongoingoperations.As our customers struggle to recover from the effects of the COVID-19pandemic,there may be less demand for our products,and we may see decreased andcanceled orders.In addition,COVID-19 may also negatively impact our customersbusinesses,which may reduce their budgets on industrial recycling equipment.We currently are unable to predict the full effect of COVID-19 and responsesthereto on our business and operations,and on our results of operations,financialcondition,cash flow and liquidity,as these depend on rapidly evolving developments,which are highly uncertain and will be a function of factors beyond our control,suchas:damage to a recovery of the industrial recycling market and other markets inChina;implementation of effective measures to prevent and contain furtheroutbreaks;development and distribution of effective medical solutions,includingCOVID-19 vaccines;timing and scope of governmental restrictions on mobility and otheractivities;financial and other market reactions to the foregoing;and reactions and responses of the populace both in affected regions and regionsyet to be affected.While we expect we will suffer adverse effects,the more severe the outbreak andthe longer it lasts,the more likely it is that the impact upon our financialcondition and results of operations will be materially adverse.212023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm37/214Table of ContentsOur revenue and net income may be materially and adversely affected by anyeconomic slowdown in China.In recent years,the PRC government has implemented several measures to controlthe rate of economic growth,including raising interest rates and adjusting depositreserve ratios for commercial banks as well as by implementing other measuresdesigned to tighten credit and liquidity.These measures have contributed to aslowdown of the PRC economy.According to the National Bureau of Statistics of China,Chinas GDP growth rate was 8.1 percent growth year-on-year over 2000.Anycontinuing or worsening slowdown could significantly reduce domestic commerce inChina.An economic downturn,whether actual or perceived,a further decrease ineconomic growth rates or an otherwise uncertain economic outlook in China could havea material adverse effect on our business,financial condition and results ofoperations.Our business is dependent on third-party suppliers and changes ordifficulties in our relationships with our suppliers may harm our businessand financial results.We are dependent on our suppliers for material necessary to manufacture ourproducts.For the six months ended June 30,2022,no supplier accounted for more than10%of the Companys total purchases.For the year ended December 31,2021,nosupplier accounted for more than 10%of the Companys total purchases.For the yearended December 31,2020,one supplier accounted for approximately 12%of theCompanys total purchases.We entered into a purchase contract with this supplier,Demark Environmental Technology Co.,Ltd.(“Demark”),on March 26,2020.Pursuant tothe agreement,Demark supplied us with three hydraulic power stations for use in ouroperations.The agreement included a one-year warranty period.The agreement relatedsolely to the sale of such machinery and did not apply to any future equipmentpurchases.The total purchase price was RMB 445,803.As of June 30,2022,December31,2021 and 2020,no supplier accounted for more than 10%of the Companys accountspayable.Our suppliers may fail to meet timelines or contractual obligations or provide uswith sufficient products,which may adversely affect our business.Certain of ourcontracts with key suppliers,can be terminated by the supplier upon giving noticewithin a certain period and restrict us from using other suppliers.Failure toappropriately structure or adequately manage our agreements with third parties mayadversely affect our supply of products.We are also subject to credit risk withrespect to our third-party suppliers.The insolvency of any such suppliers couldresult in increased charges or the termination of the service contracts.We may notbe able to replace a supplier within a reasonable period of time,on as favorableterms or without disruption to our operations.Any adverse changes to ourrelationships with third-party suppliers could have a material adverse effect on ourimage,brand and reputation,as well as on our business,financial condition andresults of operations.In addition,to the extent that our creditworthiness is impaired,or generaleconomic conditions decline,certain of our key suppliers may demand onerous paymentterms that could materially adversely affect our working capital position,or suchsuppliers may refuse to continue to supply to us.Our business is dependent on certain major customers and changes ordifficulties in our relationships with our major customers may harm ourbusiness and financial results.From time to time,we may conduct business with customers that may account for asignificant amount of business.For the six months ended June 30,2022,no customeraccounted for more than 10%of the Companys total revenues.For the year endedDecember 31,2021,no customer accounted for more than 10%of the Companys totalrevenues.For the year ended December 31,2020,one customer accounted forapproximately 11%of the Companys total revenues.We entered into an equipmentpurchase contract with this customer,Shanghai Canzhou Environmental Engineering Co.,Ltd.(“Canzhou”)on March 17,2020.Pursuant to the agreement,we supplied Canzhouwith crushing equipment and technical and installation services for a total purchaseprice of RMB 2,330,000.The agreement included a warranty period of up to18 monthsafter delivery.The agreement related solely to the sale and installation of suchmachinery and did not apply to any future equipment purchases by Canzhou.As of June30,2022,no customer accounted for more than 10%of the Companys total accountsreceivable.As of December 31,2021,one customer accounted for approximately 10%ofthe Companys accounts receivable.As of December 31,2020,no customer accountedfor more than 10%of the Companys total accounts receivable.The loss of anysignificant customer may materially affect our business and financial condition.222023/2/15https:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htmhttps:/www.sec.gov/Archives/edgar/data/1873723/000121390023011473/ff12023_hardentech.htm38/214Table of ContentsAny decline in the availabi
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国际劳工组织：关于 2023 年拉丁美洲和加勒比地区劳动力概况的报告（摘要版）（英文版）(12 Seiten).pdf
#SocialJustice 2022 LABOUR OVERVIEWLatin America and the CaribbeanILO Regional Office for Latin America and the CaribbeanExecutive Summary X2022 LABOUR OVERVIEWLatin America and the CaribbeanExecutive Summary#SocialJusticeXXForewordThe sharp slowdown in economic growth projected for 2023,together with limited fiscal space and high levels of inflation,make for a highly complex and uncertain labour outlook for Latin America and the Caribbean.In this context,it is urgent to implement and strengthen policies that contribute to the creation of formal employment and the sustainability of labour income.Three years after the onset of a pandemic that caused a deep crisis in the labour markets of Latin America and the Caribbean,the good news is that the economic recovery has allowed employment to return to 2019 levels.The unemployment rate of 7.2 per cent that we had at the end of 2022 is significantly lower than in 2019,when it was 8 per cent.However,it is important to note that this was achieved in part because,unlike the employment rate,the regional labour force participation rate is still slightly lower than it was before the COVID-19 pandemic.Due to the low growth forecast for the economy,unemployment will most likely rise(albeit minimally)in 2023.At the same time,the countries of the region will have to face the consequences of a period of high inflation and its impact on wages,which are the main source of income for Latin American and Caribbean families.In addition,it will be necessary to closely monitor the evolution of informality,an endemic feature of our labour markets that brings with it job instability,low incomes and lack of social protection.This edition of the Labour Outlook corroborates that employment recovery after the pandemic crisis has been driven by the recovery of informal jobs,although the share of formal occupations in total employment has been growing.Some countries are already recording higher informality rates than in 2019.Currently,informal employment affects one out of every two workers in the region.The evolution of employment has shown different intensities between men and women.On average,women have recovered faster after the abrupt loss of female-dominated occupations at the most critical moment of the crisis.However,very dissimilar behaviors are also observed within this group.In particular,women with lower levels of qualification have lagged far behind in this recovery,even when compared to men with the same low level of education.Although the recovery of employment among young people has been more intense than among adults,the structural deficits they experience in the regions labour markets have persisted.The average unemployment rate for youth is almost 16 per cent.But some countries in the region exhibit significantly higher rates than this,reaching values above 30 per cent.In addition,the informal employment rate among young people in the region is around 60 per cent,significantly higher than the 47 per cent rate among adults.X The evolution of employment has shown different intensities between men and women.On average,women have recovered faster after the abrupt loss of female-dominated occupations at the most critical moment of the crisis.2 X2022 LABOUR OVERVIEWLatin America and the CaribbeanOn the other hand,this Labour Outlook 2022 report addresses two special topics.The first is the“working poor phenomenon,”which means that people can live in poverty even though they have a job,and even if it is a formal job.A growth in the percentage of the working poor is observed,while at the same time a close relationship with labour informality is evident.Informal workers are 3 to 4 times more likely to be poor than formal workers,while accounting for 70 to 90 per cent of the total working poor.This suggests that the most pressing problem for the region is the quality of employment and the insufficient labour and total income generated by workers and their families.The second special topic addresses the analysis of policies implemented by Latin American and Caribbean countries to sustain employment and incomes during the three years since the beginning of the pandemic.These strategies have contributed significantly to reduce the negative impacts of the crisis while identifying good practices and advancing institutionally in their design and implementation.However,important challenges remain in terms of their insufficient scope and coverage and a weak linkage with labour policies.The region demands,more than ever,strong measures to move firmly on a path of greater social justice and less inequality,where decent employment is the norm and not the exception,and where work is a means to live in dignity and overcome poverty.Claudia CoenjaertsILO Regional Director a.i.for Latin America and the Caribbean3 X ilo.org/americas FOREWORDXXExecutive SummaryInternational economic context characterized by slower growth and higher inflation rates poses complex challenges for the region XAlthough the global economy began to recover once the worst of the health crisis was over,the restrictions that continued to impede the normal evolution of the supply of goods,together with the increase in demand driven by the economic recovery,resulted in higher inflation rates.XThe inflationary acceleration,together with the depletion of fiscal spaces and the increase in indebtedness,led countries to adopt contractionary fiscal measures.XThis scenario,which already included a slowdown in global growth,worsened in early 2022 with Russias invasion of Ukraine.Projections for 2022 were revised to account for the deteriorating growth and inflation outlook,opening the space for a return of the term“stagflation”which describes a situation characterized by stagnation or even contraction in most economies along with the rise in inflationary rates to levels not observed in forty years.The economies of the region continued to grow at rates similar to historical averages despite the acceleration of inflation and the contractionary bias of macroeconomic policy XThe year 2022 was relatively good for the regions economies when compared to what was observed globally.The economies of Latin America and the Caribbean continued on the recovery path which began in 2021,as the effects of the health emergency linked to the COVID-19 pandemic were being left behind.XThe region is estimated to have grown between 3.7 per cent(for ECLAC)and 3.9 per cent(for the IMF)in 2022-rates equivalent to about half those of the previous year but still higher than the regions historical growth rates.XThus,the region as a whole and most of its countries exceeded 2019s activity levels in 2022,and in many cases earlier than anticipated.XAs with the rest of the world,one of the features of the regions post-pandemic macroeconomy is the increase in inflation rates.XAdditionally,a significant slowdown in growth is projected for 2023,with average rates for the region reaching 1.3 per cent,according to ECLAC,and 1.8 per cent,according to the IMF.XThese projections are subject to a significant level of uncertainty associated with the international context that will be shaped by both economic events and others which originate in situations outside the economy.Among the former are the increase in inflation rates and the measures that governments are taking to attack this problem,while among the latter we have to consider the X The year 2022 was relatively good for the regions economies when compared to what was observed globally.The economies of Latin America and the Caribbean continued on the recovery path which began in 2021.4 X2022 LABOUR OVERVIEWLatin America and the Caribbeanimpact of the war between Russia and the Ukraine and also the possibility of new outbreaks of the COVID-19 virus including the measures adopted to contain it,especially in China.XA complex short-term macroeconomic scenario for the economies of Latin America and the Caribbean is emerging,characterized by low economic growth rates,limited fiscal space,high inflation rates,high levels of indebtedness and lower liquidity in international financial markets.Labour market dynamics in Latin America and the Caribbean in the conjunction of multiple crises:full recovery of employment and partial recovery of labour supply XThree years after the onset of the COVID-19 pandemic,the regional employment rate returned to pre-crisis levels.This has been observed since the second quarter of 2022 when compared to the same quarter of 2019.XIn contrast to the employment rate,the regional labour force participation rate continues to be slightly lower than pre-pandemic records.As a result of the full recovery of employment and the partial recovery of labour supply,the unemployment rate is significantly lower than in 2019.XIn the third quarter of 2022,the regional employment rate was 58.4 per cent,the labour participation rate was 62.7 per cent,and the unemployment rate was 6.9 per cent.Three years earlier,in the third quarter of 2019,the employment rate was 58.2 per cent,the economic participation rate was 63.5 per cent and the unemployment rate was 8.4 per cent.XThe total recovery of the regional employment rate does not reflect the situation in all the countries considered:in 9 out of 15 countries the employment rate in the third quarter of 2022 was still lower than the value recorded three years earlier.XThe labour participation rate in the third quarter of 2022 exceeded the levels of the third quarter of 2019 in only 2 of the 15 countries considered.In some of the remaining countries the labour supply gap amounts to 3 percentage points.XAn average unemployment rate of 7.2 per cent is projected at the end of 2022.Uneven recovery of salaried and non-salaried employment XIn comparing the first three quarters of 2022 with the same period of 2021,a greater dynamism of salaried employment stands out in the region,with an average increase in the order of 8 per cent as compared to an increase of 5 per cent in non-salaried employment.XHowever,between 2019 and 2022 the net growth of non-salaried jobs(5.1 per cent)was higher than that observed among salaried jobs(4 per cent).XAs a result,the proportion of self-employed reached 29 per cent of total employment at present-on average-in the countries considered.XThis result may be worrisome to the extent that it is a consequence of workers starting self-employment activities as a refuge mechanism in the face of the insufficient creation of dependable jobs in the private sector;even more so,considering that the vast majority of self-employed jobs exhibit very high levels of informality and labour precariousness.5 X ilo.org/americas EXECUTIVE SUMMARYRecovery led by informal occupations,but with an increasing contribution of formal jobs to total employment growth XSince the mid-2020s,the recovery in jobs has been driven by the growth of informal occupations.XInformal employment has accounted for between 40 and 80 per cent of net job gains between the third quarter of 2020 and the third quarter of 2022.XHowever,the contribution of informal job growth has been declining since the beginning of the recovery.The simple average of the contribution of informal employment among 9 countries considered in the fourth quarter of 2020 was approximately 90 per cent,and about 60 per cent in the third quarter of 2022.In part,this has been associated with the dynamism of private formal employment.XDespite these positive behaviours at the regional level,in several countries in the region the informality rate in the second or third quarters of 2022 was similar or even higher than that observed in the fourth quarter of 2019.This is verified in half of the countries considered,even among those that have not recovered total pre-pandemic employment.XThe regional informality rate(average of 11 countries)is almost 50 per cent,close to the 2019 rate as well as to that observed a decade ago.XIf enough formal jobs are not generated for the return of those who remain outside of the labour force,there is a risk of persistent increases in the rate of labour informality.This is even more critical in the current context of strong uncertainty and slow economic growth.Hence the importance of implementing or scaling up policies,not only to sustain formal employment,but also to support the creation of new jobs of this type in the region.Stronger job recovery among women and reduction of gaps XAt the regional level,the recovery of female employment has been more intense than that of male employment.While for women the employment rate increased by 24.4 per cent between the second quarter of 2020 and the third quarter of 2022,for men this increase was 18.8 per cent.XThis favourable dynamic meant that in the third quarter of 2022 the employment rate for women exceeded the rate for the same quarter in 2019 by 1 per cent while the employment rate for men was the same in both quarters.XSimilarly,the recovery in womens labour participation relative to that of men was also stronger(19 and 13 per cent respectively).This meant that although the economic participation rate in the third quarter of 2022 was still lower than the 2019 record,the gap was larger for men(-1.4 per cent)than for women(-0.9 per cent).XIn addition to the recovery of jobs in the economic sectors most heavily hit by the pandemic and with a strong presence of women,the greater recovery of womens labour supply was potentially associated with the gradual ease of difficulties in reconciling paid work with family responsibilities when educational and care services,that had been profoundly altered by the health measures of social distancing and the reduction of peoples mobility,reopened.X Informal employment has accounted for between 40 and 80 per cent of net job gains between the third quarter of 2020 and the third quarter of 2022.6 X2022 LABOUR OVERVIEWLatin America and the Caribbean XThese dynamics allowed that after the initial increase in the gap in the employment rate and in the gap in the participation rate between men and women,both indicators returned to pre-pandemic values.XHowever,despite this favourable behaviour,labour gaps by gender are persistent and continue to be very high.In the third quarter of 2022,the regional female labour participation rate was 51.8 per cent-23 percentage points lower than that of men(74.5 per cent).The employment rate for women was 47.5 per cent-almost 23 percentage points lower than that of men(70.3 per cent).The unemployment rate,meanwhile,was 8.4 per cent and 5.7 per cent,respectively.XThe aggregate evolution of employment by gender averages,however,registered divergent dynamics within each group according to the educational level of workers.XIn particular,in the third quarter of 2022,women with the lowest educational level continued to be significantly further away from the employment level of the same quarter in 2019(-15 per cent)as compared to any other group of the employed.On the other extreme,the employment rates for middle-and higher-educated men were the same values as those observed three years earlier.XConstruction and domestic service are activities that show two extremes of the distribution of employment by sex,the first highly masculinized and the second highly feminized.Both sectors demand low-skilled labour.While the first sector is among the three with the highest growth in 2019,domestic service is among those with the lowest dynamism.Therefore,these divergent sectoral dynamics account,in part,for the greater recovery of low-education male employment compared to women with the same level of qualification.XIt is imperative to adopt labour policies with a gender perspective to eliminate barriers for entry into the labour market and expand the range of job opportunities for women in general,with particular attention to those with lower qualifications.Stronger recovery of employment among young people XDuring the recovery phase young people returned to employment faster than adults.The regional employment rate of young people in the third quarter of 2022 was 3 per cent higher than in the same period of 2019,while that of adults registered a drop of just over 2 per cent.XHowever,the regional(9 countries)youth employment rate in the third quarter of 2022 was 41.8 per cent,20.4 percentage points lower than that of adults(62.2 per cent).XAlso,although the average youth unemployment rate was declining after peaking at 24.5 per cent in mid-2020,it remains very high at 15.8 per cent.However,this rate has declined by almost 4 percentage points between the third quarter of 2019 and the same period of 2022.XThe regional informality rate among youth,on the other hand,is around 60 per cent,significantly higher than the 47 per cent recorded among adults.XIn addition,the difficulties experienced by young people in the regions labour markets persist.They face greater labour intermittency due to the intense inflows and outflows of the labour force.Greater occupational instability,in turn,is associated with their greater prevalence in informal,precarious,low-skilled activities.XThese challenges may be exacerbated by technological change.The pandemic highlighted the digital divide that exists between regions and countries;and within countries,among young people with different educational,qualification and socioeconomic levels,as well as between young people living in urban and rural areas.XIn this context of growing demand for digital skills,vocational training is essential to reduce the digital and skills gap among young people,as well as to ensure their increased employability and access to decent jobs.7 X ilo.org/americas EXECUTIVE SUMMARYTelework:three years into the pandemic,incidence remains higher than in 2019 XThe proportion of people engaged in teleworking continues to be higher than the values recorded prior to the outbreak of the pandemic in the region.XFormal workers,with higher qualifications,women,middle-aged and in professional,technical and managerial occupations,are those who three years after the outbreak of the pandemic continue to make more frequent use of this modality.XWith the acceleration of digitalization processes and the use of information technologies,it is plausible to expect that hybrid forms between face-to-face work and teleworking will continue to be more common than in the past.XThis is why it is necessary to ensure the protection of labour rights,the health and safety of workers under this modality,as well as identify good practices that allow companies to take productive advantage.The loss of the purchasing power of average wages and minimum wages in the face of inflationary acceleration XThe recovery of real labour income has been slower since 2021.In a broad set of countries,the gap between nominal average income and real income has been widening significantly as a consequence of inflationary acceleration and its negative impact on the purchasing power of wages.XIn almost all of these countries real average hourly wages are lower than those recorded before the onset of the pandemic.XHigher inflation also impacted real minimum wages.In 9 out of 17 countries in the region the real value of this labour institution in the second half of 2022 was lower than the value in the first half of 2019.In some of them the loss of purchasing power amounts to 6/7 per cent,even 10/11 per cent.In 4 countries the real minimum wage is similar to that observed three years ago.Therefore,in only 4 of the 17 countries is the real value higher than in that year.Insufficient recovery of aggregate labour income,but with improvements in distribution XTotal real labour income in the third quarter of 2022 had not exceeded the values at the end of 2019 in several of the regions countries,even in those where total employment had reached pre-pandemic values.XConsistent with this,in the second/third quarter of 2022,in almost all countries the percentage of households without labour income exceeded those recorded prior to the onset of the pandemic.XAfter the peak values recorded in the second quarter of 2020,total household income inequality has declined.XThis has been the result of different behaviours in its sources.During the contractionary phase,the dynamics of the labour market were strongly inequitable.However,the public transfer policies implemented,in particular during 2020,aimed primarily at households in vulnerable situations,and made it possible to reduce(or reverse)the negative impact stemming from the contraction in employment and labour income.XThings changed in the recovery phase.Employment growth allowed a significant set of households located at the bottom of the distribution to increase their labour income which resulted in a reduction of total inequality.8 X2022 LABOUR OVERVIEWLatin America and the Caribbean XHowever,the progressive withdrawal of public transfer policies implemented in the face of the crisis due to the pandemic made the behaviour of this source unequal or less equalizing than in the previous phase.Prospects for the regions labour markets:complex scenario that demands the implementation and strengthening of different types of policies XThe average unemployment rate for 2022 is projected to be 7.2 per cent,with a range between 7 per cent and 7.3 per cent,and to remain almost unchanged in 2023 in a range of between 7.2 per cent and 7.5 per cent XAdditionally,in the context of a sharp slowdown in economic growth,job creation may continue to be skewed toward the generation of informal jobs.XThe loss of the purchasing power of labour income means that the“working poor phenomenon”-meaning that people can live in poverty even if they have a job-is growing in the region.Even more so considering that employment levels in several countries have returned to pre-pandemic values or are close to them,but the aggregate of real labour and family income is still lower than at that time.XThus,a highly complex scenario is projected which demands the implementation and strengthening of different types of policies.XOn the one hand,the region needs policies to sustain and create more and better employment,in particular,formal jobs.On the other hand,the inflationary context demands the strengthening of labour institutions,like minimum wage and collective bargaining.XSocial dialogue is key,taking into account the needs and possibilities of workers and employers.This is even more relevant in a changing context in the organization of work and when measures are needed to close persistent labour gaps in order to enable the positive effects of digital transition,demographic transition and just transition.XFinally,it is necessary to make strong progress in providing income guarantees for those who are most affected by the loss of purchasing power,together with active labour market policies.X Employment growth allowed a significant set of households located at the bottom of the distribution to increase their labour income which resulted in a reduction of total inequality.9 X ilo.org/americas EXECUTIVE SUMMARYILO Regional Office for Latin America and the Caribbean#SocialJustice?OITAmericas ilo.org/americas?oit_americas 2022 LABOUR OVERVIEWLatin America and the CaribbeanExecutive Summary
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联合国粮食及农业组织：2022 年世界香蕉市场回顾的初步统计结果（英文版）(21 Seiten).pdf
BANANA Market Review Preliminary results 2022 Food and Agriculture Organization of the United Nations Rome,2022 BANANA Market Review Preliminary results 2022 Required citation:FAO.2022.Banana Market Review Preliminary results 2022.Rome.The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations(FAO)concerning the legal or development status of any country,territory,city or area or of its authorities,or concerning the delimitation of its frontiers or boundaries.The mention of specific companies or products of manufacturers,whether or not these have been patented,does not imply that these have been endorsed or recommended by FAO in preference to others of a similar nature that are not mentioned.The views expressed in this information product are those of the author(s)and do not necessarily reflect the views or policies of FAO.FAO,2022 Some rights reserved.This work is made available under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 IGO licence(CC BY-NC-SA 3.0 IGO;https:/creativecommons.org/licenses/by-nc-sa/3.0/igo/legalcode).Under the terms of this licence,this work may be copied,redistributed and adapted for non-commercial purposes,provided that the work is appropriately cited.In any use of this work,there should be no suggestion that FAO endorses any specific organization,products or services.The use of the FAO logo is not permitted.If the work is adapted,then it must be licensed under the same or equivalent Creative Commons licence.If a translation of this work is created,it must include the following disclaimer along with the required citation:“This translation was not created by the Food and Agriculture Organization of the United Nations(FAO).FAO is not responsible for the content or accuracy of this translation.The original English edition shall be the authoritative edition.”Disputes arising under the licence that cannot be settled amicably will be resolved by mediation and arbitration as described in Article 8 of the licence except as otherwise provided herein.The applicable mediation rules will be the mediation rules of the World Intellectual Property Organization http:/www.wipo.int/amc/en/mediation/rules and any arbitration will be conducted in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law(UNCITRAL).Third-party materials.Users wishing to reuse material from this work that is attributed to a third party,such as tables,figures or images,are responsible for determining whether permission is needed for that reuse and for obtaining permission from the copyright holder.The risk of claims resulting from infringement of any third-party-owned component in the work rests solely with the user.Sales,rights and licensing.FAO information products are available on the FAO website(www.fao.org/publications)and can be purchased through publications-salesfao.org.Requests for commercial use should be submitted via:www.fao.org/contactus/licence-request.Queries regarding rights and licensing should be submitted to:copyrightfao.org.Cover and footer photos:FAO/Daniel Hayduk FAO/Giulio Napolitano FAO/Fredrik Lerneryd Foreword photo:FAO/TANG CHHIN Sothy iii CONTENTS Contents.iii Note on methodology.iv Foreword.v Developments at a glance.vi Preliminary results on developments in global banana trade 2022.1 Exports.2 Imports.6 Statistical annex.10 Table 1-Banana exports.10 Table 2-Banana imports.11 iv NOTE ON METHODOLOGY This preliminary report describes expected full-year results on developments in global banana trade in 2022.The analysis contained herein is based on provisional full-year estimates that were compiled and constructed from the following sources:country responses to the 2022 questionnaire of the FAO Intergovernmental Subgroup on Bananas;data from the UN Comtrade database and Trade Data Monitor Inc.;and secondary data and information from desk research.The findings incorporate preliminary monthly trade data as well as information from industry sources as available up to the end of October 2022.Due to the customary lag in the reporting of monthly trade data of approximately 40 days,full-year estimates in this report were built on monthly export data by country as reported up to July/August 2022,and on monthly import data as reported up to August/September 2022.FAO is continuously monitoring global trade flows of bananas and will update these results in the second quarter of 2023 when official full year data have been released and validated.All datasets refer to global trade of fresh bananas,excluding plantains,as covered by HS code 080390 under the harmonized tariff nomenclature system of the World Customs Organization.Data on the import volumes of the European Union exclude the United Kingdom of Great Britain and Northern Ireland since February 2020 All data in this report should be considered as provisional.v FOREWORD The Banana Market Review Preliminary Results are issued on an annual basis to Members and Observers of the Subgroup on Bananas of the Intergovernmental Group on Bananas and Tropical Fruits,which is a subsidiary body of the Committee on Commodity Problems(CCP).They are prepared by the Team on Responsible Global Value Chains,Markets and Trade Division,Food and Agriculture Organization of the United Nations(FAO),Rome,and the tables contained bring together the information available to FAO,supplemented by data obtained from other sources in particular with regard to preliminary estimates.The Team on Responsible Global Value Chains provides research and analyses on global value chains for agricultural commodities,and economic data and analyses on tropical fruits.Regular publications include market reviews,outlook appraisals and projections for bananas and tropical fruits.The team also provides assistance to developing countries in designing and implementing national policies regarding responsible value chains in agriculture.The report is available at the following FAO website:https:/www.fao.org/markets-and-trade/commodities/bananas/en vi DEVELOPMENTS AT A GLANCE Global export quantities of bananas continued to display a strong tendency to decline during the first half of 2022,in stark contrast to the fast-paced growth experienced in pre-pandemic years.Preliminary full-year estimates indicate that first semester conditions persisting global export quantities would fall by some 1.2 million tonnes from their 2021 level,to approximately 19.6 million tonnes in 2022.Amid a difficult global operating environment,obstacles to global banana trade have seemingly been mainly present on the supply side,with demand in importing countries remaining relatively strong.Key factors affecting trade prospects in 2022 have been reported as:Production shortages caused by adverse weather conditions and insufficient fertilizer application.Substantially higher costs for inputs as well as high global transportation costs during the first half of the year.The significant appreciation of the United States dollar against the currencies of many banana-exporting and importing countries.Concerns surrounding the spread of plant diseases,importantly Banana Fusarium Wilt Tropical Race 4.More stringent limitations on maximum residue levels in some of the major markets These difficulties have been affecting the ability of producers and exporters to supply bananas in adequate quantities and to the quality standards expected in export markets in all key regions.In the majority of the leading import markets,and notably in the European Union and the United States of America,prices at all levels have accordingly been displaying a tendency to increase.However,industry sources reported that producer prices have been remaining stagnant at very low levels,a situation caused by intense competition between banana suppliers,quality concerns experienced in many origins in 2022 as well as by the saturation in global markets during the early months of the Ukraine war.This has been exerting mounting pressure on producer margins and thereby severely limiting the present and future operability and sustainability of the banana industry.1 Banana Market Review Preliminary Results 2022 Preliminary results on developments in global banana trade 2022 According to preliminary data and information,global trade in bananas continues to be negatively affected by several factors on the supply side in 2022,which have induced rising producer costs and consequent supply shortages,against relatively stable demand in key import markets.Industry sources report that the high prices for fertilizers in 2021 and throughout the first half of 2022 have resulted in a reduced application by farmers,hampering the productivity and quality of banana cultivation in key producing areas.Adverse weather conditions,including abnormally cold weather related to the La Nia phenomenon in Ecuador as well as the passing of yet another severe tropical storm through the Caribbean have further impacted the quantities available for export.Higher reject rates on the grounds of produce not meeting the quality standards expected in export markets have been of mounting concern in all exporting regions.More stringent maximum residue levels in key importing markets,notably in the United States of America and the European Union,have been adding further pressure on producers and exporters,as produce not meeting these new requirements cannot be exported.Shortages in refrigerated containers stemming from the prolonged lockdowns implemented in some Asian countries during 2022 alongside high global transportation costs in the first half of the year have been posing additional obstacles to export growth.Severe concerns about the spread of plant diseases,importantly the devastating spread of the Banana Fusarium Wilt Tropical Race 4(TR4)disease in the Philippines and its alarming presence in Peru and Columbia,further continue to cause substantial economic strain,both in terms of the additional costs associated with disease prevention and production losses.Moreover,in view of the ongoing pandemic,the persisting necessity to apply elevated sanitary measures and physical distancing to protect workers from COVID-19 has continued to cause additional costs to producers and operators along the supply chain,especially during the first half of 2022.Meanwhile,the war in Ukraine has exacerbated already previously mounting pressures on global energy and fertilizer markets as well as supply chains,with shortages in fertilizers widely reported by the banana industry during the first half of 2022.Critically,the conflict has also resulted in the discontinuation of important trade relations amid the economic sanctions imposed on the Russian Federation and has caused severe disruptions to transport routes to Ukraine.The repercussions of these developments for global banana markets in the first half of 2022 were immediate and drastic.The Russian Federation ranks as the fourth largest importer of bananas globally,procuring some 1.4 to 1.5 million tonnes from world markets annually.These quantities translate into some 6 to 7 percent of global banana shipments that were facing considerable obstacles to reach their destination market in March and April 2022.While this situation had particularly dire consequences for Ecuador,from where some 98 percent of Russian banana imports originate,it reportedly also caused a situation of oversupply and price declines in world export markets.Prior to the war,Ecuador supplied some 20 to 25 percent of its yearly banana exports to the Russian Federation,and some 3 percent to Ukraine.Industry sources from Ecuador reported that the sudden loss of both export markets and lack of alternative destinations resulted in large quantities of bananas going to waste during these months,a plummeting of producer prices from USD 6.25 to around USD 1.201.50 per box,and a dramatic number of bankruptcies among producers,mostly small producers selling through spot markets.Although export flows of bananas from Ecuador to the Russian Federation seemingly recovered at a fast rate during the months of May to July 2022,available monthly trade data show another plummeting in August 2022,leaving the outlook highly uncertain.The difficult operating environment in 2022 has been further complicated by the significant depreciation of currencies against the United States dollar,which has been affecting operations all along the value chain since transactions in the banana industry,including the purchasing of inputs,are habitually conducted in United States dollars.This has been exerting additional upward pressure on costs to producers,exporters,and importers.Although some prices along the value chain have displayed a tendency to increase in 2022,following years of very little fluctuation amid 2 Banana Market Review Preliminary Results 2022 a highly competitive global operating environment,this has not been sufficient to compensate for the substantially higher costs.Importantly,prices received by producers and exporters have been exposed to further downward pressure stemming from the production difficulties and quality concerns experienced in many origins in 2022 as well as the saturation in global markets during the early months of the Ukraine war,leaving the erosion of profit margins of most critical concern to the sustainability of the banana industry.While producer costs reportedly continue to be some 4050 percent above their pre-pandemic levels,prices at farmgate,export,import,wholesale and retail level have seen comparatively little upward movement,if not negative change.1 For example,export unit values from Ecuador and Colombia,two of the leading suppliers of bananas to global markets,respectively averaged some 9 percent and 4 percent below their previous years level over the first nine months of 2022.Import prices in the European Union,meanwhile,remained at an average of USD 932 per tonne over the first nine months of 2022,a mere 0.2 percent higher than over the same period of 2021.Wholesale and retail prices in the United States of America respectively rose by a moderate 5 and 7 percent year-on-year over this period,less than the inflation rate of 8.2 percent recorded in the United States of America in September 2022.As such bananas have remained among the cheapest fruits on the shelves in key import markets,despite the plethora of simultaneous difficulties and severe cost increases experienced by the sector in 2022.With regard to the outlook,several significant threats to global production,trade and consumption of bananas are present.The prolonged lockdowns implemented in some Asian countries during 2022 indicate that the threat of supply chain disruptions and economic repercussions stemming from the COVID-19 pandemic mitigation measures continues to be present.The likely recessions that some analysts are predicting for key global economies and prevailing high inflation rates threaten to hinder demand,especially for consumers in poorer economic strata who need to spend a higher proportion of their income on food.Meanwhile,the effects of global warming are resulting in a higher occurrence of 1 https:/droughts,floods,hurricanes and other natural disasters,which render the production of bananas increasingly difficult,uncertain and costly.The prospects for production are further threatened by an elevated risk of industry contraction caused by business closures,with producers discouraged to continue their operations by low or even negative producer margins,reducing supplies to world markets and consequently causing higher food prices.Data on developments in world export and import markets over the first eight months of 2022 already point to this direction,with all key regions being affected.Exports First semester conditions persisting,preliminary estimates indicate that global exports of bananas,excluding plantain,may experience a decline of 4 percent in 2022,marking another year of disruption to the fast-paced growth experienced in pre-pandemic years.Total export quantities are thereby estimated to fall from 20.5 million tonnes in 2021 to approximately 19.6 million tonnes in 2022.Similar to the situation in 2021,most of the leading global suppliers of bananas with the exception of Guatemala and Colombia will seemingly be affected by negative growth,having in several cases already registered double-digit percentage declines in quantities exported over the first half of the year.The persistently high costs of fertilizers,which had already led to a reduction in use in 2021,were quoted as the key obstacle affecting producers ability to supply bananas in adequate quantities and to the quality standards expected in export markets in all regions.Adverse weather conditions affecting production and yields additionally continued to be of concern during the first nine months of 2022,while high costs for land transport and long-distance shipping impeded exporters capacity to supply international markets.Against this background,shipments from Latin America and the Caribbean(LAC),the worlds leading exporting region,are expected to fall by an estimated 5 percent in 2022,to a total of approximately 15.1 million tonnes some 800 000 tonnes lower than their 2021 level.Ecuador,the largest exporter of bananas globally,registered an unprecedented 8 3 Banana Market Review Preliminary Results 2022 percent decline in shipments in the first seven months of 2022,meaning that over the full year,total exports from the country would drop to approximately 6.2 million tonnes.Industry sources reported that colder than normal temperatures in the country affected production by slowing the growth of fruits and affecting their quality grading,in turn raising costs and reducing profit opportunities.Shortages in the availability of critical fertilizers such as urea,which were previously imported from the Russian Federation and Ukraine,additionally lowered the quality of fruits for export.Further pressure on growers arose from continuously increasing production costs associated with higher prices for inputs and transport,particularly during the first half of the year,as well as from higher expenditures stemming from the necessity to maintain rigorous TR4 mitigation measures in view of the outbreaks of TR4 in neighbouring Colombia and Peru.The depreciation of the Euro against the United States dollar furthermore resulted in double-digit declines in exports to key European Union importers between January and July 2022,with monthly data obtained from the Ecuador Central Bank showing particularly large year-on-year drops of 47 percent and 30 percent 2 https:/in shipments to Germany and Italy,respectively.According to specialized media,the increasingly frequent placement of illegal substances into banana containers also continued to be of mounting concern for exporters,who were reportedly faced with losses of over USD 12 000 per confiscated container.2 More stringent maximum residue level regulations in some key destination markets such as the European Union and the United States of America posed further obstacles.Shipments from Costa Rica,the second largest exporter from the region in 2021 and third leading exporter to the European Union(EU-27),reportedly continued to be affected by production shortages in 2022.Already starting in 2021,like most other banana exporting countries from the region,Costa Rica had faced difficulty arising from the higher costs of inputs and transportation as well as the need to maintain stringent and costly TR4 mitigation measures.According to industry information,these constraints on production resulted in a deterioration in the quality of fruits for export,which hindered the export potential for bananas from Costa Rica,particularly in the first half of 2022.At the time of writing,monthly 15.515.916.415.915.13.55.95.23.93.90.70.70.60.60.7051015202520182019202020212022Latin America and the CaribbeanAsiaAfricaFigure 1.World banana exports by region,20182022(preliminary),million tonnes 4 Banana Market Review Preliminary Results 2022 export data from the Costa Rica National Institute of Statistics were available up to March 2022,showing a year-on-year decline of 5.4 percent in quantity terms over this period.Data provided by trade partner countries,as available up to the end of August 2022,meanwhile,indicate that banana exports from Costa Rica continued to decrease over the following months,pointing to a full-year estimated total of approximately 2.1 million tonnes,some 9 percent lower than in the previous year.Meanwhile,shipments from Guatemala,the third largest exporter from the LAC region in 2021,registered growth of nearly 10 percent over the first eight months of 2022,pointing to a full-year estimated total of 2.5 million tonnes.This would mark a strong recovery from the Hurricane-induced production shortages and subsequent 2-percent fall in exports that had affected banana supplies from Guatemala in 2021 and reflect successful investments in plantation recovery.Preliminary monthly trade data by destination for the period January to August 2022 indicate that a 12-percent year-on-year increase in shipments to the United States of America,the main destination for bananas from Guatemala,underpinned this development.Despite inflationary pressures,demand for bananas in the United States of America continued to be supported by the fruits relative affordability,thereby enabling a 5-percent year-on-year increase in the average export unit value for shipments from Guatemala to the United States of America over the period January to August 2022.Exports from Colombia,the fourth leading supplier of bananas in the LAC region in 2021,are expected to remain broadly at their previous years level of approximately 2.1 million tonnes in 2022.This estimate is based on monthly trade data disseminated by the Colombia National Customs Office for the period January to August 2022,which show year-on-year growth of 1 percent over this period,albeit accompanied by a 2-percent decrease in average export unit values.According to industry information,amid a difficult global operating environment,the country was able to keep export quantities comparatively steady through the implementation of successful disease mitigation strategies pertaining to 3 https:/4 https:/the TR4 outbreak discovered in plantations in 2019 and to the impact of the COVID-19 pandemic.Further investments into the containment of the TR4 outbreak were announced to be forthcoming.3 However,despite the comparatively positive situation for export supplies,industry sources reported severe difficulties stemming from the fact that the prices received by growers have remained at the same level as five years earlier,forcing growers to absorb the recent hikes in the prices for fertilizers,other inputs and transport.Provisional estimates indicate that shipments from Mexico will fall by approximately 12 percent in 2022,to 450 000 tonnes.While Mexico continues to be a comparatively small exporter in global banana markets,the country emerged as the second leading supplier of organic bananas to the United States of America in recent years,behind Ecuador.On average,some 80 percent of Mexican supplies are destined for the United States of America,with the remainder primarily going to Japan.In the first half of 2022,production in Mexico was reportedly affected by the La Nia weather phenomenon as well as farm closures,which resulted in a reduction in supplies for export markets and a 5-percent year-on-year increase in the average export unit value.4 Exports from Honduras,also a comparatively minor exporter from the region,meanwhile,displayed year-on-year growth of 84 percent in quantity terms over the period January to July 2022,according to monthly trade data provided by the Honduras National Institute of Statistics.Successful investments in production recovery after two back-to-back Hurricanes had destroyed approximately 40 percent of the countrys banana plants in November 2020 were the key reason behind this strong growth.Some 95 percent of bananas from Honduras are destined for the United States of America,where demand for bananas continued to be relatively strong over this period.Over the full year,banana exports from Honduras would thereby be expected to expand by some 60 percent,to reach a total of approximately 340 000 tonnes in 2022.5 Banana Market Review Preliminary Results 2022 Available partner data and information indicate that exports from the Caribbean subregion may fall by an estimated 9 percent over the full year 2022,to some 330 000 tonnes.An apparent reduction in shipments from the Dominican Republic,which accounts on average for some 95 percent of banana supplies from the Caribbean,would be the key reason behind this.While at the time of writing,direct monthly data on trade quantities from the Dominican Republic were not obtainable,banana production in the Dominican Republic was reportedly heavily affected by the substantially higher costs for inputs and transport in 2022,including domestic land transport,which reduced producers ability to remain operational.5 In addition to these difficulties,the Dominican Republic was affected by the passing of Hurricane Fiona in September 2022,with the estimated damage of plantations further reducing growth prospects for shipments from the country for the remainder of 2022.6 According to provisional data and information,banana exports from Asia may contract by some 2 percent in 2022,to just below 3.9 million tonnes.This would mark the third year of consecutive declines in shipments from the region,following drastic falls on account of the COVID-19 pandemic related difficulties and the impact of TR4 in 2020 and 2021.The main exporter from the region continues to be the Philippines,which supplies some 60 percent of Asian banana shipments on average but has seen production severely affected by the spread of TR4 in the country as well as the high costs of inputs and fertilizers.7 Both developments are reportedly having a particularly detrimental effect on small-scale banana producers in the Philippines,who are struggling to procure the necessary agricultural inputs to meet the quality requirements of export markets.Based on available data and information,banana shipments from the Philippines are estimated to fall by some 6 percent over the full year,to 2.3 million tonnes.Strong import demand from China and from some emerging importers in the Middle East,meanwhile,continued to drive investments in banana 5 https:/https:/https:/.ph/2022/10/23/race-for-survival/8 Data in this market review exclude intra-African trade.plantations in Viet Nam,Cambodia and India,three rising banana exporters from the region.While Viet Nam and Cambodia are expected to continue to register double-digit growth in exports in 2022,shipping some 400 000 to 450 000 tonnes each,supplies from India are estimated to reach approximately 350 000 tonnes,accounting for some 3 percent year-on-year growth.Based on first semester developments,exports from Africa8 may register an estimated expansion of 4 percent in quantity terms in 2022,reaching some 660 thousand tonnes and thereby returning more closely to their pre-pandemic levels.An expected 15 percent growth in supplies from Cameroon,to some 220 000 tonnes,would be the main reason behind this.Available partner data from the European Commissions EuroStat show an increase in imports from Belgium,the largest recipient of bananas from Cameroon,by 8 percent over the first seven months of 2022,to some 80 000 tonnes.Monthly trade data from the United Kingdom HM Customs for the period January to August 2022,meanwhile,indicate that 1 2 3 4 5 6 7 820182022Figure 2.World banana exports by leading origins,20182022(preliminary),million tonnes 6 Banana Market Review Preliminary Results 2022 shipments from Cameroon to the United Kingdom grew by 78 percent compared with the same period of the previous year,totalling some 36 000 tonnes.At an approximate quantity share of 32 percent over the 2016 to 2020 period,Cameroon ranks as the second largest banana exporter from the region behind Cte dIvoire.In 2022,supplies from Cameroon reportedly benefitted from successful investments in production expansion,although it is difficult to assess the weight of various drivers such as increases in area and in productivity and the improved security situation in the country.Preliminary data on supplies from Cte dIvoire for the period January to August 2022,meanwhile,show a 5-percent year-on-year decrease in quantity terms,accompanied by a 17-percent drop in the average export unit value.Full year exports from Cte dIvoire would thereby drop to some 320 000 tonnes in 2022.Shipments from Cte dIvoire primarily go to the European Union,mainly France,which typically receives 50 to 60 percent of quantities every year.In November 2020,Cte dIvoire had signed an Economic Partnership Agreement with the United Kingdom,which encompasses tariff-free trade of bananas between the two partners.Monthly export data for the period January to August 2022 show an increase of nearly 70 percent in exports from Cote dIvoire to the United Kingdom,to approximately 21 thousand tonnes.Imports Preliminary monthly trade data for the period January to July 2022 suggest that global net import quantities of bananas would decline by 2.5 percent in 2022,a reduction of nearly 500 000 tonnes from the previous year,to just below 19 million tonnes.While demand in most import markets reportedly remained constant,growth over the first seven months of the year was hindered by a reduced availability of export supplies as well as continuing bottlenecks in global shipping,which posed obstacles to supplies reaching their destination.These factors particularly affected the level of import quantities received over this period by the European Union,the United States of America,Japan,the United Kingdom,and Canada,which jointly 9 Provisional estimates provided by the European Commission in September 2022.account for some 60 percent of global imports.On the other hand,imports by China,the third largest importer of bananas globally,continued to expand at a fast rate over the first seven months of 2022,facilitated by strong domestic demand and ample availability of export supplies from emerging producers in Southeast Asia.Available monthly trade data show that net imports by the European Union(EU-27),the largest importer of bananas globally,decreased by some 3 percent over the first seven months of the year,pointing to a full year estimate of 5 million tonnes in 2022.This would be the second consecutive year of declining imports in the European Union,following over one decade of nearly uninterrupted expansion prior to the pandemic.While consumer demand reportedly displayed a tendency to increase in most EU markets,supported not only by the convenience factor and nutritional characteristics of bananas but also by their relative affordability,import growth remained curtailed by the supply shortages experienced in the key origins of Latin America and the Caribbean.For example,shipments from Ecuador and Costa Rica to Germany and Italy,two major importers of bananas within the European Union,registered double digit year-on-year declines in quantity terms over the period January to July 2022.Along with the negative overall performance of banana imports into the European Union in 2022,industry sources reported severe difficulties for importers arising from the higher costs along global supply chains as well as from the depreciation of the Euro against the US dollar.European banana production was estimated to decline to 591 580 tonnes in 2022,an approximate 7 percent decrease from 2021.9 On average,over 90 percent of EU banana production takes place in Spain and France,namely in the Canaries and the French West Indies.In the first ten months of 2022,banana production in Spain,which typically accounts for over 50 percent of EU banana production alone,was reportedly heavily affected by the aftermath of an 85-day lasting volcano eruption on the island of La Palma,a key cultivating area of the Canaries.Although the eruption had already started in September 2021,the damage caused by scorching and lava combined continued to heavily affect some 900 hectares of 7 Banana Market Review Preliminary Results 2022 plantations at the time of writing in October 2022.Provisional estimates provided by the European Commission in September 2022 therefore expect banana production in Spain to drop by 16 percent from the previous year,equivalent to a reduction by some 67 000 tonnes.Quantities produced in France,meanwhile,are estimated to grow by 9 percent year-on-year,on account of favourable weather conditions in the countrys two production areas,Guadeloupe and Martinique.Monthly trade data for the period January to July 2022 accordingly show a year-on-year drop of 37 percent for shipments from Spain,and an expansion of some 11 percent for exports from France.At a predicted average export unit value of EUR 630/tonne in 2022,banana supplies from France are set to compete fairly well against larger global exporters,while those from Spain are expected to reach concerningly high levels of EUR 1 210/tonne.10 Net imports into the United States of America displayed a very slight tendency to decline over the first eight months of the year,at-0.3 percent growth year-on-year,and are thereby estimated to remain almost unchanged at 4 million tonnes in 2022.Similar to the situation observed in the EU,consumer demand for bananas in the United States of America 10 Data refer to the estimated average unit value of EU green bananas based on average selling prices at the stage of delivery at the 1st port of unloading,as reported by the European Commission in September 2022.remained relatively stable,but import growth was subdued by quality concerns and production difficulties in key origins,alongside logistical issues.Available monthly import data show that,while shipments from Guatemala,from which the United States of America obtains some 40 percent of total procurements,showed relatively fast year-on-year growth of 5 percent in quantity terms over this period,those from most other origins were hampered by supply shortages and transport bottlenecks.This affected in particular imports from key LAC origins,notably Costa Rica,Ecuador,Mexico,Colombia,Panama and Peru,several of which registered double-digit year-on-year declines in quantity terms between January and August 2022.The reduction in combined imports amounted to some 250 000 tonnes over the period January to August 2022,as indicated by preliminary data and information.Although the United States of America simultaneously nearly doubled its procurements from Honduras over this period,to some 320 000 tonnes,the overall growth potential remained restrained.Against this background,United States of America wholesale and retail prices displayed a strong tendency to rise over the first 8 months of the year,respectively averaging 26.3!.3.6%7.4%5.7%4.623456European UnionUnited States ofAmericaChinaRussian FederationJapanLatin America andthe CaribbeanFigure 3.Distribution of global net imports by market,2022(preliminary),million tonnes and share in global imports 8 Banana Market Review Preliminary Results 2022 some 7 percent and 6 percent higher than over the same period of the previous year.Net imports by China grew by 2.5 percent year-on-year in quantity terms over the period January to September 2022,according to data obtained from China Customs Statistics in October.Over the full year,total imports by China are thereby estimated to reach 2 million tonnes,consolidating the countrys position as the third largest importer of bananas globally at an expected quantity share of 11 percent of global imports in 2022.Available information suggests that Chinese imports continued to be driven by ample domestic demand in combination with a limited and decreasing availability of high-quality domestically produced bananas.Import growth was further enabled by the fast expansion in supplies originating in Viet Nam and Cambodia,two emerging exporters in Asia,where an upsurge in Chinese-owned banana plantations has been seen in recent years.Preliminary monthly trade data show that Chinese imports from these two countries amounted to approximately 670 thousand tonnes combined over the period January to September 2022,a rise of some 10 percent from the previous year.Imports of Filipino bananas,meanwhile,dropped by a reported 8 percent over this period due to the continuing production difficulties experienced in the Philippines.China had previously imported some 50 to 75 percent of its total banana imports from the Philippines,but this share stood at a mere 38 percent over the first nine months of 2022.Over the same period,Chinese procurements from Ecuador,which had already seen fast expansion before the pandemic,grew by a reported 4 percent year-on-year.However,in absolute terms,at a quantity of some 160 000 tonnes,imports from Ecuador remained nearly 50 percent below their pre-pandemic levels,due to the supply issues experienced in the country and the substantial increases in global costs of transport,which rendered shipments over this long distance costly.At an average unit price of 700 USD/tonne over the first nine months of 2022,imports from Ecuador were approximately 30 percent more expensive than bananas originating in Viet Nam.Chinese imports from Lao Peoples Democratic Republic,another recently emerging location of Chinese investments in banana production facilities,meanwhile continued to be hindered by the implementation of strict COVID-19 pandemic mitigation measures in the country,which included the closure of ports and export routes up until May 2022.Provisional data accordingly show a decline of 9 percent in Chinese banana imports from Lao Peoples Democratic Republic for the period January to Figure 4.World banana imports by destination,20182022(preliminary),million tonnes 1 2 3 4 5 6European UnionUnited States ofAmericaChinaRussian FederationJapanLatin America andthe Caribbean20182022 9 Banana Market Review Preliminary Results 2022 September 2022,combined with a 22-percent increase in the average import unit value.Preliminary data indicate that net imports by the Russian Federation may remain virtually unchanged from the previous year,at an estimated 1.4 million tonnes in 2022.However,it is important to note that at the time of writing,direct monthly import data from the Russian Federation could only be obtained up to January 2022,rendering a precise assessment of recent developments difficult.The Russian Federation imports bananas almost exclusively from Ecuador via previously agreed contracts,which are settled in US dollars.Available partner data from Ecuador showed a 1-percent year-on-year increase in shipments to the Russian Federation over the period January to August 2022.While shipments from Ecuador to the Russian Federation were heavily curtailed by logistical issues during the first few months of the war,with exports from Ecuador posting approximate 30 percent and 10 percent year-on-year declines in March and April 2022 respectively,the situation eased over the summer months,with imports growing by over 20 percent year-on-year in June and July 2022.Nevertheless,overall growth opportunities continued to be severely limited by the economic sanctions imposed against the Russian Federation,which resulted in an economic crisis in the country.Monthly trade data accordingly show a 15-percent year-on-year drop in shipments from Ecuador to the Russian Federation again in August 2022.According to industry information from the same month,Russian importers frequently requested price discounts from Ecuadorian exporters or even cancelled previously agreed orders.The situation was exacerbated by the supply difficulties experienced in Ecuador,which posed an additional obstacle to higher import growth.Net imports by Japan look likely to decrease by an estimated 2 percent in 2022,to approximately 1.1 million tonnes.However,in absolute terms,this would still see banana imports remaining some 7 percent above their 2016-2020 average and thereby at a comparatively high level.While demand for bananas in the country remained relatively stable,import growth was dampened by the production shortages and supply chain issues experienced in global markets.Japan typically sources some 75 to 80 percent of its banana imports from the Philippines and some 12 percent from Ecuador,both of which experienced production difficulties in 2022,according to information up to October 2022.Available monthly trade data for the first eight months of the year accordingly show year-on-year declines in imports into Japan from the majority of origins,with shipments from Ecuador displaying a particularly large drop.10 Banana Market Review Preliminary Results 2022 Statistical annex Table 1-Banana exports 2016-2020 2021 2022(thousand tonnes)Latin America and the Caribbean 15 481 15 884 15 061 South America 8 831 9 412 8 758 Bolivia(Plurinational State of)123 115 139 Brazil 66 107 89 Colombia 1 881 2 103 2 125 Ecuador 6 452 6 813 6 216 Mexico 542 513 453 Panama 252 358 230 Peru 214 211 173 Suriname 46 5 1 Central America 6 279 6 108 5 973 Belize 135 215 204 Costa Rica 2 306 2 336 2 122 Guatemala 2 333 2 318 2 467 Honduras 584 211 341 Nicaragua 128 158 155 Caribbean 371 364 330 Dominican Republic 356 357 324 Asia 3 937 3 941 3 869 Cambodia 78 356 442 China,mainland 17 20 22 India 141 341 352 Indonesia 12 7 10 Malaysia 25 32 32 Pakistan 76 56 92 Philippines 3 159 2 383 2 235 Thailand 26 16 10 Trkiye 89 168 34 Viet Nam 171 329 405 Africa 728 640 663 Cameroon 236 188 216 Cte dIvoire 345 339 322 Ethiopia 10 4 5 Ghana 76 63 51 Least Developed Countries 255 548 632 Low Income Food Deficit Countries 837 768 767 World 20 147 20 465 19 593 11 Banana Market Review Preliminary Results 2022 Table 2-Banana imports 2016-2020 2021 2022(thousand tonnes)Latin America and the Caribbean 809 906 864 Argentina 454 480 466 Chile 209 258 244 Uruguay 53 53 50 Asia 4 596 5 070 5 088 China 1 507 1 929 2 016 China,mainland 1 435 1 863 1 953 China,Hong Kong SAR 67 60 57 China,Macao SAR 5 6 6 Iran(Islamic Republic of)247 259 152 Iraq 164 148 153 Japan 1 011 1 108 1 085 Kazakhstan 40 87 93 Kuwait 66 29 27 Republic of Korea 390 352 326 Saudi Arabia 320 323 311 Singapore 57 57 53 Trkiye 406 284 283 United Arab Emirates 167 180 193 Africa 385 479 409 Algeria 149 159 60 South Africa 129 162 203 Tunisia 53 66 35 Europe 8 088 8 257 7 894 European Union 5 674 5 146 4 980 United Kingdom 195 915 865 Belarus 72 75 69 Norway 84 80 81 Russian Federation 1 468 1 398 1 400 Serbia 75 93 80 Switzerland 95 101 99 Ukraine 258 327 210 Northern America 4 723 4 638 4 609 Canada 592 586 568 United States of America 4 131 4 051 4 040 Oceania 96 98 93 New Zealand 96 98 93 Least Developed Countries 22 19 22 Low Income Food Deficit Countries 62 92 131 WORLD 18 697 19 448 18 956 12 NOTES CC3421EN/1/12.22 CONTACT Team on Responsible Global Value Chain Tropical-Fruitsfao.org Markets and Trade Division Economic and Social Development stream www.fao.org/markets-and-trade Food and Agriculture Organization of the United Nations Rome,Italy
1人浏览过 2023-02-15 21页 5斯特恩
锦荣健康（JR）美股IPO招股书（更新版）（67页）.pdf
2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm1/67F-1/A 1 f1a.htm UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 AMENDMENT NO.1TOFORM F-1REGISTRATION STATEMENTUNDERTHE SECURITIES ACT OF 1933 JINRONG HOLDINGS LTD.(Exact name of Registrant as specified in its charter)Not Applicable(Translation of Registrants name into English)United Kingdom 7350 Not Applicable(State or other jurisdiction of(Primary Standard Industrial(I.R.S.Employerincorporation or organization)Classification Code Number)Identification Number)16F,Block K,Vibon Financial Plaza,Dongsheng District,Ordos,Inner MongoliaPeoples Republic of China 0103004407570683705(Address,including zip code,and telephone number,including area code,of Registrants principal executive offices)Global Earnings Capital Ltd.(Name,address,including zip code,and telephone number,including area code,of agent for service)Approximate date of commencement of proposed sale to the public:As soon as practicable after the effective date of thisRegistration Statement.If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 underthe Securities Act of 1933,check the following box.o If this Form is filed to register additional securities for an offering pursuant to Rule 462(b)under the Securities Act,please checkthe following box and list the Securities Act registration statement number of the earlier effective registration statement for thesame offering.o If this Form is a post-effective amendment filed pursuant to Rule 462(c)under the Securities Act,check the following box and listthe Securities Act registration statement number of the earlier effective registration statement for the same offering.o If this Form is a post-effective amendment filed pursuant to Rule 462(d)under the Securities Act,check the following box and listthe Securities Act registration statement number of the earlier effective registration statement for the same offering.o Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smallerreporting company,or an emerging growth company.See the definitions of“large accelerated filer,”“accelerated filer”,“smallerreporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.(Check one):Large accelerated filer oAccelerated filer oNon-accelerated filer xSmaller reporting company x Emerging growth company x If an emerging growth company that prepares its financial statements in accordance with U.S.GAAP,indicate by check mark if theregistrant has elected not to use the extended transition period for complying with any new or revised financial accountingstandards provided pursuant to Section 7(a)(2)(B)of the Securities Act.x 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm2/67 1 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm3/67 CALCULATION OF REGISTRATION FEE Title of each class of securities to be registeredAmount to be registeredProposed maximum offering price per shareProposed maximum aggregateoffering priceAmount of registration fee(1)Common Stock,par value$0.0001 per share(1)Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a)under the Securities Act.The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date untilthe Registrant shall file a further amendment which specifically states that this registration statement shall thereafter becomeeffective in accordance with Section 8(a)of the Securities Act,as amended,or until the registration statement shall becomeeffective on such date as the Securities and Exchange Commission,acting pursuant to said Section 8(a)may determine.2 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm4/67 PRELIMINARY PROSPECTUSORDINARY SHARESJINRONG HOLDINGS LTD.Shares of Common Stock We are offering ordinary shares.This is the initial public offering of ordinary shares of JINRONG HOLDINGS LTD.Theoffering price of our ordinary shares in this offering is expected to be$5.00 per share.Prior to this offering,there has been nopublic market for our ordinary shares.We have applied to list our ordinary shares on the Nasdaq Capital Market under the symbol“JR”.There is no assurance that suchapplication will be approved,and if our application is not approved,this offering may not be completed.Investing in our ordinary shares involves a high degree of risk.Before buying any shares,you should carefully read thediscussion of material risks of investing in our ordinary shares in“Risk Factors”.We are an“emerging growth company”as defined under the federal securities laws and,as such,will be subject to reduced publiccompany reporting requirements.See“Prospectus SummaryImplications of Being an Emerging Growth Company”foradditional information.Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of thesesecurities or passed upon the accuracy or adequacy of this prospectus.Any representation to the contrary is a criminaloffense.JINRONG HOLDINGS LTD.(“JR”)is not an operating company but a holding company incorporated in United Kingdom withoperations primarily conducted by its subsidiaries established in the Peoples Republic of China(“PRC”or“China”).Shares ofcommon stock offered in this offering are shares of our United Kingdom holding company,instead of shares of our PRCsubsidiaries.While shareholders of JR indirectly hold equity interests in our Chinese operating subsidiaries,they may neverdirectly hold such interests in our operating companies and may never receive a dividend distribution or other economic benefitsfrom owning shares of JR.As of the date of this prospectus,neither us nor any of our subsidiaries has been required to obtainpermission from the government of China to trade our shares on the NASDAQ Capital Market.3 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm5/67 We face various legal and operational risks and uncertainties relating to our operations in China.These risks,together withuncertainties in Chinas legal system and the interpretation and enforcement of Chinese laws,regulations,and policies,couldhinder our ability to offer or continue to offer our securities,result in a material adverse effect on our business operations,anddamage our reputation,which could cause our shares to significantly decline in value or become worthless.The Chinesegovernment may intervene or influence the operations of our PRC subsidiaries at any time and may exert more control overofferings conducted overseas and/or foreign investment in China-based issuers,which could result in a material change in theoperations of our PRC subsidiaries and/or the value of our common stock.Any actions by the Chinese government to exert moreoversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers couldsignificantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of suchsecurities to significantly decline or be worthless.Recently,the PRC government adopted a series of laws,regulatory measures andissued statements to regulate business operations in China,including cracking down on illegal activities in the securities market,adopting new measures to extend the scope of cybersecurity reviews,and expanding the efforts in anti-monopoly enforcement.TheCyberspace Administration of China(“CAC”)has opened cybersecurity probes into several U.S.-listed technology companiesfocusing on anti-monopoly regulation,and how companies collect,store,process and transfer data,among other things.If we aresubject to such a probe or are required to comply with the stringent requirements of the new regulations,our ability to conduct ourbusiness or list on a U.S.stock exchange may be restricted.As of the date of this prospectus,we and our subsidiaries have not beeninvolved in any investigations on cybersecurity review initiated by any Chinese regulatory authority,nor has any of them receivedany inquiry,notice or sanction.There are currently no relevant laws or regulations in China that prohibit companies whosesubsidiaries or entity interests are within China from listing on overseas stock exchanges.However,since these statements andregulatory actions are newly published,official guidance and related implementation rules have not been issued.It is highlyuncertain what the potential impact such modified or new policies and regulations will have on our daily business operation,theability to accept foreign investments and our ability to continue trading on a U.S.securities marketplace or stock exchange.PER SHARE TOTAL Initial public offering price$Underwriting discounts and commissions(1)$Proceeds,before expenses,to us$(1)Does not include accountable and non-accountable expense allowance payable to underwriters.Please see the section of thisprospectus entitled“Underwriting”for additional information regarding underwriter compensation.We expect our total cash expenses for this offering(including cash expenses payable to our underwriters for their out-of-pocketexpenses)to be approximately$,exclusive of the above commissions.In addition,we will pay additional items of value inconnection with this offering that are viewed by the Financial Industry Regulatory Authority,or FINRA,as underwritingcompensation.These payments will further reduce proceeds available to us before expenses.See“Underwriting.”Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations otherthan those contained in this prospectus or in any free writing prospectuses we have prepared.Neither we nor any of theunderwriters take responsibility for,and can provide no assurance as to the reliability of,any other information that others maygive you.This prospectus is an offer to sell only the shares offered hereby,but only under circumstances and in jurisdictions whereit is lawful to do so.The information contained in this prospectus is current only as of its date,regardless of the time of delivery ofthis prospectus or of any sale of our common stock.For investors outside the United States:Neither we nor any of the underwriters have done anything that would permit this offeringor possession or distribution of this prospectus in any jurisdiction where action for that purpose is required,other than in theUnited States.Persons outside the United States who come into possession of this prospectus must inform themselves about,andobserve any restrictions relating to,the offering of the shares of our common stock and the distribution of this prospectus outsidethe United States.4 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm6/67 TABLE OF CONTENTS PagePROSPECTUS SUMMARY5EXCHANGE RATE INFORMATION11OFFERINGS11RISK FACTORS12SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS24USE OF PROCEEDS26DIVIDEND POLICY26CAPITALIZATION27DILUTION28MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS29INDUSTRY,MARKET AND OTHER DATA31CORPORATE STRUCTURE34BUSINESS35MANAGEMENT41PRINCIPAL SHAREHOLDERS46MATERIAL U.S.FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S.HOLDERS OF OUR COMMONSTOCK47DESCRIPTION OF SHARE CAPITAL51SHARES ELIGIBLE FOR FUTURE SALE53UNDERWRITING55LEGAL MATTERS58EXPERTS58WHERE YOU CAN FIND ADDITIONAL INFORMATION58INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS59INFORMATION NOT REQUIRED IN A PROSPECTUS64 We are responsible for the information contained in this prospectus.We have not authorized anyone to provide any information orto make any representations other than those contained in this prospectus.We and the underwriters take no responsibility for,andcan provide no assurance as to the reliability of,any other information that others may give you.This prospectus is an offer to sellonly the units offered hereby,but only under circumstances and in jurisdictions where it is lawful to do so.The informationcontained in this prospectus is current only as of its date.5 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm7/67 PROSPECTUS SUMMARY The following summary is qualified in its entirety by,and should be read in conjunction with,the more detailed information andfinancial statements appearing elsewhere in this prospectus.In addition to this summary,we urge you to read the entire prospectuscarefully,especially the risks of investing in our Ordinary Shares discussed under“Risk Factors”before deciding whether to buyour Ordinary Shares.Our Company Jinrong Holdings(Hainan)Group Co.was established on March 19,2021.Jinrong Holdings Group has invested and opened anumber of health management hospitals,mainly for the prevention of cardiovascular diseases,prevention of heart attack,cerebralinfarction,hemiplegia,for sub healthy people,to build a big health international brand.The Group adheres to the prevention-oriented approach and advocates the treating the disease before it happens project,solvingchronic diseases and preventing cardiovascular and cerebrovascular diseases in advance through non-pharmacological treatmentmethods.The Group cooperates strategically with private hospitals in different regions to connect with famous doctors and doctorsfrom all over the country to precisely solve the problems of chronic diseases.We provide health consultation and advice to ourcustomers,and sell special treatment services to our customers,and these special treatment services are provided by JinrongHolding(Hainan)Group Co.Our Business Our business is dedicated to the prevention and treatment of cardiovascular and cerebrovascular diseases.By providing healthconsultation and advice to our customers,we provide chronic disease treatment solutions to reduce the risk of cardiovascular andcerebrovascular diseases and achieve cardiovascular and cerebrovascular medical protection for our users.1)Subhealth testing and assessment2)Ozone autologous blood transfusion therapy3)Brain-awakening and enlightening technique4)Dual hemodialysis Industry background1)Prevalence According to the 2020 China Cardiovascular Health and Disease Report,the prevalence of cardiovascular disease(CAD)in Chinacontinues to rise and is estimated to be 330 million.In China,with the implementation of family planning policies and increasedlife expectancy over the past few years,the country has entered an aging society,and the number of people with CAD in Chinaincreased from 23.3 million to 25.3 million between 2017 and 2020,with a compound annual growth rate of 2.78%,and isexpected to reach 26.7 million in 2022.With the development of Chinas economy and the improvement of peoples living standard,especially the change of peoples dietand lifestyle,the prevalence of cardiovascular diseases in China has shown a significant increasing trend.The mortality rate ofcardiovascular diseases in China is the first in the composition of disease deaths,higher than that of tumors and other diseases,and2 out of 5 deaths are due to cardiovascular diseases.Cardiovascular disease risk factors mainly include hypertension,diabetes,dyslipidemia,etc.,thus prompting the market space for anti-hypertension,diabetes treatment and lipid-lowering drugs in China torise year by year.6 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm8/67 Overall,the prevalence and mortality of cardiovascular disease in China is still on the rise.There are currently 290 million peoplewith cardiovascular disease,including 270 million with hypertension,13 million with stroke,11 million with coronary heartdisease,5 million with pulmonary heart disease,4.5 million with heart failure,2.5 million with rheumatic heart disease,and 2million with congenital heart disease.2)Factors triggering cardiovascular and cerebrovascular.Health influencing factors:smoking,unreasonable diet,lack of exercise,obesity and overweight,psychological stress Chronic disease factors:hypertension,dyslipidemia,diabetes,etc.Our Challenge 1)Our history is limitedJinrong Holdings(Hainan)Group Co.was established in Ordos on March 19,2021,as a health care company that has not operatedfor decades or centuries,we still have a big gap compared to many companies with a long history,and our current achievementscertainly correspond to our growth years have been a lot of achievements,but we still need to work hard to those who have moreyears of accumulation.We still need to work hard to be on par with companies with more years of experience.2)Retention of management personnelOur success depends to a large extent on the efforts and capabilities of our senior management and key personnel.Competition forqualified executives and key personnel is intense.Although we maintain non-competition and non-disclosure covenants with manyof our key personnel and we have employment agreements with key personnel,all of our employees are at-will employees.Theloss of the services of one or more key employees,or the inability to hire,train and retain other key personnel,could delay thedevelopment and sale of our products and disrupt our business and affect our ability to execute our business plan.3)War,terrorism or other unknown and unexpected eventsInvolvement in war or other military operations or acts of terrorism could cause significant disruptions to global commerce.If suchdisruption results in(i)delays or cancellations of customer orders,(ii)a general decrease in consumer spending,(iii)our inabilityto effectively market and distribute our products,or(iv)our inability to access capital markets,our business,results of operations,financial condition and prospects could be materially and adversely affected.We cannot predict whether involvement in a war orother military action would result in any long-term business disruption or whether such involvement or response would have anylong-term material adverse effect on our business,results of operations,financial condition or prospects.(4)The use of social media and influencers may have a material adverse effect on our reputationWe sell through various display exhibitions and other channels;we promote sales through the private custom model.Each saleschannel corresponds to each channel of consumers,which also means that we will be subject to the common supervision of all ourconsumer groups,need to strictly control the quality and products to prevent the emergence of bad reviews of us,and at the sametime to prevent the malicious smear from the water army of peers,need us to have better public relations handling as well asresponse means.5)Corporate Social ResponsibilityMany factors affect our reputation and brand value,including stakeholder perceptions and the industries in which we do business.Our business faces increasing scrutiny related to environmental,social and governance activities,and our reputation and brandvalue could be damaged if we fail to act responsibly or comply with regulatory requirements in many areas(such as safety andsecurity,environmental management and sustainability,supply chain management,climate change,diversity,human rights,philanthropy and support for local communities).7 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm9/67 6)Keeping up with the times in production and sales processesOur production methods should face the challenges of the new era,whether it is the instruments used for processing,the softwareused by our designers for design,or even the adoption of intelligent voice services on the sales side as needed,all our processesshould follow the progress of the times and make changes to keep up with the pace of the times,for this reason we do not hesitateto spend resources on researching relevant technologies and products,as well as exploring channels with relevant To do so,wespend resources on researching relevant technologies and products,as well as exploring channels with relevant products to achievea more stable production line and sales chain,so as to keep up with the development of the times.7）The management process should be more modernAs our enterprise is getting bigger and bigger,we are constantly exploring the optimization of the management mode in the processof growth,not only a transition and realization from offline management to online management,but also in order to further ourgoal,our platform will also use the big data of each process we have accumulated to train our employees,so that they can makeprogress in the process of being managed,realize their personal value and In order to further our goals,our platform will also usethe big data we have accumulated for each process to train our employees,so that they can improve in the process of beingmanaged,achieve their personal values and goals,and make our company more efficient.Implications of Being an Emerging Growth Company As a company with less than US$1.07 billion in revenue for our last fiscal year,we qualify as an“emerging growth company”pursuant to the Jumpstart Our Business Startups Act of 2012,or the JOBS Act.An emerging growth company may take advantageof specified reduced reporting and other requirements compared to those that are otherwise applicable generally to publiccompanies.These provisions include,but are not limited to:being permitted to present only two years of audited financial statements and only two years of related ManagementsDiscussion and Analysis of Financial Condition and Results of Operations in our SEC filings;not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;reduced disclosure obligations regarding executive compensation in periodic reports,proxy statements and registrationstatements;andexemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholderapproval of any golden parachute payments not previously approved.The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financialaccounting standards until such date that a private company is otherwise required to comply with such new or revised accountingstandards.We have elected to use the extended transition period under the JOBS Act.Accordingly,our financial statements may notbe comparable to the financial statements of public companies that comply with such new or revised accounting standards.We will remain an emerging growth company until the earliest of(a)the last day of the fiscal year during which we have totalannual gross revenues of at least US$1.07 billion;(b)the last day of our fiscal year following the fifth anniversary of thecompletion of this offering;(c)the date on which we have,during the preceding three-year period,issued more than US$1.0 billionin non-convertible debt;or(d)the date on which we are deemed to be a“large accelerated filer”under the Securities Exchange Actof 1934,as amended,or the Exchange Act,which would occur as of the end of our fiscal year if the market value of our OrdinaryShares that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed secondfiscal quarter.Once we cease to be an emerging growth company,we will not be entitled to the exemptions provided in the JOBSAct discussed above.8 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm10/67 The OfferingsIssuerJINRONG HOLDINGS LTD.Securities Being Offered Ordinary Shares(or Ordinary Shares if the underwriters exercise theirover-allotment option in full),par value US$0.0001 per share,on a firm commitmentbasis Offering PriceWe expect that the initial public offering price will be US$5.00 per Ordinary Share.Ordinary Shares Outstanding Immediately Before This Offering Ordinary Shares Ordinary Shares Outstanding Immediately After This Offering Ordinary Shares(or Ordinary Shares if the underwriters exercisetheir option to purchase additional Ordinary Shares in full).Voting RightsEach Ordinary Share is entitled to one vote.Ordinary Shares are not convertible.Use of ProceedsWe intend to use the net proceeds of this offering for(i)purchasing equipment,(ii)further developing our sales system,and(iii)working capital and other generalcorporate purposes.See“Use of Proceeds”for additional information.Proposed Nasdaq Trading Symbol and ListingWe plan to apply to list our Ordinary Shares on the Nasdaq Capital Market under thesymbol“JR”This offering is contingent upon us listing our Ordinary Shares onNasdaq Capital Market or another national exchange.No assurance can be given thatsuch listing will be approved or that a liquid trading market will develop for ourOrdinary Shares.Lock-upOur directors,executive officers,and shareholder who own 5%or more of theoutstanding Ordinary Shares intended agreed with the underwriters not to offer forsale,issue,sell,contract to sell,pledge or otherwise dispose of any of our OrdinaryShares or securities convertible into Ordinary Shares for a period of 6months commencing on the date of this prospectus.The Company is also prohibitedfrom conducting offerings during this period and from re-pricing or changing theterms of existing options and warrants.See“Underwriting”for additionalinformation.Transfer Agent Risk factorsSee“Risk Factors”for a discussion of risks you should carefully consider beforeinvesting in our Ordinary Shares.Summary of Risks Affecting Our Company Our business is subject to numerous risks described in the section titled“Risk Factors”and elsewhere in this prospectus.The mainrisks set forth below and others you should consider are discussed more fully in the section entitled“Risk Factors”,which youshould read in its entirety.Among the key risks facing our company are:9 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm11/67 Risks Related to Our BusinessWe have grown rapidly in recent years and have limited experience operating at our current scale of operations.If we areunable to manage our growth effectively,our brand,company culture and financial results may suffer.We have limited sources of working capital and will need substantial additional financing.We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on ourbusiness,financial condition and results of operations.Although we do not own or control our distributors,the actions of these distributors may affect our business operations orour reputation in the marketplace.Our success depends on our ability to protect our intellectual property.If we fail to maintain an effective quality control system,our business could be materially and adversely affected.The global coronavirus COVID-19 pandemic has caused significant disruptions in our business,which may continue tomaterially and adversely affect our results of operations and financial condition.Risks Related to Doing Business in ChinaA severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business andour financial condition.PRC regulation of loans to,and direct investments in,PRC entities by offshore holding companies may delay or prevent usfrom using proceeds from this offering and/or future financing activities to make loans or additional capital contributions toour PRC operating entities.We must remit the offering proceeds to China before they may be used to benefit our business in China,and this processmay take several months to complete.Changes in Chinas economic,political,or social conditions or government policies could have a material adverse effect onour business and operations.Under the Enterprise Income Tax Law,we may be classified as a“Resident Enterprise”of China.Such classification willlikely result in unfavorable tax consequences to us and our non-PRC shareholders.We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.Uncertainties with respect to the PRC legal system could adversely affect us.Recent greater oversight by the CAC over data security,particularly for companies seeking to list on a foreign exchange,could adversely impact our business and our proposed offering.The Chinese government exerts substantial influence over the manner in which we must conduct our business,and mayintervene or influence our operations at any time,which could result in a material change in our operations,significantlylimit or completely hinder our ability to offer or continue to offer securities to investors and,and cause the value of ourOrdinary Shares to significantly decline or be worthless.Increases in labor costs in the PRC may adversely affect our business and results of operations.You may face difficulties in protecting your interests and exercising your rights as a shareholder since we conductsubstantially all of our operations in China,and almost all of our officers and directors reside outside the U.S.Risks Related to the Offering and Our Ordinary SharesWe do not intend to pay dividends for the foreseeable future.There may not be an active,liquid trading market for our Ordinary Shares.General Risk FactorsWe may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire thesepersonnel in the future,our ability to improve our products and implement our business objectives could be adverselyaffected.The initial public offering price of our Ordinary Shares may not be indicative of the market price of our Ordinary Sharesafter this offering.In addition,an active,liquid and orderly trading market for our Ordinary Shares may not develop or bemaintained,and our stock price may be volatile.10 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm12/67 For as long as we are an emerging growth company,we will not be required to comply with certain reporting requirements,including those relating to accounting standards and disclosure about our executive compensation,that apply to other publiccompanies.The requirements of being a public company may strain our resources and divert managements attention.We have broad discretion in the use of the net proceeds from our initial public offering and may not use them effectively.The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.A sale or perceived sale of a substantial number of shares of our Ordinary Shares may cause the price of our OrdinaryShares to decline.Implications of Being a Foreign Private Issuer We are a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934,as amended(the“Exchange Act”).As such,we are exempt from certain provisions applicable to United States domestic public companies.Forexample:we are not required to provide as many Exchange Act reports,or as frequently,as a domestic public company;for interim reporting,we are permitted to comply solely with our home country requirements,which are less rigorous thanthe rules that apply to domestic public companies;we are not required to provide the same level of disclosure on certain issues,such as executive compensation;we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of materialinformation;we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies,consents,orauthorizations in respect of a security registered under the Exchange Act;andwe are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their shareownership and trading activities and establishing insider liability for profits realized from any“short-swing”tradingtransaction.Implications of Being a Controlled Company Controlled companies are exempt from the majority of independent director requirements.Controlled companies are subject to anexemption from Nasdaq standards requiring that the board of a listed company consist of a majority of independent directorswithin one year of the listing date.Public Companies that qualify as a“Controlled Company”with securities listed on the Nasdaq Stock Market(Nasdaq),mustcomply with the exchanges continued listing standards to maintain their listings.Nasdaq has adopted qualitative listing standards.Companies that do not comply with these corporate governance requirements may lose their listing status.Under the Nasdaq rules,a“controlled company”is a company with more than 50%of its voting power held by a single person,entity or group.UnderNasdaq rules,a controlled company is exempt from certain corporate governance requirements including:the requirement that a majority of the board of directors consist of independent directors;the requirement that a listed company have a nominating and governance committee that is composed entirely ofindependent directors with a written charter addressing the committees purpose and responsibilities;the requirement that a listed company have a compensation committee that is composed entirely of independent directorswith a written charter addressing the committees purpose and responsibilities;andthe requirement for an annual performance evaluation of the nominating and governance committee and compensationcommittee.11 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm13/67 Controlled companies must still comply with the exchanges other corporate governance standards.These include having an auditcommittee and the special meetings of independent or non-management directors.Upon the completion of this offering,our Controlling Shareholder will beneficially own of our total issued and outstandingOrdinary Shares,representing%of the total voting power,assuming that the underwriters do not exercise their over-allotmentoption,or of our total issued and outstanding Ordinary Shares,representing%of the total voting power,assuming that the over-allotment option is exercised in full.As a result,we will be a“controlled company”as defined under Nasdaq Listing Rule 5615(c)because our Controlling Shareholder will hold more than 50%of the voting power for the election of directors.As a“controlledcompany,”we are permitted to elect not to comply with certain corporate governance requirements.We do not plan to rely on theseexemptions,but we may elect to do so after we complete this offering.Corporate Information Our principal executive offices are located at 16F,Block K,Vibon Financial Plaza,Dongsheng District,Ordos,Inner Mongolia,Peoples Republic of China 010300 EXCHANGE RATE INFORMATION Our business is primarily conducted in China,and the financial records of our subsidiaries in China are maintained in RMB,theirfunctional currency.However,we use the U.S.dollar as our reporting and functional currency;therefore,reports made toshareholders will include current period amounts translated into U.S.dollars using the then-current exchange rates,for theconvenience of the readers.Our consolidated financial statements will be translated into U.S.dollars in accordance with ASCTopic 830,“Foreign Currency Matters.”The financial information is first prepared in RMB and then is translated into U.S.dollarsat period-end exchange rates as to assets and liabilities and average exchange rates as to statements of income.Equity accounts aretranslated at their historical exchange rates when the equity transactions occurred.Translation adjustments resulting from thisprocess are included in accumulated other comprehensive loss.Transaction gains and losses that arise from exchange ratefluctuations on transactions denominated in a currency other than the functional currency are included in the results of operationsas incurred.We make no representation that any RMB or U.S.dollar amounts could have been,or could be,converted into U.S.dollars orRMB,as the case may be,at any particular rate,or at all.The PRC government imposes control over its foreign currency reservesin part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade.With respect to amounts not recorded in our consolidated financial statements included elsewhere in this prospectus,unlessotherwise stated,all translations from RMB to U.S.dollars were made at RMB 6.3726 to$1.00,the noon buying rate on December30,2021,as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System.12 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm14/67 OFFERINGSBelow is a summary of the terms of the offering:IssuerJINRONG HOLDINGS LTD.Securities Being Offered Ordinary Shares(or Ordinary Shares if the underwriters exercise theirover-allotment option in full),par value US$0.0001 per share,on a firm commitmentbasis Offering PriceWe expect that the initial public offering price will be US$5.00 per Ordinary Share.Ordinary Shares Outstanding Immediately Before This Offering Ordinary Shares Ordinary Shares Outstanding Immediately After This Offering Ordinary Shares(or Ordinary Shares if the underwriters exercise theiroption to purchase additional Ordinary Shares in full).Voting RightsEach Ordinary Share is entitled to one vote.Ordinary Shares are not convertible.Use of ProceedsWe intend to use the net proceeds of this offering for(i)purchasing equipment,(ii)further developing our sales system,and(iii)working capital and other generalcorporate purposes.See“Use of Proceeds”for additional information.Proposed Nasdaq Trading Symbol and ListingWe plan to apply to list our Ordinary Shares on the Nasdaq Capital Market under thesymbol“JR”This offering is contingent upon us listing our Ordinary Shares onNasdaq Capital Market or another national exchange.No assurance can be given thatsuch listing will be approved or that a liquid trading market will develop for ourOrdinary Shares.Lock-upOur directors,executive officers,and shareholder who own 5%or more of theoutstanding Ordinary Shares intended agreed with the underwriters not to offer forsale,issue,sell,contract to sell,pledge or otherwise dispose of any of our OrdinaryShares or securities convertible into Ordinary Shares for a period of 6 monthscommencing on the date of this prospectus.The Company is also prohibited fromconducting offerings during this period and from re-pricing or changing the terms ofexisting options and warrants.See“Underwriting”for additional information.Transfer Agent Risk factorsSee“Risk Factors”for a discussion of risks you should carefully consider beforeinvesting in our Ordinary Shares.RISK FACTORS An investment in our Ordinary Shares involves a high degree of risk.Before deciding whether to invest in our Ordinary Shares,you should consider carefully the risks described below,together with all of the other information set forth in this prospectus,including the section titled“Managements Discussion and Analysis of Financial Condition and Results of Operations”and ourconsolidated financial statements and related notes.If any of these risks actually occurs,our business,financial condition,resultsof operations or cash flow could be materially and adversely affected,which could cause the trading price of our Ordinary Sharesto decline,resulting in a loss of all or part of your investment.The risks described below and in the documents referenced aboveare not the only ones that we face.Additional risks not presently known to us or that we currently deem immaterial may also affectour business.You should only consider investing in our Ordinary Shares if you can bear the risk of loss of your entire investment.13 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm15/67 Risks Related to Our Business We have grown rapidly in recent years and have limited experience operating at our current scale of operations.If we areunable to manage our growth effectively,our brand,company culture and financial results may suffer.We have grown rapidly in the past year and our recent growth rates and financial results should not be considered indicators of ourfuture performance.In order to effectively manage and leverage our growth,we must continue to expand our sales and marketing,focus on innovative product and website development,and upgrade our management information systems.Our continued growthhas in the past and may in the future strain our existing resources and we may experience ongoing operational difficulties inmanaging our operations in numerous jurisdictions,including difficulties in recruiting,training and managing a dispersed andgrowing employee base.Failure to expand and maintain our company culture through growth may harm our future success,including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate goals.The healthcare industry is evolving rapidly and may not evolve as we expect.Even if our net sales continue to grow,our net salesgrowth rate may decline in the future due to a variety of factors,including macroeconomic factors,changes in supply and supplychain,changes in consumer preferences,increased competition and the maturation of our business.Accordingly,you should notrely on our net sales growth rates for any prior period as an indicator of our future performance.Our overall growth in net saleswill depend on many factors,including our ability to:1)price our products and services effectively so that we can attract new customers and expand our relationships with existingcustomers.2)accurately forecast our net sales and plan our operating expenses.3)compete successfully with other companies that are or may be entering our competitive market in the future and respond todevelopments in those competitors,such as pricing changes and the introduction of new products and services.4)Complying with existing and new laws and regulations that apply to our business.5)Successfully expanding into existing markets and entering new markets,including new geographic areas and categories.6)The successful introduction of new products and enhancements to our products and services and their features,including inresponse to new trends or competitive dynamics or customer needs or preferences.7)Successfully identifying and acquiring or investing in businesses,products or technologies that we believe will complement orexpand our business.8)Avoiding disruptions or interruptions in the distribution of our products and services.9)Providing quality support to our customers that meets their needs.10)Hiring,integrating and retaining talented sales,customer service and other personnel.11)Effectively managing the growth of our business,personnel and operations,including the opening of new showrooms.12)Effectively managing the costs associated with our business and operations.13)Maintaining and enhancing our reputation and brand value.Because of our limited history of operating our business at our current scale,it is difficult to assess our current operations andfuture prospects,including our ability to plan for and model future growth.Our limited operating experience at this scale,combined with the rapidly evolving nature of the markets in which we sell our products and services,the significant uncertaintyabout how these markets will develop and other economic factors beyond our control,reduces our ability to accurately forecastquarterly or annual revenues.Failure to effectively manage our future growth could adversely affect our business,financialcondition and results of operations.14 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm16/67 We have limited sources of working capital and will need substantial additional financing.The working capital required to implement our business strategy and R&D efforts will most likely be provided by funds obtainedthrough offerings of our equity,debt,debt-linked securities,and/or equity-linked securities,and revenues generated by us.Noassurance can be given that we will have revenues sufficient to sustain our operations or that we would be able to obtainequity/debt financing in the current economic environment.If we do not have sufficient working capital and are unable to generatesufficient revenues or raise additional funds,we may delay the completion of or significantly reduce the scope of our currentbusiness plan;delay some of our development and clinical or marketing efforts;postpone the hiring of new personnel;or,undercertain dire financial circumstances,substantially curtail or cease our operations.Our inability to obtain sufficient additional financing would have a material adverse effect on our ability to implement our businessplan and,as a result,could require us to significantly curtail or potentially cease our operations.As of June 30,2022,we had cashof approximately 7.26 million RMB,total current assets of approximately 18.95 million RMB and total current liabilities ofapproximately 15.82 million RMB.We may need to engage in capital-raising transactions in the near future.Such financingtransactions may well cause substantial dilution to our shareholders and could involve the issuance of securities with rights seniorto the outstanding shares.Our ability to complete additional financings is dependent on,among other things,the state of the capitalmarkets at the time of any proposed offering,market reception of the Company and the likelihood of the success of its businessmodel and offering terms.There is no assurance that we will be able to obtain any such additional capital through asset sales,equity or debt financing,or any combination thereof,on satisfactory terms or at all.Additionally,no assurance can be given thatany such financing,if obtained,will be adequate to meet our capital needs and to support our operations.If we do not obtainadequate capital on a timely basis and on satisfactory terms,our revenues and operations and the value of our Ordinary Shares andOrdinary Share equivalents would be materially negatively impacted and we may cease our operations.We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on ourbusiness,financial condition and results of operations.Our success is,to a certain extent,attributable to the management,sales and marketing,and research and development expertise ofkey personnel.We are dependent upon the services of Mr.Huibo Xu,our President,Chairman of the Board,for the continuedgrowth and operation of our Company,due to his industry experience,technical expertise,as well as his personal and businesscontacts in the PRC.Additionally,Mr.ZhaoYong Wu,performs key functions in the operation of our business.We may not be ableto retain Mr.Huibo Xu and Mr.ZhaoYong Wu for any given period of time.Although we have no reason to believe that Mr.HuiboXu and Mr.ZhaoYong Wu will discontinue their services with us or Jinrong Holdings,the interruption or loss of his serviceswould adversely affect our ability to effectively run our business and pursue our business strategy as well as our results ofoperations.We do not carry key man life insurance for any of our key personnel,nor do we foresee purchasing such insurance toprotect against the loss of key personnel.Although we do not own or control our distributors,the actions of these distributors may affect our business operations orour reputation in the marketplace.Our distributors are independent from us,and as such,our ability to effectively manage their activities is limited.Distributorscould take any number of actions that could have material adverse effects on our business.If we fail to adequately manage ourdistribution network or if distributors do not comply with our distribution agreements,our corporate image could be tarnishedamong end customers,disrupting our sales and revenues.Furthermore,we could be liable for actions taken by our distributors,including any violations of applicable law in connection with the marketing or sale of our products,including Chinas anti-corruption laws.Recently,the Chinese government has increased its anti-bribery efforts in the healthcare sector in recent years toreduce improper payments received by hospital administrators and doctors in connection with the purchase of pharmaceuticalproducts and medical devices.Our distributors may violate these laws or otherwise engage in illegal practices with respect to theirsales or marketing of our products.If our distributors violate these laws and the authority determines that we are responsible forour distributors illegal activities,then we could be required to pay damages or fines,which could materially and adversely affectour financial condition and results of operations.In addition,our brand and reputation,our sales activities or the price of our sharescould be adversely affected if our company becomes the target of any negative publicity as a result of actions taken by ourdistributors.15 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm17/67 Our success depends on our ability to protect our intellectual property.Our success depends on our ability to obtain and maintain patent protection for products developed utilizing our technologies,inthe PRC and in other countries,and to enforce these patents.There is no assurance that any of our existing and future patents willbe held valid and enforceable against third-party infringement or that our products will not infringe any third-party patent orintellectual property.We own patents and have filed additional patent applications with the Patent AdministrationDepartment of the PRC;however,there is no assurance that our filed patent applications will be granted.Any patents relating to our technologies may not be sufficiently broad to protect our products.In addition,our patents may bechallenged,potentially invalidated or potentially circumvented.Our patents may not afford us protection against competitors withsimilar technology or permit the commercialization of our products without infringing third-party patents or other intellectualproperty rights.We also rely on or intend to rely on our trademarks,trade names and brand names to distinguish our products from the products ofour competitors,and have registered or will apply to register a number of these trademarks.However,third parties may oppose ourtrademark applications or otherwise challenge our use of the trademarks.In the event that our trademarks are successfullychallenged,we could be forced to rebrand our products,which could result in loss of brand recognition and could require us todevote resources to advertising and marketing these new brands.Further,our competitors may infringe our trademarks,or we maynot have adequate resources to enforce our trademarks.In addition,we also have trade secrets,non-patented proprietary expertise and continuing technological innovation that we shallseek to protect,in part,by entering into confidentiality agreements with licensees,suppliers,employees and consultants.Theseagreements may be breached and there may not be adequate remedies in the event of a breach.Disputes may arise concerning theownership of intellectual property or the applicability of confidentiality agreements.Moreover,our trade secrets and proprietarytechnology may otherwise become known or be independently developed by our competitors.If patents are not issued with respectto products arising from research,we may not be able to maintain the confidentiality of information relating to these products.If we fail to maintain an effective quality control system,our business could be materially and adversely affected.We place great emphasis on product quality and adhere to stringent quality control measures and have obtained quality controlcertifications for our products.To meet our customers requirements and expectations for the quality and safety of our products,wehave adopted a stringent quality control system to ensure that every step of the production process is strictly monitored andmanaged.Failure to maintain an effective quality control system or to obtain or renew our quality standards certifications mayresult in a decrease in demand for our products or cancellation or loss of purchase orders from our customers.Moreover,ourreputation could be impaired.As a result,our business and results of operations could be materially and adversely affected.16 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm18/67 The global coronavirus COVID-19 pandemic has caused significant disruptions in our business,which may continue tomaterially and adversely affect our results of operations and financial condition.On March 11,2020,the World Health Organization declared the COVID-19 outbreak a global pandemic.Many businesses andsocial activities in China and other countries and regions were severely disrupted in 2020,including those of our suppliers,customers and employees.This pandemic has also caused market panics,which materially and negatively affected the globalfinancial markets,such as the plunge of global stocks on major stock exchanges in March 2020.Such disruption and slowdown ofthe worlds economy in 2020 and beyond had,and may continue to have,a material adverse effect on our results of operations andfinancial condition.We and our customers experienced significant business disruptions and suspension of operations due toquarantine measures to contain the spread of the pandemic,which caused shortage in the supply of raw materials,reduced ourproduction capacity,increased the likelihood of default from our customers and delayed our product delivery.All of these hadresulted in a material adverse effect on our results of operations and financial condition in the fiscal year 2020.The extent to whichthe COVID-19 pandemic may impact our business,operations and financial results will depend on numerous evolving factors thatthe Company cannot accurately predict at this time,including the uncertainty on the potential resurgence of the COVID-19 cases inChina,the continual spread of the virus globally,especially in Japan,the Companys major international market,and the instabilityof local and global government policies and restrictions.We are closely monitoring the development of the COVID-19 pandemicand continuously evaluating any further potential impact on our business,results of operations and financial condition.If thepandemic persists or escalates,we may be subject to further negative impact on our business operations and financial condition.Risks Related to Doing Business in China A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business andour financial condition.Although the Chinese economy expanded well in the last two decades,the rapid growth of the Chinese economy has slowed downsince 2012,and there is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policiesadopted by the Peoples Bank of China and financial authorities of some of the worlds leading economies,including the UnitedStates and China.There have been concerns over unrest and terrorist threats in the Middle East,Europe and Africa,which haveresulted in volatility in oil and other markets.There have also been concerns on the relationship among China and other Asiancountries,which may result in or intensify potential conflicts in relation to territorial disputes.Economic conditions in China aresensitive to global economic conditions,as well as changes in domestic economic and political policies and the expected orperceived overall economic growth rate in China.Any severe or prolonged slowdown in the global or Chinese economy maymaterially and adversely affect our business,results of operations and financial condition.PRC regulation of loans to,and direct investments in,PRC entities by offshore holding companies may delay or prevent usfrom using proceeds from this offering and/or future financing activities to make loans or additional capital contributionsto our PRC operating entities.As an offshore holding company with PRC entities,we may transfer funds to our PRC subsidiary or finance our PRC operatingentities by means of loans or capital contributions.Any capital contributions or loans that we,as an offshore entity,make to ourPRC subsidiary,including from the proceeds of this offering,are subject to PRC regulations.Any loans to our PRC subsidiary,which is a foreign-invested enterprise,cannot exceed statutory limits,and shall be registered with Chinas State Administration ofForeign Exchange(“SAFE”),or its local counterparts.Furthermore,for any capital increase contributions we make to our PRCsubsidiary,we shall submit a change report through relevant system to Chinas Ministry of Commerce(“MOFCOM”),or its localcounterparts.If we are not be able to conform to these government requirements on a timely basis,our ability to make equitycontributions or provide loans to our PRC operating entities or to fund their operations may be negatively affected,which mayadversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations andcommitments.As a result,our liquidity and our ability to fund and expand our business may be negatively affected.We must remit the offering proceeds to China before they may be used to benefit our business in China,and this processmay take several months to complete.The proceeds of this offering must be sent back to China,and the process for sending such proceeds back to China may take aslong as six months after the closing of this offering.In utilizing the proceeds of this offering in the manner described in“Use ofProceeds,”as an offshore holding company of our PRC operating entities,we may make loans to our PRC subsidiary,or we maymake additional capital contributions to our PRC subsidiary.Any loans to our PRC subsidiary are subject to PRC regulations.17 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm19/67 To remit the proceeds of the offering,we must take the following steps:First,we will open a special foreign exchange account for capital account transactions.To open this account,we must submitto the banks at the place of registration certain application forms,identity documents,transaction documents,form of foreignexchange registration of overseas investments of the domestic residents,and the relevant business registration certificate of theinvested company.Second,we will remit the offering proceeds into this special foreign exchange account.Third,we will apply for settlement of the foreign exchange.In order to do so,we must submit to the banks at the place ofregistration certain application forms,identity documents,payment order to a designated person,and a tax certificate.The timing of the process is difficult to estimate because the efficiencies of different banks and SAFE branches can varysignificantly.Ordinarily the process takes several months but is required by law to be accomplished within 180 days of application.If we decide to finance our PRC operating entities by means of capital contributions,we are required to apply for an enterprisechange registration to the relevant market supervision authority,and a change report of capital contributions must be submitted atthe time of completion of enterprise change registration.We cannot assure you that we will be able to obtain these governmentapprovals or complete the necessary government registrations on a timely basis,if at all,with respect to future capital contributionsby us to our subsidiaries.If we fail to complete such registrations or receive such approvals,our ability to use the proceeds of thisoffering and to capitalize our Chinese operations may be negatively affected,which could adversely affect our liquidity and ourability to fund and expand our business.If we fail to receive such approvals,our ability to use the proceeds of this offering and tocapitalize our Chinese operations may be negatively affected,which could adversely affect our liquidity and our ability to fund andexpand our business.Changes in Chinas economic,political,or social conditions or government policies could have a material adverse effect onour business and operations.Substantially all of our assets and operations are currently located in China.Accordingly,our business,financial condition,resultsof operations,and prospects may be influenced to a significant degree by political,economic,and social conditions in Chinagenerally.The Chinese economy differs from the economies of most developed countries in many respects,including the level ofgovernment involvement,level of development,growth rate,control of foreign exchange,and allocation of resources.Althoughthe Chinese government has implemented measures emphasizing the utilization of market forces for economic reform,includingthe reduction of state ownership of productive assets and the establishment of improved corporate governance in businessenterprises,a substantial portion of productive assets in China is still owned by the government.In addition,the Chinesegovernment continues to play a significant role in regulating industry development by imposing industrial policies.The Chinesegovernment also exercises significant control over Chinas economic growth by allocating resources,controlling payment offoreign currency-denominated obligations,setting monetary policy,and providing preferential treatment to particular industries orcompanies.18 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm20/67 While the Chinese economy has experienced significant growth over the past decades,growth has been uneven,bothgeographically and among various sectors of the economy.Any adverse changes in economic conditions in China,in the policiesof the Chinese government,or in the laws and regulations in China could have a material adverse effect on the overall economicgrowth of China.Such developments could adversely affect our business and operating results,reduce demand for our products,and weaken our competitive position.The Chinese government has implemented various measures to encourage economic growthand guide the allocation of resources.Some of these measures may benefit the overall Chinese economy,but may have a negativeeffect on us.For example,our financial condition and results of operations may be adversely affected by government control overcapital investments or changes in tax regulations.In addition,in the past the Chinese government has implemented certainmeasures,including interest rate adjustments,to control the pace of economic growth.These measures may cause decreasedeconomic activities in China,which may adversely affect our business and operating results.As of the date of this prospectus,there are no laws,regulations or other rules require our PRC operating entities to obtainpermission or approvals from Chinese authorities to list on U.S.exchanges,and neither we nor our PRC operating entities havereceived or were denied such permission.However,there is a risk that we or our PRC operating entities will not receive or will bedenied permission from Chinese authorities to list on U.S.exchanges in the future,which could significantly limit or completelyhinder our ability to offer or continue to offer our securities to investors and cause the value of our shares to significantly decline orbe worthless.Under the Enterprise Income Tax Law,we may be classified as a“Resident Enterprise”of China.Such classification willlikely result in unfavorable tax consequences to us and our non-PRC shareholders.China passed the Enterprise Income Tax Law,or the EIT Law,and its implementing rules,both of which became effective onJanuary 1,2008.Under the EIT Law,an enterprise established outside of China with“de facto management bodies”within Chinais considered a“resident enterprise,”meaning that it can be treated in a manner similar to a Chinese enterprise for enterpriseincome tax purposes.The implementing rules of the EIT Law define de facto management as“substantial and overall managementand control over the production and operations,personnel,accounting,and properties”of the enterprise.On April 22,2009,the State Administration of Taxation of China issued the Notice Concerning Relevant Issues RegardingCognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of defacto Management Bodies,or the Notice,further interpreting the application of the EIT Law and its implementation to offshoreentities controlled by a Chinese enterprise or group.Pursuant to the Notice,an enterprise incorporated in an offshore jurisdictionand controlled by a Chinese enterprise or group will be classified as a“non-domestically incorporated resident enterprise”if(i)itssenior management in charge of daily operations reside or perform their duties mainly in China;(ii)its financial or personneldecisions are made or approved by bodies or persons in China;(iii)its substantial assets and properties,accounting books,corporate stamps,board and stockholder minutes are kept in China;and(iv)all of its directors with voting rights or seniormanagement reside in China.A resident enterprise would be subject to an enterprise income tax rate of 25%on its worldwideincome and must pay a withholding tax at a rate of 10%when paying dividends to its non-PRC stockholders.Because substantiallyall of our operations and senior management are located within the PRC and are expected to remain so for the foreseeable future,we may be considered a PRC resident enterprise for enterprise income tax purposes and therefore subject to the PRC enterpriseincome tax at the rate of 25%on its worldwide income.However,it remains unclear as to whether the Notice is applicable to anoffshore enterprise controlled by a Chinese natural person.Therefore,it is unclear how tax authorities will determine tax residencybased on the facts of each case.19 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm21/67 If the PRC tax authorities determine that we are a“resident enterprise”for PRC enterprise income tax purposes,a number ofunfavorable PRC tax consequences could follow.First,we may be subject to the enterprise income tax at a rate of 25%on ourworldwide taxable income as well as PRC enterprise income tax reporting obligations.In our case,this would mean that incomesuch as non-China source income would be subject to PRC enterprise income tax at a rate of 25%.Currently,we do not have anynon-China source income,as we conduct our sales in China.However,under the EIT Law and its implementing rules,dividendspaid to us from our PRC subsidiary would be deemed as“qualified investment income between resident enterprises”and thereforequalify as“tax-exempt income”pursuant to the clause 26 of the EIT Law.Second,it is possible that future guidance issued withrespect to the new“resident enterprise”classification could result in a situation in which the dividends we pay with respect to ourOrdinary Shares,or the gain our non-PRC stockholders may realize from the transfer of our Ordinary Shares,may be treated asPRC-sourced income and may therefore be subject to a 10%PRC withholding tax.The EIT Law and its implementing regulationsare,however,relatively new and ambiguities exist with respect to the interpretation and identification of PRC-sourced income,andthe application and assessment of withholding taxes.If we are required under the EIT Law and its implementing regulations towithhold PRC income tax on dividends payable to our non-PRC shareholders,or if non-PRC shareholders are required to pay PRCincome tax on gains on the transfer of their Ordinary Shares,our business could be negatively impacted and the value of yourinvestment may be materially reduced.Further,if we were treated as a“resident enterprise”by PRC tax authorities,we would besubject to taxation in both China and such countries in which we have taxable income,and our PRC tax may not be creditableagainst such other taxes.We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.In connection with this offering,we will become subject to the U.S.Foreign Corrupt Practices Act(the“FCPA”),and other lawsthat prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S.persons and issuers as defined by the statute for the purpose of obtaining or retaining business.We are also subject to Chinese anti-corruption laws,which strictly prohibit the payment of bribes to government officials.We have operations,agreements with thirdparties,and make sales in China,which may experience corruption.Our activities in China create the risk of unauthorizedpayments or offers of payments by one of the employees,consultants or distributors of our Company,because these parties are notalways subject to our control.Although we believe to date we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law,our existing safeguards and any future improvements may prove to be less than effective,and the employees,consultants or distributors of our Company may engage in conduct for which we might be held responsible.Violations of the FCPAor Chinese anti-corruption law may result in severe criminal or civil sanctions,and we may be subject to other liabilities,whichcould negatively affect our business,operating results and financial condition.In addition,the government may seek to hold ourCompany liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.Uncertainties with respect to the PRC legal system could adversely affect us.We conduct all of our business through our subsidiary and variable interest entities in China.Our operations in China are governedby PRC laws and regulations.Our PRC subsidiary and variable interest entities are generally subject to laws and regulationsapplicable to foreign investments in China and,in particular,laws and regulations applicable to wholly foreign-owned enterprises.The PRC legal system is based on statutes.Prior court decisions may be cited for reference but have limited precedential value.Since 1979,PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreigninvestments in China.However,China has not developed a fully integrated legal system and recently enacted laws and regulationsmay not sufficiently cover all aspects of economic activities in China.In particular,because these laws and regulations arerelatively new,and because of the limited volume of published decisions and their nonbinding nature,the interpretation andenforcement of these laws and regulations involve uncertainties.In addition,the PRC legal system is based in part on governmentpolicies and internal rules(some of which are not published on a timely basis or at all)that may have a retroactive effect.As aresult,we may not be aware of our violation of these policies and rules until sometime after the violation.In addition,any litigationin China may be protracted and result in substantial costs and diversion of resources and management attention.PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from usingthe proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary,which could materially andadversely affect our liquidity and our ability to fund and expand our business.20 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm22/67 In utilizing the proceeds of this offering in the manner described in“Use of Proceeds,”as an offshore holding company of our PRCoperating entities,we may make loans to our PRC subsidiary,or we may make additional capital contributions to our PRCsubsidiary.Any loans to our PRC subsidiary are subject to PRC regulations.For example,loans by us to our subsidiary in China,which is aforeign invested entity(“FIE”),to finance its activities cannot exceed statutory limits and must be registered with SAFE.OnMarch 30,2015,SAFE promulgated Hui Fa 2015 No.19,a notice regulating the conversion by a foreign-invested company offoreign currency into RMB.The foreign exchange capital,for which the monetary contribution has been confirmed by the foreignexchange authorities(or for which the monetary contribution has been registered for account entry)in the capital account of aforeign-invested enterprise may be settled at a bank as required by the enterprises actual management needs.Foreign-investedenterprises with investment as their main business(including foreign-oriented companies,foreign-invested venture capitalenterprises and foreign-invested equity investment enterprises)are allowed to,under the premise of authenticity and compliance oftheir domestic investment projects,carry out based on their actual investment scales direct settlement of foreign exchange capitalor transfer the RMB funds in the foreign exchange settlement account for pending payment to the invested enterprises accounts.On May 10,2013,SAFE released Circular 21,which came into effect on May 13,2013.According to Circular 21,SAFE hassimplified the foreign exchange administration procedures with respect to the registration,account openings and conversions,settlements of FDI-related foreign exchange,as well as fund remittances.Circular 21 may significantly limit our ability to convert,transfer and use the net proceeds from this offering and any offering ofadditional equity securities in China,which may adversely affect our liquidity and our ability to fund and expand our business inthe PRC.We may also decide to finance our PRC operating entities by means of capital contributions.These capital contributions must beapproved by MOFCOM or its local counterpart,which usually takes no more than 30 working days to complete.We may not beable to obtain these government approvals on a timely basis,if at all,with respect to future capital contributions by us to our PRCsubsidiaries.If we fail to receive such approvals,we will not be able to capitalize our PRC operations,which could adverselyaffect our liquidity and our ability to fund and expand our business.The Chinese government exerts substantial influence over the manner in which we must conduct our business,and mayintervene or influence our operations at any time,which could result in a material change in our operations,significantlylimit or completely hinder our ability to offer or continue to offer securities to investors and,and cause the value of ourOrdinary Shares to significantly decline or be worthless.The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chineseeconomy through regulation and state ownership.Our ability to operate in China may be harmed by changes in its laws andregulations,including those relating to taxation,environmental regulations,land use rights,property and other matters.The centralor local governments of these jurisdictions may impose new,stricter regulations or interpretations of existing regulations thatwould require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.Accordingly,government actions in the future,including any decision not to continue to support recent economic reforms and toreturn to a more centrally planned economy or regional or local variations in the implementation of economic policies,could havea significant effect on economic conditions in China or particular regions thereof,and could require us to divest ourselves of anyinterest we then hold in Chinese properties.21 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm23/67 As such,our business is subject to various government and regulatory interferences.We could be subject to regulation by variouspolitical and regulatory entities,including various local and municipal agencies and government sub-divisions.The Company mayincur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure tocomply.Our operations could be adversely affected,directly or indirectly,by existing or future laws and regulations relating to itsbusiness or industry,which could result in a material change in our operation and the value of our Ordinary Shares.Furthermore,given recent statements by the Chinese government indicating an intent to exert more oversight and control overofferings that are conducted overseas,although we are currently not required to obtain permission from any of the PRC federal orlocal government authorities and have not received any denial to list on the U.S.exchange,it is uncertain when and whether wewill be required to obtain permission from the PRC government to list on U.S.exchanges in the future,and even when suchpermission is obtained,whether it will be denied or rescinded,which could significantly limit or completely hinder our ability tooffer or continue to offer our securities to investors and cause the value of our shares to significantly decline or be worthless.Increases in labor costs in the PRC may adversely affect our business and results of operations.The currently effective PRC Labor Contract Law,or the Labor Contract Law was first adopted on June 29,2007 and later amendedon December 28,2012.The PRC Labor Contract Law has reinforced the protection of employees who,under the Labor ContractLaw,have the right,among others,to have written employment contracts,to enter into employment contracts with no fixed termunder certain circumstances,to receive overtime wages and to terminate or alter terms in labor contracts.Furthermore,the LaborContract Law sets forth additional restrictions and increases the costs involved with dismissing employees.To the extent that weneed to significantly reduce our workforce,the Labor Contract Law could adversely affect our ability to do so in a timely and cost-effective manner,and our results of operations could be adversely affected.In addition,for employees whose employmentcontracts include noncompetition terms,the Labor Contract Law requires us to pay monthly compensation after such employmentis terminated,which will increase our operating expenses.We expect that our labor costs,including wages and employee benefits,will continue to increase.Unless we are able to pass onthese increased labor costs to our customers by increasing the prices of our products and services,our financial conditions andresults of operations would be materially and adversely affected.You may face difficulties in protecting your interests and exercising your rights as a shareholder since we conductsubstantially all of our operations in China,and almost all of our officers and directors reside outside the U.S.Although we are incorporated in the United Kingdom,we conduct substantially all of our operations in China.All of our currentofficers and almost all of our directors reside outside the U.S.and substantially all of the assets of those persons are located outsideof the U.S.It may be difficult for you to conduct due diligence on the Company or such directors in your election of the directorsand attend shareholders meeting if the meeting is held in China.We plan to have one shareholder meeting each year at a location tobe determined,potentially in China.As a result of all of the above,our public shareholders may have more difficulty in protectingtheir interests through actions against our management,directors or major shareholders than would shareholders of a corporationdoing business entirely or predominantly within the U.S.Risks Related to the Offering and Our Ordinary Shares We do not intend to pay dividends for the foreseeable future.We currently intend to retain any future earnings to finance the operation and expansion of our business,and we do not expect todeclare or pay any dividends in the foreseeable future.As a result,you may only receive a return on your investment in ourOrdinary Shares if we are successfully listed and the market price of our Ordinary Shares increases.22 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm24/67 There may not be an active,liquid trading market for our Ordinary Shares.Prior to the completion of this offering,there has been no public market for our Ordinary Shares.An active trading market for ourOrdinary Shares may not develop or be sustained following this offering.You may not be able to sell your shares at the marketprice,if at all,if trading in our shares is not active.The initial public offering price was determined by negotiations between us andour advisors based upon a number of factors.The initial public offering price may not be indicative of prices that will prevail in thetrading market.General Risk Factors We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire thesepersonnel in the future,our ability to improve our products and implement our business objectives could be adverselyaffected.We must attract,recruit and retain a sizeable workforce of technically competent employees.Competition for senior managementand personnel in the PRC is intense and the pool of qualified candidates in the PRC is limited.We may not be able to retain theservices of our senior executives or personnel,or attract and retain high-quality senior executives or personnel in the future.Thisfailure could materially and adversely affect our future growth and financial condition.The initial public offering price of our Ordinary Shares may not be indicative of the market price of our Ordinary Sharesafter this offering.In addition,an active,liquid and orderly trading market for our Ordinary Shares may not develop or bemaintained,and our stock price may be volatile.Prior to the completion of this offering,our Ordinary Shares were not traded on any market.An active,liquid and orderly tradingmarket for our Ordinary Shares may not develop or be maintained after this offering.Active,liquid and orderly trading marketsusually result in less price volatility and more efficiency in carrying out investors purchase and sale orders.The market price ofour Ordinary Shares could vary significantly as a result of a number of factors,some of which are beyond our control.In the eventof a drop in the market price of our Ordinary Shares,you could lose a substantial part or all of your investment in our OrdinaryShares.The initial public offering price will be determined by us,based on numerous factors and may not be indicative of themarket price of our Ordinary Shares after this offering.Consequently,you may not be able to sell shares of our Ordinary Shares atprices equal to or greater than the price paid by you in this offering.The following factors could affect our share price:our operating and financial performance;quarterly variations in the rate of growth of our financial indicators,such as net income per share,net income and revenues;the public reaction to our press releases,our other public announcements and our filings with the SEC;strategic actions by our competitors;changes in revenue or earnings estimates,or changes in recommendations or withdrawal of research coverage,by equityresearch analysts;speculation in the press or investment community;the failure of research analysts to cover our Ordinary Shares;sales of our Ordinary Shares by us or other shareholders,or the perception that such sales may occur;changes in accounting principles,policies,guidance,interpretations or standards;additions or departures of key management personnel;actions by our shareholders;domestic and international economic,legal and regulatory factors unrelated to our performance;andthe realization of any risks described under this“Risk Factors”section.23 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm25/67 The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance ofparticular companies.These broad market fluctuations may adversely affect the trading price of our Ordinary Shares.Securitiesclass action litigation has often been instituted against companies following periods of volatility in the overall market and in themarket price of a companys securities.Such litigation,if instituted against us,could result in very substantial costs,divert ourmanagements attention and resources and harm our business,operating results and financial condition.For as long as we are an emerging growth company,we will not be required to comply with certain reporting requirements,including those relating to accounting standards and disclosure about our executive compensation,that apply to otherpublic companies.In April 2012,President Obama signed into law the JOBS Act.We are classified as an“emerging growth company”under theJOBS Act.For as long as we are an emerging growth company,which may be up to five full fiscal years,unlike other publiccompanies,we will not be required to,among other things,(i)provide an auditors attestation report on managements assessmentof the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b)of the Sarbanes-OxleyAct,(ii)comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to theauditors report in which the auditor would be required to provide additional information about the audit and the financialstatements of the issuer,(iii)provide certain disclosure regarding executive compensation required of larger public companies or(iv)hold nonbinding advisory votes on executive compensation.We will remain an emerging growth company for up to five years,although we will lose that status sooner if we have more than$1.07 billion of revenues in a fiscal year,have more than$700million in market value of our Ordinary Shares held by non-affiliates,or issue more than$1.0 billion of non-convertible debt overa three-year period.To the extent that we rely on any of the exemptions available to emerging growth companies,you will receive less informationabout our executive compensation and internal control over financial reporting than issuers that are not emerging growthcompanies.If some investors find our Ordinary Shares to be less attractive as a result,there may be a less active trading market forour Ordinary Shares and our stock price may be more volatile.The requirements of being a public company may strain our resources and divert managements attention.As a public company,we will be subject to the reporting requirements of the Securities Exchange Act of 1934,as amended,or theExchange Act,the Sarbanes-Oxley Act,the Dodd-Frank Act,the listing requirements of the securities exchange on which we list,and other applicable securities rules and regulations.Despite recent reforms made possible by the JOBS Act,compliance withthese rules and regulations will nonetheless increase our legal,accounting,and financial compliance costs and investor relationsand public relations costs,make some activities more difficult,time-consuming or costly and increase demand on our systems andresources,particularly after we are no longer an“emerging growth company.”The Exchange Act requires,among other things,thatwe file annual,quarterly,and current reports with respect to our business and operating results as well as proxy statements.As a result of disclosure of information in this prospectus and in filings required of a public company,our business and financialcondition will become more visible,which we believe may result in threatened or actual litigation,including by competitors andother third parties.If such claims are successful,our business and operating results could be harmed,and even if the claims do notresult in litigation or are resolved in our favor,these claims,and the time and resources necessary to resolve them,could divert theresources of our management and adversely affect our business,brand and reputation and results of operations.We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtaindirector and officer liability insurance,and we may be required to accept reduced coverage or incur substantially higher costs toobtain coverage.These factors could also make it more difficult for us to attract and retain qualified members of our board ofdirectors,particularly to serve on our audit committee and compensation committee,and qualified executive officers.24 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm26/67 We have broad discretion in the use of the net proceeds from our initial public offering and may not use them effectively.To the extent(i)we raise more money than required for the purposes explained in the section titled“Use of Proceeds”or(ii)wedetermine that the proposed uses set forth in that section are not no longer in the best interests of our Company,we cannot specifywith any certainty the particular uses of such net proceeds that we will receive from our initial public offering.Our managementwill have broad discretion in the application of such net proceeds,including working capital,possible acquisitions,and othergeneral corporate purposes,and we may spend or invest these proceeds in a way with which our shareholders disagree.The failureby our management to apply these funds effectively could harm our business and financial condition.Pending their use,we mayinvest the net proceeds from our initial public offering in a manner that does not produce income or that loses value.The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.Upon completion of this offering,we will be a public company in the United States.As a public company,we will be required tofile periodic reports with the Securities and Exchange Commission upon the occurrence of matters that are material to ourCompany and shareholders.Although we may be able to attain confidential treatment of some of our developments,in some cases,we will need to disclose material agreements or results of financial operations that we would not be required to disclose if we werea private company.Our competitors may have access to this information,which would otherwise be confidential.This may givethem advantages in competing with our Company.Similarly,as a U.S.public company,we will be governed by U.S.laws that ourcompetitors,which are mostly private Chinese companies,are not required to follow.To the extent compliance with U.S.lawsincreases our expenses or decreases our competitiveness against such companies,our public Company status could affect ourresults of operations.A sale or perceived sale of a substantial number of shares of our Ordinary Shares may cause the price of our OrdinaryShares to decline.We,all of our executive officers and directors and certain shareholders have agreed not to sell shares of our Ordinary Shares for aperiod of six months following this offering,subject to extension under specified circumstances.See“Lock-Up Agreements.”Ordinary shares subject to these lock-up agreements will become eligible for sale in the public market upon expiration of theselock-up agreements,subject to limitations imposed by Rule 144 under the Securities Act of 1933,as amended.If our shareholderssell substantial amounts of our Ordinary Shares in the public market,the market price of our Ordinary Shares could fall.Moreover,the perceived risk of this potential dilution could cause shareholders to attempt to sell their shares and investors to short ourOrdinary Shares.These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a timeand price that we deem reasonable or appropriate.SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that involve substantial risks and uncertainties.In some cases,you canidentify forward-looking statements by the words“may,”“might,”“will,”“could,”“would,”“should,”“expect,”“intend,”“plan,”“objective,”“anticipate,”“believe,”“estimate,”“predict,”“potential,”“continue”and“ongoing,”or the negative of these terms,orother comparable terminology intended to identify statements about the future.These statements involve known and unknownrisks,uncertainties and other important factors that may cause our actual results,levels of activity,performance or achievements tobe materially different from the information expressed or implied by these forward-looking statements.The forward-lookingstatements and opinions contained in this prospectus are based upon information available to us as of the date of this prospectusand,while we believe such information forms a reasonable basis for such statements,such information may be limited orincomplete,and our statements should not be read to indicate that we have conducted an exhaustive inquiry into,or review of,allpotentially available relevant information.Forward-looking statements include statements about:25 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm27/67 our future financial performance,including our expectations regarding our revenue,cost of revenue,operating expenses,including capital expenditures related to asset-intensive offerings,our ability to determine reserves and our ability to achieveand maintain future profitability;our ability to develop and market new products;the continued market acceptance of our products;the sufficiency of our cash,cash equivalents and investments to meet our liquidity needs;our ability to manage operations-related risk;our expectations and management of future growth;our expectations concerning relationships with third parties;the impact of COVID-19 on the Company;our ability to maintain,protect and enhance our intellectual property;our ability to successfully acquire and integrate companies and assets;the increased expenses associated with being a public company；exposure to product liability and defect claims;protection of our intellectual property rights;changes in the laws that affect our operations；inflation and fluctuations in foreign currency exchange rates;our ability to obtain all necessary government certifications,approvals,and/or licenses to conduct our business;continued development of a public trading market for our securities;the cost of complying with current and future governmental regulations and the impact of any changes in the regulations on ouroperations;managing our growth effectively;fluctuations in operating results;dependence on our senior management and key employees;and other factors set forth under“Risk Factors.”We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.You should not rely upon forward-looking statements as predictions of future events.We have based the forward-lookingstatements contained in this prospectus primarily on our current expectations and projections about future events and trends thatwe believe may affect our business,financial condition,results of operations and prospects.The outcome of the events described inthese forward-looking statements is subject to risks,uncertainties and other factors,including those described in the section titled“Risk Factors”and elsewhere in this prospectus.Moreover,we operate in a very competitive and rapidly changing environment.New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that couldhave an impact on the forward-looking statements contained in this prospectus.We cannot assure you that the results,events andcircumstances reflected in the forward-looking statements will be achieved or occur,and actual results,events or circumstancescould differ materially from those described in the forward-looking statements.Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-lookingstatements.Moreover,the forward-looking statements made in this prospectus relate only to events as of the date on which thestatements are made.We undertake no obligation to update any forward-looking statements made in this prospectus to reflectevents or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events,except as required by law.We may not actually achieve the plans,intentions or expectations disclosed in our forward-lookingstatements and you should not place undue reliance on our forward-looking statements.Our forward-looking statements do notreflect the potential impact of any future acquisitions,mergers,dispositions,joint ventures or investments we may make.26 2023/2/9https:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htmhttps:/www.sec.gov/Archives/edgar/data/1952202/000195220222000006/f1a.htm28/67 In addition,statements that“we believe”and similar statements reflect our beliefs and opinions on the relevant subject.Thesestatements are based upon information available to us as of the date of this prospectus,and while we believe such informationforms a reasonable basis for such statements,such information may be limited or incomplete,and our statements should not beread to indicate that we have conducted an exhaustive inquiry into,or review of,all potentially available relevant information.These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.USE OF PROCEEDS We estimate that we will receive net proceeds fr
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国际货币基金组织：2022年全球财政监测报告（10月版）（英文版）（100页）.pdf
FISCAL MONITOR OCTOBER 2022FISCAL MONITORIMF22OCTFISCAL MONITOR2022OCTIN THIS ISSUE:CHAPTER 1Helping People Bounce BackHelping People Bounce BackINTERNATIONAL MONETARY FUNDFISCAL MONITOR2022OCTHelping People Bounce BackINTERNATIONAL MONETARY FUND2022 International Monetary FundCover:IMF CSF Creative Solutions DivisionComposition:AGS,An RR Donnelley CompanyCataloging-in-Publication DataIMF LibraryNames:International Monetary Fund.Title:Fiscal monitor.Other titles:World economic and financial surveys,0258-7440Description:Washington,DC:International Monetary Fund,2009-|Semiannual|Some issues also have thematic titles.Subjects:LCSH:Finance,PublicPeriodicals.|Finance,PublicForecastingPeriodicals.|Fiscal policyPeriodicals.|Fiscal policyForecastingPeriodicals.Classification:LCC HJ101.F57ISBN:979-8-40021-274-1(paper)979-8-40021-129-4(PDF)979-8-40021-283-3(ePub)Disclaimer:The Fiscal Monitor is a survey by the IMF staff published twice a year,in the spring and fall.The report analyzes the latest public finance developments,updates medium-term fiscal projections,and assesses policies to put public finances on a sustain-able footing.The report was prepared by IMF staff and has benefited from comments and suggestions from Executive Directors following their discussion of the report on September 29,2022.The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMFs Executive Directors or their national authorities.Recommended citation:International Monetary Fund(IMF).2022.Fiscal Monitor:Helping People Bounce Back.Washington,DC:IMF,October.Publication orders may be placed online,by fax,or through the mail:International Monetary Fund,Publication ServicesPO Box 92780,Washington,DC 20090,USATelephone:(202)623-7430 Fax:(202)623-7201E-mail:publicationsimf.orgwww.imfbookstore.orgwww.elibrary.imf.org International Monetary Fund|October 2022 iiiCONTENTSAssumptions and Conventions vFurther Information viPreface viiForeword viiiExecutive Summary xChapter 1.Helping People Bounce Back 1Introduction 1 Fiscal Policy to Build a Resilient Society 1Building Resilience for Households against Job or Income Losses 3Responses to Surging Food and Energy Prices 10Ensuring the Resilience of Firms in Extraordinary Times 12Preparing a Strategy Ready to Deploy 14Box 1.1.Building a Resilient Future 17Box 1.2.Designing Government Support to Firms during a Crisis 19References 21Economy Abbreviations 25Glossary 27Methodological and Statistical Appendix 31Data and Conventions 31Fiscal Policy Assumptions 34Definition and Coverage of Fiscal Data 38Table A.Economy Groupings 38Table B.Advanced Economies:Definition and Coverage of Fiscal Monitor Data 41Table C.Emerging Market and Middle-Income Economies:Definition and Coverage of Fiscal Monitor Data 42 Table D.Low-Income Developing Countries:Definition and Coverage of Fiscal Monitor Data 43List of TablesAdvanced Economies(A1A8)44Emerging Market and Middle-Income Economies(A9A16)52Low-Income Developing Countries(A17A22)60Structural Fiscal Indicators(A23A25)66Selected Topics 69IMF Executive Board Discussion of the Outlook,September 2022 81FISCAL MONITOR:HELPING PEOPLE BOUNCE BACKiv International Monetary Fund|October 2022Editors Note(12/8/22):The reference to Christl and others(2022)was revised after publication to better acknowledge the role of the Joint Research Centre of the European Commission,where most coauthors are affiliated.FiguresFigure ES.1.National Budget Balances,by Income Group,201922 xFigure ES.2.National Gross Debt and Interest Expense,by Income Group,201424 xFigure ES.3.Effect of Inflation Shock on the Debt Ratio,Selected Countries,2022 versus 2020 xFigure ES.4.Food and Energy Support Policies,by Income Group xiFigure ES.5.Sovereign Spreads,by Income Group,202022 xiFigure ES.6.Fiscal Impulse,Inflation,and Debt for G20 Countries xiFigure 1.1.Fiscal Policy Builds Resilience in Several Critical Areas 2Figure 1.2.Fiscal Responses in Large Crises 2Figure 1.3.Simulations of the Stabilization of Income and Consumption across EU Countries,2020 5Figure 1.4.Stabilization of Income across EU Countries,by Household Income Groups,2020 5Figure 1.5.Change in Per Capita Income across Household Income Quintiles in Brazil,2020 6Figure 1.6.Evolution of Poverty and Income Inequality during the Pandemic in Brazil,201921 6Figure 1.7.US Consumption Growth during the Pandemic,by Income Group,201921 7Figure 1.8.Simulated Effects of Discretionary Support and Time-Varying Automatic Stabilizers 10Figure 1.9.Recently Announced Measures in Response to High Energy and Food Prices 11Figure 1.10.Domestic Consumption by Low-Income Households under Different Energy Subsidy Schemes 11Figure 1.11.Estimated Implicit Subsidy and Take-Up of Government Guarantee Programs,202021 14Figure 1.1.1.Children Missing Out on NonCOVID-19 Immunization 17Figure 1.2.1.Firms Receiving Public Support 19TablesTable 1.1.Selected Examples of Social Spending during the COVID-19 Pandemic in Emerging Market and Developing Economies 8Table 1.2.Appropriate Fiscal Tools to Deploy Depend on the Nature of the Adversity of Shocks 15Online-Only AnnexesOnline Annex 1.1.Countercyclical of Fiscal Policies Online Annex 1.2.Income Stabilization before and during the COVID-19 Pandemic across EU Countries:A Microsimulation Approach Online Annex 1.3.Brazils Emergency Cash Transfer Program Online Annex 1.4.Designing Fiscal Tools to Build Resilience:A DSGE-Based Analysis Online Annex 1.5.Externalities from Energy Pricing Subsidies International Monetary Fund|October 2022 vThe following symbols have been used throughout this publication:.to indicate that data are not available to indicate that the figure is zero or less than half the final digit shown,or that the item does not exist between years or months(for example,200809 or JanuaryJune)to indicate the years or months covered,including the beginning and ending years or months/between years(for example,2008/09)to indicate a fiscal or financial year“Billion”means a thousand million;“trillion”means a thousand billion.“Basis points”refers to hundredths of 1 percentage point(for example,25 basis points are equivalent to of 1 percentage point).“n.a.”means“not applicable.”Minor discrepancies between sums of constituent figures and totals are due to rounding.As used in this publication,the term“country”does not in all cases refer to a territorial entity that is a state as understood by international law and practice.As used here,the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.ASSUMPTIONS AND CONVENTIONSFISCAL MONITOR:HELPING PEOPLE BOUNCE BACKvi International Monetary Fund|October 2022Corrections and Revisions The data and analysis appearing in the Fiscal Monitor are compiled by IMF staff at the time of publication.Every effort is made to ensure their timeliness,accuracy,and completeness.When errors are discovered,corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary.All substantive changes are listed in the Table of Contents of the online PDF of the report.Print and Digital Editions Print Print copies of this Fiscal Monitor can be ordered from the IMF Bookstore at imfbk.st/518863.Digital Multiple digital editions of the Fiscal Monitor,including ePub,enhanced PDF,Mobi,and HTML,are available on the IMF eLibrary at www.elibrary.imf.org/OCT22FM.Download a free PDF of the report and data sets for each of the figures therein from the IMF website at www.imf.org/publications/fm,or scan the QR code below to access the Fiscal Monitor web page directly:Copyright and ReuseInformation on the terms and conditions for reusing the contents of this publication are at www.imf.org/external/terms.htm.FURTHER INFORMATION International Monetary Fund|October 2022 viiThe projections included in this issue of the Fiscal Monitor are drawn from the same database used for the October 2022 World Economic Outlook and Global Financial Stability Report(and are referred to as“IMF staff projections”).Fiscal projections refer to the general government,unless otherwise indicated.Short-term projections are based on officially announced budgets,adjusted for differences between the national authorities and the IMF staff regarding macroeconomic assumptions.The fiscal projections incorporate policy measures that are judged by the IMF staff as likely to be implemented.For countries supported by an IMF arrangement,the projections are those under the arrangement.In cases in which the IMF staff has insufficient information to assess the authorities budget intentions and prospects for policy implementation,an unchanged cyclically adjusted primary balance is assumed,unless indicated otherwise.Details on the composition of the groups,as well as country-specific assumptions,can be found in the Methodological and Statistical Appendix of the October 2022 Fiscal Monitor.The Fiscal Monitor is prepared by the IMF Fiscal Affairs Department under the general guidance of Vitor Gaspar,Department Director.The project was directed by Paolo Mauro,Deputy Director;and Paulo Medas,Division Chief.The main authors of Chapter 1 in this issue are W.Raphael Lam(team lead)and Roberto Piazza(deputy lead),Fernanda Brollo,Xuehui Han,Gee Hee Hong,Youssouf Kiendrebeogo,Anh Dinh Minh Nguyen,John Ralyea,Alexandra Solovyeva,and Alberto Tumino,with contributions from David Amaglobeli,Carolina Bloch,Nick Carroll,Mengfei Gu,Emine Hanedar,Mauricio Soto,Cline Thvenot,and Joo Jalles(University of Lisbon),and research support from Andrew Womer and Zhonghao Wei.The Methodological and Statistical Appendix was prepared by Chenlu Zhang under the guidance of John Ralyea and Alexandra Solovyeva.Meron Haile and Andre Vasquez provided excellent coordination and editorial support.Rumit Pancholi from the Communications Department led the editorial team and managed the reports production,with editorial assistance from Grauel Group and TalentMEDIA Services.Inputs,comments,and suggestions were received from other departments in the IMF,including area departmentsnamely,the African Department,Asia and Pacific Department,European Department,Middle East and Central Asia Department,and Western Hemisphere Departmentas well as the Communications Department,Institute for Capacity Development,Legal Department,Monetary and Capital Markets Department,Research Department,Secretarys Department,Statistics Department,and Strategy,Policy,and Review Department.Chapter 1 of the Fiscal Monitor also benefited from comments by Markus Brunnermeier(Princeton University),Wendy Edelberg(Brookings),Leonardo Iacovone(World Bank),Camille Landais(London School of Economics),Eric Parrado Herrera(Inter-American Development Bank),and Ricardo Reis(London School of Economics and Political Science).Both projections and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities.PREFACEFISCAL MONITOR:HELPING PEOPLE BOUNCE BACKviii International Monetary Fund|October 2022The global economy is being buffeted by a sequence of disturbances.After unprec-edented expansion in 2020,monetary and fiscal policy have pivoted together from expansion to tightening.Debt and deficits fell in 2021 and 2022 but remain above prepandemic levels and projections.These developments reflect mainly the unwinding of pandemic-related measures and surprise inflation.In the context of high inflation,high debt,rising interest rates,and elevated uncertainty,consis-tency between monetary and fiscal policy is para-mount.In most countries,this means keeping the budget on its tightening course.Inflation surprises are contributing to the reduc-tion of debt and deficits.But we also must recognize that inflation surprises cannot endure.If inflation becomes broad-based and persistent,it will eventu-ally be reflected in inflation expectations.In such a situation,assets that promise nominal returns become less attractive.High and volatile inflation makes credit more expensive and unreliable.There is thus a trade-off between short-run expediency and macroeco-nomic stability.With inflation elevated and financing conditions tightening,policymakers should prioritize macroeconomic and financial stability above all else.This is especially relevant as recent developments in bond markets show increased market sensitivity to deteriorating(or bad)fundamentals.That raises the prospect of more frequent and more disruptive fiscal crises across the world.Very high inflation,together with surging food and energy prices,translates into a politically salient cost-of-living crisis.Governments are adopting hundreds of policy actions this year in response to surging food and energy prices.Food spending is proportionately much greater in poorer countries(and poorer households).Hence,in these economies,food is the dominant driver of policy action.In advanced economies energy dominates.Our report includes the results of a survey of 174 countries covering about 750 measures enacted in the first half of 2022 to counter the food and energy crisis.The most common measures aim at dulling price pass-through and include reductions in consumption taxes,customs duties,and energy price subsidies.Most measures have not been targeted at those most in need.The rise of extreme poverty and food insecurity that began even before the pandemic is very concern-ing.Emergency support is necessary.The food crisis should be addressed,at the global level,by a broad set of initiatives including the lifting of restrictions on exports of food and fertilizers.Some emergency financing will be available through the new Food Shock Window under the IMF emergency financ-ing toolkit.But more is needed,including through the voluntary rechanneling of wealthier countries allocations of the IMFs special drawing right(SDR)to poorer countries.At the national level,countries must prioritize food security.In many cases,binding financing constraints make the trade-offs very painful for countries.Coordi-nated global action is thus urgent.Compounding the food plight,the energy crisis especially in Europeis proving to be profound,protracted,and is likely to persist.Given the size of the shock,many households and firms require sup-port that facilitates adjustment.It is critical to design the policy response in a way that navigates difficult,but pressing,trade-offs.The price mechanism must play a key role in the allocation of scarce energy resources and targeted measures help to reconcile the imperative of support for the vulnerable with maintaining the budget deficit on a downward path.Facing a shifting landscape,policymakers must stay agile to be able to respond appropriately to the unexpected.Long commitments are not more than a pretense of certainty and can quickly become unaffordable.This Fiscal Monitor takes a deep dive into how fiscal policy can build a resilient society that helps people bounce back from significant adversity.The pandemic has shown that fiscal measures can be swift and impactful in protecting people and firms in difficult times.Governments have used novel and innovative tools,often leveraging digital technology.FOREWORDForeword International Monetary Fund|October 2022 ixThese measures can be more efficient if building on a sound pre-existing social protection system when cri-ses strike.The Fiscal Monitor thus stresses the impor-tance of preparing a strategy,making social support readily scalable and better targeted and building fiscal buffers in normal times.These actions would allow governments to respond promptly and flexibly to deliver support to those who really need it.Infor-mation,transparency,the institutional capacity will be keyas will managing risks and exiting support measures.This is particularly challenging when facing shocks that are both as far-reaching and persistent as we are witnessing today.Vitor GasparDirector of the Fiscal Affairs DepartmentFISCAL MONITOR:HELPING PEOPLE BOUNCE BACKx International Monetary Fund|October 2022EXECUTIVE SUMMARYCurrent DevelopmentsRising inflation and climbing interest rates have sup-planted more than a decade of muted inflation and low interest rates in many countries.Recession concerns are surfacing and geopolitical tensions have increased further as Russias invasion of Ukraine persists(October 2022 World Economic Outlook).Fiscal policy trade-offs are increasingly difficult,especially for high-debt countries where responses to the COVID-19 pandemic exhausted their fiscal space.Households are struggling with elevated food and energy prices,raising the risk of social unrest.A Shifting Landscape Puts Pressure on BudgetsIn 2021 and 2022,fiscal deficits have fallen sharply in advanced and emerging market economies but remain larger than prepandemic levels across income groups(Figure ES.1).The contraction in the average deficit for advanced econo-mies and emerging market economies(excluding China)is notable,reflecting the unwinding of pandemic-related measures amid rising inflation.In addition,many oil export-ers are now running fiscal surpluses because of higher oil revenues.Conversely,Chinas deficit is projected to widen in 2022 as growth slows and inflation remains low.For low-income developing countries,which had a relatively mild fiscal response to the pandemic,the average deficit has barely changed.Compared with 2019,the larger deficits in advanced economies and low-income developing countries reflect higher spending than three years ago(partly because of responses to the food and energy crises),whereas in emerging market economies it is mainly because revenues have yet to rebound.Global government debt is projected to be 91 percent of GDP in 2022,which is about 7.5 percentage points above the prepandemic levels,despite the recent reduction in the ratio for many countries(Figure ES.2).Debt decreased because of deficit reduction,economic recovery,and infla-tion shocks(Figure ES.3).The sharp rise in food and energy prices also puts pressure on government budgets.Food and energy prices remain well above prepandemic levelsthe UN Food and Agriculture Organizations Food Price Index for August 2022 was 45 per-cent higher than in 2019.Countries have implemented new Figure ES.1.National Budget Balances,by Income Group,201922(Percent of GDP)120246810Advancedeconomies2019202122Emerging marketeconomies,excluding China2019202122China2019202122Low-incomedevelopingcountries2019202122Source:IMF,World Economic Outlook database.Debt-to-GDP ratio,advancedeconomies(left scale)Interest expense,advancedeconomies(right scale)Debt-to-GDP ratio,emerging market anddeveloping economies(left scale)Interest expense,emerging market anddeveloping economies(right scale)Figure ES.2.National Gross Debt and Interest Expense,byIncome Group,201424(Percent of GDP,weighted averages)1202040608010040123Sources:IMF,World Economic Outlook;and IMF staff calculations.Note:China is excluded.Bars for 202224 are projected data.201718192021222324201718192021222324Change in debt(2022 versus 2020)Contribution of inflationFigure ES.3.Effect of Inflation Shock on the Debt Ratio,Selected Countries,2022 versus 2020(Percent of GDP)20151050510BrazilCanadaChinaGermanyIndiaItalySouthAfricaUnitedKingdomUnitedStatesSources:IMF,World Economic Outlook database;and IMF staff calculations.eXeCUTIVe SUMMArY International Monetary Fund|October 2022 ximeasures,including price subsidies,tax cuts,and cash trans-fers,to help households.In most countries,the announced measures cost more than 0.5 percent of GDP(excluding existing subsidies)reflecting in part insufficient targeting.Low-income developing countries have incurred the highest relative cost for new food-related measures(Figure ES.4).Budget constraints are tightening as global financial conditions become more challenging(October 2022 Global Financial Stability Report).Many emerging market economies and low-income developing countries have been managing surging spreads in 2022;the median spread for low-income developing countries has increased over 50 percent in the past year(Figure ES.5).Interest expense relative to GDP is projected to rise over the coming years even as debt stabi-lizes.If inflation becomes more volatile,borrowing costs could rise further as investors require a higher premium for long-term debt.Also,revenue could fall if higher interest rates reduce central bank profits and the related dividend payments to governments.Moreover,almost 60 percent of the lowest-income economies are already in or at high risk of debt distress,highlighting the need for a robust Common Framework for debt relief.The global economy is slowing amid continued tight financing conditions.A sharp downturn would further accentuate trade-offs among competing priorities of demand management,debt stabilization,protection of vulnerable populations,and investment for the future.Fiscal Policy Needs to AdjustDefining a consistent medium-term policy framework for the postpandemic world is crucial.Relying on repeated inflation surprises to reduce public debt is not a viable strat-egy and will lead to spending pressures(for example,wages and cost of services).Reducing deficits,as many advanced and emerging markets are projected to do(Figure ES.6),is necessary to help tackle inflation and address debt vulnerabilities.Fiscal consolidation sends a powerful signal that policymakers are aligned in their fight against inflation,which,in turn,would reduce the size of required policy rate increases to keep inflation expectations anchored and keep debt servicing costs lower than otherwise.Many countries are also revamping their fiscal rules to anchor policies.While politically difficult,gradual and steady fiscal tightening is less disruptive than an abrupt fiscal pullback brought on by loss of market confidence.Prioritizing policies and programs is increasingly vital as governments operate within tighter budgets.Top priorities are to ensure everyone has access to affordable food and to protect low-income households from rising inflation.Median number of measures announced:231Source:IMF staff estimates.Note:Whiskers reflect the 20th and 80th percentiles.Dots reflect the median and the number of announced measures of each type.Figure ES.4.Food and Energy Support Policies,by Income Group(Percent of GDP,median,20th and 80th percentiles)BothEnergyFoodBothEnergyFoodBothEnergyFoodAdvancedeconomiesEmergingmarketeconomiesLow-incomedevelopingcountries00.20.40.60.81.01.2January 2020September 2021September 2022Figure ES.5.Sovereign Spreads,by Income Group,202022(Basis points)1,8001,6001,4001,2001,0008006004002000Emerging market economiesLow-income developing countriesSource:JPMorgan Emerging Market Bond Index.Note:Lines are median and shaded areas are interquartile ranges for a sample of 49 emerging market economies and 9 low-income developing countries.Inflation in 2022Fiscal impulse in 2023543210123Change in debt,201922Source:IMF,World Economic Outlook database.Note:Includes Spain;excludes Argentina,Russia,Saudi Arabia,and Trkiye.Fiscal impulse is measured by the change in the cyclically adjusted primary balance.The size of the bubble reflects the inflation rate.Figure ES.6.Fiscal Impulse,Inflation,and Debt forG20 Countries(Percent of GDP)0302520151055FISCAL MONITOR:HELPING PEOPLE BOUNCE BACKxii International Monetary Fund|October 2022Faced with long-lasting supply shocks and broad-based inflation,attempts to limit price increases through price controls,subsidies,or tax cuts will be costly to the budget and ultimately ineffective.Governments should allow prices to adjust and provide temporary targeted cash transfers to the most vulnerable.Price signals are critical to promote energy conservation and encourage private investment in renewables.Public investment in critical areas should be safeguarded.As part of the prioritization effort,countries may need to raise additional revenues and contain the growth of other expenditures,including public wages,both of which could help contain overall wage and price pressures.In the dwindling number of countries with fiscal space,and where inflation is under control,automatic stabilizers should operate fully.Helping People Bounce BackGovernment policies foster resilience by help-ing households and firms recover from or adjust to adversity.In advanced economies,fiscal actions were swift and forceful to protect peoples livelihoods from the outset of the COVID-19 pandemic and laid the foundation for a quick bounceback.Such measures also involved fiscal costs and risks,with implications for policies going forward.Fiscal responses were more diverse among emerging markets and developing econ-omies,with many economies financially constrained throughout the pandemic.Building a resilient society requires government actions to protect households and firms against large losses of real income and employmentthe focus of this Fiscal Monitor.It also requires actions in other intertwined areas,including(but not limited to)health care and pandemic preparedness,adaptation to climate changes and natural disasters,and equitable access to opportunities.For example,a society with strong social safety nets and equitable access to health care and education helps ensure that individuals who lose their jobs do not suffer lasting setbacks in their well-being or lifetime earnings.The COVID-19 pandemic(and the global financial crisis a decade and a half ago)led to innovative and forceful discretionary fiscal responses,against the backdrop of constrained monetary policy with interest rates near zero or negative,in many advanced economies.The ensuing reassessment of the appropriate size and mix of policy tools in response to large crises can inform the response to current chal-lenges,including the cost-of-living squeeze associated with spikes in food and energy prices,and can help governments prepare for future adversities:Social protection systems help people bounce back from unemployment,sickness,or poverty,making them resilient to a broad set of negative shocks.As demonstrated during the pandemic,social safety nets or broad-based cash transfers can be expanded quickly,often by leveraging new technologies.But preparation is necessary to make such systems more readily scalable and better targeted,to limit unnecessary spending,and to deliver support to those who truly need it.Reducing informality in the economya challenge in many low-income and developing economieswould allow people and firms to benefit from better protection when crises strike.Job-retention schemes provided strong income stabilization and were largely well targeted.They are a useful part of the fiscal toolbox alongside unemployment income support,particularly in situations in which layoffs would curb labor productivity.To cushion the blow from high food and energy prices,policies should in general avoid price subsidies or controls that are costly and ineffective,and instead target support to low-income households through social safety nets.Countries without strong safety nets can expand social programs(for example,school feeding and public transportation)or lump-sum discounts on utilities.For low-income developing countries,food security should be prioritized within the existing fiscal envelope.Exceptional financial support to firms averted an economy-wide implosion in recent crises but needs to be restricted to major crisis situations in which severe negative externalities,such as risks of widespread bankruptcies,are evident.Public interventions to support viable firms are risky because many countries have weak governance and limited capacity to assess or monitor firms viability.To manage the fiscal risks from measures without immediate budget impact,such as direct lending and public guarantees,governments should focus on transparency,quantification of risks,good governance,and enlisting private sector expertise to assess firms viability.Building on the experience of the pandemic,policymakers can now develop tools that can be readily deployed and prepare strategies that set out desirable policy responses under various scenarios.eXeCUTIVe SUMMArY International Monetary Fund|October 2022 xiiiWhere protection systems are well developed,and high-frequency economic indicators are reliable,prelegislated actions conditional on previously speci-fied triggers may be considered(such as expanded unemployment insurance following consecutive employment drops).Encouraging the private sector to build its own resilience through insurance or hav-ing workers acquire new skills can reduce the need for government intervention,which can be devoted to protecting the most vulnerable households.Policy trade-offs are at the forefront when design-ing fiscal strategies.To respond flexibly during adverse events,governments need to gradually build fiscal buffers in normal times(preferably in the context of a medium-term fiscal framework)and preserve debt sustainability and access to financing.Macroeco-nomic trade-offs also imply that when inflationary pressures are high,fiscal policy should protect the most vulnerable while pursuing a tightening stance to avoid overburdening monetary policy in the fight against inflation.Building buffers and tightening fiscal policy require prioritizing spending among competing needs and mobilizing revenues in a growth-friendly way.These trade-offs are stark for low-income countries that face adverse shocks while pursuing development goalssimilarly important elements of resilience.Domestic measures need to be complemented by global cooperation to foster resilience.Global syner-gies on pandemic preparedness and vaccine deploy-ment were evident during the pandemic.Investing in climate adaptation can benefit from cooperation among countries.For emerging markets and develop-ing economies that are at risk of a food crisis and have limited resources or capacity,greater global efforts can provide emergency financing,humanitarian assistance,and unhindered trade.IntroductionA key role of government is to foster resiliencethe ability for households and firms to recover from or suc-cessfully adjust to challenges such as macroeconomic crises,pandemics,climate change,or the cost-of-living squeeze associated with spikes in food and energy prices.Major crises such as the COVID-19 pandemic present the ultimate test of societal resilience.Many fiscal measures launched during the pandemic aimed to preserve the ability of people and firms to return to their activities before the crisis and to lay the founda-tions for a swift individual and collective bounceback.Views on the appropriate fiscal response to adverse events have been reshaped by the experience gained during the COVID-19 pandemic and the global finan-cial crisis that began in 2008.Previously,discretionary fiscal responses were deemed too slow or hard to unwind(Blanchard,DellAriccia,and Mauro 2010;Blinder 2016),and automatic stabilizersbuilt-in mechanisms that raise spending or reduce taxes in a timely and temporary manner when adverse events occurwere considered sufficient.The two major global crises of the past decade and a half have led to a re-assessment.Fiscal interventions during the global financial crisis shored up private sector balance sheets and stimulated aggregate demand in advanced economies at a time when mone-tary policy was constrained because interest rates were nearly zero.During the unprecedented global shock of the pandemic,political consensus made it possible to deploy even more rapid,diverse,and novel measures.At the outset of the pandemic,governments and central banks served as financiers of last resort by guaranteeing firms credit and liquidity.Many governments quickly provided cash transfers to support householdsoften not just poor households but also broader segments of the population.This Fiscal Monitor explores how fiscal policy and institutions can make society more resilient to cur-rent and future large adverse shocks.Broadly,the topic encompasses a comprehensive list of potential challengesincluding climate change and natural disasters,health care and pandemic preparedness,and equitable access to opportunitiesand a set of fiscal tools and institutions whereby governments can bolster resilience.The report focuses on a narrower aspect:how to bounce back from large,widespread real income losses.Policies considered fall into three categories.The first includes support to households and workers who have lost,or are at risk of losing,their jobs or incomes.The second comprises measures to limit the adverse impact of large spikes in food and energy prices on the real incomes of households(especially those of low-income families).The third encompasses providing public support to firms to bolster their liquidity and solvency through direct lending,guarantees,and equity injections to prevent bankruptcies.An early assessment of costs and effectiveness of policies undertaken during the first 2 years of the pandemic can help strengthen policies to tackle current challenges and prepare for future adverse events.Policy trade-offs are at the forefront of the discussion.For example,the need for speedy discretionary action at a time of great uncertainty regarding the size and dura-tion of a shock may come at the cost of limited target-ing.Public guarantees and job support schemes may lead to market distortions that,if left unchecked,could hamper economic growth.Given that fiscal policy plays a more active role during large crises,the ability to provide substantial fiscal interventions during severe crises requires taking a longer-term perspective that includes building greater fiscal buffers in normal times.These considerations emphasize how important it is to prepare a comprehensive fiscal strategy in advancewith a clear rationale for each fiscal instrumentready to deploy in time of need.Fiscal Policy to Build a Resilient SocietyThe analysis in this Fiscal Monitor focuses on a subset of policies that help people and firms bounce back from job and income losses in the aftermath of major crises.It considers the costs,timeliness,and effectiveness of such policies.Preexisting inequities in access to basic public services such as education and health care often amplify the harm to individuals from these major crises.HELPING PEOPLE BOUNCE BACK1CHAPTERInternational Monetary Fund|October 20221FISCAL MONITOR:HeLpINg peOpLe BOuNCe BACk 2International Monetary Fund|October 2022More broadly,governments also build resilience by acting in several areas,such as strengthening health care systems and addressing climate change(Figure 1.1;see Box 1.1 for an overview and references).Governments undertake fiscal policies and provide basic public services that attenuate any long-lasting harm from crises and ensuing reductions in income or employment.The recent surge in inflation,with spikes in food and energy prices,has increased the cost of living,particularly for low-income families.If safety nets are inadequate and public services such as health care or education insufficiently robust,the loss of real income or employment from a crisis can squeeze household budgets and push a family into a poverty trap,with worse health outcomes and curtailed school attendance for its children(Bellon,Pizzinelli,and Perrelli 2020;Brunnermeier 2021).Likewise,a severe fall in demand or loss of access to credit can push otherwise viable firms into bankruptcy.Tools that counter large drops in income and employment thus reduce the likelihood of lifelong harm from a broad set of adverse events(Box 1.1).Fiscal policies have been more active during large crises.The increase in deficits(as a fraction of GDP)for each percentage point drop in real GDP growth was bigger during the global financial crisis and the COVID-19 pandemic than during typical recessions(Figure 1.2;Online Annex 1.1).Fiscal activism during major crises is even stronger when considering fiscal measures that are not immedi-ately recorded in the deficit,such as government loans,guarantees,and equity injections to firms.For the global financial crisis,the stronger response can be partly explained by the fact that advanced economies were more adversely affected and mon-etary policy was constrained.The pandemic was instead a global shock,and fiscal policy aimed to protect lives and livelihoods rather than to sustain aggregate demand.Conventional macroeconomic policies that stimulate aggregate demand had limited capacity to restore employment and income,given that health concerns constrained household spend-ing(Chetty and others 2020;Auerbach and others 2022).Fiscal responses to major crises were greater in advanced economies than in emerging markets or low-income countries,likely reflecting easier access to financing and perhaps better information about recipients of social programs,in view of a smaller informal sector.The more muted deployment of fiscal tools in emerging market and developing economies was constrained by limited fiscal space.This likely contributed to some scarring in growth prospects relative to prepandemic levels(October 2022 World Economic Outlook).Several themes emerging from recent major crises are relevant to fiscal policies to meet current adversity and future challenges.First,governments deployed a wider range of tools during major crises than typical business cycles.During the pandemic,they used multiple discretion-ary measures,including broad-based cash transfers.In advanced economies,these measures operated on top of already well-established automatic stabilizers,such Source:IMF staff.Figure 1.1.Fiscal Policy Builds Resilience in Several Critical AreasHealth care andpandemicpreparedness Equitable access toopportunities Climate adaptation andnatural disasters Protection againstlarge income and job losses Advanced economiesEmerging market economiesLow-income developing countriesSource:IMF staff estimates(see Online Annex 1.1).Note:The figure shows the average of time-varying coefficients by country income groups,based on panel regressions estimated on the sensitivity to GDP growth of the deficit-to-GDP ratio from 1980 to 2021.Typical recessions are defined as periods when individual countries growth rates are below their own average levels over the previous three years.Figure 1.2.Fiscal Responses in Large Crises(Estimated coefficients)00.80.20.40.6Overall sample,19802021TypicalrecessionsGlobalfinancial crisis,200812COVID-19pandemic,2020CHAPTER 1 HeLpINg peOpLe BOuNCe BACk3International Monetary Fund|October 2022as unemployment insurance and social assistance.1 Firms benefited from measures to preserve liquidity and solvency.Second,to ensure that fiscal policies are cost-effective,it is important to determine the eligible recipients,such as those most in need of a hand up and less capable of bouncing back.Assessment should examine the distri-butional implications of policies in addition to their aggregate impact.Third,the case for fiscal interventionsbeyond their sizable fiscal costscannot be assessed in isolation from other policies.For example,a fiscal expansion can strongly support the economy when monetary policy is constrained.However,when inflation is above target,fiscal expansion can complicate the tasks of central banks.In some instances,fiscal interventions become necessary because of gaps in other policy frameworks.During the global financial crisis,for example,public bailouts of financial institutions were required to provide a backstop to the flow of credit.The ensuing fiscal costs reflected weaknesses in financial regula-tion,pointing to the importance of actions by both the public and private sectors.At a time when public budgets are stretched,policies that facilitate the private sector to cope with adverse shocks in a self-reliant way are helpful.The following sections take a more in-depth analysis of fiscal tools to support households and firms against the background of these themes and discuss ways to improve those tools to meet current challenges and future adversity.Building Resilience for Households against Job or Income LossesMany government programs protect households from losses in income or employment.The scope of these programs in strengthening individual resilience expands during large crises,when it is harder for people to find a new job and afford a basic standard 1Social protection systems consist of policies designed to reduce individuals exposures to risks and vulnerabilities and to enhance their capacity to manage negative shocks such as unemploy-ment,sickness,poverty,disability,and old age.Social protection encompasses three broad categories:(1)social safety net programs(noncontributory transfer programs to ensure a minimum level of economic well-being),(2)social insurance programs(contributory interventions to help people better manage risks),and(3)labor market programs to insure individuals against unemployment risks and improve job search prospects.of living and when multiple household members real incomes may fall at the same time.In these dire situations,programs such as unemployment income support or targeted transfers not only reduce the likelihood that individuals will face financial distress and suffer lasting deterioration of their well-being but also cushion the adverse impact on aggregate demand and thus speed up economic recovery.Certain components in government budgets support households and firms automatically during adverse events.These automatic stabilizers are,by design,intended to be timely,targeted,and tempo-rary.On the spending side,they include unemploy-ment income support and social assistance,whereas on the revenue side they include income taxes,which ensures that individuals and firms automatically pay less tax when the economy slows down.But auto-matic stabilizers may be unavailable or may not be sufficient in a large crisis,especially in developing countries where informality is widespread.In those situations,discretionary measures can flexibly tailor assistance to specific situations.However,unless prior planning takes place or special efforts are made,such measures may be delayed because they require govern-ment or parliamentary approval and are often harder to unwind(Romer and Romer 2010;Eyraud,Gaspar,and Poghosyan 2017).The rest of this section looks separately at several automatic stabilizers and discre-tionary measures,with a focus on how they operated during the pandemic.2Automatic StabilizersThe size of automatic stabilizers can be mea-sured through microsimulations that quantify how well existing tax and benefit systems buffer shocks to households market income(income before taxes and transfers).This approach allows a detailed analysis based on household characteristics,but it does not account for the feedback effects on aggregate income when policies change(see“Takeaways from Pandemic-Related Measures to Support Households”).2The distinction between automatic stabilizers and discretionary measures is indicative and depends on countries circumstances and legal frameworks.For example,in some European countries,job-retention schemes are activated automatically,but in others they have been used on a discretionary basis during the pandemic.FISCAL MONITOR:HeLpINg peOpLe BOuNCe BACk 4International Monetary Fund|October 2022Considering policies before the pandemic for coun-tries in the European Union(EU)and household-level data,microsimulations suggest that the tax and benefit systems compensated households for nearly 40 per-cent of a large market income loss on average during 201119(Online Annex 1.2;Coady and others,forth-coming),compared with 32 percent for the United States before 2011(Dolls,Fuest,and Peichl 2012).3 The degree of consumption stabilization is estimated to have been 85 percent in the European Union on average(meaning that EU households reduced their consumption by 15 percent for each unit drop in market income).4 This means that households drew down their savings to maintain consumption despite the decline in their disposable income.For low-income households,social benefits have been important in stabilizing disposable income,representing 40 per-cent of the overall income stabilization in the tax and benefit system(or absorbing 16 percent of the market income shock on average).For higher-income house-holds,the progressivity of direct taxes was instead more important in stabilizing income.Similar patterns were also observed in the United States and other major advanced economies.In addition to stabilizing individual income,spending-side automatic stabilizers tend to redistribute resources toward the poor or vul-nerable households and provide social insurance for all households,reducing their precautionary saving needs(McKay and Reis 2016,2021).In response to the pandemic,governments boosted protections against job and income losses.Two prominent instruments were unemployment income 3The approach uses a simulation model(EUROMOD)for EU countries to assess the impact of a change in tax and benefit systems,including simulations of tax liabilities and in-cash benefit entitlements at the individual or household level.The simulations are based on the 2019 EU Statistics on Income and Living Conditions(EU-SILC).The prepandemic shock is modeled in a stylized way involving a 5 percent proportional decline in market income across all households.The simulations exclude stabilization effects from old-age pensions,value-added taxes,and corporate income taxes.The results are not directly comparable with those obtained using other approaches that measure the size of automatic stabilizers on the basis of the cyclical component of the government budget responses to changes in GDP.The latter method finds that automatic stabilizers reduce one-half of output volatility in advanced economies and one-third in emerging market economies,with large variation across countries(see the April 2015 Fiscal Monitor;Mohl,Mourre,and Stovicek 2019).4The level of consumption stabilization is based on estimates of the marginal propensity to consume by household income groups for individual EU countries in Caroll,Slacalek,and Tokuoka(2014)(see Online Annex 1.2).support and job-retention schemes.The latter encom-pass policies that subsidize workers wages in firms that have reduced working hours but preserved jobs.Many EU countries had some forms of job-retention schemes in place before the pandemic,some of which could be activated automatically(through firms),such as Kurzarbeit in Germany.As the health crisis intensi-fied,governments introduced new or expanded existing job-retention and unemployment income support schemes.Take-up rates rose to a median of 13 per-cent of the working age population at the peak of the crisis,before gradually subsiding to prepandemic levels(Giupponi,Landais,and Lapeyre 2022).The United States stepped up its federal unemployment support by about 3 percent of GDP to raise benefits through weekly supplements,expand the eligibility to include independent workers,and extend the duration of federal benefits.Different reliance on these fiscal tools was reflected in labor market outcomesmass layoffs or furloughs in the United States and reductions in working hours in Europe(Online Annex 1.2).Microsimulations for the European Union show that the degree of income stabilization increased,thanks to the fiscal measures introduced in response to the pandemic.The tax and benefit systems(including pandemic-related measures)are estimated to have absorbed about 75 percent of the market income lossmuch larger than 40 percent prevailing before the crisis(Online Annex 1.2).The job-retention schemes alone absorbed almost 40 percent of the market income shock at the EU level(Figure 1.3),at a fiscal cost of about 2 percent of GDP.An alternative scenario indicates that in the absence of job-retention schemes,the tax and benefit system would have absorbed only 47 percent of market income losses.The income stabilization coefficient,expressed in percent,was 85 percent for households in the low-est income quintile,compared with 65 percent for those in the top income quintilealthough with significant variations among countries(Figure 1.4).Simulations also suggest that households might have stabilized more than 90 percent of their consumption on average(Christl and others 2022),although caution is needed when interpreting the simulation results.5 5The consumption stabilization coefficient measures the share of the market income shock that is not transmitted to household consumption or demand(see Online Annex 1.2).A higher consumption stabilization coefficient means temporary market income shocks affect consumption less.CHAPTER 1 HeLpINg peOpLe BOuNCe BACk5International Monetary Fund|October 2022Real per capita consumption declined by 7 percent among EU countries on average in 2020,partly because of the unique nature of the pandemic,which prevented households from consuming because of lock-down restrictions.Higher income stabilization rates among the poorest segments of the population indicated that policies were largely targeted toward those who needed help the most.Microsimulations,together with regression results,further suggest that income stabilization was stronger for the young and for less-educated workers,as well as those working in sectors that rely on personal contact,which were more vulnerable to the pandemic shocks(Online Annex 1.2).Findings in the litera-ture indicate that stabilization from unemployment income support was also the greatest for low-skilled workers,who,according to Ando and others(2022),were the most vulnerable to job losses.Similar effects were observed in the United States from its tempo-rary expansion of unemployment income support,which was progressive,with most benefits accruing to low-income workers(Ganong and others 2022).By stabilizing income and redistributing resources across individuals,the pandemic-related measures also affected income inequality.Microsimulations show that the Gini coefficient of income inequality would have increased by 0.65 percentage point in the European Union in 2020 before taxes and transfers,whereas the Gini coefficient of inequality in disposable income(after taxes and transfers)would have declined by 0.24 percentage point(Online Annex 1.2).Discretionary Fiscal SupportGovernments in many countries used discretionary measuresespecially broad-based cash transfersto provide direct income support to households during the pandemic.Cash transfers can be deployed in response to a wide range of shocks,including situa-tions in which other measures are insufficient(because the crisis is too severe)or less feasible(for example,job-retention schemes where informality is high).Cash transfers can be used flexibly because they are usually not tied to past or current work status,which makes them appealing in unusual crises such as the pan-demic.They are typically progressive(their propor-tional impact on disposable income is greater among poor households than among rich ones)because they generally consist of a flat amount for each individual or household,and eligibility is usually capped for those with higher incomes.Even so,cash transfers can be disbursed only if the government can identify and ver-ify eligible recipients and deliver payments to thema constraint especially relevant for many low-income countries.If such information and capacity are lacking in regard to destitute people,for example,because Job-retention schemesOther benefitsTaxes and social insurance contributionsUnemployment benefitsConsumption stabilizationSources:Christl and others 2022;and IMF staff estimates.Note:Based on EUROMOD simulations and 2019 data for the European Union(see Online Annex 1.2).Data labels in the figure use International Organization for Standardization(ISO)country codes.EU=European Union.Figure 1.3.Simulations of the Stabilization of Income and Consumption across EU Countries,2020(Stabilization coefficients,expressed in percent)012020406080100MLTPOLSWEGRCLTUITABGRESTCYPLVAESPCZEIRLPRTFINSVKHRVHUNDEUFRALUXBELROUSVNAUTNLDDNKEUSources:Christl and others 2022;and IMF staff estimates.See also Lam and Solovyeva,forthcoming.Note:Based on EUROMOD simulations and 2019 data for the European Union(see Online Annex 1.2).Red diamonds refer to the median level.Blue boxes are the interquartile ranges.Whiskers are the 10th and 90th percentile levels.Figure 1.4.Stabilization of Income across EU Countries,by Household Income Groups,2020(Stabilization coefficients,expressed in percent)120405060708090100110First quintile(lowest income)SecondquintileThirdquintileFourthquintileFifth quintile(highest income)FISCAL MONITOR:HeLpINg peOpLe BOuNCe BACk 6International Monetary Fund|October 2022they have limited ties to the formal economy,these programs are likely less effective.The Emergency Aid program in Brazil(Auxilio Emer-gencial)during 202021 provides a case study of the use of cash transfers because of its broad coverage and the availability of high-quality data(Online Annex 1.3).The program initially covered almost one-third of the population,including 90 percent of the households in the bottom 40 percent of the income distribution.Benefits were three times higher than the standard social benefit and more than half of the national minimum wage.The effect on household income is assessed using household-level data and microsimulations based on BraSim,a tax and benefit tool developed by the World Bank(Cereda,Rubiao,and Sousa 2020).The stabilization effects of the Emergency Aid pro-gram in Brazil far exceeded those of the social protec-tion system in place before the pandemic.Simulations show that,on average,per capita disposable income in Brazil edged up by 2.1 percent in 2020.Disposable income increased in the majority of households(more than 60 percent of households)and rose by more than 20 percent in low-income households(Figure 1.5;Brollo,Lara Ibarra,and Campante Vale,forthcoming).As a result,the poverty rate and the Gini index of disposable income inequality fell temporarily in 2020(Figure 1.6).A counterfactual scenario without the Emergency Aid program suggests that the prepandemic tax and benefit system would have absorbed only one-quarter of the market income loss,and that aver-age per capita disposable income would have declined by 4.1 percent.The cumulative fiscal cost for the Emergency Aid program,in 202021,was approxi-mately 4 percent of GDP.An alternative simulation suggests that a lower benefit level of the program(at one-third of the initial benefit amounts)would still have effectively protected income for the population at large,at about half the cost(Online Annex 1.3).Many advanced economies approved cash transfer programs and disbursed the benefits swiftly under the pressures of the health crisis.For example,the United States disbursed the first round of the Economic Impact Payments by mid-April 2020(about two weeks after the Coronavirus Aid,Relief,and Economic Secu-rity CARES Act was enacted in late March 2020)(Gelman and Stephens 2022).6 Together with other fiscal measures,the programs more than compensated for the loss in market income among most of the population.Real disposable income for households in 6According to data from the US Treasury,the three rounds of Economic Impact Payments,disbursed between April 2020 and December 2021,amounted to$800 billion in total.The payments covered most of the population,phasing out beginning with an adjusted gross income of$75,000 for singles and$150,000 for married persons.The first round of Economic Impact Payments was mandated under the CARES Act,which was signed into law on March 27,2020.About half of first-round payments were delivered by mid-April 2020,and nearly 90 percent were delivered by early June 2020(Gelman and Stephens 2022).StabilizationpreCOVID-19 benefits(right scale)Disposable income(preCOVID-19 benefits)Net market incomeDisposable income(including Auxilio Emergencial)Stabilization including Auxilio Emergencial(right scale)Sources:BraSim tax and benefit tool;and IMF staff estimates.Note:Estimates are based on microsimulations.Net market income includes contributory pension benefits received.Stabilization coefficient is defined as(1 percent change in disposable income/percent change in market income)100.Stabilization coefficients including the Emergency Aid program for the bottom 60 percent of households are larger than 230 and are not drawn to scale.Figure 1.5.Change in Per Capita Income across Household Income Quintiles in Brazil,2020(Percent change,left scale;percent,right scale)10505101520253050050100150Bottom20204040606080Top 20AverageHousehold income group56PreCOVID-19 benefitsIncluding Auxilio Emergencial programSources:BraSim tax and benefit tool;and IMF staff estimates.Note:Estimates are based on microsimulations.Poverty is defined as per capita household income less than half of minimum wage(US$6.30 per day in 2011 purchasing power parity PPP terms).Extreme poverty is US$2.25 per day at 2011 PPP,defined using the Bolsa Familia eligibility thresholds.Income inequality is based on disposable income(market income after taxes and transfers).Figure 1.6.Evolution of Poverty and Income Inequality during the Pandemic in Brazil,201921(Percent,left scale;Gini coefficients,right scale)0510152025303540455055PovertyExtreme poverty201920212019202120192021Inequality(right scale)CHAPTER 1 HeLpINg peOpLe BOuNCe BACk7International Monetary Fund|October 2022the bottom 50 percent of the income distribution rose on average by 9 percent in 2020 and by 17 percent in 2021,compared with 2019 levels(Blanchet,Saez,and Zucman 2022).The transfers were effective at sup-porting consumption levels of low-income households soon after they received the cash transfers(Chetty and others 2020;Autor and others 2022;Meyer,Murphy,and Sullivan 2022;Figure 1.7).7 Even middle-and higher-income families benefited from the transfers.Their disposable income rose by about 8 percent in 2020 and 2021,relative to that in 2019.However,because of social distancing constraints,families in higher income groups saved most of this additional income and reduced consumption in 2020.The increase in disposable income for a large frac-tion of the population in some countries points to the trade-offs policymakers faced when designing the pro-7With the recognition that direct comparison across episodes is difficult,the effects on consumption appeared smaller than those resulting from previous cases of cash transfers(Johnson,Parker,and Souleles 2006;Barnes and others 2022),possibly owing to the unique nature of the pandemic,such as lockdown restrictions and ample liquidity being in place(Auerbach,Gorodnichenko,and Murphy 2021;Parker and others 2022).Small effects on consump-tion of low-income households were also found during the pandemic in the case of direct cash transfers for childcare in Germany(Goldfayn-Frank,Lewis,and Wehrhofer 2022).grams.Policymakers needed to design support programs under great uncertainty regarding the course of the pan-demic and economic recovery,and had limited capacity to target the recipients who needed assistance most in real time.In hindsight,some government interventions appear generous.Broad-based cash transfers were ini-tially effective in protecting household income,partic-ularly in low-income households,and contained the rise in poverty.As more information on the pandemic became available and economic conditions improved,adjusting support to better target individuals could have reduced the fiscal costs.The considerations just discussed hold for advanced and a few emerging market economies.The fiscal response to the pandemic in many emerging market and developing economies was instead constrained by lim-ited fiscal space.For these countries,the main concern is the potential negative repercussions that their relatively modest fiscal response might have on their ability to bounce back to prepandemic paths in output(April 2022 Fiscal Monitor).This could affect efforts to reduce poverty in the coming decade(World Bank 2022).Preexisting social safety nets were the most import-ant tools used by emerging market and developing economies,in which automatic stabilizers such as unemployment income support are less prevalent and provide limited coverage because many jobs and busi-nesses are informal(Ohnsorge and Yu 2022).Although several countries incorporate elements in their social safety nets that automatically adjust transfers(for instance,by linking them to natural disasters),8 most do not have mechanisms in place to automatically scale up benefits in response to adverse shocks.As a result,many emerging market economies and low-income countries had to rely on discretionary measures to sup-port vulnerable households.Several countries leveraged digital tools and big data(Table 1.1).For example,Colombia implemented a harmonized payment system whereby beneficiaries could withdraw benefits from their designated bank accounts.Indonesia and Thailand created dedicated websites for direct registration of new beneficiaries,and Togo selected households for cash transfer programs based on satellite and phone record data.Satellite imagery was combined with census data 8For example,the number of beneficiaries of Ethiopias Produc-tive Safety Nets Program increases if there is warning of impending drought.Similarly,Kenyas Hunger Safety Net Program has clear triggers specifying who is covered by the scheme,as well as the amount and duration of benefits,depending on drought conditions.Private consumption growth(left scale)Implied saving rates(right scale)Figure 1.7.US Consumption Growth during the Pandemic,by Income Group,201921(Percentage change relative to the 2018 first-quarter levels,left scale;change in percent of disposable income relative to the 2018 first-quarter levels,right scale)1050510152025168081624324010thpercentile(lowerincome)25thpercentile50thpercentile75thpercentile90thpercentile(higherincome)2019202120192021201920212019202120192021Sources:Meyer,Murphy,and Sullivan 2022;US Bureau of Labor Statistics Consumer Expenditure Surveys;and IMF staff estimates.Note:Savings are estimated as the difference between quarterly disposable income and total expenditures.Consumption is estimated using a method similar to that in Meyer,Murphy,and Sullivan(2022).FISCAL MONITOR:HeLpINg peOpLe BOuNCe BACk 8International Monetary Fund|October 2022Table 1.1.Selected Examples of Social Spending during the COVID-19 Pandemic in Emerging Market and Developing EconomiesCountry Expanded EligibilityIncreased BenefitsAdditional Targeting Digital InnovationsRemarksBoliviaElderly,school students,and families with childrenBolivia implemented several programs to support vulnerable groups,including:(i)the Bono Contra el Hambre program,a transfer of Bs1,000(US$146)each to over 4 million people between 18 and 59 years old who were not receiving either salaries or pensions;(ii)the Bono Familia program to compensate low-income families,which paid Bs500(US$73)for each child in elementary school,Bono Canasta Familiar,and Bono Universal;(iii)conditional cash transfers continued in Bono Juancito Pinto(for school students,created in 2006),Bono Juana Azurduy(for mothers needing assistance,created in 2009),Renta Dignidad(for the elderly,since 2008).BrazilElderly,poor,and unemployed Deliver payments through state-owned banks;mobile apps for registrationBrazil allocated more resources to the Bolsa Familia program and included an additional 1.2 million new beneficiaries;introduced the Auxilio Emergencial program for workers and low-income households during April 2020December 2021.ChileLow-income householdsDeliver payments through state-owned banksCash transfers for the most vulnerable households.ChinaChina increased the coverage and benefits of Dibaoits social assistance program for the poorestparticularly to cover families affected by COVID-19 and falling into poverty.ColombiaInformal workersMobile-banking applicationsIn addition to higher benefits for current beneficiaries in existing programs,a cash transfer program(Solidarity Income)of Col$160,000(or US$42)monthly was delivered electronically for informal workers and families,including 3 million households identified via social registries and tax collection databases.EgyptInformal workers in existing databases,by local governments or community organizationsEgypt provided a monthly payment of LE500 over three months for informal workers registered in the workforce directorates databases of governorates.IndiaElderly and families with childrenMobile-banking applicationsIndia provided Rs1000(US$13)to all beneficiaries under the National Social Assistance Program(NSAP)for elderly,widows,and disabled receiving social pensions(35 million beneficiaries),front-loaded payments of Rs2000(US$26)for 87 million farmers,and transferred Rs500(US$6.5)for three months to 200 million women with a Pradhan Mantri Jan Dhan Yojana(PMJDY)(financial inclusion)account.IndonesiaDedicated website for registrationAssistance for 10 million beneficiary families in the Family Hope Program was increased by 25 percent in 2020;the food aid program(e-food vouchers)was expanded to more recipients with additional benefits for nine months.PeruFamilies affected by COVID-19 in existing databases,by local governments or community organizations Digital networks for cash paymentsPeru introduced an exceptional payment of about US$107 for each vulnerable family affected by the quarantines.RwandaInformal workers in existing databases,by local governments or community organizations Rwanda distributed food to informal sector workers in Kigali identified through the system of Mudu Gudus,a network of community organizations in charge of targeting and distributing social transfers.TogoThe Novissi system used a machine-learning approach based on geospatial,survey,and phone metadata.The Novissi emergency social assistance program was introduced in April 2020 to provide cash transfers to more than 570,000 informal workers and additional beneficiaries in the poorest 100 cantons.Sources:Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 Pandemic(https:/www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19);Shang,Evans,and An 2020;and Una and others 2020.CHAPTER 1 HeLpINg peOpLe BOuNCe BACk9International Monetary Fund|October 2022to map the poorest urban areas and target beneficiaries in Nigeria.Countries increased transfers through the social safety net,but the transfers were often delayed and it was challenging to deliver support on time and reach those most in need,according to extensive sur-veys by the World Bank on more than 50 developing countries(World Bank 2022).Takeaways from Pandemic-Related Measures to Support HouseholdsDiverse and forceful fiscal responses during the pandemic opened new grounds to support households against income or job loss.The preceding analyses provide several takeaways that can inform policy design when policymakers are tackling current challenges and preparing for future adversity.First,job-retention schemes can become a more prominent part of the resilience toolkit for future crises,together with unemployment income support measures.Once their architecture is put in place,both schemes can provide a timely,effective buffer and reduce the loss of labor income,especially for vulner-able workers such as youth and low-skilled workers.These two tools are best used in different conditions.The pandemic presented a unique situation for using job-retention schemes,given that it triggered a deep but short-lived disruption to the labor markets(April 2021 World Economic Outlook,Chapter 3).Policymak-ers were wary of the risks of massive layoffs that could undermine valuable employer-employee relationships(see“Ensuring the Resilience of Firms in Extraordinary Times”),especially in countries with rigid labor markets that would be less able to reabsorb unemployed workers quickly,or in countries with inadequate levels of social protection.In this context,job-retention schemes are especially useful for workers who typically fall outside of regular unemployment income support,such as workers who have not worked long enough to qualify for unemployment assistance.The advantage of preserving work relationships in the short term is illustrated by a model analysis(calibrated to a typical advanced economy)whereby long-term unemployment leads to a productivity loss for workers even after they are re-employed(Online Annex 1.4).Simulations show that a persistent pro-ductivity loss from unemployment would reduce the consumption stabilization coefficient by 80 percent,even when unemployed workers receive unemployment income support.9 Job-retention schemes can avert such large productivity loss from unemployment,which would then help contain the decline in the consump-tion stabilization coefficient to only 10 percent.In con-trast,if the shocks persisted for a long time,preserving jobs through job-retention schemes would hinder necessary reallocation.In that case,a well-designed unemployment support scheme is preferred.In the early stages of the pandemic,concerns about large economic transformation after the pandemic made job-retention schemes appear less appropriate.In hindsight,the pan-demic did not lead to overwhelming structural changes,and the use of job-retention schemes quickly returned to prepandemic levels.The second takeaway is that targeting support to the right beneficiaries would raise the impact of fiscal responses and save valuable fiscal resources.Policymak-ers can integrate social registries updated with current information(for instance,Ingreso Familiar de Emergen-cia in Chile and the National Socio-Economic Registry in Pakistan)and make use of high-frequency household surveys,where available,to facilitate better targeting for new beneficiaries.Broad-based support to households incomes was necessaryat least at the onset of the pandemic.As economic conditions improved,the gen-erosity of measures could have been scaled back faster.Preparing a strategy in advance to deploy fiscal tools can improve governments ability to target those in need of most support and to attune sup-port to evolving economic conditions.One option is to set out the likely course of action and policy responses under different scenarios.This allows a timely response without delaying the necessary fiscal support in a large crisis.In some cases,it would be helpful to put in place semi-automatic stabilizersthat is,prelegislated increases in benefits or eligibility with previously agreed triggers such as a decline in employment beyond a threshold.These combine the benefits of timely and targeted support,while retaining the flexibility to adjust the generosity and coverage of income support to the severity of 9The productivity loss is calibrated to 0.12 percentage points in the quarter following a negative shock,as in Engler and Tervala(2018).The consumption stabilization coefficient is defined as 1 minus the ratio of volatility of consumption in the scenario with productivity loss of unemployment to that in the baseline scenario without productivity loss.A higher coefficient means households can stabilize consumption more in a negative shock(see Online Annex 1.4).FISCAL MONITOR:HeLpINg peOpLe BOuNCe BACk 10International Monetary Fund|October 2022the negative shocks(Solow 2005;Boushey,Nunn,and Shambaugh 2019;Blanchard and Summers 2020;April 2020 Fiscal Monitor;April 2020 World Economic Outlook,Chapter 2).Results from a dynamic stochastic general equilib-rium model show that semi-automatic stabilizers could stabilize household consumption better than conven-tional automatic stabilizers(that is,those with fixed generosity and coverage),at a modest fiscal cost(Online Annex 1.4).Additional stabilization comes from greater support at the time of a crisis and guidance of expec-tations about fiscal policy.In addition,by transferring resources toward low-income unemployed individuals,semi-automatic stabilizers support aggregate consump-tion and reduce inequality.This enhances stabilization at aggregate and individual levels for a relatively modest fiscal cost,thanks to lower output losses.Timeliness and tailoring to economic conditions of fiscal support are crucial,as Figure 1.8 illustrates(see Online Annex 1.4).The figure depicts the effects of a severe adverse shock that,in the absence of a fiscal response,would raise the unemployment rate by 7 percentage points.Three policy scenarios are considered:(1)timely and antic-ipated fiscal supportin the form of expanding the benefit levels of unemployment income supporttailored to the aggregate economic conditions(such as semi-automatic stabilizers);(2)large but short-lived discretionary fiscal support;and(3)delayed discretion-ary response.Fiscal support tends to be more effective if it is timely and short-lived than if it is smaller and delayed.At a similar fiscal cost,a timely fiscal support stabilizes consumption one-third more than a delayed response.The“semi-automatic”mechanism is more effective in stabilizing consumption and employment than the other two scenarios.Semi-automatic stabiliz-ers have,however,two potential limitations.First,it is difficult to prespecify the triggers for more generous support because the nature of shocks is different.Ide-ally,these would be based on observable variables that are available at high frequency and co-move strongly with the underlying economic conditions.Second,put-ting policy support in place for too long could generate work disincentives(Grosh and others 2008;Landais,Michaillat,and Saez 2018).The third takeaway is that social safety nets can be scaled up quickly,but this requires preparatory work ahead of future crises.Social safety nets are com-patible with a diverse set of shocks and can reach a targeted(but potentially large or specific)segment of the population,if governments can identify those in need and deliver assistance in a timely manner.Doing so necessitates large-scale and dynamic information systems,including universal and robust identification systems and the ability to collect and verify up-to-date socioeconomic information,while addressing concerns about information quality,privacy,and security(Aiken and others 2022).Strong implementation capacity to deliver payments is also key,as is coordination among government entities.Responses to Surging Food and Energy PricesThe sharp rise in food and energy prices that began in 2021 and was exacerbated by Russias invasion of Ukraine has prompted governments to respond once more.Since early last year,global oil prices have doubled,natural gas prices in Europe have increased sharply,and prices for fertilizers have more than tripled.Figure 1.8.Simulated Effects of Discretionary Support and Time-Varying Automatic Stabilizers(Percentage point deviations from the baseline scenario,unless otherwise stated)1.Aggregate Consumption7654321011 2 3 4 5 6 7 8 9 10Quarters2.Unemployment RatePercent101234567Percent1 2 3 4 5 6 7 8 9 10Quarters3.Replacement Rate0.500.520.540.560.580.600.620.640.660.681 2 3 4 5 6 7 8 9 10QuartersPercent4.Fiscal Costs012345673.55.96.1Semi-automaticstabilizersDelayeddiscre-tionaryresponseDiscre-tionaryresponse:large andtemporaryPercent of GDPSource:IMF staff estimates(see Online Annex 1.4).Note:The unanticipated adverse events occur in the first and second quarters and then gradually fade away.The semi-automatic unemployment income support features a time-varying replacement rate that increases by 2 percentage points for each 1 percentage point deviation of unemployment rate from its natural rate.The two discretionary responses vary in terms of size and timing.Fiscal costs across scenarios are cumulative over 2 years and are expressed in percent of GDP.Semi-automatic stabilizersLarge and temporary discretionary responseDelayed discretionary responseCHAPTER 1 HeLpINg peOpLe BOuNCe BACk11International Monetary Fund|October 2022Soaring food and energy prices have raised the cost of living for households and thus reduced their real incomes across most countries.These developments have given rise to concerns about potential social unrest,have pushed more households into poverty,and have placed more than 340 million people at risk of food shortage in the short term,according to the World Food Programme.The impact has differed across countriesdepending on whether they are net importers or exporters of commodities.Some emerging markets and low-income developing countries may be at risk of a food crisis.Adverse effects have also differed across individuals within a country,considering that a surge in food prices hurts low-income households,especially,who spend a greater share of their income on food than others do.Rising prices of necessities and basic staples can cause devastating,long-lasting harm for people.These concerns underlie the multiple measures under-taken in response to the recent spike in food and energy prices(Figure 1.9).In many cases,countries imple-mented measures to mitigate directly the rise in the cost of living for most households,although some of these measures involve large fiscal costs and tend to be ineffi-cient(Amaglobeli and others 2022).In advanced econ-omies,cash and semi-cash transfers(including vouchers and utility bill discounts)have been common,but most other measures have aimed at lowering prices includ-ing reductions in the value-added tax(VAT)for some energy products(for example,in Belgium and Italy)and excise taxes(for example,in France and Korea).Emerg-ing market and developing economies have most used price subsidies and reductions in VAT and excise taxes(for example,Poland,Thailand,and Trkiye).The lower pass-through of the global spikes to domestic energy prices in emerging market and developing economies is explained by the prevalence of price subsidies,especially in the Middle East,North Africa,and sub-Saharan Africa.Pricing subsidies or cuts on fuel and energy taxes to limit the pass-through are often hard to reverse when prices come down.Energy pricing subsidies do not really insulate the domestic economy from the shock when many countries implement them at the same time,because commodity price increases lead to a negative terms-of-trade shock and a fall in real income for commodity importers,regard-less of the domestic subsidy scheme in place.Energy price subsidies in many countries at a global scale would translate one to one into a higher global energy price,while leaving the domestic(subsidized)price relatively unchanged.Price subsidies on energy across countries will be costly but ineffective at protecting the most vulner-able individuals,as illustrated in a multicountry model(Online Annex 1.5;Figure 1.10).They will also compli-cate the green transition toward renewable energy sources.EnergyFoodBothSource:IMF staff estimates.Note:Based on an IMF survey of 174 countries on the measures taken during the period from January to June 2022 in response to rising food and energy prices.The stacked bars show the breakdown of total measures in each category.Figure 1.9.Recently Announced Measures in Response to High Energy and Food Prices(Share of surveyed countries,as of July 2022)Advanced economiesEmerging market and developing economies806040200020406080Export restrictionIn-kind transfersWage billCorporate income taxCustoms dutiesPrice freezesBelow-the-line measuresPersonal income taxPrice subsidiesCash transfersSemi-cash(vouchers or discounts)Consumption taxes13911635261265230174938817192844567275No subsidyOnly domestic subsidyGlobal subsidySource:IMF staff simulations(see Online Annex 1.5).Note:At time 2,a temporary reduction in global supply increases the international price of energy products.Under the“no subsidy”scenario,domestic consumption of low-income households falls.Under the scenario with“only domestic subsidy”on energy prices,with that subsidy financed by taxes on richer households,consumption of low-income households can be fully stabilized.But if all countries enact the same“global subsidy”scheme,then international prices rise and consumption is the same as with“no subsidy.”Figure 1.10.Domestic Consumption by Low-Income Households under Different Energy Subsidy Schemes(Percent of precrisis consumption)15129630Time12345FISCAL MONITOR:HeLpINg peOpLe BOuNCe BACk 12International Monetary Fund|October 2022Overall,they will result in a net transfer of fiscal resources from commodity-importing countries to commodity exporters.The global bidding up of prices from subsidies can be detrimental to low-income countries that already lack policy space and strong social protection.Protecting vulnerable households from spikes in food and energy prices is best achieved by strengthening social safety nets to deliver temporary targeted cash transfers(Online Annex 1.4;Amaglobeli and others 2022).The fiscal cost can be offset by other measures,including taxes,although one needs to weigh carefully whether taxes on windfall profits from fuel extractions are appropriate.In general,a permanent tax on windfall profits from fossil fuel extraction based on economic rents(that is,excess profits)can be considered if an adequate fiscal instrument is not already in place.It helps raise revenue without reducing investment or increasing inflation and avoids distortions from a temporary tax on windfall profits(Baunsgaard and Vernon 2022).Targeted cash transfers are a better option than blanket price subsidies on fuel because they allow the rise in fuel costs to pass on eventually to end users to facilitate energy conserva-tion and switching out of fossil fuels.In most countries,pricing subsidies provide greater benefits to high-income individuals.Low-income countries should prioritize food security within the existing fiscal envelope.Countries without strong social safety nets can expand existing social programs(for example,public transportation and school feeding programs)to provide relief to vulnerable house-holds.A gradual adjustment of food prices may help reduce food waste especially in advanced economies.At the global level,facilitating trade and lifting export restrictions on the purchase of food for human-itarian assistance will support low-income countries at risk of a food crisis in meeting their urgent needs.Ensuring an adequate and affordable supply of food and energy in global markets will also support low-income countries in the short term.Stronger domestic and international efforts to transition to a more diverse,renewable energy mix would reduce vulnerabilities to fossil fuel price shocks.Ensuring the Resilience of Firms in Extraordinary TimesGovernment support to firms expanded massively in scale and scope during the COVID-19 pandemic and the global financial crisis that began in 2008.The goal during the pandemic was to allow firms to avoid bank-ruptcy and preserve employer-employee relationships while economic activity was restricted,so that firms could bounce back as soon as lockdowns ended and business resumed.Direct lending,public guarantees,subsidized private bank lending,and equity support were used on an unprecedented scale.For example,some countries including Germany,Italy,and Japan announced public guarantee envelopes reaching about 30 percent of GDP.Many emerging market and developing economies intervened in their distressed state-owned enterprises,which often operated in core sectors or provided basic services.Some also used discretionary budget measures such as deferrals on taxes and social security contribu-tions,in addition to job-retention schemes that,as noted,benefited workers and firms jointly.Likewise,during the global financial crisis,many advanced economies made ample use of public loans,guarantees,and equity support to shore up the balance sheets of financial institutions and systemic firms(Cusmano and Thompson 2018).Collectively,these measures alleviated corporate cashflow crunches and preserved working capital,although private demand recovered more gradually in the 2010s than in 2021,partly because of differences in the strength of the balance sheets of private financial institutions and households.In times of normal economic activity,government support to private firms is usually limited to encour-aging investment through tax incentives or promoting access to finance for small and medium-sized enter-prises or specific sectors.In typical business cycles,support to firms seldom extends beyond the automatic stabilization implied by the tax system(because firms pay lower taxes when profits decline).During major crises,exceptional interventions by the public sector can avert an economic collapse,although such support entails large fiscal risks.In situations of extreme uncertainty,banks may become reluctant to extend liquidity even to sound and viable firms,impairing their ability to conduct business.A failure of systemic firms could disrupt supply chains or credit relationships,and the disruptions could spread to other firms and lead to sizable job and income losses if left unaddressed(Gourinchas and others 2022).In such cir-cumstances,public interventionsalong with monetary or financial policiescan restore market confidence,preserve valuable links between firms and their creditors,and reduce lasting effects from systemic bank failures(Edelberg,Sheiner,and Wessel 2022).The benefits of public financial support to via-ble firms amid major crises include the confidence channelsin which firms expected profits depend on CHAPTER 1 HeLpINg peOpLe BOuNCe BACk13International Monetary Fund|October 2022investors and consumers views of future economic conditions(Battersby and others 2022).Adverse events can make people more pessimistic,leading to a contraction in demand.Incentives for firms to invest wane and business prospects suffer.Banks become less willing to extend credit.A wave of bankruptcies,even among viable firms,is possible.The adverse impact of the initial shock is thus amplified by widespread pessimism.A well-designed public guarantee program can break this self-reinforcing formation of pessimistic expectations by reducing the share of viable firms that are forced to downsize.This in turn lifts peoples views on economic prospects.Such benefits of support to firms by governments are larger in deeper crises,when a greater share of firms is subject to bankruptcy risks.However,public support to firms comes with risks,which could outweigh potential benefits.When uncertainty is great,distinguishing between illiquid but viable and nonviable firms is difficult(Ebeke and others 2021)and processing or monitoring support for many small and medium-sized enterprises can strain govern-ments administrative capacity(Diez and others 2021).For countries with limited fiscal space,borrowing costs may rise during crises,increasing the opportunity cost of public funds for other needed spending.Moreover,prolonged support to firms can delay the reallocation of resources to more productive uses or crowd out funding for new businesses.The costs of exceptional support to firms likely outweigh the benefits in most circumstances for countries with large shares of informal jobs and businesses in their economies,weak governance,and scant information about firms balance sheets.Even in advanced economies with strong legal,administrative,and institutional systems,the large fiscal costs and fiscal risks may be warranted only in exceptional circum-stances to avert a severe economic crisis.While government interventions to support firms contained the rise of bankruptcies during the pan-demic,some programs entailed large fiscal risks.Bankruptcy rates declined by 11 percent on average across 42 advanced economies and emerging markets during the pandemic(Araujo and others 2022).10 However,some programs appeared generous and entailed large fiscal costs(Chodorow-Reich,Sunderam,and Iverson 2022).Untargeted programs can imply that nonviable firms before the pandemic nonetheless 10Estimates by Auerbach and others(2022)for the United States suggest that fiscal support to firms,alongside other fiscal responses,contained the rise of bankruptcies,particularly for firms at the brink of exit.obtained benefits.In the United States,some firms used loans from the Paycheck Protection Programintended to retain workers during the pandemicto make non-payroll payments or build up savings,leading to small employment effects(Granja and others 2020),while many small businesses did not receive support loans(Kaplan,Mills,and Sarkar 2022).Firm-level survey results across 74 emerging market and develop-ing economies suggest that about one-fifth of firms that were not much affected during the pandemic received some form of government support.In low-income developing countries,the majority of firms that did not receive(but likely qualified for)policy support missed out because firm owners were not aware of those sup-port measures(World Bank 2021).To make support to firms more effective,gov-ernments should strive for good targeting and com-munication.Support should be triaged based on an assessment of firms viability.Well-defined exit strategies,sound legal frameworks,good governance,and sound management of fiscal risks are priorities in this regard(Box 1.2).Limiting the duration of support programs can contain fiscal costs.Likewise,sharing risks with private banks through partial guarantees can reduce government exposure.Estimating and managing fiscal risks from support to firms on an ongoing basis reduce subsequent losses.This requires establishing regular surveys or registries to obtain timely information about firms.Some measures,such as public guarantee programs that do not have immediate budget impact and are contingent on the recovery of the firms,make estimation difficult.Countries use different approaches to report the cost of support,including con-tingent liabilities,in the budget and fiscal risk statements but often underestimate the true cost(Battersby and oth-ers 2022).This in part reflects the difficulty in estimating implicit subsidies from government loans and guarantee programs.Hong and Lucas(forthcoming)apply an approach reflective of the fair value of support in seven advanced economies.They measure the fair value of the subsidy component as the difference between actual disbursement of loans and guarantees and the net present value of expected future cash flows(including loan prin-cipal repayment,interest,and guarantee fees)over the duration of the programs.To calculate this net present value,market interest rates are used as the discounting factor because they reflect market participants views about the default risk for firms participating in the loan guarantee programs(US Congressional Budget Office 2012).Results for seven advanced economies suggest that FISCAL MONITOR:HeLpINg peOpLe BOuNCe BACk 14International Monetary Fund|October 2022governments subsidized a median of 30 percent of loan principal during the pandemic(Figure 1.11).Differences in program design explain the variation across coun-tries,ranging from 24 percent to 100 percent:longer maturities or higher guarantee rates raise the subsidy component,whereas higher fees or interest rates reduce it.Guarantees were often more generous for small enter-prises,leading to higher subsidies and associated fiscal risks.For example,the US Paycheck Protection Program is estimated to have been fully subsidized(essentially amounting to grants to firms),partly reflecting lenient requirements on repayment.Preparing a Strategy Ready to DeployPreparation can help governments protect households and firms even better during large adverse shocks in advance.Specifying fiscal responses in advance to tackle all possible adversities is not feasible.Similarly,targeting support in real time in situations of great uncertainty is challenging.Nonetheless,countries can prepare strate-gies and tools that can be more readily deployed.Building fiscal buffers in normal times is a prerequisite for policies to respond flexibly during cri-ses without jeopardizing access to financing.As evident during the pandemic and the global financial crisis,fiscal policy can be active and powerful,if resources are available.Experience from the aftermath of earlier crises indicates that countries often do not rebuild sufficient buffers afterwardpublic debt remained elevated after the emergencies subsided,constraining countries ability to respond to negative shocks.In the early stages of the pandemic,advanced economies and some emerging markets were able to finance a major fiscal expansion,despite elevated public debts,because interest rates were at the effective lower bound and inflation was below target.Those conditions are no longer in place and may not be in place when the next crisis strikes.Low-income countries face a stark trade-off because they need to build fiscal buffers against adverse shocks while pursuing development goalssimilarly important elements of resilience.Building buffers requires gradual fiscal adjustment and involves trade-offs,including prioritizing competing spending needs and mobilizing domestic revenues,while pur-suing inclusive and sustainable growth.Fiscal adjust-ments should in general be gradual and differentiated according to circumstances,under a medium-term fiscal framework to promote credibility.Experience from the pandemic points to trade-offs between the risk of doing too much and the risk of doing too little,or between large fiscal costs and gener-osity of support(in terms of coverage or amounts per individual).Preparation can ameliorate those trade-offs,by improving the ability to target those in need and lim-iting incentives for individuals and firms to shirk or take on excessive risks.It may be helpful to develop a strategy that sets out desirable policy responses under various scenarios.In some cases,the evolution of high-frequency indicators of economic conditions can then be related by policymakers to such scenarios,facilitating their responses.In a few instances,it may also be feasible to put in place“semi-automatic”stabilizers(preagreed responses)that will thus be timely and attuned to economic conditions.Such an approach would make fiscal policy responses more predictable.The anticipation of policy support would help guide households and investors expectations and increase policy effectiveness.In turn,timely and efficient measures would limit net fiscal costs.The transparency of such an approach would integrate measures into medium-term fiscal frameworks,promote fiscal credibility,and reduce the influence of short-term political pressures.Social protection systems are part of a resilience infrastructure and are compatible with a broad set of negative shocks.The recent crises have shown not only that social safety nets can be expanded quickly,often leveraging new technologies,but also that preparation is necessary to make them more readily scalable and well targeted to deliver cash or in-kind support to those who truly need it.Gathering information about Subsidy elementTake-up(percent of GDP)Source:Hong and Lucas,forthcoming.Note:The take-up is measured by the take-up rate multiplied by the announced program size in percent of GDP.The subsidy component is a weighted average across countries as of the end of 2021.Figure 1.11.Estimated Implicit Subsidy and Take-Up of Government Guarantee Programs,202021(Percent of loan principal and percent of GDP)0102030405060708090100UnitedStatesJapanUnitedKingdomFranceGermanyItalySpainCHAPTER 1 HeLpINg peOpLe BOuNCe BACk15International Monetary Fund|October 2022people and firms,and reducing informality in normal times make it possible to provide support more effec-tively and efficiently during crises.In the face of soaring food and energy prices that have squeezed household budgets,countries can provide targeted and temporary support to vulnerable house-holds.For emerging market and developing economies without strong social safety nets,existing social programs(for example,child benefits,public transportation,or school feeding programs)can be expanded to provide relief to vulnerable households,while taking advantage of the opportunity to strengthen the social protec-tion system.Existing targeting methods in developing countries,although imperfect,can provide more on a per beneficiary basis,compared with universal programs(Hanna and Olken 2018).Improved legal frameworks and administrative capacity can facilitate targeting,lever-aging digital innovations to verify eligibility and deliver payments,while limiting leakage and fraud.Different types of adversity require a different mix of policy tools.The appropriate choice depends on the nature of the event,available policy space,and the extent of resilience in the private sector.For exam-ple,when inflationary pressures are high,fiscal policy should protect the most vulnerable while maintaining a tightening stance to facilitate the monetary policys price stability objective.Scaling up existing means-tested cash transfers is preferable to enacting energy pricing subsi-dies because the rise in fuel costs passes on to end users,facilitating energy conservation and switching out of fossil fuels.For low-income countries,food security should be prioritized within the existing fiscal envelope.In general,rare events with major adverse impact(for example,major natural disasters or pandemics)would require multiple instruments and more proactive public interventions(Table 1.2).The response to negative shocks that occur with high probability but have less pronounced impact(for example,typical business cycles Table 1.2.Appropriate Fiscal Tools to Deploy Depend on the Nature of the Adversity of ShocksType of AdversityFiscal ToolsOutput or Employment ShockMajor Disruption in Key Goods and Services(for example,large spikes in food and energy prices)Major Natural DisastersTemporaryLonger LastingAutomatic stabilizersUnemployment income support1():Supplement with active labor market policiesJob-retention schemesScale-up of social protection():Ready to scale up as needed():Facilitate better social well-being(equity and poverty reduction)():Widen eligibility to cover affected people not just poor people Progressive taxesDiscretionary or ad hoc measuresCash transfers():Only if targeted and severe adversity():Build on current social protection system or targeted discounts on utility bills():Targeted transferPricing subsidiesDiscretionary support to firmsTax deferral():Particularly if limited access to finance before the shocksFinancing measures(for example,direct lending and public guarantees)():If severe externalities exist():Should instead facilitate exit of nonviable firms():Unless evident severe externalities existSource:IMF staff compilation.1 Comprises contributory unemployment insurance and noncontributory unemployment assistance benefits.Note:refers to appropriate tools to be used to protect against income losses for the specific type of adversity.stands for less appropriate tools.Fiscal tools are not mutually exclusive,and governments can use multiple tools at the same time depending on the availability of the fiscal space and the nature of the shocks,institutional capacity of governments,debt sustainability concerns,and the private sector risk-sharing mechanism,among other factors.FISCAL MONITOR:HeLpINg peOpLe BOuNCe BACk 16International Monetary Fund|October 2022or seasonal hurricanes)could rely on automatic stabiliz-ers or existing market-based mechanisms such as private insurance for natural disasters.If those stabilizers are not available,targeted discretionary support could protect against income losses within available fiscal space and fiscal rule limits.Fiscal responses need to have a clear exit strategy to ensure that they are temporary.To manage fiscal risks from measures without immediate budget impact,governments should fo
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Put Talent at the Top of the Sustainability Agenda January 2023 By Rich Lesser,Derek Kennedy,Marjolein Cuellar,Elizabeth Lyle,Suketu Shah,Simon Bamberger,and SK MissertBoston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it was founded in 1963.Today,we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholdersempowering organizations to grow,build sustainable competitive advantage,and drive positive societal impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change.BCG delivers solutions through leading-edge management consulting,technology and design,and corporate and digital ventures.We work in a uniquely collaborative model across the firm and throughout all levels of the client organization,fueled by the goal of helping our clients thrive and enabling them to make the world a better place.BOSTON CONSULTING GROUP 1PrefaceThe capabilities that bring the most strength to companies often start as a distinct agenda item or a siloed area of expertise.Innovation,once under the purview of R&D departments,is now broadly embedded in workplace culture at the best companies.A similar organizational integration is happening with diversity,equity,and inclu-sion,as leaders increasingly understand its advantages and the role that each employee can play.We must bring that kind of organizational shift to sustainabili-ty,engaging people across the business in this urgent work.According to the latest data from SBTi,more than 4,000 companies have begun the journey of setting science-based emission-reduction targets.But BCG research shows that so far only 17%of those that have set targets are on track to meet them.A lot of work must be done to close the gap between ambition and action.Greenwashing accusations and risks to reputations are just part of a dangerous down-side to inaction and poor implementation of climate plan-ning.Value creation for shareholders will increasingly be linked to effective leadership in sustainability.Employees are essential to that progress.The sustainability team may bring the right capabilities to set the transforma-tion in motion,but companies need people with the latest sustainability skills and climate-focused perspectives in every function.For businesses to make real progress,sus-tainability must feed into nearly everyones role and skill set.But arriving at that level of embeddedness is a journey.Im so pleased that our team at BCG was able to join forces with Microsofts experts to map that talent evolu-tion,investigating the ways in which more companies might navigate it with speed and focus.It has felt like a natural partnership.Microsoft,like BCG,was early to make its net-zero pledge,which it promises to reach by 2030(along with a remarkable commitment to remove its his-toric carbon footprint by 2050)and both companies have been deeply engaged in comprehensive sustainability efforts.Microsoft and BCG have also made it a priority over the years to understand and solve some of the biggest skills gaps facing our global economy.Our collaborative effort on this project involved surveys and interviews conducted with 250 sustainability-focused leaders from 15 companies at the forefront of sustainabili-ty commitments,including our own.The research revealed an urgent need to build skills and change perspectives among todays employees.Equipping our current workforce with the skills required to undertake successful sustainability transformationsand doing so on the required timelineis an enormous task.The leaders we spoke to have been independently innovat-ing their way to the talent solutions they need,since the institutional infrastructure to educate,enable,and equip todays workforce to drive sustainability transformations is not yet fully in place.If were to meet the dual challenges of speed and scale on an economy-wide level,we will need to ramp up these efforts.And while we have to concentrate on current employees,planning for the workforce of the future is also critical.This will require shifts within the educational system to ensure theres a new generation of workers with sustainability skills and a fundamentally different approach to business that is more sustainable from the start.In the following report,we hope to give an instructive,rather than prescriptive,point of view,with practical les-sons and many examples of companies driving their sus-tainability transformation with the talent they have and the talent they are finding and creating along the way.As more companies start the journey,well have more of these lessons to pull from.Were optimistic that an informed,inclusive approach to upskilling can provide us with the human capital we need.But given the urgency,this work must start nowat every company,in every sector,and around the world.This is a journey companies need to take together.Collabo-ration is critical because of the timeline were facing and the newness of this challenge.We cant define success based on the progress of one companys ability to build the skills it needs to transform.Instead,we need all companies to work together,particularly within sectors and value chains,so that our global economy can transition to a sustainable future for our planet.Rich Lesser Global Chair New York2 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDAPut Talent at the Top of the Sustainability AgendaWhen that happens,members of the workforce will continue to bring their crucial business and functional expertise(marketing,accounting,and customer service,for instance)to bear,but with the addition of critical sustain-ability skills and a sustainability mindset.In this new talent scenariowhere the sustainability team is not a few dozen individuals but rather the wider organizationcompanies can turn sustainability goals into lasting competitive ad-vantage and net-zero pledges into reality.This is a critical and increasingly common need,fueled by the large num-ber of companies that are committing to reduce their emissions and their overall footprint.Every companys sustainability journey starts with a small group of talented leaders and individuals working on sustainability as a key strategic priority.But sustainability journeysand the transition of the global economywill succeed only when leaders and individuals throughout an organization have embraced sustainability as an inher-ent component of their everyday work.This means seamlessly incor-porating it into business models and processes.Companies are mobilizing for sustainabilityBOSTON CONSULTING GROUP 3growth in the number of companies committing to science-based targets(to 4,200 companies)from 2017 through 2022136xSource:Science Based Targets initiative website,accessed December 17,2022.1 SBTis count of the cumulative number of companies with either an approved science-based target or a commitment to set a science-based target.of the worlds largest public companies have announcednet-zero targets for 2030 to 20501/3Source:Net Zero Tracker,Net Zero Stocktake 2022,accessed October 24,2022.4 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDAThe fact that just 17%of companies are on track to meet their emissions targets reflects the enormous amount of work that is yet to be done to turn ambition into actionwhich points to a looming challenge:Do companies have the talent they need to pull it off?Turns out,its hard to acquire the expertise required to plan,let alone implement,sustainability transformations.According to LinkedIn,the number of job postings that include sustainability skills grew by 8%per year from 2016 through 2021,but the number of people with those skills increased by just 6%annually over that time period.Consequently,job searches that target sustainability experts often come up empty.The same is true when companies seek functional talent with fluency in key sustainability topics.“Procurement people with sustainability knowledge just dont exist,”one executive we talked to explained.The solution?His company now hires procurement people with no sustainability background and trains them in sustainability.Given the shortage of ready talent and the speed with which companies need to move,this“home-grown”talent approach is fueling many leading organiza-tions journeys toward sustainability.Because the talent that will save nature doesnt yet exist naturally(at least not in the quantities required),rapid upskilling has taken center stage.This skill building is a massive undertaking.The need is acute,the scale is large,the timeline is tight,the right resources are scarce,and the learning curve is steep.Understanding the ChallengesTo better comprehend the talent landscape and the related challenges companies face when seeking to become sus-tainable,we conducted a research project,in partnership with Microsofta company that,like BCG,is pursuing its own ambitious sustainability objectives and seeking to help close systemic sustainability skills gaps.Together,we looked closely at 15 companies at the forefront of sustain-ability commitmentfirms that have begun to confront the challenges and deploy solutionsand we surveyed and interviewed approximately 250 sustainability leaders and professionals there.(See the sidebar,“About Our Method-ology,”and see Microsofts own insights and recommenda-tions based on the research.)of companies report being on track to reduce emissionsin line with their ambition17%OnlySources:CO2 AI by BCG Carbon Emissions Survey 2022;BCG analysis.Note:On track means that 75%or more of the companys ambition has been realized;“emissions refers to emissions of any scope.BOSTON CONSULTING GROUP 5Catalyzing sustainability transformations requires individuals with multiple skill setsSustainability skills are nascent and evolving.Skills may be specific to themes(such as climate change,biodiversity,and carbon accounting)or to aspects of the landscape(such as regulations and frameworks).Functional skills(such as operations,executive management,and procurement)reflect knowledge of business needs and tasks and are essential to grounding sustainability strategy in business reality.Transformation skills are needed for change management and to navigate the inherent ambiguity of the complex,evolving landscape.Data and digital skills are critical to guiding the journey,telling the story,devising solutions,and measuring progress.Source:2022 BCG/Microsoft Sustainability Talent&Skills Survey.Companies face three overarching challenges:The need to deploy sufficient talent with multidis-ciplinary,sustainability-related skill sets,which are hard to find in the precise combination required The need to embed new sustainability skills across the organization,which is not one challenge,but manyequivalent to the number of unique functions and business processes that make up an organizations operations The need to act on each of these challenges with ur-gency,because the time to set and deliver on meaningful sustainability goals is now,and the task is big and growingMultidisciplinary Skill SetsLaunching a sustainability journey calls for sustainability expertise,of course.But our research showed that compa-nies recognize that expertise alone will not suffice.“We see that this is not a one-dimensional approach,”explained Owens Cornings chief sustainability officer.“We have a very diverse background and team.”HSBCs head of commercial banking sustainability concurred:“Think of it in terms of a rugby team,”he said.“All shapes,sizes,and skill sets.”What are those skill sets?Our research revealed that teams need individuals with a mix of skills in four broad areas:sustainability,functional,transformation,and data and digital.In our survey,84%of sustainability profession-als said that the skills that are priorities in their jobs fall into at least two of those four broad dimensions.When it comes to this skill profile,the emphasis need not even be on sustainability.In fact our research revealed,rather surprisingly,that its usually not.Its the mix that matters,and the strongest starting point for that mix is usually found internallyhence the focus on internal talent and the chal-lenge to upskill them to launch the sustainability journey.EmbeddednessTo continue their journey toward sustainability,companies will face the challenge of embedding skills across the entire organization.For most of the workforce,the focus will be on their blended sustainability and functional skills in the new“business as usual.”Every function and every job within companies will need to adapt in ways that support the sustainability transforma-tion.Product designers will need to learn to design for circularity,for instance,and logistics staff will have to know how to optimize routes,transport modes,and vendors to minimize the organizations carbon footprint.6 PUBLICATION TITLETo better understand the talent needed for sustainability,Microsoft and BCG embarked on a comprehensive study.We identified companies at the forefront of sustainabilityalbeit at different stages of the journeyand talked to their leaders to distill key insights.We wanted to know about:The critical skill sets and experiences necessary to drive the sustainability agenda Strategies for acquiring and developing talent through-out the organization as sustainability efforts scale Ways to turbocharge the sustainability journey by instill-ing the right skills and mindset throughout the companyWe looked closely at the sustainability approaches of 15 companies,including Microsoft and BCG,spanning seven industries and three geographic areas.Leaders of the following companies were among those who shared their experiences with us:AT&T HSBC John Deere JSW Steel Owens Corning Sysco UnileverIn addition,we surveyed nearly 250 sustainability profes-sionals,including more than 50 chief sustainability officers and leaders.Our research illuminated must-have skills,skills gaps,talent strategies,challenges,lessons learned,and the evolution of organization design for sustainability.MethodologySustainability front-runners are innovating to meet challenges.8 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDAFurther,embedding skills in this way will not be a blanket undertaking but rather will have to vary by job.Not only will companies need to embed new skills into nearly every job,theyll have to customize the blend of skills and the ways tasks are carried out,functionally and sustainably,job by job.Urgency Decades ago,companies faced the early innings of a differ-ent kind of essential shift:digital transformation.To be-come digital organizations,they began by building digital fluency in small groups(organized as innovation labs or centers of excellence,for example)and then expanded that capability to embed it across the organization.Ultimately,they shifted to models designed to support and sustain digital fluency.(Many organizations are still on this digital transformation journey,which becomes a case in point.)The sustainability journey for every company will be simi-lar,unfolding in the same kind of three-phase approach:mobilize,embed,accelerate.And at an aggregate level the journey will be similar,too.Digital technologiesmuch like sustainable technologieshave been around for de-cades.But only in the past seven to ten years has there been an exponential acceleration in companies digital transformations.A similar or greater acceleration of sus-tainability transformations must take place,given many companies starting point in light of the huge goals that need to be achieved.With crucial net-zero targets set for as soon as 2030,and the reality that broad swaths of the workforce will need to be enabled to meet those goals,companies have little time to achieve sustainability fluency.The urgency challenge is clear and compelling.To meet their goals,organizations need to change the mindset and the skill set of every employee.They need to build multidisci-plinary skill sets and embed them across the company.And they need to do it very quickly.The scale and speed required could mean upskilling some 150 million people globally in less than ten yearsand thats a conservative estimate.Companies cant wait for K12 education to solve the talent problem.They cant even wait for higher education to yield the necessary expertise,partly because of the exponential growth in the demand for this kind of talent and partly because seasoned talent is needed urgently.Companies must act now to marshal the talent needed for sustainability.Meeting the ChallengesWhile our research showed that the challenges along the sustainability journey loom large,it also showed how sus-tainability front-runners are innovating to meet them.Companies just now embarking on a quest for sustainabili-ty talent can benefit from the insights that come from those first movers:a clear picture of just what they will need to start the journey,how they can build that talent,and how needs will evolve as things progress.Early on,the focus should be on marshaling the required expert and sustainability-related resources for quick action.Then companies must build on those accomplishments to scale new capabilities across the organization.Finally,they must focus on preserving their hard-won sustainability capabilities.This means continuously expanding their workforces new abilities as part of business as usual;ensuring that their sustainability experts can chart long,lasting,and rich careers in their organizations;and deploy-ing this now uniquely skilled workforce to create competi-tive advantage and enduring value.BOSTON CONSULTING GROUP 9For any company,its a three-part journey:Phase I:Mobilize.In the mobilize stage,companies rely on a small,central core of people within the orga-nization to take the critical first steps in setting com-mitments and mobilizing stakeholders toward a clear strategy.“General athletes”prove to be some of the best equipped for the role:they have some(not deep)knowl-edge of sustainability,along with functional,transforma-tion,and data and digital skills.This multidisciplinary skill set is necessary to drive change within the organi-zation.These team members first and foremost know the organization well,and what they dont know about sustainability,they learn.They can join together with a small number of more specialized experts to chart the course for change.Phase II:Embed.As they move forward,companies need broader sustainability fluency.Guided by the core team of general athletes and experts established in the mobilize stage,firms must embed sustainability skills across the organization in order to deliver on the sustainability initiatives within their business units and functions.Talent must still be multidisciplinary,but the emphasis should be on integrating the sustainability skills and the functional skills required to operate within the business units(sustainability skills plus procurement skills,for example,to achieve scope 3 reduction goals in the course of supplier relationship management).De-pending on the job,the relative mix of the four skills will vary,but functional and sustainability skills will always be the bedrock.Phase III:Accelerate.At this stage,sustainability is in-tegrated across the full value chain,which means talent with sustainability capabilities is in place in every part of the organization.The company must shift its focus to supporting and maintaining its transformed talent.This will ensure retention and motivation for the few general athletes and experts who continue to play a catalyst role in the companys sustainability agenda and engagement and accountability for the many who must own making sustainability come to life in their everyday work.As companies progress,sustainability skills and know-how must expand across the workforce10 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDASources:2022 BCG/Microsoft Sustainability Talent&Skills Survey;BCG analysis.EmbedAccelerateCreate the catalytic talentScale,support,and upskillContinuously empower,inspire,grow,and evolveMobilizeThe three phases of the talent transformation MobilizeCompanies draw heavily on internally sourced“general athletes”to build a core team of catalytic talentTransformationFunctionalData and digitalSustainabilitySources:2022 BCG/Microsoft Sustainability Talent&Skills Survey;BCG analysis.Skills needed:Companies need a multidisciplinary skill set early on to launch the journey and catalyze action This talent is mainly homegrownpeople learn sustainability skills on the job and catalyze actionbut companies also selectively leverage external talent for deep sustainability topics,such as circularityBOSTON CONSULTING GROUP 11Sources:2022 BCG/Microsoft Sustainability Talent&Skills Survey;BCG analysis.EmbedCompanies embed specific skills across the organization to drive progress on sustainability initiativesTransformationData and digitalSustainabilityThe skill focus both narrows(by infusing targeted sustainability skills into functions)and broadens(because it must happen across the entire organization)By entwining these skill sets,teamscan implement initiatives that engrain sustainability into core processesFunctionalSkills needed:AccelerateCompanies must continuously support their transforming workforce to stay on the cutting edgeTalentmanagementChange managementSkill buildingCompanies need to mature the value proposition for core sustainability talent,who will remain vital to the journey while growing increasingly valuable on the marketBut to build sustainability into the companys DNA,the whole workforce needs to be supported through a transformation that impacts every job and inspires every employee Sources:2022 BCG/Microsoft Sustainability Talent&Skills Survey;BCG analysis.12 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDAToday,most companies are at the mobilize phase or the embed phase.Few are ready to accelerate.In fact,the most advanced organizations are largely still on that precipice moving from embedding sustainability expertise to accelerat-ing the value it can create.The good news is that as more companies embark on the journey,more solutions will emerge to help all participants achieve their sustainability goals.Phase I:Mobilize the Sustainability Talent You Need to Set the StagePhase I Talent Requirements at a Glance Focus:Responding to stakeholder needs,complying with regulations,seizing ad hoc business opportunities,and shaping the companys sustainability goals and strategyTalent Challenge:Acquiring the skills and knowledge needed to accomplish critical sustainability work and chart a course for the whole organizationTalent Needed:Primarily people from inside the orga-nization who know the business and the organization well and have the capacity to move up the sustainability learning curve quicklyWhats Working So Far:Identifying and activating the general athletes,relying on external learning providers and solutions for rapid skilling,hiring niche talent to complement existing staff,outsourcing work where needed before bringing it in house to a ready teamIn the first phase of building sustainability talent,compa-nies will assemble their sustainability evangelists,who will not only make progress on sustainability but also show a wider population of employees how to embed sustainabili-ty into their roles,helping gain the buy-in of leaders and their teams from across the company and acting as agents of change for sustainability.Mobilization phase team members deeply understand the company and its sustainability pledges.They have a sus-tainability mindset.They are quick learners and good communicators.In the words of one director of sustainabil-ity,members of the core mobilizing team have“the super-power of being able to interact and connect with people.”That transformation skill is critical on a sustainability journey:For many companies,becoming more sustainable means fundamentally reinventing business models and operationsshifting from the ways value has historically been created and captured to something that may be materially different.That is no small change management feat,even when a company has the best of intentions to become sustainable.Beyond those transformation superpowers,all sustainability-focused professionals,of course,need sustainability skills.They also require data and digital skills,for two reasons:Because theyll need this language to communicate with organizational stakeholders about sustainability goals,and because theyll spend a great deal of time measuring and demonstrating progress against those goals.And core sustainability-focused talent needs to operate from a functional understanding of how the organization works and how it creates and captures value.What we found surprising is just how critical it is to have a balanced mix of sustainability,transformation,and data and digital skills,on top of the functional ones.BOSTON CONSULTING GROUP 13Highest priority skills for upskillingin sustainability work by%of respondents282824202018181717171616151413Data and digitalSustainabilityTransformationSource:2022 BCG/Microsoft Sustainability Talent&Skills Survey.Data collection and managementClimate change fundamentalsCarbon accounting and reportingBroad stakeholder managementStrategy definition and roadmapSustainability challenges and opportunitiesData modeling and analysisSustainability strategyBusiness intelligence,digital design,and visualizationCulture and change managementCreative problem solvingSustainability frameworks and standardsAnalytical skillsNet-zero strategyGreenhouse gas accounting principlesSustainability,data and digital,and transformationskills are all critical Our research showed that people with the particular com-bination of required skills are hard to find.There arent enough of them on the market,even though more and more people are graduating with degrees in sustainability-related fields.Those“green degree”holders will be valuable additions to the team,but they dont necessarily bring the other skills to the tableat least not right away.Indeed,its the rare“sustainability expert”who can join a company and quickly expand their skill set with the necessary capabilitieschiefly,the functional understanding of the business as well as the trust of colleagues that will inspire transformation.As a result,our research showed,front-runner companies are meeting the multidisciplinary skill set challenge by developing talent internally.They select employees with the necessary functional,transformation,and data and digital expertise to become members of the mobilization phase team and then help them rapidly gain sustainability expertise.(The reverse is harder to engineer.)As Micro-softs general manager for energy and renewables ex-plained,“The challenge in finding really impactful people in this space is to find someone whos focused very deeply on a particular aspect of the business before becoming a sustainability professional.”)A snapshot of the backgrounds of the sustainability leaders and teams participating in our research shows how compa-nies are assembling their sustainability talent,largely from inside the organization and primarily with a view toward developing sustainability skills on top of other attributes.14 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDAMost sustainability leaders are hired from within the company68%Hiredinternally32%HiredexternallySource:2022 BCG/Microsoft Sustainability Talent&Skills Survey.Note:Sustainability leaders include chief sustainability officers and directors or managers of dedicated sustainability professionals in central teams and business units.Sustainability leaders and their teams tend to be“homegrown”BOSTON CONSULTING GROUP 15Most sustainability professionals did not earn a degree in the science of sustainability Source:2022 BCG/Microsoft Sustainability Talent&Skills Survey.Note:Respondents included directors and managers and members of their teams.57Not sustainability relatedSustainabilityrelatedof sustainability-related degrees are not in STEM disciplines but rather are degrees in business or in fields such as sustainable development,environmental policy,and environmental economics 4336%Source:2022 BCG/Microsoft Sustainability Talent&Skills Survey.Note:Respondents were members of sustainability-dedicated teams but below the level of director or manager.40%Sustainabilityexperts60%Not sustainability expertsMost people on sustainability teams say they were not hired for their sustainability expertiseExpert in another fieldNot an expert32( PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDAChallenges facing sustainabilitytalent in upskilling(%agree)The nascency of skills is by far the biggest upskilling challenge sustainability professionals face Nascency of skillsNot enough timeAccess to trainingKnowing where to goIdentifying necessary skillsEmployer awarenessEmployer funding76383123161615Source:2022 BCG/Microsoft Sustainability Talent&Skills Survey.As these insiders step into their roles,they face a steep learning curve to upskill in sustainabilitywithout enough of the proper solutions and resources at hand to do it.We asked members of sustainability teams to describe the upskilling challenges they have encountered.That the nascency of skills is far and away the prevailing challenge comes as no surprise,given how fast moving and dynamic the sustainability space is today.So how,we asked,are insiders gaining those nascent skills?Because the required skills are so new,traditional means of acquiring them are insufficient at this point.In the meantime,on-the-job learning is criticalnot only because other options arent yet mature and widely available but also because it is,by definition,designed to precisely meet a companys unique needs.Rather than learning about sustainability in a classroom and then coming back to the workplace to figure out how to apply the knowledge,people can learn by doing,piece by pieceaugmenting their knowledge as they go.At one industrial manufacturer,for example,upskilling tends to happen through scrappy methods.“We read books,we go to conferences,we stay on top of everything we can,however we can,”the companys director of sustainability explained.Our research shows that short-term solutions like this,though not ideal,are helping companies progress on their sustainability journey.BOSTON CONSULTING GROUP 17Source:2022 BCG/Microsoft Sustainability Talent&Skills Survey.Approaches found to bemost effective in upskilling(%agree)On-the-job learningFormal training programsSupplemental resourcesOn-the-job and ad hoc,self-driven learning forms the basis of sustainability upskilling today Work experiencePublished materialConferences and presentationsJob rotationsFormal academic degreesInternal company trainingSubject matter expertsExternal certification programs9363573837302826Here are some tried and true approaches that companies at Phase I can use.One recommended way to get the core team up and run-ning,as mentioned,is to identify and activate the gener-al athletes among the current workforce who can be up-skilled to meet sustainability needs.When leaders at one company were building their core team,for example,they struggled to find the necessary communication and people skills among external candi-dates.Looking internally,though,the companys director of sustainability realized there were“gems sitting there in the organization”who also possessed valuable,hard-to-teach knowledge and an eagerness to learn and upskill.AT&T is another company that has recognized the value of internal talent in filling sustainability roles.The people in the companys business units“understand how all the aspects of sustainability can interact with the business operations,understand the business objectives,and know how to get things done in a complicated organization,”said the companys chief sustainability officer.Upskilling the internal team in these early days is easier when companies can rely on external learning providers.But it isnt easy to find the needed external courses and certification programs.For instance,when we asked sus-tainability talent which upskilling methods they found most useful,only 26%included external certificationsthe lowest among all methods cited.The 55 survey respon-dents who reported using external certification programs relied on 46 different certifications to gain the knowledge required in their roles,indicating the need to streamline and consolidate available resources.“There are so many good courses out there,it was actually quite hard to navi-gate,”said a BCG employee who rotated through the com-panys sustainability team.He added that the course he ultimately found was useful.Likewise,other training resources can be upgraded.Our research showed that companies are eager for external resources they can use to gain sustainability expertise.Take HSBC.External training is common therein fact,employees often turn to a single,university-offered course on sustainable finance,citing its specificity and applicabili-tybut its also common knowledge that navigating avail-able offerings is a maze.Organizations like HSBC recog-nize the value of partnering with external providers to improve training options.As internal workers step into their new sustainability roles,they face a steep learning curve to upskill.BOSTON CONSULTING GROUP 19While the merits of hiring internally are clear,companies also have the opportunity to augment their talent strategy with a plan to expand the core team through external hires,particularly when specialized or technical sustainability exper-tise is required.Companies report doing this early in the sustainability process for new requirements.Microsoft,for example,has hired externally to meet the need for carbon accountants.“We look for people who have managed carbon accounting at another company because its not always obvious how to do it if you havent already,”the companys general manager of energy and resources explained.Finally,outsourcing work as needed is a good way to get the journey started,with the ultimate goal of bringing the skills in house.Outsourcing helps transfer technical knowl-edge and build future capabilities to the internal team.In the course of assessing its carbon footprint,BCG decid-ed to augment its work by seeking an independent scientif-ic opinion from an external partner.As the global sustain-ability lead at BCG explained,“Partnering with an external company brings assurance and comfort that youre moving in the right direction.”This is a confidence that is essential as a company is building its own organizational muscle.Phase II:Embed Sustainability So That Its Everyones Job Phase II Talent Requirements at a GlanceFocus:Optimizing and reimagining business models and processes to meet evolving corporate-wide sustain-ability goalsTalent Challenge:Scaling skill sets so that business units can independently carry out sustainability initiatives,guided by the central sustainability team(the general athletes and experts)convened at the mobilize phaseTalent Needed:Starts with select functional experts who are responsible for implementing sustainability initiatives and then scales to workers across the organization who must adapt to the new processes and ways of workingWhats Working So Far:Cascading learning and devel-opment to build sustainability fluency,incubating capabili-ties in a center-of-excellence model before disseminating them,being open to niche solutions for targeted needsIn Phase II,the companys core mobilization team of general athletes amplifies its efforts,turning strategy into reality by extending the blend of sustainability and functional skills,in particular,and embedding them into the daily work of the rest of the workforce.For the workforce at large,transformation and data and digital skills are not as imperative as they were for the general athletes who spearheaded the mobilize stage;rather,jobs will incorporate the four skills to varying degrees.But driving embeddedness across the organization is no less a challenge than building the multidisciplinary team at the outset:Ultimately,almost every person in the organization will need to gain general sustainability fluency and merge their existing functional skills with the requisite new sustain-ability skills for their role.Exactly what that looks like will vary by job functionwhich explains why embeddedness is such a big challenge.20 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDASource:2022 BCG/Microsoft Sustainability Talent&Skills Survey.Functional expertise in accounting,mixed withtechnical expertise in sustainability topics like carbon-accounting protocolsTransformation skills to communicate an evolving and ambiguous discipline to key stakeholders Data and digital fluency to keep pace with the methodology and inputs required to track emissionsAccountantswill need:EXAMPLESustainability will require embedding new skills across the organization.Every function will need to adapt.BOSTON CONSULTING GROUP 21Source:2022 BCG/Microsoft Sustainability Talent&Skills Survey.Transformation skills in managing stakeholders and educating supply partners on best practicesSustainability knowledge and prowess that are integrated with existing functional knowledge(such as scope 3 decarbonization)Data and digital fluency as data increasingly becomes the critical language for effectively communicating and collaborating with supply partners to decarbonize Procurement professionalswill need:EXAMPLEA working knowledge of policy,regulatory,and legal aspects of sustainability actionThe ability to translate that knowledge into frameworks that enhance the functional skills of analyzing business opportunities,decisions,and risksTransformation skills to provide stakeholders with strategic advice and an understanding of business impact in a rapidly evolving legal landscapeSource:2022 BCG/Microsoft Sustainability Talent&Skills Survey.Legal and complianceprofessionalswill need:EXAMPLE22 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDAThis marriage of sustainability and functional expertise pro-ceeds according to company requirements:Where is it need-ed most urgently?The answer to that question will dictate which functions will be the first priority.Because food distribu-tion company Sysco has determined that much of its scope 1 and 2 emissions come from its vehicles,for example,the company is prioritizing a switch to electric vehicles.At this phase,the goal is to move from sustainability as a theoretical and strategic concept to“applied sustainability,”which requires that sustainability be embedded in nearly every job and reflected in nearly every job action.How do you tackle such a diverse,at-scale upskilling ambition?Companies at Phase II can rely on several proven approaches.First,they can find ways to cascade learning and development throughout the organization and thereby build sustainability fluency.HSBC provides one example.Its Sustainability Academy is a self-service training center that gives employees opportunities to learn about general sustainability topics as well as tailored content(by industry,for instance)and personalized educa-tional pathways.HSBC trained several thousand client-facing employees on sustainability content in 2022 alone.Another example comes from JSW Steel,an Indian steel manufacturer.The company has focused on providing training opportunities(both classroom instruction and online modules)on fundamental sustainability topics.The concentration on sustainability training at JSW Steel has enabled the company to prioritize internal talent for sus-tainability roles,upskilling individuals on sustainability and leveraging existing functional expertise.Another approach is to establish a center of excellence(CoE),where new sustainable business processes can be incubated until they are handed off to functions or business units.Further,the people working on those processes in the CoE can build the critical skills required to institutionalize them.As Owens Cornings chief sustainability officer described the approach,“Solutions are so complex that we put an end-to-end team in the CoE.We wont integrate until it becomes institutionalized,then well move it into the business units.”Owens Cornings Ecodesign Strategy Wheel was developed this way.The Wheel is a business process that integrates sustainability objectives into the product design function.Designers must think up front about their products sus-tainability implications at each stage of the life cycle.Every new and modified product goes through a stewardship review process,which includes evaluation on sustainability criteria.The result:sustainability priorities were institutional-ized in an important business process.It was,in the words of the companys chief sustainability officer,“a massive shift.”Sustainability pioneers will continue to encounter new skill needsand must devise new skilling solutions.With that in mind,we urge companies to remain open to niche solutions for particular,targeted needs.For instance,Sysco turned to an external industry associa-tion to help with one of its key sustainability initiatives:transitioning its fleet of trucks from diesel to electric.ACT Fleet Forum,an association of companies that are pursuing similar clean transportation solutions for fleets and that support one another by sharing best practices,helped in this effort.The association role has been critical,given the na-scency of the field.The strategy has helped Sysco become a leader in this field.The company plans to expand its electric vehicle pilot in 2023,with a goal of converting 35%of its fleet to electric by 2030.Phase III:Accelerate Change by Supporting and Maintaining a Transformed WorkforcePhase III Talent Requirements at a Glance Focus:Integrating sustainability across all aspects of the business to make it intrinsic to the culture,ways of work-ing,and approach to value creationTalent Challenge:Institutionalizing attractive roles,development opportunities,and career paths to retain in-demand sustainability-focused talent;supporting and equipping the broader workforce to navigate continuing changes to the business and their daily jobs as sustain-ability takes rootand to help them capitalize on the opportunities those changes present for growth and pur-pose-driven workTalent Needed:EveryoneWhat Can Work:Planning proactively for career paths,investing in continuous education,and focusing deliber-ately on building a company culture around sustainabilityIn Phase III,companies must switch their operating focus to supporting and enabling their sustainability-capable workforce to turn sustainability into a competitive advan-tage.They must codify their new processes and approach-es and thoughtfully and compassionately engage the work-force to maintain and excel in the new normal.BOSTON CONSULTING GROUP 23Firms should also focus on retaining the sustainability expertise theyve developedand attracting more.As one company leader bluntly put it,“Everyone will want them.”Its true.The age-old dilemma related to upskilling and reskilling applies here:What if I invest all this time and money in my people,and they leave,taking their newfound expertise to my competitors?Prepare for todays hiring frenzy to intensify.Organizations must protect their assets.To help secure their experts,companies should continue to develop and educate those individuals,give them the oppor-tunity to drive change,and offer them access to senior leader-ship.Inspire them.At the same time,be aware of impedi-ments.As Microsofts senior program manager for Windows and devices sustainability put it,“A real challenge is that there is no sustainability career path.At some point,theyre going to want to grow in their function.”Accordingly,companies at Phase III should plan proac-tively for career paths for sustainability-focused talent.They should create future roles and mobility opportunities for these individuals whenever possible.This not only helps to keep talent happy and growing,it also allows the compa-ny to purposefully design career mobility that strengthens its sustainability fabric.As people move within the organi-zation,they cross-pollinate ideas and approaches.To help carve out career paths and growth opportunities,companies can look for candidates internally before searching externally,and managers can help employees find new internal roles.For example,HSBC offers a talent marketplace that lists openings so that employees can find new opportunities,including sustainability-focused ones.Similarly,companies should continue to invest in continuing education.Sustainability wont stand still.New technologies,regulations,and opportunities will emerge,and talent will need to keep gaining skills and capabilities.Accordingly,L&D functions must be nimble in designing and launching learning solutions.Continued upskilling will be valuable to the organization and serve as an employee benefit and an avenue to growth.For example,BCG has augmented its internally focused Climate and Sustainability Academy with partnerships that offer employees the opportunity to enroll in intensive courses at Cambridge Judge Business School and Columbia Climate School.Similar efforts will be particularly useful at Phase III.Companies should also focus on culture change.To make sustainability an intrinsic part of everyday work and the companys focus,culture must be transformed to empha-size the new sustainable businesses and ways of working.Owens Cornings handprint/footprint approach to building sustainability into its business processes is an example of the kind of culture change companies should pursue at Phase III.“Footprint”is a familiar termit reflects the negative impact of a products manufacturing process on water consumption and greenhouse gas emissions.The“handprint,”though,refers to the positive impact a product can have throughout the value chain,including content that can be recycled,end-of-life solutions,circularity,transparen-cy on raw materials sourcing,and the reduction of supplier emissions.These principles represent core objectives,and the company has integrated them into its business processes.The handprint/footprint approach has a further benefit:creating an inspiring company culture that emphasizes sus-tainability.People across Owens Corning,no matter their role,are able to celebrate their ability not just to mitigate the negative footprint but also to enact positive outcomes in the form of a positive handprint impactand leave a real mark they can feel proud of.Thats what embedding a successful sustainability mindset looks like.“As we developed our priori-ties,we started looking at sustainability through a holistic lens,”the companys chief sustainability officer explained.“Its about improving peoples quality of life.”Unilever,the consumer goods giant,offers another exam-ple.The company,which has so far achieved a 64%reduc-tion in its scope 1 and 2 emissions since 2015,began its sustainability transformation in 2010 with its Sustainable Living Plan,which ran for a decade.Now the company is taking a different approach by embedding sustainability into its business strategy and company culture through its Compass goals program.“The Compass goals are embedded into the heart of what we do,”said the companys director of technology,innovation,and sustainability.“I wouldnt see it as training.Its more of a culture thing.This is our North Star of where were going.”In fact,some of the companys most experienced experts dont think of themselves as“sustainability talent,”and their titles and job descriptions dont mention sustainability.Nonethe-less,they apply that lens to the teams theyre on and drive progress in the companys sustainability objectives.24 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDAUnless stakeholders act now,the world will have pledges but no progressMicrosoft,too,has seen success in integrating sustainabili-ty with business processes,through its approach to internal carbon pricing.In January 2020,when it decided to include scope 3 emissions in its internal carbon tax,a much broad-er segment of the company suddenly became concerned about emissions and sustainability.Previously,the internal carbon tax had been in place for years but applied only to scope 1 and 2 emissions and thus affected a relatively small portion of the company.Once the scope 3 inclusion was made,“a lot more people had to start thinking about emissions,”the companys head of renewable energy for cloud explained.This policy change resulted in the creation of many more sustainability teams throughout the organization,illustrating the potential for internal initiatives to spark wider sustainability objectives.One industrial manufacturers sustainability transforma-tion involved a strategic shift,from a focus on products to a focus on customersmore specifically,on helping cus-tomers make their production systems sustainable.Such a sweeping change in strategy required a shift in mindset and companywide buy-in.“Heres what we need to do”or“heres where were headed”were not messages that would galvanize the transformation.Rather,the company inspired its employees and customers by addressing the importance of their work.The launch of the new campaign generated excitement among the workforce.“Inspirational vision.Revolutionary journey excited to be a part of this,”commented one person.Said another:“Proud and excited to be part of this journey!”A Call to ActionThe upskilling challenge is daunting.Companies are doing what they can with the solutions that exist.But to meet the rapidly growing,increasingly urgent worldwide demand for sustainability talent a variety of players must take action.BOSTON CONSULTING GROUP 25Leading companies experiences with upskilling show us that if we are truly going to turn pledges into progressand do so at the unprecedented scale and pace that is required to transform our global economy for sustainabili-tywe need near-and long-term solutions.Right now,we must find ways to make the employer-led upskilling of existing workforces easier,faster,and more impactful.Employers are increasingly investing in holistic workforce developmentfrom the small groups of people who mobilize the sustainability journey with their multidis-ciplinary skill sets(the general athletes)to the thousands of functional workers in each organization who need new skills and know-how to embed sustainability into their roles.Theres no reason why employers should tackle this gargantuan task alone.Help is on the way.For example,the professionals at the companies we researched easily found sustainability learning options.The problem was choosing the right one.Often,the content was too plentiful to sift through,too theoretical or high-level to be applica-ble,or too in-depth to reasonably digest before putting it into action.But solutions can be developed.Learning providers can work with employers to create rich,easy-to-access sustainability learning solutions that get to the heart of business professionals needs.Similarly,industry associations and other functional standard-setting organizations can play an important role.These trusted entities can highlight the best learning opportunities for their constituents by codeveloping cours-es that credibly upskill professionals in exactly what they need to know.Also,they can curate and certify existing resources to help learners find what they need.They can link branded certifications and credentials to the comple-tion of these programs,which can then become clear indicators of industry-recognized and endorsed skill sets.Longer term,the educational system must reimagine learning at all levels so that talent emerges from school ready,willing,and able to contribute to an economic system that has sustainability management at the core and sustain-able development as the goal.Even the youngest learners can start developing sustainability fluency and data and digital skills as part of core K12 curricula,preparing them to understand the transitioning economy,speak the lan-guage of sustainability,and engage in science-guided think-ing.Sustainability-related competencies will become in-creasingly important as learners advance in their education.EmployersInvest in holistic workforce developmentGovernmentsIncentivize companies to upskillEducational institutionsFoster multidisciplinary skill sets in courses and curriculaLearning providersPartner with companies to develop tailored and applied training assetsIndustry organizations and associationsDevelop industry standards for key functionsMany players are required to achieve sustainability workforce goals Source:2022 BCG/Microsoft Sustainability Talent&Skills Survey.26 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDAAt the advanced-degree end of the spectrum,learning experiences will need to weave together sustainability and business concepts to deftly navigate the new reality of creating value and competitive advantage for companies while protecting and contributing to a sustainable future for all.Governments will be essential catalysts in the near and longer term.They can spearhead efforts to create common sustainability skill taxonomies and job architecture as a framework for targeted solution development,incentivize the creation of widely available learning resources and solutions,and form public-private partnerships to enhance learning solutions,forums,and opportunities.And as our partners at Microsoft outlined in detail in their report,as much needs to be done to prepare the workforce of the future to take on tomorrows sustainability challenges as is required to prepare the workforce of today.Governments will play a critical convening role on that longer-term time horizon,toorecognizing that we are still in the early stages of this vast economic transformation.Imagine a world where sustainability is so embedded in day-to-day work that sustainability labels are no longer needed.Accounting practices will include accounting for greenhouse gas emissions,and all related staff will be fully versed in the latest protocols and methods.Product design will include designing for end of life and promoting a circu-lar economy,with all designers adhering to that standard.From our many conversations throughout this research,the story is clear:There is a path for companies to achieve that level of embeddedness.A thoughtful approach to building and supporting talent is essential to success.It will be a herculean undertaking to drive this scale of talent transformation across our economy on a compressed timeline.We need more and better talent development solutions than we have today.This talent undertaking must be a collective effort.Already we see that corporate sustainability leaders are sharing what theyve learned to benefit the greater good.They understand that its imperative to inform those who will embark on the same talent journey.And they know those organizations could likewise develop solutions to improve the journey for all.It is our hope that this kind of collaboration will help us write the next chapter of this story and mobilize todays workforce for a sustainable future.BOSTON CONSULTING GROUP 27About the AuthorsRich Lesser Global Chair New York Derek Kennedy Managing Director and Senior Partner Bay AreaSan Francisco Marjolein Cuellar Managing Director and Senior Partner Bay AreaSan Francisco Elizabeth Lyle Managing Director and Partner Boston Suketu Shah Managing Director and Partner Dallas Simon Bamberger Managing Director and Partner Los Angeles SK Missert Principal Boston 28 PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDAAcknowledgmentsThe authors thank the company leaders and sustainability professionals who participated in the development of this report through interviews and surveys.Among the compa-nies we worked with:AT&T,HSBC,John Deere,JSW Steel,Owens Corning,Sysco,and Unilever.The authors also acknowledge the significant contributions of our partners at Microsoft.Thanks as well to our BCG colleagues who contributed to this research:Nick Intscher,Anjuli Eidsness,Hong Tran,Carolyne Makumi,and Nicky Axmann.For Further ContactIf you would like to discuss this report,please contact the authors.Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it was founded in 1963.Today,we help clients with total transformationinspiring complex change,enabling organizations to grow,building competitive advantage,and driving bottom-line impact.To succeed,organizations must blend digital and human capabilities.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives to spark change.BCG delivers solutions through leading-edge management consulting along with technology and design,corporate and digital venturesand business purpose.We work in a uniquely collaborative model across the firm and throughout all levels of the client organization,generating results that allow our clients to thrive.Uciam volora ditatur?Axim voloreribus moluptati autet hario qui a nust faciis reperro vitatia dipsandelia sit laborum,quassitio.Itas volutem es nulles ut faccus perchiliati doluptatur.Estiunt.Et eium inum et dolum et et eos ex eum harchic teceserrum natem in ra nis quia disimi,omnia veror molorer ionsed quia ese veliquiatius sundae poreium et et illesci atibeatur aut que consequia autas sum fugit qui aut excepudit,omnia voloratur?Explige ndeliaectur magnam,que expedignist ex et voluptaquam,offici bernam atqui dem vel ius nus.Nem faccaborest hillamendia doluptae conseruptate inim volesequid molum quam,conseque consedipit hillabo.Imaio evelenditium haribus,con reictur autemost,vendam am ellania estrundem corepuda derrore mporrumquat.Add Co-Sponsor logo hereFor information or permission to reprint,please contact BCG at.To find the latest BCG content and register to receive e-alerts on this topic or others,please visit.Follow Boston Consulting Group on Facebook and Twitter.Boston Consulting Group 2023.All rights reserved.1/PUT TALENT AT THE TOP OF THE SUSTAINABILITY AGENDA
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罗兰贝格：中国经济发展新征程——短期变化与长期优势 (2023) (英文版) (33 Seiten).pdf
The New China StoryShort-term Instability,Long-term StrengthMultinational companies have built up a strong local presence in China in the past decades.Many of them based their success on the“Old China Story,”which was mainly driven by the so-called“Three Carriages”consumption,investment,and net exports,along with other driving forces such as low labor cost,lax environmental regulations,and high capital productivity.However,this“Old China Story”is over.Uncertainty and unpredictability have emerged as part of the Chinese economy,and past advantages that contributed to economic growth are disappearing.On the other hand,bilateral(economic)relations have proven successful,yet controversies continue to emerge in both bilateral relationships and the global context.The bilateral relationship between Germa-ny and China is being reassessed by the German government in all areas as part of its“China Strategy,”mainly due to political developments in China in recent years and Germanys“turn of the century”in foreign policy,sparked by the Russian war of aggression against Ukraine.The assessment of China in the triad of the cooperation partner,economic competitor,and systemic rival is now a consensus among political stakeholders in Germany,the EU,and among German businesses.It is equally agreed upon that human rights violations are not compatible with the values of German companies.German companies are considered model companies in China in social responsibility and sustainable business practices.Over one million employees of German companies in China also serve as ambassadors in society for the values German companies represent.In this context,multinational companies are now discussing the best ways to mitigate risks and better engage in the Chinese market.Combined with Roland Bergers profound strategy consultancy expertise in global markets and major industries,and valuable testimonials from some representative member companies of the German Chamber of Commerce in China,we jointly published this report on the Chinese economy and multinational companies China strategy,under the understanding that there is a new Chi-na story,with a changed political,economic,and social environment.With this report,we revealed that even though the old China story is over,the fundamentals that have made multinational companies successful in China remain.To better engage in the Chinese market and maintain a competitive edge,it is crucial to develop new business models and mitigate risks to better fit the“New China Story.”There is a famous proverb from old Chinese wisdom“when the winds of change blow,some people build walls,while others build windmills.”Amid the changes and challenges of our time,success will ulti-mately go to multinational companies that can rapidly transform their engagement models and adapt to the new conditions of the local markets.Jens HildebrandtExecutive Director&Board Member German Chamber of Commerce in China|North China Maximilian ButekExecutive Director&Board Member German Chamber of Commerce in China|Shanghai Martin KloseExecutive Director&Board Member German Chamber of Commerce in China|South&Southwest China PREFACE The New China Story 2Denis DepouxGlobal Managing Director Roland Berger 2348111314172122232426272831TABLE OF CONTENTSPREFACETABLE OF CONTENTS1.A“PERFECT STORM”IN 20222.MULTINATIONALS ARE WORRIED ABOUT CHINA 3.THE“OLD CHINA STORY”IS GONE4.A“NEW CHINA STORY”IS BEING WRITTEN4.1 What Is the“New China Story”?4.2 Three New Economic Engines 4.3 China Will Be Back;MNCs Will Stay 5.HOW CAN FOREIGN COMPANIES ADAPT TO THE NEW CHINA STORY?5.1 The Foreign Business Footprint in China Remains Broad and Deep 5.2 Risk Anticipation and Mitigation 5.3 Evolution of Business Model 5.4 Real Client Case of Risk Mitigation 6.SUMMARY AND STRATEGIC OPTIONSCONTACTS The New China Story 31FIGURE 1.1:In 2021,China strongly supported the world economic recovery but 2022 turned into a“perfect storm,”with highly uncertain outcomes 1A“PERFECT STORM”IN 20222022 Was a Difficult Year for ChinaIn 2021,China was the driving force behind the worlds economic recovery.However,in 2022,the Chinese economy faced a“perfect storm.”The Chinese supply chain has been critical to the worlds economies in meeting the surging demand of the post-Cov-id-19 period.It showed quite extraordinary resilience in the second half of 2020 and early 2021.In 2021,Chinas GDP growth led the world with an 8.1%jump,and its export growth hit a new high of 30%versus 2020.It helped finance more investment,especially in automation and robotization,which made China an even more powerful and modern-ized manufacturing powerhouse with increasing capacity and productivity.Yet,2022 was a difficult year.While Covid-19 was still circulating around the world,the Russian war of aggression against Ukraine unleashed a global economic shockwave,only matched by the oil price shocks in the past.Inflation has been on the rise since 2018,followed by the beginning of the trade war between China and the US,and then fue-led by logistics bottlenecks and demand surges during and after Covid-19 waves.Inflation received a global boost due to increased energy prices and tightening monetary policies,which caused further pressure on demand.Fur-thermore,Chinas domestic demand slowed down significantly due to the stringent Covid-19 lockdown policy.At the same time,the world has witnessed the acceleration of climate change,with extreme weather during the sum-mer of 2022 causing damage in both emerging and developed economies.For China,the convergence of all the disruptions and challenges turned into a“perfect storm,”adding pressure and raising a debate on the resilience of the Chinese economy.Source:IMF;National Bureau of Statistics of China;General Administration of Customs of the Peoples Republic of China;Roland Berger The New China Story 5 The New China Story 6Decline In Consumer Confidence The stringent Covid-19 control policy inevitably disrupted economic activity,especially consumption.Since the second half of 2021,China has experienced a decline in consumption growth.Chinas value of total retail sales of consumer goods dropped by 11%in April 2022 compared with the prior year due to the Covid-19 resurgence and lockdowns in major cities.The slump in car sales,for example,was even more dramatic,with consumption plummet-ing 48%year-on-year in the same month.Chinas total retail sales of consumer goods in 2022 was 44 trillion RMB,a decrease of 0.2%compared to 2021.Within retail sales,revenues of restaurants and catering fell by 6.3%in 2022.FIGURE 1.2:China also experienced a decline in consumption growth since H2 2021,dropping dramatically in April/May 2022 Source:National Bureau of Statistics;Roland Berger To stimulate economic vitality,China has cut the loan prime rate(LPR)three times since December 2021.The five-year loan prime rate was reduced by 35 points,and the one-year loan prime rate was reduced by 20 points.Despite these efforts,business activities were not efficiently shored up due to the sluggish confidence in demand.In the first 11 months of 2022,Chinas incremental household savings have reached 15 trillion RMB,which is already 5 trillion RMB higher than the entire year of 2021.At the same time,the value of incremental household loans was only half of that in 2021.In response to uncertainties and concerns for the future,people prefer to save more money rather than spend,in-vest,or take on debt.Boosting consumption has become one of the top priorities for the Chinese government in 2023.FIGURE 1.3:China has continuously decreased LPR to stimulate the real economy.However,it did not sufficiently boost the economy due to sluggish consumption in demand Source:The Peoples Bank Of China;Roland Berger 2023 Will See a Bumpy Recovery Route The Covid-19 control policy inevitably disrupted economic activities,especially consumption.Yet some fundamental aspects of the Chinese economy have proven resilient:Chinas exports remained high in 2022 despite the slowdown in Q3-Q4,and increased by 9%in the first 11 months compared to 2021,which was already an excellent year for ex-port growth.The inflation and currency fluctuation also stayed in a moderate range compared to many other coun-tries,creating a solid foundation for the recovery.At the end of 2022,China abruptly loosened its Covid-19 control policies and reopened to the world.This new devel-opment immediately improved market sentiment.The expected recovery of the Chinese economy will brighten the global economic prospects for 2023.Yet,things are more likely to get worse in the first few months of 2023 before they get better,considering the surging Covid-19 cases in recent and coming months and referring to the reopening experience of other Asian economies.Therefore,we expect 2023 will prove a bumpy recovery route for China.The New China Story 72When Covid-19 started spreading across the globe,Chinas domestic B2B and B2C markets served as additional growth engines for many multinational companies,being relatively protected from Covid-19 waves until early 2022 and generating both volume and profits for some companies.Heading into 2022,the Zero-Covid response and the ongoing Omicron wave in China have put pressure on markets and company performance,resulting in low business sentiment in the foreign business community.Business Confidence of Foreign Companies in China Hit Historic LowIn the Business Confidence Survey 2022/23 conducted by the German Chamber of Commerce in China,the business sentiment of German companies reached a historic low amid the continuation of zero-Covid policies and geopolitical tensions.Only 24%of the surveyed companies experienced an improvement in the development of their industry in China in 2022 compared to 2021,while 45%experienced a worsening.FIGURE 2.1:Rebound of industry development in 2023-expectations still not comparable to pre-Covid times How do you evaluate the development of your industry in China in 2022 compared to last year?And what are your expectations for 2023?(2018:n=420;2019:n=460;2020:n=535;2021:n=587;2022:n=585)Source:AHK Research and Analysis improving unchanged worsening Note:I dont know answers excluded2018(actual)2019(outlook)2019(actual)2020(outlook)2020(actual)2021(outlook)2021(actual)2022(outlook)2022(actual)2023(outlook)152ST811(1A9(3%9%f E)!113YQ$8%2MULTINATIONALS ARE WORRIED ABOUT CHINA The New China Story 9 The New China Story 10Expectations for all four key performance indicators dropped in 2022:turnover,profit,investment,and employment.A larger share of companies reported a decrease,while a smaller percentage reported an increase compared to 2021.FIGURE 2.2:Turnover and profits heavily impacted by zero-Covid policy How do you expect your company to perform in the following areas by the end of 2022 compared to 2021?(2021:n=587;2022:n=570)Source:AHK Research and Analysis In 2022,we could strongly sense that the business confidence in China as a manufacturing base and technology/in-novation partner has been called into question,and optimism was afflicted.“The geopolitical risks have an impact on our investment.For example,we had planned to invest in new production facilities in a neighboring province of Shanghai,but later the headquarters only approved an investment to expand our existing facil-ities in Shanghai,considering the risk.New investment for a new plant would very possibly be made in favor of a country in ASEAN”-Managing director of a leading German industrial system provider.19%5W%40%6S%1U%4%7!%6H%642)%52 9$%3%EmploymentInvestment Profit Turnover substantial decrease(more than 20%)decrease(5-20%)similar/unchanged( /-5%)increase(5-20%)substantial increase(20%)20222021202120222021202220212022Note:I dont know answers excluded3 The New China Story 12Looking back at Chinas core competitiveness in the past decades,it was mainly driven by low labor costs,lax en-vironmental regulations,and high capital productivity,which is still valid to some extent in Chinas current stage.However,these contributing factors to Chinas economic growth are slowly disappearing.In the real estate sector,for example,many enterprises have seen poor cash flow due to the tightened control on loans by the Chinese government since 2020.In 2022,fixed asset investment in real estate fell by 10%.It is expected that real estate in China will take years to recover.The time for property speculation is also gone.Within this massive development,many foreign companies have built a solid presence in China based on the“Old China Story.”Foreign companies enjoyed a combination of labor and capital competitiveness,permissive regula-tions,and waves of planned boosts in certain B2B or B2C segments.The change in Chinas core competitiveness has signaled to the business world that this“Old China Story”is over.Yet we believe the fundamentals that have made multinational companies successful in China remain,augmented by new features,making a whole new China Story possible.FIGURE 3.1:The“Old China Story,”when Chinas core competitiveness was driven by low labor costs,lax environmental regulations,high capital productivity,and limited TFP,is over Source:Statista;World Bank;Roland Berger 3THE“OLD CHINA STORY”IS GONE“I have been working for about 30 years.In the past few years,the political instabil-ity has created an unstable business environment,which hasnt happened in China since I come here.China had been a stable and reliable place for investment.Our board asked me what was happening in China,as they had no clarity”-General manager of a leading German industrial tools trading company.Uncertainty and unpredictability were never a feature of Chinas 5-year plans for the economy.This instability has raised concerns among businesses operating in China.4 The New China Story 144.1 What Is the“New China Story”?Chinas Key Fundamentals Remain Resilient Despite short-term volatilities,the structural foundations of Chinas success remain resilient and intact in the medi-um to long term.On the supply side,the competitiveness of the Chinese supply chain remains,and has even been improved due to the pandemic:Chinese and foreign companies invested heavily to modernize their production systems in 2021,when most of the global manufacturing was still crippled by Covid-19 disruptions.The continuous surge in Chinese exports,even in 2022,demonstrates its resilience and competitiveness.Neverthe-less,since October 2022,Chinas exports have slowed down and dropped 8.7%in November compared to 2021,and the slow global demand is expected to continue until 2023.Export may not be able to strongly support Chinas recov-ery in the short term.Yet,in the medium to long term,the Chinese manufacturing sector will remain a global force,thanks to enhanced,low carbon productivity and Asias leverage in the future.FIGURE 4.1:In 2021,China remained the worlds manufacturing powerhouse,with 8.1%jump in GDP and 30%surge in exports Source:IMF;National Bureau of Statistics of China;Roland Berger 4A“NEW CHINA STORY”IS BEING WRITTENFIGURE 4.2:China exports remained resilient in the first ten months of 2022,but were hit in November by weakening global demand and covid-19 disruptions Source:General Administration of Customs of the Peoples Republic of China;Roland Berger China has a huge domestic market and the corresponding demand.With 1.4 billion people and a fast-growing mid-dle-income class,as well as per capita GDP now exceeding 10,000 US dollars,China remains one of the worlds big-gest consumer markets with strong potential.It will also be strongly supported by government incentives,such as the Strategic Planning Outline for Expansion of Domestic Demand(2022-2035),launched at the end of 2022.FIGURE 4.3:Domestic consumption greatly contributed to Chinas economic growth in 2021,and still holds untapped potential Source:World Bank;Roland Berger The New China Story 15 The New China Story 16Decoupling:Limited on the Supply Side,Faster on the Demand Side We believe that the much-discussed supply chain decoupling will mainly affect the technology sector,as we are witnessing an escalation in the US legislation towards high-tech sectors such as the semiconductor field.In the meantime,there is a certain level of supply chain diversification,triggered by three key factors:First,tightened risk management due to the increasing uncertainties creating supply chain bottlenecks.SecondChinas competitiveness compared to other countries in labor,technology,and infrastructure has decreased its added value.Lastly,econom-ic sovereignty concerns since the pandemic,more and more countries have put heavy emphasis on economic sov-ereignty,especially in strategic areas,such as semiconductors,pharmaceuticals,etc.However,Chinese demand is increasingly decoupled from the rest of the world,demonstrating unique consumption patterns.It includes,but is not limited to,different cyclicity,increasingly localized production,Made in China for China,localized product design and features,unique digital and payment ecosystems,distinct innovation,etc.While China is developing into a singular market,its size and growth continue to offer opportunities for foreign com-panies.FIGURE 4.4:China has the worlds largest foreign exchange reserves,ensuring stability of foreign trade and investment,and increasing resilience to financial risk Source:The Peoples Bank of China;Roland Berger“For the next few years,the first thing is strengthening independence and acceler-ating local decision-making.For example,digitalization is simply more advanced here.China has this new disruptive way of doing business with WeChat,e-shop,and Douyin(TikTok)for marketing and sales activities,which is very different from other markets,including our home market or the US market.”-General manager of a leading German industrial tools trading company.Furthermore,faced with external instabilities,China has the worlds largest foreign exchange reserves,which en-sures the stability of foreign trade and investment,and increases resilience to financial risk.4.2 Three New Economic EnginesThese changes mean that the“Old China Story”is no longer a guarantee of success for multinational companies.As China builds up new economic engines for the future,foreign companies must understand how the countrys econo-my is transforming.Industrial Modernization 2021 marked the start of Chinas 14th Five-Year Plan,where an increased emphasis was put on Chinas industrial modernization.Manufacturing represents one-third of Chinas fixed asset investment.Between January to October 2022,manufac-turing investment grew by 9.7%-faster than the overall fixed asset investment growth of 5.7%.Out of the manufac-turing investment,investment in advanced manufacturing has increased by 24%.Chinas industrial fleet is becoming increasingly automated,with the ratio of industrial robots installed per manufacturing employee approaching that of Sweden or Germany.Around 70%of the robots installed yearly still rely on imported or foreign design,providing vast market opportunities for multinational companies.Foreign enterprises thus have a good chance to remain a key contributor to Chinas industrial modernization,par-ticularly in fields such as industrial automation,robotization,and digitalization.FIGURE 4.5:China is accelerating industrial modernization,building up new competitiveness and productivity driven by innovation Source:IFR;National Bureau of Statistics of China In more recently developed industrial sectors,Chinese companies are leapfrogging and gaining leadership positions worldwide,such as in the e-mobility value chain,from chemicals and materials used for batteries to electric vehi-cles.The same can be seen for communication equipment,space equipment,and more:unlike the Old China Story,where the global supply chain was driven by Chinas productivity.In these sectors,the global supply chain will par-tially be driven by Chinese innovation.The New China Story 17 The New China Story 18FIGURE 4.6:Since the launch of Made in China 2025,China has leapfrogged in many areas through unique advantages,but still lags in several sectors Source:Roland Berger The regionalization of trade is another important aspect of this major transformation and accelerated moderniza-tion,which also drives competitiveness.Cumulatively,ASEAN countries have become trade partners to China at an equivalent level to the EU,and surpassed the US.This shift is driven by Chinese and Asian manufacturing companies continuously searching for competitive advantage across the region.It is evident when reviewing the growth rate of Chinese investment in the region and manufacturing dominance.The Regional Comprehensive Economic Partner-ship(RCEP)treaty will accelerate this trend towards regionalizing trade.FIGURE 4.7:Chinas competitiveness also comes from regionalizing investment and trade Source:General Administration of Customs of the Peoples Republic of China;Ministry of Commerce of the Peoples Republic of China Low-Carbon Development The fight against climate change is changing countries competitive advantage.In recent years,the carbon border adjustment mechanism and various tax approaches have been and will be implemented worldwide.As a key export-er of manufactured goods to the rest of the world,China can keep this position and its growth engines only if it fur-ther decarbonizes.A new paradigm for competitiveness addresses the urgent need for climate action,which requires massive investments.Chinese companies will have to accelerate the progress of energy transition and decarboniza-tion to maintain this competitiveness.Chinas double pledge to peak carbon emissions by 2030 and reach carbon neutrality before 2060 is the key to maintaining competitiveness,and will drive further acceleration of the modernization process.Currently,China has considerably increased its share of renewable and nuclear electricity.With 33%of its power coming from renewable sources,China fares reasonably well compared to other industrial nations like South Korea,Vietnam,and the US,but falls short compared to Germany.FIGURE 4.8:The double pledge to peak and neutralize CO2 is key in maintaining Chinas competitiveness,and will drive further acceleration of the modernization process Source:EIA;Goldman Sachs;While Europe and North America have reached an emission peak,China has yet to do so.Therefore,China has even less time to shift its production model.This will accelerate innovation,and the scope of the change will drive down the marginal cost compared to the rest of the world.This is not a new pattern:we have seen it before with solar PV modules and batteries.China has unique policies,technology,and natural advantages in the fight against climate change.The long road to carbon neutrality will create abundant opportunities for global cooperation.Common Prosperity to Fuel Mass Consumption In recent years,the Chinese government has taken pragmatic and assertive measures to strengthen control over several industries under the guiding theme of“common prosperity.”In the short term,these actions have raised concerns regarding Chinas business environment.The New China Story 19 The New China Story 20FIGURE 4.9:In recent years,the government has taken pragmatic and assertive measures to strengthen control over several industries under the guiding theme of common prosperity Source:Roland Berger While most analysts predicted aggressive tax or redistribution measures,this has not materialized.We believe in a different direction:increasing the size of the domestic market by expanding the middle class.It is not about redistri-bution or making the wealthy wealthier.Instead,its about introducing tens of millions of people on the fringe of the lower-middle class into the middle-class group.Chinas domestic consumption potential remains largely unleashed.China launched multiple pilot programs,in Zhejiang and other provinces,introducing initiatives to shift the popula-tion from rural China into suburban areas and increase their disposable income.For mass-market brands,this trend could bring about numerous opportunities.FIGURE 4.10:Zhejiang aims to grow its middle class through increased economic output as part of“common prosperity”Source:Roland Berger 4.3 China Will Be Back;MNCs Will Stay Revisions made to the industry catalogue(“2022 Catalogue of Encouraged Industries for Foreign Investment”)last year encourage foreign investment in key fields.It covered advanced manufacturing,high-end technology,energy conservation,and modern services,which align with Chinas priorities.The country will also support foreign investors in establishing research and development centers in high-end and emerging technology fields.With increasing government support,foreign businesses can play a bigger role in tech innovation and scientific research,sharing global resources,and localizing innovation.If China holds up to its prom-ise of opening up,foreign companies will keep playing an essential role in the Chinese economy.FIGURE 4.11:China will be back,and multinational companies will stay based on a“New China Story”Source:Roland Berger Although China currently faces huge economic challenges and is still lagging in certain areas,we believe that,for most multinational companies,China remains an attractive market,a superior industrial cluster,and an increasingly efficient innovation hub.Even though it is unlikely for China to replicate past booming decades,its key fundamentals remain robust and unique compared to many other markets.“We are convinced that China is leading the way in many areas of the sectors that we have involved in.The local for local strategy is not just to serve the local,but also to leverage our competencies and capabilities in China for the global market”-Senior vice president of a world-leading German multinational engineering and technology company.“Our company has been in China for nearly 30 years,and China is regarded as an important market.In the next five years,a 12%-18%annual revenue growth of our business can be anticipated,and with the current global economic context,we be-lieve the local Chinese market has bigger growth potential than other markets in the world”-Managing director of a world-leading industrial system provider.The New China Story 2122 German Business in China55.1 The Foreign Business Footprint in China Remains Broad and Deep Foreign businesses footprint in China is broad and deep.Based on a report released by Hurun Research Institute in 2021,the sales of the Top 100 foreign companies in China represented 6%of Chinas GDP.Among them,45 companies were from Europe.In 2022,the foreign direct investment(FDI)into Chinas mainland was 189.1 billion US dollars-an 8%increase year-on-year.Notably,FDI in high-tech manufacturing surged 58.8%from the same period(January-November)in 2021,while that in the high-tech service sector rose 23.5%year-on-year.During that period,investment from Germany climbed by 52.6%.For most foreign companies in China,decades of development mean that the cost of leaving,scaling down,or even freezing investment in the medium term is too high;yet frequent black swan and grey rhino events make the busi-ness environment increasingly unstable.Companies in China are easily caught between urgency and uncertainty.Adaptation to the“New China Story”is a combination of risk anticipation and mitigation,and occasionally-evolu-tion of the business model.FIGURE 5.1:The foreign business footprint in China remains broad and deep,showing strong confidence in Chinas economy Source:Ministry of Commerce of the Peoples Republic of China;Hurun Report;Business Confidence Survey 2022/23 by German Chamber of Commerce in China;Roland Berger“China now represents 40%of the total world chemical market.Yet,in 2030,we will be talking about half of the global chemical market in China.I think this trend is unlikely to stop.Also,China aims to achieve 5%-7%GDP growth,which is certainly higher than the worldwide average growth rate.The trend will continue,so the mar-ket is here.The question is how to capture market growth opportunities and fend off risks”-China president of a world-leading chemical company.5HOW CAN FOREIGN COMPANIES ADAPT TO THE NEW CHINA STORY?The New China Story 23 The New China Story 245.2 Risk Anticipation and Mitigation First,risks must be thoroughly screened and mitigated,and concerns around political and operational issues need to be carefully addressed.To help multinationals better understand the current situation,we introduced the“Onion Model.”The core idea of this model is to provide foreign companies operating in China with an evaluation framework.Through this frame-work,foreign companies can better recognize emerging and potential risks,evaluating whether these are managea-ble risks that could be mitigated with tailor-made measures,or unavoidable ones that should be dodged completely(i.e.,the“sensitive core”of the onion).FIGURE 5.2:Multinational companies face different risks in China;it is crucial to address and mitigate the risks by“peeling the onion Source:Roland Berger Multinational companies in China can use the“New China Story”features to screen their operating model and miti-gate risks.That being said,companies largely vary in industry,size,product,and technology usage,subjecting them to specific risks.Each company thus requires deep analysis and tailored mitigation measures.Below are some risks many multinational companies face in China.Compliance with the latest regulations:the data and cyber-security measures,for example,with some am-biguous phrases open to interpretation,often calls for separating IT systems,functional applications,and data storage.It impacts B2B industrial companies less than B2C companies or companies that provide services to B2C companies,such as software companies.Sanctions:company and individual constraints and bans,mostly stemming from the US legislation,need to be factored in.Business segments and products with strategic sensitivity:Companies in specific technology sectors,con-centrated sectors,deserve specific attention.This also depends on the nature of local competition.FIGURE 5.3:Separate compliance rules for all stages of data management,including collection,processing,storage,and transfer Source:Desk research,expert interview;Roland Berger FIGURE 5.4:Multinational companies in China can use the“New China Story”features to screen their operating model and mitigate risksSource:Roland Berger Certain risk mitigation measures can be developed:for example,JVs with relevant Chinese partners,local refinanc-ing and financing to transfer some accountability to Chinese shareholders and stakeholders,etc.Decision-making can be increasingly localized in parallel,sometimes with a separation of structures between sensitive and less sensi-tive businesses,which also helps manage differentiated ownership structures.The New China Story 255.3 Evolution of Business ModelIncreasing local competition has been the focus of attention for many multinational companies operating in China.Local players are often recognized to have more agility,accelerated technological capabilities,cost advantages,and their product quality is quickly improving.Today,many multinationals face great challenges from external risks and local market competition.To mitigate the risks and strengthen competitiveness,sometimes the business model of multinationals needs to evolve.Here,localization is key:localization of the entire decision-making process,including R&D,production,go-to-market,and deeper connection with Chinese consumers and the local ecosystem,helps adapt to a market that sometimes diverges from European or American practices.With rising competition from local players,multinational companies need to further strengthen their innovation capabilities to remain competitive in the Chinese market.FIGURE 5.5:Engagement and business models of foreign companies in China are evolving to adapt to the“New China Story”Source:Roland Berger Some companies choose to isolate themselves from the end-user markets and become tier 1 or tier 2 suppliers.Each of these examples is associated with very specific situations,and there is no one-size-fits-all.“We have reached an 80%localization rate of our parts in China.For the next step,the keyword is local engineering.We must grow together with OEMs in China.The specification changes a lot during the development,so you must adapt very quickly to the local needs”-President of China of a world-leading German automotive supplier.The New China Story 265.4 Real Client Case of Risk MitigationSupplier A is a leading global automotive supplier operating in China that provides traditional and intelligent parts such as advanced driver-assistance systems(ADAS).In recent years,this supplier has faced challenges in operating environment changes,such as data regulation,invest-ment restrictions,supply chain localization,and government bias for local core technology.FIGURE 5.6:Supplier A is a leading global automotive supplier and is facing challenges in operating environment changes Source:Roland Berger Therefore,to better adapt to local challenges and seize new opportunities,the situation calls for an evolution in sup-plier As organizational structure.FIGURE 5.7:We suggest supplier A evolves its organizational structure to address local challenges and seize new opportunities in China Source:Roland Berger The New China Story 2728 German Business in China6With profound and complex changes in the global environment and increasing competition in the local Chinese market,foreign companies China operations face growing challenges.Yet Chinas rapid development and pledge to reopen will bring plenty of opportunities for both Chinese and foreign companies.To better manage risks and seize growth opportunities,It is essential for foreign businesses to understand Chinas evolution and its unique features.Doing business in China has undeniably become more difficult for foreign and Chinese companies in recent years,but the fundamentals operating in the Chinese market remain favorable.Adapting operating and business models to the“New China Story”is imperative to cope with the economys short-term difficulties and turbulent movements.“It is very clear that our position on China is unchanged.China is a very important market and we will continue to dedicate ourselves to this market.We will continue to follow our strategy in terms of an enhanced local-for-local footprint.There is a fa-mous quote about China saying,everything is possible,but nothing is easy.I trust it summarizes Chinas prospects quite well.If you are willing to make an effort and address the opportunities in a positive,embracing way,China is still the region and the country that provides plenty of opportunities.We will continue to take those chances for our company in China”-Senior vice president of a world-leading German engineering and technology company.Therefore,the China strategy of foreign businesses needs to evolve accordingly,adapting to the“New China Story”with adjustments to fit companies unique frameworks.Foreign companies in China can consider three strategic op-tions to stay competitive and achieve sustainable growth in the medium to long term:China-Plus-One strategy:Supply chain disruptions and geopolitical tensions saw an increased need for a balance between market potential,cost efficiency,and supply chain resilience.One way to balance those factors is to extend the footprint within the region with the China-Plus-One strategy:remaining in China while engaging within the Asian region.This strategy al-lows companies to mitigate supply chain risks,especially when operating globally.While the Chinese market has the potential to satisfy ones production capacities,serving the global market from only one facility might be too risky in the future.While striving for the China-Plus-One strategy might increase the costs in the short and mid-term,it will create more resilience in the future,which can decrease the risk premiums towards investors and customers in the long term.Furthermore,it could serve as a competitive advantage against local competitors,which often have a local footprint only.Other advantages of the China-Plus-One strategy lie in the opportunity to better serve other local markets,adapt to local requirements and customer needs,and react faster to changing market needs.This would decrease the reli-ance on a single market and bring new business opportunities in Asia.6SUMMARY AND STRATEGIC OPTIONS The New China Story 29Due to the growing Chinese market and rising opportunities,foreign companies are still required to invest in the country to keep up with the market needs and remain significant market players.However,diversification requires significant capital and internal management resources,such as navigating new laws,new markets,and streamlining the business over multiple locations.Therefore,engaging with new markets takes time,and should be done grad-ually rather than overnight.One possible approach could be establishing a single production first,then extending process capacities until fully operational.A disadvantage of the China-Plus-One strategy is that,due to the increase in costs(such as capital expenditure costs,management resources,reduction of the economy of scales,etc.),the competitiveness of the Chinese and global markets could suffer.German companies pointed out the risk that local competition would benefit if cost structures were higher(due to the China-Plus-One strategy)for foreign companies in China and globally.Companies must ana-lyze the pros and cons of this strategy to find the right balance between risk mitigation and remaining competitive in China and the global markets.Develop a winning value proposition through innovation:Innovation and technological advancement have been key for foreign companies looking to succeed in China in the past decades.By collaborating with local partners that are part of Chinas innovation ecosystem,foreign companies can stay competitive by optimizing existing products and creating innovative products and services with possible integration into their global portfolios.Faced with rising competition from local players,foreign companies need to accelerate local innovation,leveraging their existing global competencies to keep this advantage for further devel-opment in China.Local-for-local strategy:The“Local-for-local”strategy is a key success factor for foreign companies looking to strengthen their positioning and competitiveness in China.It calls for a new or partially new system separated from Europe or the US,from cen-tralized and global R&D,production,supply chain,and logistics to sales and services.For the manufacturing industry,such as the automotive sector,the rise of Chinese players in electrification made traditional foreign suppliers transform into close partners of the OEMs growing together in the Chinese market.New products are developed through a joint effort with new technical specs and standards.Innovation in China will not only benefit foreign companies China operations,but also strengthen their global competencies and competitive-ness.For consumer goods sectors,the shifts in Chinas consumer groups-such as the increasing purchasing power of the new generation(e.g.,Generation Z)-call for the evolution of engagement models of foreign companies.From brand recognition to brand interactions,Chinas new generation is seeking a different experience,providing an opportunity for foreign consumer brands to reassess their positioning,rethink their engagement approaches,and redesign their products and go-to-market strategies.To support foreign companies in China,it is important that China continues its reform and opening policies;lifts restrictions on certain sectors;creates a more level playing field(e.g.,public pro-curement);continues to improve IP protection;enables growth through decarbonization by setting clear policies and goals in green energy;promotes revisions to the household registration system for talent development,and improve vocational training,among others.For many foreign companies,their China operations contribute significantly to their global profit contribution.For those organizations,it is crucial to strengthen the resilience of their China operations just as they mitigate risks for their global operations.As local companies become increasingly competitive,adapting more to the Chinese market is the logical response.The local-for-local strategy can empower foreign companies China operations to act faster,be more customer-oriented,and cost-efficient,while increasing the resilience of the supply chains for the Chinese operations.China offers a comprehensive ecosystem of innovative technology,service providers,and excellent tal-ents to execute local R&D.With all the advantages the local-for-local strategy brings,foreign companies must find a balance between becom-ing more competitive in China and keeping their foreign DNA-which is often what made them successful in the first place.The strive for quality,reliability,and good governance should not be sacrificed,nor should the companys core values.The New China Story 30CONTACTSAHK Greater China(Chinese)Chamber South&SouthwestChamber East ChinaChamberNorth ChinaAHK Greater ChinaAHK GREATER CHINA AHK Greater China is part of the German Chamber of Commerce and Industry(DIHK)and the network of over 140 German Chambers of Commerce Abroad(AHKs),which includes 140 offices in 94 countries.Our history stretches back to 1981,when the first office was opened in Taipei.With a team of 150 employees based in 12 locations,we focus on trade and investment between Greater China and Germany.As#PartnerForGrowth,AHK Greater China offers a wide range of solutions in the areas of market entry and market expansion.We advise,support and represent German companies that want to establish or expand their business in China.Our service portfolio includes market entry support and incubation solutions;strategy consulting with a focus on market analysis,policies and regulations,and competitive environment;organization of business delegations to China;trade fair services;professional vocational training programs;as well as HR services for corporate clients across all sectors.The German Chamber of Commerce in China is the leading platform of German business in China.The Chamber represents the interests of its 2,100 members and helps them succeed by hosting informative events,providing up-to-date market information,and offering practical advice.Office LocationShanghaiPingan Riverfront Financial Center,29F 757 Mengzi Road Huangpu District,200023 Shanghai T 86 21 5081 2266 china.ahk.deOffice LocationBeijingDRC Liangmaqiao Diplomatic Office Building,Unit 0601B 19 Dongfang East Road Chaoyang District,100600 Beijing T 86 10 6539 6688 china.ahk.deOffice Location GuangzhouLeatop Plaza,Room 1903 32 Zhu Jiang East Road Tianhe District,510620 Guangzhou T 86 20 8755 2353 china.ahk.deContact for Press InquiriesCarina Mingle Head of Media Relations&Corporate Communications T 86 10 6539 6670 mingle.carinachina.ahk.deFor up-to-date information about the German business community,activities and events of the German Chamber,updates on policies and economic changes,and much more,follow the German Chamber of Commerce on WeChat and LinkedIn.The New China Story 31Contact for Further InformationJacob Shao Strategy Consultant T 86 189 6401 0141 shao.jacobchina.ahk.deContact Information The New China Story 32ABOUT ROLAND BERGERRoland Berger,founded in 1967,is the only leading global consultancy of German heritage and European origin.With 3,000 employees working from 35 countries,we have successful operations in all major international markets.Our 51 offices are located in the key global business hubs.The consultancy is an independent partnership owned exclusively by 320 Partners.Roland Berger supports leading international corporations,non-profit organizations and public institutions in all management issues-ranging from strategic alignment and introducing new business models and processes to organizational structures and IT strategy.Roland Berger is based on global Competence Centers that are organized along functional and industry lines.This allows us to offer tailor-made solutions devised by our interdisciplinary teams of experts drawn from different Competence Centers.At Roland Berger we develop customized,creative strategies together with our clients.Providing support in the implementation phase is particularly important to us.In so doing,we create value for our clients.Thats why our approach is based on the entrepreneurial character and individuality of our consultants.All employees at Roland Berger strive to adhere to our three core values:entrepreneurship,excellence and empathy.The Chinese market is a key pillar of Roland Bergers international expansion.Since our first project in China in 1983,the consultancy has grown rapidly:The five Chinese offices(Shanghai,Beijing,Hong Kong,Taipei and Guangzhou)now have hundreds of consultants dedicated to working extensively with both leading Chinese and international companies.As the only consulting firm of European origin among the global Top 5,Roland Berger has built its expertise on its extensive experience working with clients on complex business cases for over 50 years.Outstanding strategic analysis and in-depth knowledge on implementation measures are the strengths of the companys consulting approach.Roland Berger consultants combine their analytical and strategic know-how within a diverse company setting to help clients in Greater China successfully master their unique challenges.Beijing OfficeUnit 7-11,45F,Building 3B,China World Trade Centre 1 Jianguomenwai Avenue,Chaoyang district,Beijing 100004,P.R.China T 86 10 8440 0088 F 86 10 8440 0050 Shanghai Office23rd Floor,Shanghai Kerry Center,No.1515 Nanjing Road(West),Shanghai 200040,P.R.ChinaT 86 21 52986677F 86 21 52986655Guangzhou OfficeLevel 9,CTF Finance Centre,6 Zhujiang Dong Road,Tianhe District,Guangzhou 510620,P.R.China T 86 20 28317508 F 86 20 28317000 Office LocationsTaipei Office37th Floor,Taipei 101 Tower7 Xinyi Road,Section 5,TaipeiT 886 2875 82835F 886 2875 82999Hong Kong Office16/F,Nexxus Building,41 Connaught Road,Central,Hong KongT 852 3757 9480F 852 3757 9490Contact InformationContact for Press InquiriesRenay Cheng Head of Marketing&Communication,Public Affairs T 86 13671729366 Contact for Further InformationArielle Li Senior Consultant T 86 18521092705 33 German Business in ChinaPublished byGerman Chamber of Commerce in Chinawww.china.ahk.de Disclaimer2023 China German Chamber of Commerce(GCC).No part of this content and publication may be reproduced without prior permission.For further questions,please refer to the provided contact persons.While 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0人浏览过 2023-02-15 33页 5斯特恩
飞利浦（Philips）2021年度报告（英文版）（275页）.pdf
PDF/printed versionThis document is the PDF/printed version of the 2021 Annual Reportof Royal Philips and has been prepared for ease of use.The 2021Annual Report was made publicly available pursuant to section 5:25cof the Dutch Financial Supervision Act(Wet op het financieeltoezicht),and was filed with Netherlands Authority for the FinancialMarkets in European single electronic reporting format(the ESEFpackage).The ESEF package is available on the companys website athttps:/andincludes a human readable XHTML version of the 2021 AnnualReport.In any case of discrepancies between this PDF version andthe ESEF package,the latter prevails.IFRS basis of presentationThe financial information included in this document is based on IFRS,as explained in Significant accounting policies,starting on page 135,unless otherwise indicated.Comparative results have been restatedto reflect the treatment of the Domestic Appliances business as adiscontinued operation(for more information,please refer toDiscontinued operations and assets classified as held for sale,starting on page 152).Forward-looking statementsThis document contains certain forward-looking statements.By theirnature,these statements involve risk and uncertainty.For moreinformation,please refer to Forward-looking statements and otherinformation,starting on page 235.References to PhilipsReferences to the Company or company,to Philips or the(Philips)Group or group,relate to Koninklijke Philips N.V.and its subsidiaries,as the context requires.Royal Philips refers to Koninklijke Philips N.V.Dutch Financial Markets Supervision ActThis document comprises regulated information within the meaningof the Dutch Financial Markets Supervision Act(Wet op hetfinancieel toezicht).Statutory financial statements and management reportThe chapters Group financial statements,starting on page 126 andCompany financial statements,starting on page 205 contain thestatutory financial statements of the Company.The introduction tothe chapter Group financial statements,starting on page 126 sets outwhich parts of this Annual Report form the Management reportwithin the meaning of Section 2:391 of the Dutch Civil Code.ContentsMessage from the CEO51Board of Management and ExecutiveCommittee72Strategy and Businesses93Driven by purpose103.1How we create value123.2Materiality analysis143.3Our businesses153.4Our geographies233.5Supply chain and procurement253.6Financial performance274Performance review284.1Results of operations294.2Restructuring and acquisition-related chargesand goodwill impairment charges344.3Acquisitions and divestments354.4Changes in cash and cash equivalents,including cash flows354.5Financing364.6Debt position374.7Liquidity position374.8Shareholders equity384.9Cash obligations414.10Dividend414.11Analysis of 2020 compared to 2019424.12Environmental,Social and Governance435ESG reporting framework445.1Philips ESG commitments465.2Environmental performance485.3Social performance555.4Governance625.5Philips ESG performance at a glance665.6ESG by key country675.7Risk management786Our approach to risk management796.1Risk factors826.2Strategic risks826.3Operational risks856.4Compliance risks886.5Financial risks896.6Supervisory Board917Supervisory Board report938Report of the Corporate Governance andNomination&Selection Committee998.1Report of the Remuneration Committee1008.2Report of the Audit Committee1148.3Report of the Quality&RegulatoryCommittee1158.4Corporate governance1179Introduction1179.1Board of Management and ExecutiveCommittee1179.2Supervisory Board1189.3Other Board-related matters1209.4General Meeting of Shareholders1219.5Risk management approach1229.6Annual financial statements and externalaudit1239.7Stichting Preferente Aandelen Philips1239.8Investor Relations1249.9Major shareholders1249.10Corporate information1249.11Group financial statements12610Managements report on internal control12710.1Report of the independent auditor12710.2Independent auditors report on internalcontrol over financial reporting12810.3Consolidated statements of income12910.4Consolidated statements of comprehensiveincome13010.5Consolidated balance sheets13110.6Consolidated statements of cash flows13210.7Consolidated statements of changes in equity13310.8Notes13510.9Company financial statements20511Statements of income20611.1Balance sheets before appropriation of results20711.2Statement of changes in equity20811.3Notes21011.4Other information21712Appropriation of profits21712.1Independent auditors report21712.2Reconciliation of non-IFRS information22512.3Other Key Performance Indicators23412.4Forward-looking statements and otherinformation23512.5Investor information23612.6Definitions and abbreviations23812.7Sustainability statements24213Approach to sustainability reporting24213.1Economic indicators24913.2Environmental statements24913.3Social statements25513.4Governance indicators26513.5Assurance report of the independent auditor26913.62021at a glanceSocial impact1.67 billion lives improved167 million in underserved communitiesEnvironmental sustainabilityCircular revenues at 16%of salesCarbon-neutral in our operationsInnovationInnovations gaining market shareEUR 1.8 billion invested in R&DTransformationApproximately 45%of sales from solutionsand recurring revenuesDomestic Appliances business sold,divestments completedOperationsPhilips Respironics recallGlobal supply chain headwindsPeople&cultureIncreased focus on patient safety79%Employee Engagement ScoreBusiness development4%growth in comparable order intake80 long-term strategic partnershipsFinancialsEUR 17.2 billion sales12justed EBITA*)marginEUR 3.3 billion net income*)Non-IFRS financial measure.For the definition and reconciliation of the mostdirectly comparable IFRS measure,refer to Reconciliation of non-IFRS information,starting on page 225.4Message from the CEO1Frans van Houten CEO Royal PhilipsBased on the strength of our innovative portfolio and the trust our customers have in our ability to support them,I am confident about our future growth.”“Dear Stakeholder,Amidst the ongoing impact of COVID-19 on society,2021 was an eventful and challengingyear.Our continued strategic progress and strong growth in the first half of the year wereovershadowed by the unprecedented scale of the global supply chain disruptions in thesecond half of the year,as well as the Philips Respironics voluntary field action to remediatethe component quality issue in certain of its products.The intensified global supply chain headwinds and postponement of customer equipmentinstallations due to COVID-19 presented challenges to fully convert our opportunities torevenue in the second half of the year.These factors,combined with the sales consequencesof the recall,resulted in full-year sales of EUR 17.2 billion,down 1%year-on-year.As we work to overcome these headwinds and look to the future,I am very encouraged bythe underlying performance of our businesses.Our Diagnosis&Treatment businesses andPersonal Health businesses performed well in 2021,recording 8%and 9%comparable salesgrowth*)respectively.Following in the wake of 2020s high COVID-19-related demand forhospital ventilation and monitoring&analytics solutions,our Connected Care businessesposted a 23cline in comparable sales in 2021,which also reflects the effect of the PhilipsRespironics recall.We have strengthened our portfolio through our R&D programs,partnerships,andacquisitions.The relevance of our innovative products and solutions and customer interest inpartnering with Philips is underscored by the 4%growth in comparable order intake,resulting in an order book that is 18%higher year-on-year.Nevertheless,I would like to emphasize that I very much regret the impact of the PhilipsRespironics recall on patients,care providers and shareholders.We identified through ourpost-market surveillance processes that the sound abatement foam used since 2008 incertain of our sleep and respiratory care products may degrade under certain circumstances.Subsequently,we issued a voluntary recall notification for affected devices to addresspotential health risks.We have ramped up production,service and repair capacity to ensurepatients receive a repaired or replacement device as fast as possible.As of January 2022,Philips Respironics has shipped a total of approximately 750,000 repairkits and replacement devices to customers and aims to complete the repair and replacementprogram in the fourth quarter of 2022.In close dialogue with regulators across the world,we are conducting a comprehensive test and research program to better characterize healthrisks.In parallel,we have captured and applied learnings from this recall across the entirecompany,as patient safety,quality and integrity are of the utmost importance to us.Continued progress on strategic roadmapIn 2021,we saw sustained traction for our strategy to help transform the delivery of careacross the health continuum,and our innovative portfolio resonates very strongly withcustomers.Inspired by our purpose to improve peoples health and well-being,we innovate solutionsthat deliver meaningful impact.In the consumer domain,for instance,our new Sonicare9900 Prestige electric toothbrush leverages AI to optimize the users brushing technique,ensuring full coverage of their teeth,and instills brushing habits that improve oral health.For healthcare providers,our innovative solutions smart combinations of systems,devices,software and services help them deliver on the Quadruple Aim of better health outcomes,improved patient and staff experience,and lower cost of care:Giving clinicians smart connected imaging tools like our new Spectral CT 7500 system,which deliver high-quality spectral images for every patient on every scan,helping themmake precision diagnoses without the need for multiple re-scans.Or our new MR 53001.5T helium-free for life system,which combines operational and clinical excellence withreduced environmental impact.Enabling real-time,remote collaboration between technologists,radiologists andimaging operations teams across multiple sites with our vendor-neutral,multimodalityRadiology Operations Command Center.1 Message from the CEO5Non-IFRS financial measure.For the definition and reconciliation of the most directly comparable IFRS measure,referto Reconciliation of non-IFRS information,starting on page 225.*)Helping surgeons in the interventional lab perform personalized,minimally invasiveprocedures with solutions like our Azurion next-generation image-guided therapyplatform,which was further expanded with breakthrough applications in 2021.Enabling healthcare professionals to orchestrate care delivery,also for patientsrecovering at home,with connected care solutions like our Patient Flow Capacity Suite,which helps hospitals manage the complete patient journey,and Acute Care Telehealth,which builds on our successful Tele-ICU solutions.We signed 80 long-term strategic partnerships with hospitals and health systems around theworld in 2021,underlining customers appreciation of our holistic approach to healthcare.Solutions-based sales and recurring revenues continue to generate a growing proportion oftotal sales,with the figure now standing at around 45%.In order to maintain the strongflow of health technology innovations going forward,we invested EUR 1.8 billion in R&D in2021.Major divestment completed,acquisitions to drive future growthIn September,we completed the sale of the Domestic Appliances business to HillhouseInvestment,concluding our line of major divestments.We believe this will allow us to focuson extending our leadership in health technology solutions.To support future growth and the delivery of data-enabled care across care settings,weagain invested significantly in our data science,informatics and cloud technologycapabilities in 2021.The acquisitions of BioTelemetry,Capsule Technologies and Cardiologs(the latter completed in January 2022)strengthen our position in patient care managementin the hospital and the home.In January 2022,we also closed the acquisition of VesperMedical,further expanding our image-guided therapy devices portfolio with venous stents.Delivering on our ESG commitmentsWe reached 1.67 billion people with our products and services in 2021,including 167 millionin underserved communities taking us a step closer to our goal of improving 2 billion livesper year by 2025,including 300 million in underserved communities.We continued to deliver on the other key commitments set out in our Environmental,Social&Governance(ESG)framework.We are already carbon-neutral in our operations and arenow engaging with suppliers and customers to reduce emissions across our entire valuechain,as well as driving the transition to a circular economy.We again received recognition for our sustainability efforts in 2021 achieving a CDP A Listrating for the ninth consecutive year for our climate action,and securing second-highestplace in the global Dow Jones Sustainability Indices(DJSI)list.Looking aheadWe continue to invest in the future,further improving operational excellence and growingour core business,while driving our transformation into a digital,customer-first solutionscompany.I am very confident in our ability to overcome our current challenges.Against thisbackground,and reflecting the importance we attach to dividend stability,we propose tomaintain the dividend at EUR 0.85 per share.Based on good customer demand and our growing order book,we expect to resume ourgrowth and margin expansion trajectory in the course of 2022.In the short term,however,we continue to see significant volatility and headwinds related to COVID-19 and supplychain challenges,despite our ongoing mitigation efforts.Due to this,the Respironics fieldaction and the strong growth in Q1 2021,we expect to start the year with a comparable salesdecline,followed by a recovery and strong second half of the year.For the full year,wetarget 3-5%comparable sales growth*)and a 40-90 basis-points improvement in AdjustedEBITA*)margin.In closingI would like to thank our customers,suppliers and partners for their continued support overthe past 12 months.And a special word of thanks to our employees for their fantasticcontribution through another year of often difficult working circumstances due to thepandemic.I would also like to express my appreciation to our shareholders for the confidence theycontinue to show in Philips long-term future.This is a future founded on purpose and therobust,growing demand for health technology,which Philips will serve with a relentlessfocus on customer needs,its strong portfolio of innovations,and an unwaveringcommitment to continuous improvement.Frans van HoutenChief Executive Officer1 Message from the CEO6Board of Management and Executive Committee2Royal Philips has a two-tier board structure consisting of a Board of Management and a Supervisory Board,each of which isaccountable to the General Meeting of Shareholders for the fulfillment of its respective duties.The Board of Management isentrusted with the management of the company.The other members of the Executive Committee have been appointed to supportthe Board of Management in the fulfilment of its managerial duties.Please also refer to Board of Management and ExecutiveCommittee,starting on page 117 within the chapter Corporate governance.Members of the Board of ManagementFrans van HoutenBorn 1960,DutchChief Executive Officer(CEO)Chairman of the Board of Management and theExecutive Committee since April 2011Frans van Houten first joined Philips in 1986 and has heldmultiple global leadership positions across the companyon three continents,including the role of co-CEO of theConsumer Electronics division.After temporarily leavingthe company to become CEO of NXP/PhilipsSemiconductors,he rejoined Philips as its CEO.Fransserved as co-chair at the World Economic Forum in Davosin 2017.He was one of the initiators and is current co-chair of the WEF Platform to Accelerate the CircularEconomy.Frans is also a member of the European RoundTable for Industry,an advocacy organization comprisingthe 50 largest European multinationals.He is co-founderand advocate of NL2025,a platform of Dutch influencerswho support initiatives to create a better future for theNetherlands in the areas of education,vitality andsustainable growth.He is co-founder of the GraduateEntrepreneur start-up ecosystem in the Netherlands.Frans was appointed a member of the Board of Directorsof Novartis in February 2017 and is a member of its AuditCommittee since 2021.Abhijit BhattacharyaBorn 1961,IndianExecutive Vice PresidentMember of the Board of Management since December2015Chief Financial OfficerAbhijit Bhattacharya first joined Philips in 1987 and hasheld multiple senior leadership positions across variousbusinesses and functions in Europe,Asia Pacific and theU.S.Through 2010 2014,he was the Head of InvestorRelations of Philips,and subsequently,CFO of PhilipsHealthcare,Philips largest sector at the time.Prior to2010,Abhijit was Head of Operations&Quality at ST-Ericsson,the joint venture of ST Microelectronics andEricsson,and he was CFO of NXPs largest business group.Marnix van GinnekenBorn 1973,DutchExecutive Vice PresidentMember of the Board of Management since November2017Chief Legal OfficerMarnix van Ginneken joined Philips in 2007 and becameHead of Group Legal in 2010.In this role he wasresponsible for the various Group Legal departments,including Corporate&Financial Law,Legal Complianceand Legal M&A.In 2014,Marnix became Chief LegalOfficer of Royal Philips and Member of the ExecutiveCommittee.Before joining Philips,Marnix worked forAkzo Nobel and before that as an attorney in a privatepractice.Since 2011,he is also Professor of InternationalCorporate Governance at the Erasmus School of Law inRotterdam.2 Board of Management and Executive Committee7Other members of the Executive CommitteeSophie BechuBorn 1960,French/AmericanExecutive Vice PresidentChief Operations OfficerAndy HoBorn 1961,Chinese/CanadianExecutive Vice PresidentChief Market Leader of Philips Greater ChinaRoy JakobsBorn 1974,Dutch/GermanExecutive Vice PresidentChief Business Leader Connected CareDeeptha KhannaBorn 1976,SingaporeanExecutive Vice PresidentChief Business Leader Personal HealthBert van MeursBorn 1961,DutchExecutive Vice PresidentChief Business Leader Image Guided Therapy andjointly responsible for Diagnosis&TreatmentEdwin PaalvastBorn 1963,DutchExecutive Vice PresidentChief of International MarketsShez PartoviBorn 1967,CanadianExecutive Vice PresidentChief Innovation&Strategy OfficerVitor RochaBorn 1969,Brazilian/AmericanExecutive Vice PresidentChief Market Leader of Philips North AmericaDaniela SeabrookBorn 1973,SwissExecutive Vice PresidentChief Human Resources OfficerKees WesdorpBorn 1976,DutchExecutive Vice PresidentChief Business Leader Precision Diagnosis and jointlyresponsible for Diagnosis&TreatmentFor a current overview of the Executive Committeemembers,see also https:/Board of Management and Executive Committee8At a glanceStrategy andBusinessesStrategy continues to resonate strongly with customersStrong flow of innovations for diagnosis,treatment andconnected careSleep&Respiratory Care impacted by recall;repair andreplacement program well under wayPersonal health innovations supported by onlinegrowth,retail partnerships,and scaling of new businessmodelsSignificant supply chain and procurement challenges3 Strategy and Businesses9Strategy and Businesses3Driven by purpose3.1At Philips,our purpose to improve peoples health and well-being through meaningfulinnovation is at the center of everything we do.This core principle has never been moreimportant than it is in these challenging times.As a leading health technology company,we believe that viewed through the lens ofcustomer needs innovation can improve peoples health and healthcare outcomes,as wellas making care more accessible,personal,connected and sustainable.In concrete terms,weaim to improve the lives of 2 billion people a year by 2025,including 300 million inunderserved communities,rising to 2.5 billion and 400 million respectively by 2030.Guided by this purpose,it is our strategy to lead with innovative solutions that combineproducts,systems,software and services and leverage clinical and operational data,to helpour customers deliver on the Quadruple Aim(better health outcomes,improved patientexperience,improved staff experience,lower cost of care)and help people take better care oftheir health at every stage of life.We strive to deliver superior,long-term value to our customers and shareholders,whileacting responsibly towards our planet and society,in partnership with our stakeholders.We aim to grow Philips responsibly and sustainably.To this end,we have deployed acomprehensive set of commitments across all the Environmental,Social and Governance(ESG)dimensions that guide the execution of our strategy and support our contribution toUN Sustainable Development Goals 3(Ensure healthy lives and promote well-being for all atall ages),12(Ensure sustainable consumption and production patterns)and 13(Take urgentaction to combat climate change and its impacts).Our view on healthcareBesides the healthcare sectors natural drivers of growth aging populations,the rise ofchronic diseases,increased spending on healthcare in emerging markets we believe thathealth technology will be a major growth driver in the years to come.At Philips,we see healthcare as a continuum this puts peoples health journeys front andcenter and enables integrated care pathways.Believing that healthcare should be safe,seamless,efficient and effective,we strive to connect the dots for our customers andconsumers,supporting the flow of real-time data needed to provide precision diagnoses,treatment and chronic care for patients.Going forward,we believe the digital transformation of healthcare and accelerated byCOVID-19 the increasing adoption of virtual care or telehealth will play a major role inhelping people to live healthily and cope with disease,and in enabling care providers tomeet peoples health needs,deliver better outcomes and improve productivity.Helping our customers address their healthcare challengesIn the consumer domain,we develop innovative solutions that support healthier lifestyles,prevent disease,and help people to live well with chronic illness,also in the home andcommunity settings.In addition to leveraging retail trade partnerships and new business models,we are focusedon accelerating growth through online channels,delivering products and services direct toconsumers,and supporting longer-term relationships to maximize the benefit consumerscan derive from our solutions.In clinics and hospitals,we are teaming up with healthcare providers to innovate andtransform the way care is delivered.We listen closely to our customers needs and togetherwe co-create solutions that help our customers improve outcomes,patient and staffexperience and productivity,and so deliver on the Quadruple Aim of value-based care.Increasingly,we are working together with our health systems customers in novel businessmodels,including outcome-oriented payment models,that align their interests and ours inlong-term partnerships.The combination of compelling solutions and consultativepartnership contracts,including a broad range of professional services,drives growth ratesabove the group average,as well as a higher proportion of recurring revenues.We are embedding AI and data science in our propositions for instance,applying thepower of predictive data analytics and artificial intelligence at the point of care to leveragethe value of data in the clinical and operational domains,aiding clinical decision making andimproving the quality and efficiency of healthcare services.3.1 Strategy and Businesses10Non-IFRS financial measure.For the definition and reconciliation of the most directly comparable IFRS measure,referto Reconciliation of non-IFRS information,starting on page 225.*)With our global reach,market leadership positions,deep clinical and technological insights,and customer-centric innovation capability,we are strongly placed to create further value ina changing healthcare world through our propositions in:Diagnosis&TreatmentPrecision Diagnosis providing smart,connected systems,optimized workflows,andintegrated diagnostic insights,leading to clear care pathways and predictable outcomesImage Guided Therapy innovating minimally invasive procedures in a growing numberof therapeutic areas,with significantly better outcomes and productivity,while patientshave a much better experience and can return home fasterConnected CareDriving better care management by providing a wealth of actionable data about patientscondition and hospital operations,and seamlessly connecting patients and caregivers in anycare setting from the hospital to the homePersonal HealthDelivering propositions that help people enjoy healthier lifestyles and enhance personalhygieneOur key strategic imperatives and value creation objectivesOur roadmap with its three strategic imperatives is our guide as we continue ourtransformation journey to attain HealthTech industry leadership and drive value creation.Underpinned by these strategic imperatives,Philips targets for accelerated growth,higherprofitability and improved cash flow for the 20212025 period are:An acceleration of the average annual Group comparable sales growth*)to 5 to 6%.In2022,Philips targets to deliver 3 to 5%comparable sales growth*)for the Group.An average Adjusted EBITA*)margin improvement of 60 to 80 basis points annually overthe 2021-2025 period,reaching high-teens for the Group.In 2022,Philips targets todeliver a 40 to 90 basis-points improvement in Adjusted EBITA*)margin for the Group.Free cash flow*)above EUR 2 billion by 2025.Organic Return on Invested Capital(ROIC)*)of mid-to-high teens by 2025.3.1 Strategy and Businesses11How we create value3.2Based on the International Integrated Reporting Council framework,and with the Philips Business System at the heartof our endeavors,we use various resources to create value for our stakeholders in the short,medium and long term.As we drive our transformation to become a solutionsprovider to our customers and consumers,we haveadopted a single standard operating model that defineshow we work together effectively to achieve ourcompany objectives the Philips Business System(PBS).The PBS integrates key aspects of how we operate:StrategyOur strategy defines our path to sustainable valuecreation for customers and shareholders.GovernanceClear governance,roles and responsibilities empowerpeople to collaborate and act fast.ProcessesSimplified standard processes,systems and practicesenable lean and agile ways of working.PeopleWe value and develop people and teams,rewardingthem for sustainable results.CultureWe live the Philips culture,which sets standards onbehaviors,such as ensuring patient safety,quality andintegrity,and putting the customer first.PerformanceThrough disciplined performance management andcontinuous improvement we achieve our goals.Having a single business system increases speed andagility,and enhances standardization,quality andproductivity,while driving a better,more consistentexperience for our customers.3.2 Strategy and Businesses12Resource inputsThe resources and relationships that Philips drawsupon for its business activitiesHumanEmployees 78,189,120-plus nationalities,40malePhilips University 863,000 courses,830,000 hours,835,000 training completions31,923 employees in growth geographiesFocus on Inclusion&DiversityIntellectualInvested in R&D EUR 1.8 billion(Green InnovationEUR 197 million)Employees in R&D 10,751 across the globe includinggrowth geographiesFinancialEquity EUR 14.5 billionNet debt*)EUR 4.7 billionManufacturingEmployees in production 38,618Industrial sites 25,cost of materials used EUR 4.1billionTotal assets EUR 31 billionCapital expenditure EUR 397 millionNaturalEnergy used in manufacturing 1,263 terajoulesWater used 703,104 m3Closing the loop on all our professional medicalequipment by 2025SocialPhilips FoundationStakeholder engagementVolunteering policyValue outcomesThe result of the application of the variousresources to Philips business activities andprocesses as shaped by the Philips Business SystemHumanEmployee Engagement Index 79vorableSales per employee EUR 219,419Safety 213 Total Recordable CasesIntellectualNew patent filings 860Royalties EUR 382.5 million182 design awardsFinancialComparable sales growth*)(1.2)justed EBITA*)as a%of sales 12.0%Free cash flow*)EUR 900 millionManufacturingEUR 12.0 billion revenues from goods soldNatural70.5%Green/EcoDesigned Revenues16%revenues from circular propositionsNet CO2emissions from own operations down tozero kilotonnes73,500 tonnes(estimated)materials used to putproducts on the marketWaste 22,204 tonnes,of which 87%repurposedSocialBrand value USD 12.1 billion(Interbrand)Partnerships with UNICEF,Red Cross,Amref andAshokaSocietal impactThe societal impact of Philips through its supply chain,its operations,and its products and solutionsHumanEmployee benefit expenses EUR 6,246 million,all staffpaid at least a Living WageAppointed 72%of our senior positions from internalsources28%of Leadership positions held by womenIntellectualAround 60%of revenues from new products andsolutions introduced in the last three yearsOver 65%of sales from leadership positionsFinancialMarket capitalization EUR 29 billion at year-endLong-term credit rating A-(Fitch),Baa1(Moodys),BBB (Standard&Poors)Dividend EUR 773 millionManufacturing100%electricity from renewable sourcesNaturalEnvironmental impact of Philips operations down toEUR 106 millionAll 25/25 industrial sites Zero Waste to Landfill atyear-end 2021First health technology company to have its CO2reductions assessed and approved by the ScienceBased Targets initiativeSocial1.67 billion Lives Improved,of which 167 million inunderserved communities(including 2.2 million viaPhilips Foundation)430,000 employees impacted at suppliersparticipating in the Beyond Auditing programTotal tax contribution EUR 4,090 million(taxes paid/withheld)Income tax benefit EUR 103 million;the effectiveincome tax rate is(20.0)%Non-IFRS financial measure.For the definition and reconciliation of themost directly comparable IFRS measure,refer to Reconciliation of non-IFRSinformation,starting on page 225.*)3.2 Strategy and Businesses13Materiality analysis3.3We identify the environmental,social,and governance topics which we believe have thegreatest impact on our business and the greatest level of concern to stakeholders along ourvalue chain.Assessing these topics enables us to prioritize and focus upon the most materialtopics and effectively address these in our policies and programs.Philips impact on societyat large is covered through our Lives Improved metric and the Environmental Profit&Lossaccount.Our materiality assessment is based on an ongoing trend analysis,media search,andstakeholder input.In 2021,we solicited input from a diverse group of external and internalstakeholders,including investors,NGOs,customers,suppliers,peer companies,academia,and senior management in Philips.Similar to 2020,we used an evidence-based approach tomateriality analysis powered by Datamaran.By applying Datamarans automated sifting andanalysis of millions of data points from publicly available sources,including corporatereports,mandatory regulations and voluntary initiatives,as well as news and social media,we identified a list of topics that are material to our business.With this data-drivenapproach to materiality analysis we have incorporated a wider range of data andstakeholders than was ever possible before and managed to get an evidence-basedperspective on regulatory,strategic and reputational risks and opportunities.Public healthrisks emerged as a new material topic in 2020,as a result of the COVID-19 pandemic,andwas again included in 2021.Changes in 2021In 2021,the topic of Human rights&responsible supply chains was split into two separatetopics,considering the growing importance of both.Next,Responsible tax practices wascarved out from the Business ethics&General Business Principles topic due to the growingimportance of the topic in society.On the external view,the most significant increasecompared to 2020 is climate change.The internal view saw a significant increase inimportance on climate change,circular economy and employee rights.Our materiality assessment has been conducted in the context of the GRI SustainableReporting Standards and the results have been reviewed and approved by the Philips ESGCommittee.For more information on materiality,refer to Material topics and our focus,starting on page243.3.3 Strategy and Businesses142021Diagnosis&Treatment50%Connected Care27%Personal Health20%Other3%Our businesses3.4Our reporting structure in 2021Koninklijke Philips N.V.(Royal Philips)is the parent company of the Philips Group.In 2021,thereportable segments were Diagnosis&Treatment businesses,Connected Care businesses,and Personal Health businesses,each having been responsible for the management of itsbusiness worldwide.Additionally,Philips identifies the segment Other.Since the completion of the sale of the Domestic Appliances business(formerly part of thePersonal Health businesses),it is no longer consolidated by Philips as from September 1,2021and therefore is not included in the following discussion.Total sales by reportable segmentPhilips GroupDiagnosis&Treatment businesses3.4.1Our Diagnosis&Treatment businesses create value through their unique portfolio ofinnovative solutions consisting of systems,smart devices,software and services,poweredby AI-enabled informatics that support precision diagnoses and minimally invasiveprocedures in therapeutic areas such as cardiology,peripheral vascular,neurology,surgery,and oncology.With these solutions,we enable our customers to realize the full potential ofthe Quadruple Aim better health outcomes,improved patient experience,improved staffexperience,and lower cost of care.Serving diagnostic enterprise imaging markets globally,we see significant opportunity toenable precise diagnoses while at the same time supporting adjacent needs for guidanceacross care pathways and increasing departmental productivity.We do this through smartdiagnostic systems,connected workflow solutions,integrated diagnostics and clear carepathways,driving enterprise-wide operational efficiency and supporting clinicians toprovide an early and definitive diagnosis,enabling them to select tailored care pathwaysand predictable outcomes for every patient.We also provide integrated solutions combining imaging systems and diagnostic andtherapeutic devices,which optimize interventional procedures and so deliver more effectivetreatment,better outcomes and higher productivity.Building upon our leading-edge ImageGuided Therapy System Azurion,we continue to innovate,optimizing clinical andoperational lab performance through advances in workflow and integration for routineprocedures,and expanding the role of image-guided interventions to treat new groups ofpatients such as those with complex diseases including stroke,lung cancer and spinedisorders.We are also innovating the way we engage with our customers in new businessmodels across different care settings,including out-of-hospital settings such as office-basedlabs and ambulatory surgical centers,which offer clear clinical,financial and operationalbenefits.In 2021,the Diagnosis&Treatment businesses benefited from a partial resumption ofelective procedures and exams as the COVID-19 restrictions eased,and strong order growthfor capital equipment,which bodes well for 2022.We continued to make advances ininnovation,strengthening our portfolio and providing clinical and economic evidence tosupport the adoption of our solutions.In oncology care,we deepened our collaborationwith leading precision radiation therapy company Elekta,with the aim of advancingcomprehensive and personalized cancer care through precision oncology solutions.Thelaunch of the Spectral Computed Tomography 7500 system is a significant step forward inintegrating the additional diagnostic benefits of spectral CT into standard workflows,and incombination with Image Guided Therapy System Azurion represents the worlds firstalways-on spectral detector angio-CT solution.Significant new clinical data demonstratedthe value of intravascular ultrasound,in which Philips is a global leader,in the treatment of abroad range of peripheral vascular patient populations.In 2021,the Diagnosis&Treatment segment consisted of the following areas of business:Diagnostic Imaging:Magnetic Resonance Imaging(MRI),with helium-free for lifeoperations,bundled with associated software to streamline workflows,optimizediagnostic quality,and improve patient experience;X-ray systems,together withassociated software to streamline workflows and optimize diagnostic quality;advancedand efficient Computed Tomography(CT)systems and software,including detector-based Spectral CT;molecular and hybrid imaging solutions for nuclear medicine3.4 Strategy and Businesses152021Diagnostic Imaging42%Ultrasound19%Enterprise Diagnostic Informatics8%Image Guided Therapy31%Ultrasound:echography solutions focused on diagnosis,treatment planning andguidance for cardiology,general imaging,obstetrics/gynecology,and point-of-careapplications,as well as proprietary software capabilities to enable advanced diagnosticsand interventionsEnterprise Diagnostic Informatics:a suite of integrated products and services thatdeliver a comprehensive platform designed to connect clinical data and optimizeworkflows around every step in the patients journey across a range of diagnostic(radiology,point-of-care,laboratory)and clinical(oncology,cardiology,neurology)service linesImage Guided Therapy:Systems integrated interventional systems that combineinformation from imaging systems,interventional devices,navigation tools and patienthealth records to provide interventional staff with the control and information they needto perform procedures efficiently;Devices interventional diagnostic and therapeuticdevices to treat coronary artery and peripheral vascular disease,including IntravascularUltrasound(IVUS),Intracardiac Echo(ICE),fractional flow reserve(FFR)andinstantaneous wave-free ratio(iFR)physiology measurement,atherectomy catheters,adissection repair implant,as well as drug-coated balloons and lead extraction devicesTotal sales by businessDiagnosis&TreatmentRevenue is predominantly earned through the sale of products,leasing,customer servicesfees,recurring per-procedure fees for disposable devices,and software license fees.Forcertain offerings,per-study fees or outcome-based fees are earned over the contract term.Sales channels are a mix of a direct sales force,especially in all the larger markets,third-partydistributors and an online sales portal.This varies by product,market and price segment.Oursales organizations have an intimate knowledge of technologies and clinical applications,aswell as the solutions necessary to solve problems for our customers.Under normal circumstances,sales at Philips Diagnosis&Treatment businesses are generallyhigher in the second half of the year,largely due to the timing of customer spendingpatterns.At year-end 2021 Diagnosis&Treatment had around 32,000 employees worldwide.2021 business highlightsPhilips received US FDA clearance for its SmartCT(Cone Beam CT)application for theAzurion image-guided therapy system,which provides interventionalists with CT-like 3Dimages to enhance procedural outcomes and fits seamlessly into existing workflows.Anindustry-first,Philips also introduced ClarifEye Augmented Reality Surgical Navigation,advancing minimally invasive spine procedures in the hybrid operating room.Philips has pioneered spectral CT diagnostics.The companys new Spectral CT 7500,whichenables customers to benefit from a reduction in follow-up scans,increased certainty inlesion characterization,and reduced time to diagnosis,is attracting strong customerdemand.For example,the University Medical Center Utrecht in the Netherlands installedtwo Spectral CT systems,with the aim of providing greater confidence in mainstream clinicaldiagnosis for all patients and in all exams.Building on the success of the IntraSight interventional applications platform,we furtherreinforced Philips leading position in image-guided therapy with the introduction ofIntraSight Mobile,which offers users in hospitals and office-based labs the integration,flexibility and affordability of a single mobile system for intravascular imaging,physiologymeasurements and co-registration for seamless workflows and enhanced patient care.Philips announced progress on several clinical studies including the positive two-year clinicalstudy results for the Tack Endovascular System for dissection repair,the first patientenrollment in the DEFINE GPS multicenter study to further drive the adoption of iFR forpercutaneous coronary interventions based on clinical evidence,and the start of the WE-TRUST multicenter stroke study to shorten treatment times by identifying,planning andtreating ischemic stroke patients in the interventional suite.Moreover,Philips announcedthe first structural heart repair procedure at Mayo Clinic using its new 3D intracardiacechocardiography catheter VeriSight Pro.Building on Philips leadership in image-guided therapy solutions in cardiology,thecompany is further strengthening its position in fast-growing adjacencies such as neurologyand oncology.For example,USA-based Piedmont Health equipped its neurosurgicaloperating rooms with a specialized version of Philips Azurion for the treatment of stroke.Philips also announced positive results of a clinical study aimed at setting a new standard ofsafety and accuracy in the diagnosis of small peripheral lung lesions using Philips Lung suite.Philips launched next-generation digital pathology solution,Philips Digital Pathology Suite IntelliSite which features a comprehensive,scalable suite of software tools and capabilitiesdesigned to help streamline workflows,enhance diagnostic confidence,facilitate teamcollaboration,integrate artificial intelligence(AI)and increase the efficiency of pathologylabs.Underlining its leading role in digital pathology,the company partnered with HealiusPathology,one of Australias leading providers of private medical laboratory and pathologyservices,to deploy a multi-site digital pathology solution across Healius National PathologyNetwork.3.4.1 Strategy and Businesses16Philips introduced new AI-enabled software and systems in MR,including the MR 5300,itssecond helium-free for life MR operations 1.5T system,the MR 7700 3.0T system for neuroapplications,and MR Workspace,which simplifies the path from image acquisition todiagnosis.The company enhanced its EPIQ and Affiniti ultrasound systems with tele-ultrasoundcapabilities,as well as adding liver fat quantification tools that allow allows non-invasivediagnosis of early-stage fatty liver disease.A new addition to its Ambient Experience portfolio,Philips launched Pediatric Coaching,aholistic solution designed to be a less stressful experience for parents and their childrenundergoing MRI scans.The company also announced an initiative with the Walt DisneyCompany EMEA to test the effects of custom-made animations,including specially-madeDisney stories,within Philips Ambient Experience hospital environments.Philips further expanded its leading image-guided therapy portfolio through the acquisitionof Vesper Medical,adding a venous stenting solution to address the root cause of chronicdeep venous disease and enhance patient care.This will complement Philips strong IVUSoffering in venous imaging and expand the companys growth in the vascular therapymarket.Philips received FDA clearance for its new MR 5300 system,continuing the advancement ofthe companys helium-free for life operating portfolio.Powered by AI,the MR 5300simplifies and automates complex clinical and operational tasks for outpatient clinical useand MR departments to help accelerate workflows and improve access to affordable,qualitycare.Further expanding the companys comprehensive CT portfolio,Philips introduced the newCT 5100 Incisive with CT Smart Workflow,comprising AI-enabled capabilities designed toaccelerate workflows,enhance diagnostic confidence,and maximize system up-time.Connected Care businesses3.4.2Spanning the entire health continuum,the Connected Care businesses help broaden thereach and deepen the impact of healthcare with solutions that unite devices,informatics,data and people across care networks.In this way,Philips connects patients and caregiversacross care settings,delivering clinical,operational and therapeutic solutions that help ourcustomers address the Quadruple Aim of better health outcomes,improved patient andstaff experience,and lower cost of care.In 2021,Connected Care continued to play a crucial role in fulfilling patient and customerneeds created by the COVID-19 global pandemic delivering core systems such as patientmonitors,supporting the expansion of telehealth for the ICU,providing ventilators andoxygen,and delivering remote patient care safely.COVID-19 continues to accelerate the digital transformation of healthcare,enabled by,forexample,cloud and SaaS offerings.Increasingly,our customers need to support thetransition of care,in the hospital and from the hospital to the home,making virtual careservices an essential part of healthcare delivery.At the same time,they want to be able tounlock data siloes and translate data into clinical and operational insights to support betteroutcomes.And they want to leverage automation and remote support in order to improveworkflows and alleviate staffing constraints.In 2021,Connected Care rose to these challenges in large,growing and diverse markets,supported by the recent acquisitions in clinical data services and the increased focus oninformatics.Philips has a deep understanding of clinical care and the patient experience inside andoutside the hospital.The combination of our advanced technological solutions andconsultative approach allows us to be an effective partner to our customers in theirtransformation,both across the enterprise and at the level of the individual clinician,nurseand patient.Our consultation services are set up to help redesign and optimize patient andwork flows,as well as to provide predictive analytics,customized training and improvedaccessibility across our application landscape,thus reducing the burden on hospital staff andimproving patient safety.This requires secure common digital data platforms that connect and align consumers,patients,payers and healthcare providers in an interoperable manner.Philips platformsaggregate and leverage information from clinical devices,patient and historical data tosupport care providers in patient engagement,diagnostics,(ambulatory)patient monitoringand(clinical)therapy solutions.In June 2021,our subsidiary,Philips Respironics,initiated a voluntary recall notification in theUnited States and field safety notice outside the United States for certain sleep andrespiratory care products to address identified potential health risks related to the polyester-based polyurethane(PE-PUR)sound abatement foam in these devices.Following thesubstantial ramp-up of its production,service and repair capacity in 2021,the repair andreplacement program in the United States and several other markets is under way.As ofJanuary 2022,Philips Respironics has shipped a total of approximately 750,000 repair kitsand replacement devices to customers and aims to complete the repair and replacementprogram in the fourth quarter of 2022.3.4.2 Strategy and Businesses172021Hospital Patient Monitoring43%Emergency Care5%Sleep&Respiratory Care37%Connected Care Informatics15%In Q3 2021,Personal Emergency Response Services and Senior Living,including the Aging&Care Giving business,was sold to Connect America.*)In 2021,the Connected Care segment consisted of the following areas of business:Hospital Patient Monitoring:This business delivers acute patient management solutionsto improve clinical and patient outcomes and achieve operational and economicefficiencies.Leveraging a strong presence in the ICU,Hospital Patient Monitoringsolutions enhance customers experience and improve patient outcomes with seamlesspatient data monitoring from admission to discharge,and by turning patient data intoclinical insights that are actionable at the right time and specific to targeted caresettings.Emergency Care:Our business propositions play a critical role in connected acute caremanagement,both inside and outside the hospital,including cardiac resuscitation(e.g.AEDs)and emergency care solutions(devices,services,and digital/data solutions).Sleep&Respiratory Care:Philips cloud-based sleep and respiratory patientmanagement solutions enable the care of more than 10.5 million connected patients,driving adherence,reimbursement and remote patient management.This extends fromambulatory patient care solutions for obstructive sleep apnea,to end-to-end solutionsthat encompass consumer engagement,diagnostics,people-centric therapy,cloud-basedconnected propositions and care management services for patients with COPD(ChronicObstructive Pulmonary Disease)and respiratory conditions.Hospital Respiratory Careprovides invasive and non-invasive ventilators for acute and sub-acute hospitalenvironments;Home Respiratory Care supports chronic care management in the home.Connected Care Informatics*):This business includes a fully integrated ElectronicMedical Record&Care Management business,which enables centralized managementof clinical,organizational and operational processes,virtual care delivery propositions,including remote patient management,and real-time monitoring in acute care,includingtelehealth in the ICU.Philips Tele-ICU program continues to play a pivotal role,enablingclinicians and nursing staff to remotely monitor a scalable number of ICU beds from acentral monitoring facility with predictive analytics,enabled by Philips HealthSuitePlatform.In 2021,Philips acquired Capsule Technologies,Inc.,which now forms part ofClinical Data Services.Capsule is a leading player in medical device and data integrationacross the enterprise,integrating with more than 1,000 vendor-agnostic device models.Building on its core integration and interoperability capabilities,along with the PhilipsHealthSuite Platform,we will fuel our data and healthcare Internet of Things(IoT)capabilities in support of integrated workflow solutions for the hospital.In 2021,Philipsalso acquired BioTelemetry,Inc.and it now forms part of the Ambulatory Monitoring&Diagnostics business.BioTelemetry holds a leading position in patient care managementin ambulatory and home care settings in North America through a suite of cardiacdiagnostic and monitoring solutions to identify heart rhythm disorders supported byArtificial Intelligence algorithms.Total sales by businessConnected CareIn most of the Connected Care businesses,revenue is earned through the sale of productsand solutions,customer services fees and software license fees.Where bundled offeringsresult in solutions for our customers,or offerings are based on the number of people beingmonitored,we see more usage-based earnings models.In the patient care managementbusinesses(Ambulatory Monitoring&Diagnostics and Sleep&Respiratory Care),revenue isgenerated through clinical services,product sales and through rental models,wherebyrevenue is generated over time.Sales channels include a mix of a direct salesforce,partly paired with an online sales portaland distributors(varying by product,market and price segment).Sales are mostly driven by adirect salesforce with an intimate knowledge of the procedures that use our integratedsolutions smart devices,systems,software and services.Philips works with customers andpartners to co-create solutions,drive commercial innovation and adapt to new models suchas monitoring-as-a-service.Sales at Philips Connected Care businesses are generally higher in the second half of theyear,largely due to customer spending patterns.However,in 2021,the Philips Respironicsvoluntary recall notification in the Sleep&Respiratory Care business in June had a negativeimpact on sales in the second half of the year.At year-end 2021,the Connected Care businesses had around 18,000 employees worldwide.3.4.2 Strategy and Businesses182021Oral Healthcare34%Mother&Child Care10%Personal Care56 21 business highlightsPhilips launched two new HealthSuite informatics solutions which are scalable across theenterprise,to support its customers in achieving the Quadruple Aim of healthcare:PatientFlow Capacity Suite,a solution that helps hospitals manage the complete patient journey,and Acute Care Telehealth,which builds on Philips successful Tele-ICU solutions.Philips recently acquired Capsule business continued to add new device drivers to itsMedical Device Information Platform,which will be integrated with HealthSuite.With morethan 1,000 unique types of medical devices capable of integrating with the platform,customers can connect more devices to advance health systems digital transformation withintelligent,vendor-agnostic tools that turn complex data streams into actionable insights.Philips introduced its integrated Interventional Hemodynamic System with the portablePatient Monitor IntelliVue X3,providing advanced vital signs measurements at the tablesidein the interventional suite and continuous monitoring across care settings.Uninterruptedpatient monitoring can help to improve clinical decision making and timely detection ofpotential adverse events at every stage.Expanding its portable patient management offering,Philips introduced the Medical Tablet,a portable monitoring kit designed to help clinicians remotely monitor larger patientpopulations during emergency situations.This new offering,which is available in NorthAmerica,Europe and Japan,provides remote access to patient data to improve workflowsand better manage increased patient volumes.Philips entered into a partnership agreement with Orbita Inc.,a provider of conversationalartificial intelligence(AI)solutions for healthcare,to co-create next-generationconversational virtual assistants for Philips consumer health and patient supportapplications.Philips announced a collaboration with USA-based MedChat to integrate MedChats livechat and AI-driven chatbot services into Philips Patient Navigation Manager.With thecombined offering,Philips enables its customers in North America to create automatedcommunication workflows that function seamlessly alongside patient access and call centeroperations.Highlighting the companys leading position in high-acuity care settings,Philips receivedFDA clearance for the IntelliVue MX750 and MX850 patient monitors,which are uniquelydesigned to support scalability,alarm management,cybersecurity,and enhanced infectionprevention within the hospital.Building on the ambulatory cardiac diagnostics and monitoring solutions resulting from theBioTelemetry acquisition,Philips announced the acquisition of Cardiologs(closed on January7,2022),adding a vendor-neutral heart disorder screener and ECG analysis applicationsbased on machine learning algorithms.This technology will accelerate diagnostic reportingand streamline clinician workflow and patient care.Personal Health businesses3.4.3Our Personal Health businesses play an important role on the health continuum in thehealthy living,prevention and home care stages delivering compelling value propositionsto enable people to live a healthy life and proactively manage their own health.We aim to drive profitable growth through a relentless focus on innovation across three keyareas:Reaching more people through consumer-driven product and solutions innovationAccelerating online growth and engaging more people through an end-to-end digitalapproachExpanding our ecosystem through partnerships with leading retailers and scaling newbusiness modelsIn September 2021,Philips completed the sale of its Domestic Appliances business toHillhouse Investment,a global investment firm.The results of this transaction,which Philipsannounced in March 2021,are reported under Discontinued operations for 2021.As a result,in 2021,the Personal Health segment consisted of the following remaining areas of business:Oral Healthcare:power toothbrushes for a range of price segments,from entry-levelbattery-operated toothbrushes for a young audience,to premium intuitive powertoothbrushes connected to the Sonicare app with in-app coaching and teledentistryservice;brush heads,which are also available as a subscription service;products forinterdental cleaning and for teeth whiteningMother&Child Care:products to support parents and babies in the first 1,000 days,including infant feeding(breast pumps,baby bottles,sterilizers),digital parentalsolutions(Pregnancy and Baby apps)Personal Care:products from entry-level to premium for male grooming(shavers,OneBlade,groomers,trimmers,hair clippers),including premium solutions with SkinIQtechnology and in-app coaching for a personalized shave,blade subscriptions;beautysolutions(skin care,hair care,hair removal),including solutions with the latest SenseIQtechnology that sense and adapt for personalized care,also available throughsubscription models.Total sales by businessPersonal HealthThrough our Personal Health businesses,we offer a broad range of solutions in variousconsumer price segments,always aiming to offer and realize premium value.We continue torationalize our portfolio of locally relevant innovations and increase its accessibility,particularly in lower-tier cities in growth geographies.A notable aspect of our commercial3.4.3 Strategy and Businesses19strategy is driving increased direct-to-consumer relationships and sales through ourconsumer communities and online store.Worldwide about half of our Personal Health salesnow take place online.We are leveraging connectivity to offer new business models,partnering with other playersin the health ecosystem,e.g.insurance companies,with the goal of extending opportunitiesfor people to live healthily,prevent or manage disease.We are engaging consumers in theirhealth journey in new and impactful ways through social media and digital innovation.For example,we strongly believe in the connection between good oral care and goodoverall health-a belief underpinned by the World Health Organization(WHO),whichadopted a resolution on oral healthcare in May 2021.Good oral care is important foreveryone.And since everyone is different,oral healthcare should also be personalized toeach user,so they can get the best health outcome.Philips Sonicare offers a wide range ofsolutions for complete oral care:from intelligent and intuitive power toothbrushes tointerdental cleaning solutions and apps that help users to manage their complete oral careon a daily basis and give the option to share brushing data with their dental practitioners,putting personalized guidance at their fingertips.We also offer mobile solutions to support parents and parents-to-be for a more informed,more connected and healthier journey to parenthood.The Pregnancy app and Baby appoffer parents supportive content at every stage of their first 1,000-day journey.Pregnancy also offers state-of-the-art,photo-realistic and interactive 3D fetal models to make theexperience even more exciting,with new,personalized content for each day of thepregnancy.As of year-end 2021,the Pregnancy app and Baby app combined have morethan 56 million downloads,almost 2 million daily active users,and are available in 22languages.The companys wide portfolio of connected consumer health platforms leverages PhilipsHealthSuite Platform,a cloud-enabled connected health ecosystem of devices,apps anddigital tools that support personalized health and continuous care.The revenue model is mainly based on product sale at the point in time the products aredelivered to retailers and online platforms.We are increasingly diversifying the revenuemodel with new business models,including direct-to-consumer,subscriptions and services.The Personal Health businesses experience seasonality,with higher sales around keynational and international events and holidays.At year-end 2021,Personal Health employed around 10,000 people worldwide.2021 business highlightsThe global launch of Philips most advanced electric toothbrush,the Sonicare 9900 Prestige,was positively received by consumers.The premium electric toothbrush leverages AI tooptimize the users brushing technique,ensuring full coverage of their teeth,and instillsbrushing habits that improve oral health.Toward the end of the year,Philips completed the successful roll-out of the Sonicare 9900Prestige in North America,China,Europe,Middle East and Asia Pacific.It finished#1 in theStiftung Warentest,Europes leading consumer organization.Philips further expanded itsoral healthcare portfolio with the launch of innovative interdental cleaning devices in NorthAmerica,China and Asia Pacific.Underlining Philips strategy to deliver locally relevant solutions,the company launchedseveral oral healthcare innovations targeting multiple price points in China,including twonew electric toothbrushes.In addition,Philips launched its professional teeth whiteningoffering Zoom in China through a local partnership with LinkedCare,one of the largestdental solution providers in the Chinese dental market.Expanding the companys leading male grooming portfolio,Philips introduced the ShaverSeries 9000 with SkinIQ technology in markets around the world,including China,NorthAmerica and Europe.The premium shaver leverages AI and sensors to offer a personalizedshave tailored to each unique skin and hair type.Philips produced its 100 millionth OneBlade,just 5 years after its launch in 2016.The PhilipsOneBlade has disrupted shaving markets worldwide,creating a new category for shaving,trimming,and edging.Philips introduced the Lumea IPL 9000 series with SenseIQ technology for personalized hairremoval,which is now also available through a Try&Buy subscription model in variousEuropean countries.The No.1 worldwide pregnancy app thats the most recommended app by midwives andpediatricians,the Philips Pregnancy app,debuted in India.The Philips Pregnancy app iscurrently available in 175 countries worldwide,and offers a fully immersive experience forexpecting parents,enabling them to track their babys growth,all with personalized contentsupported by clinical expertise.Philips newest baby tech launched in North America(with subsequent markets launchingthroughout 2022):the Philips Avent Natural Baby Bottle with Natural Response nipple,which releases milk only when baby actively drinks,just like breastfeeding,easing the switchbetween breast and bottle.3.4.3 Strategy and Businesses20Other3.4.4In our external reporting on Other we report on the items Innovation&Strategy,IPRoyalties,Central costs,and other small items.At year-end 2021,around 18,000 peopleworldwide were working in these areas.About OtherInnovation&StrategyThe role of Innovation&Strategy is to listen to the voice of the customer and,incollaboration with the operating businesses and the markets,direct the company strategyand innovation roadmap to achieve our growth and profitability ambitions.The variouscomponents of Innovation&Strategy include:the Chief Technology Office(CTO),Research,HealthSuite Platform,the Chief Medical Office,Engineering Solutions,Experience Design,Healthcare Transformation Services,Strategy,and Partnerships.Our four largest InnovationHubs are in Eindhoven(Netherlands),Cambridge(USA),Bangalore(India)and Shanghai(China).The Innovation&Strategy function tunes into industry trends and customer signals todevelop innovations that solve real-world problems for healthcare customers andconsumers.Innovation&Strategy advances innovation together with Philips businesses,markets and partners.This entails cooperation between research,design,medical affairs,professional services,marketing,strategy and businesses in a multi-disciplinary fashion,fromearly exploration to first-of-a-kind offerings.Innovation&Strategy actively participates in Open Innovation through relationships withacademic,clinical,industrial partners and start-ups,as well as via public-private partnerships.It does so in order to improve innovation speed and agility,to capture and generate newideas,and in some cases to leverage third-party capabilities.This may include sharing therelated financial exposure and benefits.Finally,Innovation&Strategy sets the agenda to drive continuous improvement in thePhilips product and solution portfolios.Innovation&Strategy improves the efficiency andeffectiveness of innovation through Centers of Excellence,such as Platform Modularity&Re-use,Data Science,Artificial Intelligence and Internet of Things.Chief Technology Office(CTO)and Philips ResearchThe Chief Technology Office orchestrates customer-centric innovation strategy and portfoliomanagement,and drives adoption of digital architecture and platforms,Data Science andAI,as well as excellence in software,across Philips businesses and markets.Philips Researchinitiates game-changing innovations based on deep customer insights and technologyadvancements that disrupt and cross boundaries in health technology and care delivery.Itdoes so to increase the availability and accuracy of healthcare and improve clinical andeconomic outcomes,as well as supporting the associated transformation of Philips into adigital solutions company.CTO and Research encompass the following organizations:Innovation Management,responsible for end-to-end innovation strategy and portfoliomanagement,integrated roadmaps linking products,systems and software to solutions,New Business Creation Excellence,R&D competency management,Clinical ResearchBoard,Innovation Transformation and Performance Management and public fundingprograms.The Chief Architect Office defines the reference architecture for the HealthSuitePlatform,domain-specific digital application platforms,and Modular Systems,coveringall systems,products,services,solutions and digital IT in Philips.The Software Center of Excellence drives adoption of industry best practices in creatingand maintaining application-level software,modular and configurable system designand model-based system engineering.The Data Science and AI Center of Excellence defines and deploys strategies and bestpractices for dealing with Data Science and AI in a responsible and compliant way,anddevelops common tools to facilitate the development process and co-creation ofinnovative propositions with clinical and business partners.Philips Research,as co-creator and strategic partner of the Philips businesses,marketsand complementary Open Innovation ecosystem partners,drives customer needs-focused front-end innovation and clinical research at sites across the globe.The role ofResearch increasingly goes beyond early-stage proof-of-concept,including advanceddevelopment of smart connected devices and systems,and integrated solutions andservices,fitting regionally relevant digital ecosystems.Philips HealthSuite PlatformPhilips HealthSuite Platform helps unlock the power of data to enable healthcareprofessionals,patients and consumers to engage in connected care.Its modular set of re-usable digital capabilities liberate,integrate and enable actionable insights on data fromdisparate systems within a secure environment.HealthSuite Platform helps accelerate thedevelopment and deployment of digital propositions across the health continuum,supporting better health outcomes,improved patient/consumer and staff experience,andlower cost of care.Chief Medical OfficeThe Chief Medical Office is responsible for clinical innovation and strategy,healthcareeconomics,clinical evidence generation,medical affairs and market access,clinicaleducation,as well as medical thought leadership,with a focus on healthcare governanceand organization,the Quadruple Aim and value-based care.This includes engaging withstakeholders across the health continuum to extend Philips leadership in health technologyand acting on new value-based reimbursement models that benefit the patient,healthprofessional,care provider and payer.Leveraging the knowledge and expertise of the medical professional community acrossPhilips,the Chief Medical Office includes many healthcare professionals who practice(d)inthe worlds leading health systems.Its activities include strategic guidance built on clinicaland scientific knowledge,building and nurturing customer partnerships and growthopportunities,fostering peer-to-peer relationships in relevant medical communities,driving3.4.4 Strategy and Businesses21co-innovation with customers,liaising with medical regulatory bodies,and supportingclinical and economic evidence development.Engineering SolutionsEngineering Solutions is accountable for bringing engineering capabilities in Philips toworld-class level to realize innovations that deliver on our customers needs,advancing theQuadruple Aim.Taking a customer-first approach,Engineering Solutions turns ideas intoworking innovations by providing deep engineering expertise,cross-business productplatforms,and innovation processes and tools.Engineering Solutions also works for selectedexternal companies in the healthcare,high-tech and semiconductor industries.Innovation HubsTo drive innovation effectiveness and efficiency,and to enable locally relevant solutioncreation,we have established four Innovation Hubs for the Philips Group:Eindhoven(Netherlands),Cambridge(USA),Bangalore(India)and Shanghai(China).The four hubsform a global network,together with the other smaller innovation and research sites in theirrespective regions,to provide access to each others capabilities to serve businesses,marketsand customers globally.Philips Innovation Center Eindhoven,with satellites in Hamburg,Paris and Moscow,isPhilips largest cross-functional Innovation Hub,hosting the global headquarters of mostof our central innovation organizations.Many of the companys core research programsare also run from here,as well as innovation for digital platforms and solution&servicesdelivery.Philips Innovation Center Cambridge,MA is located at the heart of medical innovationwithin the North America market.It has innovation partnerships with top engineeringinstitutions like MIT,with top clinical sites,and with government funding agencies likeNIH(National Institutes of Health)and BARDA(Biomedical Advanced Research andDevelopment Authority).The Research lab in Cambridge focuses on the application ofData Science and AI in radiology,ultrasound,and acute care.Philips Innovation Center Bangalore is our largest software-focused site,with over3,400 engineers.In addition,it hosts,among others,R&D teams from most of ouroperating businesses and IT.The Center also functions as the hub for market-driveninnovation in surrounding geographies in Asia Pacific,Africa,and Middle East&Turkey.Philips Innovation Center Shanghai is a key contributor to the healthcare and healthyliving transformation of China.It combines digital innovation,research and solutionsdevelopment for the China market,participating in local digital ecosystems,while severalof its locally relevant innovations are also finding their way globally.Programs focus onpersonal health,clinical informatics for precision diagnosis,and connected care solutions.Alongside the hubs,where most of the central Innovation&Strategy organization isconcentrated together with selected business R&D and market innovation teams,wecontinue to have significant,but more focused innovation capabilities integrated into keytechnology centers at our other global business sites.Philips Experience Design and Healthcare Transformation ServicesPhilips Experience Design is the global design function for the company,ensuring the userexperiences of our innovations are inspiring,meaningful,people-focused,and locallyrelevant.Philips Experience Design also ensures the Philips brand experience is distinctive,consistently expressed across all customer touchpoints,and drives customer preference.Akey enabler for this is an engaging and differentiating design language system(DLS)that isembedded in software,hardware,and services across our businesses.Philips ExperienceDesign partners with stakeholders across the enterprise in applying creativity and designthinking,from defining value propositions to co-creating solutions with customers,as wellas developing new approaches in areas such as data-enabled design tools and processesthat help create meaning and capture value from data.Philips Experience Design received arecord 182 awards for design excellence in 2021.Philips Healthcare Transformation Services(HTS)is a consulting practice within Philips thathelps our customers improve process efficiency and enhance the care experience.Ourconsultants leverage co-create methodologies with the aim of creating solutions that aretailored specifically to the challenges facing our customers,as local circumstances andworkflows are key ingredients in the successful implementation of solutions.HTS is a teamof healthcare transformation practitioners with clinical and consulting expertise delivering aportfolio of methods and tools in operational and clinical transformation,environment andexperience design,and digital transformation and performance analytics.IP RoyaltiesPhilips Intellectual Property&Standards(IP&S)proactively pursues the creation of newIntellectual Property(IP)in close co-operation with Philips operating businesses andInnovation&Strategy.IP&S is a leading industrial IP organization providing world-class IPsolutions to Philips businesses to support their growth,competitiveness and profitability.Royal Philips IP portfolio currently consists of 57,000 patent rights,33,000 trademarks,114,000 design rights and 2,900 domain names.Philips filed 860 new patents in 2021,with astrong focus on the growth areas in health technology services and solutions.Philips earns substantial annual income from license fees and royalties.Philips believes its business as a whole is not materially dependent on any particular third-party patent or license,or any particular group of third-party patents and licenses.Central costsWe recharge the directly attributable part of the functional costs to the business segments.The remaining part is accounted for as central costs,and includes costs related to theExecutive Committee and Group functions such as Strategy,Legal and Audit fees.3.4.4 Strategy and Businesses22Real estatePhilips is present in more than 75 countries globally and has its corporate headquarters inAmsterdam,Netherlands.Our real estate sites are spread around the globe,with keymanufacturing and R&D sites in Europe,the Americas and Asia.In 2021,we relocated key offices in Farnborough(UK),Stockholm(Sweden),Toronto(Canada),Gurgaon(India)and Istanbul(Turkey).We invested in,amongst others,our sites inPlymouth(USA),Eindhoven(Netherlands),Alajuela(Costa Rica),Pune(India)and Bblingen(Germany)to create an engaging workplace that can help attract and retain the besttalent.We have continued to drive productivity by optimizing our footprint globally andreducing the number of sites through post-acquisition integration programs,as well as byimplementing our Future of Work concept to support hybrid working in 2022.We have fully transferred 33 properties and partially transferred 48 properties as part of thesale of our Domestic Appliances business.In line with our Environmental ESG commitment towards 2025,we continue to activelyoptimize our real estate portfolio.Having met our goal of bringing our site-related CO2emissions under 35 kilotons per year in 2020,we further reduced our CO2emissions by 15%in 2021.In addition,we reached 73.9%renewable energy in 2021,meeting our 2021 target of72%and on track to achieve our target of 75%by 2025.The vast majority of our locations consist of leased property,and we manage these closely tokeep the overall vacancy rates of our property below 5%and to ensure the right level ofspace efficiency and flexibility to follow our business dynamic.Occupancy rates in Philipsoffice locations continued to decrease in 2021 as a result of COVID-19,and this trend isexpected to continue in 2022.The net book value of our land and buildings at December 31,2021,represented EUR 1,388 million;construction in progress represented EUR 24 million.Our current facilities are adequate to meet the requirements of our present and foreseeablefuture operations.Our geographies3.5Our Markets3.5.1We address North America,Western Europe and other mature geographies,as well asGreater China and other growth geographies,via three market groups North America,Greater China and International Markets which are active in more than 100 countriesworldwide.The Markets core objective is to understand local market/customer needs,to create andactivate the local marketing plans,to develop and manage the relationship with existingand new customers,to deliver orders,and to manage and service the installed base ofequipment and informatics at our customer sites.The Markets manage the market-orientedprofit-and-loss account(P&L).They act as the voice of the customer in the creation of thesuite of solutions strategy,bring relevant products and solutions to market,and ensure localsolution delivery and service execution,as well as managing the integral go-to-marketapproaches to our key customers and indirect channels all with the aim of maximizinglong-term customer value and gaining market share.To take quick decisions that are locally relevant and as close to the customer as possible,ourBusinesses and Markets work closely together in Business-Market Combinations(BMCs)Ultrasound-Japan,for example.Through the BMC process it is agreed where to compete andhow to win.Businesses and Markets bear joint accountability for managing the operationalend-to-end consumer and customer value chain and the collaborative P&L,while leveragingthe functional excellence and shared infrastructure of the company.Macro-economic landscape in 20213.5.2In 2021,the world economy experienced strong growth,largely due to the base effect fromthe recession suffered in 2020 as a result of the COVID-19 pandemic.The economic re-opening seen in 2021 has led to significant economic recoveries,although the COVID-19pandemic and global supply bottlenecks persist.According to Oxford Economics,global realGDP is estimated to have grown by 5.8%in 2021,compared with the-3.5%estimated for2021 in 2020.Across Philips markets,Latin America,Europe and Japan are estimated to havenot yet reached their 2019 real GDP levels.Oxford Economics expects global real GDPgrowth to moderate to 4.2%in 2022.2021 highlights from our Market Groups3.5.3North AmericaPhilips continued to focus on helping customers drive innovation in areas such as cancercare,cardiovascular care and provider digital transformation,while forging strategicpartnerships to advance artificial intelligence(AI)and data analytics.2021 saw our long-termstrategic partnerships continue to expand into these areas,as health systems looked toadvance care for their communities.New York University Langone Healths Department of Pathology worked with us tointegrate Philips Genomics Workspace into their EMR(electronic medical record)and enablethe largest cancer sequencing test in the industry.We signed a long-term strategicpartnership specifically focused on integrated cardiovascular solutions with Lankenau HeartInstitute,part of Main Line Health,and formed a unique partnership with the University ofCalifornia,San Francisco(UCSF),to develop AI technologies that will enable personalizationand make it easier for patients to select providers,access their health information andreceive virtual care at home.Further,Baptist Health signed a 10-year strategic partnership tohelp standardize patient monitoring solutions,supporting their digital transformationgoals.Our partnerships in 2021 also highlighted our commitment to health equity andsustainability.The US Chamber of Commerce Foundation,in partnership with Philips and thePlatform for Accelerating the Circular Economy(PACE),expanded the Capital Equipment3.5 Strategy and Businesses23Coalition(CEC)to North America to accelerate transformation to a circular economy model.We are also working with the National Minority Quality Forum(NMQF),as part of a jointmission to raise awareness of and support on key issues such as maternal mortality amongBlack women,leveraging Philips resources and technology,e.g.the Pregnancy app,to helpclose the healthcare disparities gaps.In keeping with our belief in the added value of AI,we announced the Philips Sonicare 9900Prestige,an AI-enabled toothbrush with SenseIQ technology.Philips Sonicare continues tobe the sonic toothbrush brand most recommended by US dental professionals,and wemaintain a No.1 market share in electric male grooming.Greater ChinaIn 2021 we continued our efforts to provide innovative health technology solutions insupport of Chinas national health strategy,Healthy China.Philips provided the Yili Chuanxin Oncology hospital in Xinjiang,a newly established top-tierprivate hospital,with an Oncology solution to address the hospitals clinical needs inscreening,precision diagnosis,targeted treatment and rehabilitation of cancer patients.Thesolution includes IntelliSpace Digital Pathology and the Ingenia 3.0T MR,IQon Spectral CT,Incisive CT and CT Big Bore imaging systems,combined with IntelliSpace Portal for advancedvisualization and analysis.Driven by the China Healthcare Reform,PCI(Percutaneous Coronary Intervention)procedures are gradually being transferred from top-tier hospitals to low-tier hospitals,which urgently need medical technology to help doctors provide quality diagnosis andtreatment to cardiovascular patients.We provided an integrated solution,including Azurionand IVUS(intravascular ultrasound),to a county-level hospital in Kaifeng,Henan Province,toaddress the hospitals needs in the diagnosis and treatment of PCI patients.Philips provided The First Affiliated Hospital of Zhengzhou University one of the biggesthospitals in the world,with more than 10,000 beds with a range of advanced diagnosticimaging and image-guided therapy systems,including IQon Spectral CT and the Azurionimage-guided therapy platform.We signed a solutions contract with Gansu Provincial Maternity and Child Care Hospital tostreamline and advance the delivery of critical care across multiple departments.Thecontract includes patient monitors,an ECG management system,and ICCA(IntelliSpaceCritical Care and Anesthesia)informatics systems.For consumers,we launched an integrated platform,Philips Healthy Living Lab,in whichPhilips is partnering with other brands,such as Unilever,IHG and Alibaba,to engageconsumers with healthy living experiences.Underlining our strategy to deliver locally relevant solutions,the company launched severaloral healthcare innovations targeting multiple price points in China,including two newelectric toothbrushes.In addition,Philips launched its professional teeth whitening offeringZoom in China through a local partnership with LinkedCare,one of the largest dentalsolution providers in the Chinese dental market.Recognizing the need for local-for-local development and manufacturing in China,wecontinue to strengthen our innovation centers in China and aim to achieve 90%localizationby the end of 2023.International MarketsIn our International Markets we strive to execute on a shared global vision whilst meetingthe unique local needs and circumstances of our customers.Our goal is to elevate customerrelationships and move from being a trusted supplier of equipment,services and software toa transformational partner directly contributing to our customers long-term success.Tosupport this vision we have made great progress on leveling up our go-to-market model,developing scalable solutions and software,expanding fit-for-future capabilities,reinvestingrevenue to enable new business models,and establishing new partnerships.In 2021,Philips entered into many new customer partnerships,including the following:Philips and Spanish healthcare group Vithas signed a 5-year strategic agreement,which willallow Vithas Group hospitals and medical centers to benefit from Philips latest innovationsin diagnostic imaging technology,health informatics and equipment for minimally invasiveinterventional procedures.In Germany,Philips signed a 10-year partnership agreement with the BrandenburgUniversity Clinic.The agreement includes a wide range of integrated solutions along thehealth continuum.Furthermore,Philips will act as the general contractor for an extension tothe central operating rooms and cardiology department.As part of Philips 10-year partnership with Rutherford Health to open multiple CommunityDiagnostic Centers in England,the first center was opened in Taunton,for which Philipsprovided innovative diagnostic imaging systems,including Ingenia Ambition MR combinedwith Ambient Experience,which allows patients to control and personalize the imagingenvironment.In France,Philips and Rennes University Hospital signed a 5-year technology,research andinnovation partnership to advance patient care.The hospital will have access to Philipslatest technologies and informatics solutions to enhance the diagnosis,treatment,monitoring and management of patients.The multi-year strategic partnership willaccelerate clinical research focused on image-guided minimally invasive therapy,neurology,intensive care units and digital pathology.3.5.3 Strategy and Businesses24In the Netherlands,Philips signed a 12-year strategic partnership with IJsselland Hospital,focusing on innovation,digitalization and optimization of care delivery,which also includesthe delivery of patient monitoring and imaging solutions,including CT and MRI systems.In Russia,Philips won several key projects,including one at Moscow City HealthcareDepartment for ultrasound systems,including lifetime service support for local clinics.Thecompany also concluded a turnkey project for Sakha Republic(Yakutia),equipping theregional hospitals cardiology and oncology departments with,among others,our Azurion 7image-guided therapy solution,MR Ingenia Ambition imaging system,and IntelliSpaceCritical Care and Anesthesia informatics system.In Poland,Philips delivered 15 systems from across the total Azurion portfolio to empowerdoctors serving patients needs in the area of interventional cardiology,electrophysiology(EP),neuroradiology and hybrid solutions.In Latin America,Philips signed a strategic agreement with UnitedHealth Group,comprisinga comprehensive portfolio of Diagnostic Imaging,Image Guided Therapy and CustomerServices solutions and a turnkey solution for the renovation of 12 sites in Brazil.Under thisagreement,the customer will have access to leading-edge technology,enabling them todedicate more time to their patients.In Mexico,Philips worked with Digipath to establishthe first digital pathology laboratory in the country,with Philips IntelliSite PathologySolution enhancing productivity and supporting precision medicine and diagnostics.Philips,together with the Saudi Data and Artificial Intelligence Authority(SDAIA),openedthe first AI lab in the Kingdom of Saudi Arabia in October 2021.The Riyadh-based center willspearhead research and development of AI programs and standards to boost the use of AI inthe healthcare technology sector,and build an ecosystem of highly skilled AI experts inSaudi Arabia.Supply chain and procurement3.6Supply chain3.6.1Philips runs an Integrated Supply Chain,which encompasses supplier selection andmanagement through procurement,manufacturing across all the industrial sites,logisticsand warehousing operations,as well as demand/supply orchestration.When selecting andevaluating partners,we consider not only business metrics such as cost,quality and on-timedelivery performance,but also environmental,social and governance factors.We usesupplier classification models to identify critical suppliers,including those supplyingmaterials,components and services that could influence the safety and performance of ourproducts and solutions.The COVID-19 pandemic has continued to test the resilience of supply chains globally.Philipshas not been immune to the increasing impact of issues,such as the shortage of electroniccomponents and logistical constraints.On the logistics front,we have established long-termcontracts with suppliers,ensuring increased reliability still not at pre-COVID-19 levels dueto ports congestion as well as secured costs and availability on contracted lanes.We havealso expanded our rail and road transportation options to diversify our routes.Forsemiconductors,we have placed non-cancellable orders for an 18-month horizon to ensureour place in the queues.At the same time,we have intensified spot buys and alternate partsqualifications in partnership with Research&Development.In parallel,we continue ouradvocacy towards the industry and governments on prioritizing supplies for life-savingequipment.Much like the rest of the industry,however,we remain exposed to suddenbreakouts of COVID-19 in various countries and among suppliers,which will continue tomake it difficult to predict developments through at least the first half of 2022.All of thesechallenges have reinforced our strategy for a more regional vs global approach to our end-to-end network design.Philips has continued to progress the consolidation of its manufacturing footprint intoversatile multi-modality manufacturing sites that produce multiple product categories andare located within or near the regions they serve.We do this for enhanced scale,efficiency,and customer proximity.While our site count has continued to decrease,the number oflocations equipped to make the same product is increasing.Philips is using its multi-modalitysites,in combination with contract manufacturing partners,to regionally multi-sourcemany of its products.This will increase the resilience of our supply chain to manage future,unplanned disruptions and ensure access to public healthcare investment where localrequirements exist in our largest markets.We have also made good progress on transforming our warehousing and distributionoperations into a more customer-centric and agile network that is more responsive tomarket volatility.In the last three years,we have reduced our warehousing footprint by 35%,essentially through consolidation and servicing of multiple businesses from a single location.3.6 Strategy and Businesses252021Western Europe31%North America33%Other mature geographies6%Total mature geographies70%Growth geographies30%Philips Group100%In 2021 we finalized the implementation of artificial intelligence and machine learning inour baseline demand forecasting operations for all our businesses in order to improvedemand forecasting accuracy and manage inventories more efficiently.We achieved animproved forecast accuracy for our Personal Health products of more than 20%in themarkets Europe,North America and Greater China.The other markets are in the earlyoperating phase.We have insourced the AI forecasting activities for our health systems andmedical devices portfolio from a third-party supplier and increased the baseline demandforecasting accuracy by 8%.In June 2021,our subsidiary,Philips Respironics,initiated a voluntary recall notification in theUnited States and field safety notice outside the United States for certain sleep andrespiratory care products to address identified potential health risks related to the polyester-based polyurethane(PE-PUR)sound abatement foam in these devices.Following thesubstantial ramp-up of its production,service and repair capacity in 2021,the repair andreplacement program in the United States and several other markets is under way.Production was trebled during the second half of 2021.Philips Respironics plans to furtherincrease production volumes during the first half of 2022,subject to availability of inputsand taking into account global semiconductor shortages.Supplier spend analysis per region in%Philips GroupProcurement3.6.2In 2021,strong economic recovery led to sustained high demand.Combined with low levelsof inventories and long lead times,this resulted in tightness and scarcity in many markets,aswell as volatile spot-market price environments.Under these circumstances,theProcurement functions priority was to endeavor to safeguard continuity of supply,withdedicated teams by modalities and types of commodities,so that Philips could continue toprovide critical healthcare equipment and solutions to our customers all over the world.Global manufacturing remained in catch-up mode throughout the year.In addition,supplychain bottlenecks and other incidents had direct significant impacts on the already tightmarkets.Many market risks were in play at the same time COVID-related delays in supplyramp-ups,the US chemical industry hit by weather storms,the blockage of the Suez Canal,the global shipping container shortage,the energy crisis in China,as well as problems on thegas market in Europe.Especially in the components area,capacity remained a major issue,causing shortages across all end-markets.Supplier sustainability3.6.3Philips purpose to improve peoples lives applies throughout our value chain.An importantarea of focus for the Integrated Supply Chain is sustainability,and we are actively workingon this together with our partners,whether these be component suppliers or energy orlogistics providers.Close cooperation with our suppliers not only helps us deliver healthtechnology innovations,it also supports new approaches that help us minimize ourenvironmental impact and maximize the social and economic value we create.Since 2003,our sustainability strategy has included dedicated supplier sustainabilityprograms.We have a direct(tier 1)business relationship with approximately 5,800 productand component suppliers and 18,000 service providers.In many cases,social issues deeper inour supply chain require us to intervene beyond tier 1 of the chain.We want to make a difference through sustainable supply management and responsiblesourcing.This is more than simply managing compliance it is about working together withour supply partners to have a positive and lasting impact.Therefore,the sustainabilityperformance of our suppliers is fully embedded in our procurement organization andstrategy.In 2021,we focused on further maximizing our positive impact on the supply chain,strengthening our maturity-based approach to drive continuous improvement.Through theSupplier Sustainability Performance program,we improved the lives of 430,000 workers inour supply chain(2020:302,000).We also launched new ways to engage our suppliers,performing deep-dives on human rights impacts and dedicated energy scans to identifycost-effective ways to decarbonize suppliers manufacturing environments.Managing our large and diverse supply chain in a socially and environmentally responsibleway requires a structured and innovative approach,while being transparent and engagingwith a wide variety of stakeholders.In 2021,our programs focused specifically on improvingsuppliers sustainability performance,responsible sourcing of minerals,and reducing theenvironmental footprint of our supply base by driving the adoption of science-basedtargets.Detailed information on our supplier sustainability programs is available in section Supplierindicators,starting on page 260 of this Annual Report.3.6.2 Strategy and Businesses26At a glanceFinancialperformanceEUR 17.2 billion sales12.0justed EBITA*)marginEUR 0.6 billion income from continuing operationsEUR 1.6 billion operating cash flowDomestic Appliances divestment completed with EUR2.5 billion gain after taxEUR 0.7 billion field action provision made for the PhilipsRespironics repair and replacement program2019 share buyback program completed*)Non-IFRS financial measure.For the definition and reconciliation of the mostdirectly comparable IFRS measure,refer to Reconciliation of non-IFRS information,starting on page 225.4 Financial performance27Financial performance4Abhijit Bhattacharya CFO Royal Philips2021 was a mixed year for Philips,with the Diagnosis&Treatment and Personal Health businesses performingwell above plan,while the Connected Care segment was impacted by the Respironics recall.The first half of theyear started strongly,with the second half being impacted by supply chain headwinds.Demand for our productsand solutions remained strong as we ended the year with our highest-ever order book,18ove 2020.Lookingahead,I am positive about our ability to drive growth and margin improvement.”“Performance review4.1The year 20212021 saw strong growth in orders and sales in the Diagnosis&Treatment and PersonalHealth segments,with a decline in Connected Care following the extraordinary growthin 2020 and the impact of the Philips Respironics voluntary recall notification.Increases incomponent and transportation costs,along with shortages of key components due tocapacity constraints and delays in transport routes,impacted Philips sales andprofitability.Sales amounted to EUR 17.2 billion,a decline of 1%on a nominal and comparable basis.Comparable sales growth*)in the Diagnosis&Treatment businesses was 8%and in thePersonal Health businesses 9%on a comparable basis.However,this was more thanoffset by a 23cline in the Connected Care businesses.This was largely due to theRespironics recall but also the high comparable base in 2020.Nevertheless,we ended theyear with our highest-ever order book,18ove 2020.In Q3 2021,Philips completed the divestment of Domestic Appliances as planned,resulting in a EUR 2.5 billion gain after tax and transaction-related costs;reported inDiscontinued Operations.Net income amounted to EUR 3.3 billion,an increase of EUR 2.1 billion compared to 2020,mainly driven by the gain on the sale of the Domestic Appliances business.Net income isnot allocated to segments,as certain income and expense line items are recorded on acentralized basis.Adjusted EBITA*)amounted to EUR 2.1 billion,or 12.0%of sales.Productivity programsdelivered annual savings of approximately EUR 279 million.This included approximatelyEUR 140 million procurement savings,led by the Design for Excellence(DfX)program,and approximately EUR 139 million savings from other productivity programs.While theDiagnosis&Treatment and Personal Health businesses delivered improved profitexpansion,the Connected Care businesses showed a decline in Adjusted EBITA*)margin,primarily due to the decline in sales and the impact of the Philips Respironics voluntaryrecall notification in the Sleep&Respiratory Care business.Operating cash flow amounted to EUR 1.6 billion,and Free cash flow*)amounted to EUR0.9 billion.In 2021,Philips completed the acquisitions of BioTelemetry and Capsule Technologies,which we believe will further drive our transformation into a solutions company and,inparticular,further strengthen our position to improve patient care across care settings formultiple diseases and medical conditions.In June 2021,our subsidiary,Philips Respironics,initiated a voluntary recall notification inthe United States and field safety notice outside the United States for certain sleep andrespiratory care products related to the polyester-based polyurethane(PE-PUR)soundabatement foam in these devices.Following the substantial ramp-up of its production,service and repair capacity in 2021,the repair and replacement program in the UnitedStates and several other markets is under way.We recognized a field action provision ofEUR 0.7 billion to cover the costs of the recall.We expect to resume our growth and margin expansion trajectory in the course of 2022,however,we continue to see volatility and headwinds related to COVID and
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Synthesio: Decoding Internet Fashion - 20 Aesthetics in 2023 (English version) (12 pages).pdf
DECODING INTERNET FASHION:20 AESTHETICS FOR 2023 A Synthesio ReportAuthors:Emma Huff and Aurore Legentil Social media has disrupted the fashion industry in more ways than one.Apps like Instagram,TikTok,and Reddit have given rise to thousands of subcultures and cultural aesthetics around the globe.Theyve also put the power of determining whats hot and whats not in the hands of consumers,rather than brands or fashion houses.Influencers and celebrities are now the ultimate brand ambassadors(and critics)and trendsetters and consumers embrace and abandon new trends faster than most brands can keep up with.In recent years,countless styles have emerged and taken hold thanks to the internet.On TikTok and Instagram,weve seen the resurgence of old aesthetics like Vintage and Y2K,and the birth of entirely new ones like Kidcore and Light Academia.For brands in the fashion,retail,and luxury spaces,tapping into social media is critical for staying relevant.While keeping up with so many“corners of the internet”can seem impossible,social intelligence and AI-powered tools like Topic Modeling allow us to track and analyze millions of data points to identify how consumers really feel,behave,and act.In this report,we explore 20 of top internet aesthetics and the social context behind each one.We used Synthesios AI-enabled consumer intelligence platform to collect global,English-only mentions related to each aesthetic.2SOCIAL MEDIAS IMPACT ON FASHION TRENDS AND STYLESaesthetics around the globe.”rise to thousands of subcultures and cultural“Apps like Instagram,TikTok,and Reddit have given3Across the social media sites,blogs,and online communities we track,conversations about popular fashion aesthetics have