If you haven't read the thousands of pages of the current Senate-proposed version of the Patient Protection and Affordable Care Act (that's the formal name of the proposed healthcare reform bill), you might be surprised by the kinds of opportunities that are available for businesses.  This commentary may be a bit premature given that a bill has not been passed, but because the Senate-proposed bill is currently forming the basis for congressional debates, it could become relevant to businesses very soon.

Everyone knows that the bill would require universal health insurance and impose a broad range of new requirements on the healthcare industry.  In addition, the bill has a variety of grants and opportunities it makes available to businesses both within and outside the traditional healthcare field. 

There are numerous grant opportunities for states, and in many cases, the state can allocate funds through a bidding process.  Traditional healthcare organizations such as hospitals are eligible for a large number of grants and funded study and training projects.  Nonprofits have a number of opportunities available, too.  And colleges and universities also can take advantage of a wide range of potential grant and award programs.  Funds are also available for other businesses, such as grants to implement comprehensive workplace wellness programs or contracts to establish Web sites.

It will be an interesting road to see what happens to healthcare reform in the next weeks and months.  We will keep you posted on the funding opportunities that might be available for your business.

According to a recent survey of middle market companies in the southeastern United States, there may be a bit of a debt maturity crisis approaching.  AlixPartners conducted a study of 142 companies and found that there is approximately $6.3 billion in debt scheduled to mature in 2010.  In 2009, those companies had overall debt of $64 billion but generated revenue of only $59 billion.  This, along with a general shortage of working capital within the companies, points to a strong need for credit availability this year.

Now, we all know that the credit markets have opened up a bit.  Both 2009 and early 2010 have certainly been better than 2008.  However, they haven't opened up that much.  As a result, working capital management will be more important than ever as companies try to weather this storm.  According to the AlixPartners study, companies included in the study had only 8.9 days in working capital coverage.  The study stated, "Like the old saying goes, 'cash is king' – and both generating and husbanding cash through all means possible is going to be key for companies in this region this year, starting with having cash for debt service.  That's the only way to make sure this debt powder keg doesn't turn into a bomb."

I guess my upcoming presentation on Climate Change Disclosures for the University of Kentucky College of Law Securities Law Conference this Friday, February 5, 2010, is more timely than I could have anticipated. While not opining on the science of climate change, the Securities and Exchange Commission (SEC) issued interpretive guidance (guidance) Tuesday, February 2, 2010, on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.  Proxy activism, investors interest on the impact of climate change on their investments, and the recent regulatory and legislative developments prompted the SEC to recognize that, for some companies, these developments could have a "significant effect on operating and financial decisions, including those involving capital expenditures to reduce emissions and, for companies subject to 'cap and trade' laws, expenses relating to purchasing allowances where reduction targets cannot be met."  The SEC noted that even companies that may not be directly affected by these developments could be indirectly affected as prices change for goods and services. Given this diverse and shifting regulatory landscape, what's a reporting company to do?  The intent of the guidance is to provide the reporting roadmap. The guidance does not change the landscape and notes specifically that a number of SEC rules and regulations may be the source of disclosure obligations for registrants under the federal securities laws.  However, the guidance identifies topics that are some of the ways climate change may trigger disclosures required by those rules and regulations:

• Impact of legislation and regulation - Developments in federal and state legislation and regulation regarding climate change, and provisions which relate to greenhouse gas emissions, may trigger disclosure of material estimated capital expenditures and specific risks registrants face as a result of the changes. The guidance advises registrants to "consider specific risks they face as a result of climate change legislation and avoid generic risk factor disclosure that could apply to any company."
   
• International Accords - Consider and disclose, when material, the impact on a registrant's business of treaties and international accords relating to climate change.
   
• Indirect consequences of regulation or business trends - Think increased or decreased demands for goods, services, products and energy sources depending on their greenhouse gas emissions. The guidance directs a registrant to assess its business and its sensitivity to public opinion.  A registrant may have to consider whether the public's perception of any publicly available data, relating to its greenhouse gas emissions, could expose it to potential adverse consequences on its business operation or financial condition resulting from reputational damage.
   
• Physical impacts of climate change - How do the physical impacts of climate change, (such as effects on the severity of weather [floods, hurricanes] or sea levels, arability of farmland or water availability or quality) affect a registrant's operations and results?  Registrations whose businesses may be vulnerable to severe weather or climate related events should consider disclosing material risks of, or consequences from, such events in their publicly filed disclosure documents.

See http://www.sec.gov/rules/interp/2010/33-9106.pdf for the text of the guidance.

The U.S. Department of Agriculture (USDA) made two announcements in recent days from Copenhagen, Denmark as the United States and delegates from 191 other countries meet at the United Nations Climate Summit. Secretary of Agriculture Tom Vilsack released a USDA report outlining the agency's calculated impact of climate change on U.S. ecosystems. "The Effects of Climate Change on U.S. Ecosystems" report concludes that climate change affects U.S. agriculture, land resources, water resources and biodiversity and describes in some detail more specific projected impacts on grain and oilseed crops, horticultural crops, and livestock, among others. Vilsack referenced carbon offset markets as a means to help the country become energy independent, to reduce greenhouse gas emissions and to create income generating opportunities for rural America. USDA's analysis of the climate change legislation passed by the U.S. House of Representatives shows it provides a net gain for farmers and ranchers, with revenue from a carbon offset market offsetting increased farm expenses.

A complete copy of the report is available at the following link: http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?contentidonly=true&contentid=2009/12/0611.xml.

Over the last several months, many of the leading agriculture commodity organizations have challenged this specific analysis by USDA, arguing the costs to farmers and ranchers far outweigh the calculated revenue from carbon markets. Today, though, USDA announced a unique partnership with U.S. dairy producers who have agreed to accelerate their adoption of waste to energy technology projects. The Memorandum of Understanding, signed by Dairy Management Inc.'s Innovation Center for U.S. Dairy and USDA, committed the industry to reach a 25 percent reduction in greenhouse gas emissions by 2020. The partners will increase the number of anaerobic digesters (which convert manure into electricity) supported by USDA programs and also encourage research and development of new technologies.

The U.S. Department of Agriculture (USDA) made two announcements in recent days from Copenhagen, Denmark as the United States and delegates from 191 other countries meet at the United Nations Climate Summit. Secretary of Agriculture Tom Vilsack released a USDA report outlining the agency's calculated impact of climate change on U.S. ecosystems. "The Effects of Climate Change on U.S. Ecosystems" report concludes that climate change affects U.S. agriculture, land resources, water resources and biodiversity and describes in some detail more specific projected impacts on grain and oilseed crops, horticultural crops, and livestock, among others. Vilsack referenced carbon offset markets as a means to help the country become energy independent, to reduce greenhouse gas emissions and to create income generating opportunities for rural America. USDA's analysis of the climate change legislation passed by the U.S. House of Representatives shows it provides a net gain for farmers and ranchers, with revenue from a carbon offset market offsetting increased farm expenses.

A complete copy of the report is available at the following link: http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?contentidonly=true&contentid=2009/12/0611.xml.

Over the last several months, many of the leading agriculture commodity organizations have challenged this specific analysis by USDA, arguing the costs to farmers and ranchers far outweigh the calculated revenue from carbon markets. Today, though, USDA announced a unique partnership with U.S. dairy producers who have agreed to accelerate their adoption of waste to energy technology projects. The Memorandum of Understanding, signed by Dairy Management Inc.'s Innovation Center for U.S. Dairy and USDA, committed the industry to reach a 25 percent reduction in greenhouse gas emissions by 2020. The partners will increase the number of anaerobic digesters (which convert manure into electricity) supported by USDA programs and also encourage research and development of new technologies.

Just days before the United Nations Climate Change Conference in Copenhagen, Denmark, the U.S. Patent and Trademark Office (USPTO) initiated the Green Technology Pilot Program on December 8, 2009 to expedite the examination of "green technology" patent applications. By offering the program, the USPTO hopes to accelerate the development and deployment of green technologies, help create green jobs, and promote U.S. competitiveness in the clean technology sector. In the press release announcing the Pilot Program, the Under Secretary of Commerce for Intellectual Property and Director of the USPTO, David Kappos explained "Every day an important green tech innovation is hindered from coming to market is another day we harm our planet and another day lost in creating green businesses and green jobs."

According to its own statistics, the USPTO takes on average 30 months to issue an initial office action for green technology patent applications and approximately 40 months to make a final determination on the patentability of such applications. In the normal process, applications are taken up for examination based on their filing date. Recognizing that over a three and half year wait is too long in the green technology sector, the Pilot Program provides a mechanism for green technology patent applications to be advanced, out of turn, to examination without having to pay any additional fees or provide any additional examination support documentation. The USPTO estimates that this Pilot Program will reduce the examination time of these applications on average by one year.

The Pilot Program broadly defines the term "green technologies" as technologies that pertain to environmental quality, energy conservation, development of renewable energy resources, or greenhouse gas emission reduction. Despite this broad definition, the USPTO currently requires that a patent application be classified in one of 79 specific U.S. patent classifications outlined in the Pilot Program to be eligible.

The Pilot Program only applies to non-provisional utility applications filed prior to December 8, 2009 that have yet to be examined. Applications that are either filed after December 8, 2009 or already being examined are not eligible for the Pilot Program. The Pilot Program is set to expire on December 8, 2010 and the USPTO only guarantees that it will accept the first 3,000 petitions to make an application special under the Pilot Program. Thereafter, the USPTO will evaluate whether the Pilot Program should be extended based on the USPTO's workload and available resources. Thus, time is of the essence for those wanting to take advantage of the Pilot Program.

While there are limitations on the number and type of claims that can be included in the application and a requirement that an applicant waive its right to object to a restriction requirement, the Pilot Program does provide an inexpensive mechanism to expedite the examination of a green tech patent application. Such an expedited examination can prove beneficial to those looking to enforce their patent rights as quickly as possible and/or those looking for funding options.

The Official Notice of the Pilot Program can be found at 74 Fed. Reg. 64666 (Dec. 8, 2009) (See http://www.uspto.gov/patents/law/notices/74fr64666.pdf ) and the USPTO Press Release for the Pilot program can be found at www.uspto.gov/news/pr/2009/09_33.jsp.

If you have questions about the Green Technology Pilot Program, you can contact Alex Forman or Bill Lyon, members of Ice Miller's Intellectual Property Group.

Saying "[w]ith respect to climate pollution, we will act," and that "[t]he Clean Air Act does in fact allow us to do so" Administrator Jackson today announced that greenhouse gases threaten the public health and welfare of the American people.
 
Administrator Jackson indicated at the press briefing that the agency's intention with regards to the finding was to "release the science and reduce the questions." Stressing that "we'll continue to work under the Clean Air Act" Administrator Jackson also stated that the agency is "compelled" to address climate change pollution.
 
She fielded questions on the legislative timeline and agenda and stressed that EPA's and the legislative initiatives are independent.  Administrator Jackson did emphasize that the agency would move forward with work that the EPA had planned, and that there is no reason to delay.  A common question at the briefing was what EPA's timeline is on additional rules for stationery sources and additional rulemaking for reductions in light of the greenhouse gas reporting rule. Administrator Jackson said that there was no timeline for the next rules on emissions, including next steps on the tailoring rule, and stated that "I have no additional information on timelines." 
 
So why issue this rule now, and not concurrent with the transportation rule?  She stressed again that this is a unique situation and responded that this finding itself was the subject of a U.S. Supreme Court Case and that they wanted to project the image that the "EPA is on the job and is about doing the job."  She said that they intend to "keep the ball moving."
 
The overall message from the press conference was, "with respect to climate pollution, we will act."

To view a full transcript of Administrator Jackson's remarks, click here.

Move over Sarah Palin. While "Going Rogue" may be the talk inside the beltway, there's a new book that has captured the attention of many on Wall Street: "The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis".  The author, Joshua Kosman, forebodes the possible collapse of many companies owned by private equity firms.  While it certainly isn't clear whether what Kosman's is prophesying about will in fact turn into a significant chapter in U.S. history books, it's an interesting read nonetheless.  A short excerpt on NPR can be found at:

http://www.npr.org/templates/story/story.php?storyId=120391729
 

Well, there are a number of things going on relating to the election of public company directors, but the most significant is the recent amendment of Rule 452.  The SEC adopted that amendment effective for director elections at annual meetings after January 1, 2010.  The new rule eliminates broker discretionary voting authority on the election of directors.  In other words, your broker will no longer be able to vote your shares for you in a director election. 

What does that mean in the case of your everyday retail shareholder (i.e., you or me individually)?  It means that if we do not respond to proxy materials received from the company (if, for example, they end up in the round file), the shares will not be voted at all.  This could affect the ability of public companies to get their directors elected even if there is no substantive reason that they should not be.

The companies most likely to be affected by this rule are the smaller cap companies that tend to have a large retail shareholder base.  In the case of companies with a large number of institutional investors, it will generally be easier to get a response from those shareholders.  Institutional investors tend to vote their shares on their own, although they often follow the recommendations of Risk Metrics, Glass Lewis or other institutional shareholder services organizations.  But, retail shareholders often do not vote on their own.  This could cause smaller cap companies to spend time and resources to prepare follow-up mailings or make phone calls to investors.

It will be interesting to see how this amendment to Rule 452 affects director elections starting in 2010.  Hopefully, as the SEC and other regulators consider some larger issues relating to shareholder voting (e.g., proxy logistics, proxy access and other shareholders' rights), a comprehensive system that considers all the current issues will be implemented.

A recent edition of PitchBook News Private Equity: Basic Edition cited a decrease in 2009 in exits from private equity investments through sales to other private equity firms.  The article stated that these secondary sales are down approximately 22 percent from their levels in 2005 through 2007.  In 2008, many private equity exits took the form of sales to strategic buyers.  In 2009, IPOs increased by approximately 19 percent, according to the article. 

So what does this mean?  Late 2007 saw the beginning of the current economic crisis and, in that time, it appears that private equity firms continued to feel confident in investing their money.  In many cases, they did so by buying out other private equity firms. 

In 2008, when it became clear that the economic crisis would not be short-lived or minor, strategic buyers became the most obvious source for private equity liquidity.  Strategic buyers saw opportunities to enhance their businesses through the synergies offered by private equity portfolio companies.  In addition, valuations were very low:  the perfect formula for strategic acquisitions.

In the later parts of 2009, we have seen the public equity markets bounce back significantly.  Instead of shying away from the public markets' previously unequaled volatility and sharp decreases in value, private equity firms looking for an exit option seem to have again turned their focus to the IPO as a possible exit strategy. 

Hopefully, markets will continue to stabilize, valuations will become more reliable and private equity firms will invest some of the money they are currently holding.  If all these things happen, we can hope to see a return of multiple options for private equity exit strategies.
 

Some studies suggest that the answer is  yes!  In a recent study, the Preqin Research Report Private Equity Investor Survey August 2009, many limited partners (LPs) investing in private equity funds reported that the balance of power in negotiations between the funds general partners (GPs) and the LP's had shifted in favor of the LPs.  In fact, according to the Preqin report, in April 2009, 27 percent of investors thought they had greater negotiating power.  Three months later, in July 2009, 55 percent of investors interviewed by Preqin believed they had greater negotiating power.

Why would that be?  Certainly, one of the reasons is that levels of LP investment have fallen significantly from previous years.  According to the Preqin report, private equity funds raised $194.5 billion in the first quarter of 2008, while they raised only $64 billion in the first quarter of 2009.  The GPs have to compete for the limited LP funds that are actually being invested now.  One of the ways to do that is to offer LPs more favorable terms.

So, cash-rich LPs appear to be returning to the market.  Private equity fundraising has already begun to improve in 2009.  According to the Preqin report, $79.7 billion was raised by private equity funds in the second quarter of 2009 as compared to $64 billion in the first quarter of 2009.

Last evening we had dinner with government officials and business leaders that combined traditional American and Japanese food with Japanese entertainment.  The music was played from ancient instruments and the dancing was beautiful.

I've mentioned in previous posts that the Japanese put a lot of value on cleanliness and organization.  There is no trash in the streets.  The children wear uniforms and walk in very straight lines.  This emphasis even crosses over to their taxicabs.  Cabs have crocheted linens over seats, the drivers wear white gloves and there is special carpet installed.

Today was the closing of the Midwest U.S.-Japan Association and Japan-Midwest U.S. Association Conference.  Part of this day consisted of a panel discussion that included:

• Takehiko Kiyohara, Chairman and CEO, The Sankei Shimbun
• Katsuaki Watanabe, Vice Chairman, Toyota Motor Corporation
• James Mueller, Vice President – Pacific, United Airlines-Japan
• Katsunari Yamaguchi, Ph.D/CMA, President, Ibboton Associates Japan, Inc. a Morningstar company

Two of my fellow delegates, Jeff Knight at Old National Bank and Kevin Kelly with the city of Noblesville, made interesting observations regarding the panel discussion.

Comments from Jeff Knight, Old National Bank
The first speaker, Takehiko Kiyohara, is in the newspaper business.  His primary point of concern was the declining populations in the Asian markets (China, India and Japan) and the impact that will have on the economy.  He indicated that in Japan, by 2055 the Japanese populations will be 20-30 percent less than what it is today; losing about 1 million in population per year.   There have been several proposals to address this issue which are:

• The current government has proposed that each family receive approximately $300 per month per child.
• Raise retirement age from 60 to 70 years old.

James Muller from Pacific, United Airlines-Japan spoke about the difficulties of the airlines in the past 10 years.  He underlined the importance of the Asian market to United Airlines and keeping good customers and clients.  United Airlines designs programs to keep high paying first class business customers.

Katsuaki Watanabe from Toyota Motor Corporation addressed environmental concerns and talked about the Kyoto Protocol, which Japan signed.  India and China produce 50 percent of the carbon emissions in the world and environmental concerns need to be taken seriously.  Toyota hopes to refine the new technology on the hybrid batteries a market in which they currently have a competitive advantage.  Toyota has sold more than 2 million units with the goal of selling more so we can all breath cleaner healthier air.

Overall, one of the most significant things we learned was the importance of mingling the culture with business.  This is particularly true in China.  The trip was very positive and important for Indiana and our businesses.

Comments from Kevin Kelly, City of Noblesville
It's been a wonderful trip for the Indiana delegation.  We went to both China and Japan in order to help establish new relationships between the state and Chinese and Japanese companies.  Perhaps more importantly, we came to cement and strengthen existing relationships.  Indiana is a leading state for foreign direct investments from Japan and we're trying to be a leading state with China as well.

The state's history with Japan goes back over 30 years.  The Chinese initiative is much newer and under Daniels leadership a new emphasis has been placed on building relationships in China.

All the delegates feel it's been a productive 12 days.  Some are staying on to continue building their own relationships at the community and company level.  I am proud to have had the opportunity to participate in this trade mission.

Closing Comments from Melissa Proffitt Reese
Something that stands out for me regarding the entire trip is that the governor's efforts are really, after five years, starting to be recognized, especially in Japan.

The fact that Daniels' leadership is being recognized on the national level has helped, especially in China.  Some of the events, especially the banquets, happened because of the governor's prominence.  The Chinese view him as someone they want to partner with especially if he does something more like run for president (despite what he says).  Even though he says "no" he's being recognized.  He had an article run in the Wall Street Journal that was reprinted in the Asian Wall Street Journal while we were in China.  They see he is a man of great respect in America and that's helped him receive much respect in Asia.

The governor has spent a lot of time building Japanese relationships and understands the value of these relationships goes a long way.  The timing is right for these relationships in China also.

Tomorrow we head home, tired and very excited.  The future is bright.

Japan is the world's second-largest economy.  Their gross domestic product was over $4.8 trillion in 2008.  As I mentioned in a previous post, Japan is expanding ties with other countries in Asia to help diversify their economic relations with the U.S. and Europe, although those ties are still strong.  Because the Japanese-American relationship has such a large technological and economic impact on the world, they cooperate on a broad range of global issues, including development assistance, combating communicable diseases and protecting the environment and natural resources.  Both countries also have strong collaboration in science and technology.

Japan is slightly smaller than the state of California and about 73 percent of the country is mountainous.  Because there isn't much flat land, many hills and mountainsides are cultivated all the way to the summits.  Their agriculture consists of rice, vegetables, fruit, milk, meat, silk and fish.  Japan is an urban society with only about 4 percent of the labor force engaged in agriculture.

The agricultural economy is highly subsidized and protected.  Japan has few natural resources, fish being their primary natural resource, and trade helps it earn the foreign exchange needed to purchase raw materials for its economy.  Japan is the largest foreign market for U.S. agricultural products, with total agricultural exports valued at over $10 billion in 2007.

Japan's population, over 127 million, has slowed due to falling birth rates.  In 2005, Japan's population declined for the first time.

Japan is a major market for many U.S. products, including chemicals, pharmaceuticals, films and music, commercial aircraft, nonferrous metals, plastics and medical and scientific supplies.

Day 8 - Monday, September 14
We attended the opening ceremony of the Midwest U.S.–Japan Association Conference.  Mitch Daniels is one of three U.S. governors who is attending this conference.  Governor Jennifer Granholm of Michigan and Governor Jim Doyle of Wisconsin are in attendance as well.  There are four Japanese governors participating.

Several members of the delegation were able to meet privately with a representative from Sony.  He discussed that Sony's top issues right now are quality and the environment.  He also discussed the increased need for universities and businesses to collaborate more; specifically pointing out excellent programs at Purdue and Rose-Hulman that would be of importance to Sony.  This representative is happy with their Indiana connections and feels that Indiana strives to keep the costs of conducting business in the state low.

Overall, Japanese business leaders are looking to expand relationships throughout Asia and not rely so heavily on the U.S. and Europe  The current economic conditions that the U.S. and Europe are facing have impacted Japan because of their market presence.

Over the weekend Governor Daniels announced that beginning in 2010 the Indiana State Fair will feature a different country each year.  Japan will be the first country featured.  Japanese exhibits will include performing arts, cuisine, interactive displays and educational opportunities.

Day 7 – Sunday, September 13
Today was the first opportunity the delegates had to do some sightseeing on their own.  Some of the delegates visited Japanese shrines but I decided to do a bit of shopping in the "fashion capital of the world!" 

The Ginza District of Japan features many of the world's best designer shops as well as smaller shops featuring hand painted stationery, paper, umbrellas and fans.  The Japanese culture emphasizes order and cleanliness.  For example, you must take your shoes off when entering a dressing room and put a cloth over your face to protect the clothes.  On escalators, you hear instructions on which side to stand and reminders to hold small toddlers.

This emphasis on order and cleanliness even translates to their public restrooms.  The toilet seats in public restrooms are heated and all the restrooms have bidets.  Restrooms are easy to find and are on located on every floor.  There is a special deodorizing spray and you hear a continuous flushing sound to protect your privacy. 

In Japan you'll find that many stores have a lot of customer service representatives to assist you. In one small section of a department store I found 3-4 representatives designated to help customers in just that one section.

The Japanese stores tend to only carry three sizes: small, medium and large.  In America, I usually wear an extra small but in Japan I'm a medium. Most of the Japanese women are very slender and all are about the same height.  You'll find very little obesity among the Japanese.

Today's weather, beautiful, clear and in the mid-70s (similar to our Fall), gave me an opportunity to observe interesting aspects of the Japanese culture.  Even in the summer many Japanese wear boots.  As in China, pale skin is preferred and many of the women carry umbrellas.  Japanese society is very disciplined.  The city streets are clean and people don’t dress as casually as they do in the U.S.  For example, you don't find many people wearing flip-flops.

Sunday Evening
In the evening we attended the gala reception for the Midwest U.S.-Japan Association Conference in Tokyo.   For nearly three decades, business leaders from the Midwest region of the U.S. and Japan have met on an annual basis to discuss the growth and progress of economic relations of the American Midwest and Japan.  The Midwest U.S.-Japan Association is comprised of ten member states including Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, Ohio and Wisconsin.   Membership in the Japan-Midwest U.S. Association is comprised of corporations that have direct economic ties to Japan or are interested in developing them.  The association has some 100 corporate members including Toyota Motors, Mitsui & Co., Saison Group, Sumitomo Chemical, Kajima Corporation, and Sony.  The associations reinforce the economic, political and cultural ties that link the national economy of Japan with the regional economy of the Midwest.

Day 6 – Saturday, September 12
We traveled by bullet train to Tochigi Prefecture, Indiana's sister-state in Japan.  The bullet train was very comfortable and is an extremely efficient mode of transportation for the Japanese.  The train is low energy, low noise, seats a very high capacity of passengers and is easy to maintain.  The Japanese culture emphasizes order and you see that in their transit system.  Their average delay is less than one minute.  Everything is on time and there are no last minute changes.  Seventy-two percent of transportation is done on these bullet trains in Tokyo central and 56 percent in metro Japan.

When we arrived we attended a ceremony to celebrate the 10th anniversary of the sister-state agreement by planting a tulip tree, the official state tree of Indiana, in the central park of Tochigi.  This park is beautiful with many fountains and tulip trees.  The Japanese mentioned that the relationship between Tochigi and Indiana was fate.  Tulip trees were planted in this park 15 years before we became sister states and they feel there is strong significance in the fact that the tulip tree is Indiana's state tree.  These goodwill gestures were further endorsed by the fact that it was a rainy afternoon, but the clouds broke just as the planting ceremony began.

After the tree planning ceremony, we attended the 10th Anniversary Commemorative Symposium at the Tobu Hotel.  Over 100 Japanese government and business leaders attended this event.  Governor Fukuda, the governor of the Tochigi Prefecture, expressed his appreciation and his view of the importance of the delegation coming to Japan.  Personal connections are very important to the Japanese and these face-to-face visits are crucial to successful relationships.

After thy symposium, we attended a reception for the Indiana delegation which was hosted by Fukuda.  We were able to witness the tradition of the "breaking of the barrel."  Six Japanese officials broke a barrel, filled with Saki, with wooden hammers.

An interesting observation that I've made is that many of the roofs in Japan are "green."  The tops of the buildings have grass, trees and bushes.  Not only is this great for their environment, but it is a way for the Japanese to have yards in an area that is highly populated.

Our trip to China was a big success.  It was important for Indiana leaders to visit this country face-to-face and show the sincere interest in enhancing and creating business ties.  The size and scope of the delegation seemed to go a long way in making an impact during our meetings.

An influential Chinese businessman still has a token of Governor Orr's trip to China over 20 years ago sitting on his desk.  It was the last trade mission trip an Indiana governor made to China.  The importance of Indiana making this trip again shouldn't be ignored.

In addition to the wealth of economic and business benefits we've been able to establish, I have truly enjoyed observing and participating in many aspects of the Chinese culture.  As I mentioned in a previous post, tea is one of the traditions I have enjoyed learning more about.  Every place we visited in China served us tea.

During this trip, we were able to visit a vineyard-like grower of tea.  You can buy tea, taste tea, shop for anything tea related from tea pillows, to tea candy and tea marshmallows.  Anything you want in tea, they sell.

There are many aspects of the tradition of Chinese tea.  Some that I found especially interesting are:
• It takes eight hours to make two pounds of tea leaves.
• The entire procedure must be done by hand; no machines.  The Chinese believe the only way to make things well is by hand.
• If you have too much tea that is too strong, you can get "tea drunk," which is similar to alcohol drunk, where you can get a headache, a stomachache and generally don't feel very well.
• They have a tea ceremony similar to wine, where you shake it and smell it.
• There is a special way to hold your cup when you're drinking tea.  You hold the cup with your right hand and put your left hand under the bottom of the cup. 
• China does not export their highest quality tea because there's not much of it and it's incredibly expensive. 

Three common types of tea are black tea (where the tea leaves are totally fermented), green tea (where the tea leaves are not fermented at all) and oolong (which is semi-fermented).  All three have different tea plants and fermentation processes. White tea is a special variety of unfermented green tea.  Chamomile tea is considered an herb, it is not a tea.  You serve different teas at different times.  For example, black tea is in the morning and green tea is after eating.

Green tea is very low in caffeine; black tea has eight times more caffeine than green tea.  You can tell good tea by the color of the leaves and the size of the leaves.  The lighter the color and younger the leaves the better the tea.  Also, the smaller the leaves and stronger the smell the better the tea.

We were able to participate in a tasting.  They put a few tea leaves in our glasses, added a tiny bit of water, we smelled it and then swirled it around in the glass.  They then added additional water.  When they pour the water into the tea glass, the woman pouring the tea flicks her wrist three different times, very high up above the glass.  If she doesn't spill a drop of water it means you are warmly welcomed.

A very common way of saying "thank you" in Chinese tea ceremonies, business matters and in the general culture is to take your forefinger and your middle finger and hit them against the table three times. 

The Chinese don't put milk in their tea.  Milk is only for English tea, because English tea is bitter.  Green tea should be served hot or room temperature.  To slurp your tea is completely unacceptable and if you do slurp you're called a "buffalo drinker."

Chinese tea is loose.  They don't use tea bags or a strainer, so you have to manipulate drinking the tea so as not to swallow the leaves.  They always have tops to the teacups to keep it warm and it's served with washcloths in order to wash your hands.  According to the Chinese, tea bags show the worst quality of tea.  It's considered tea dust.  They compared it to drinking instant coffee.

Today, we visited Zhejiang University and met with the president of the university, Yang Wei.  Zhejiang University has over 40,000 full time students at its five campuses.  In comparison, Indiana University (IU) has about 101,700 students on all 8 campuses; including 42,500 on the Bloomington campus.  There really isn't a school in China that's the size of our large universities, which is surprising considering their population.  We were at the largest campus and all of the campuses have names related to water.

Twenty-five percent of the people in China attend universities or technical colleges.  The government only spends money to educate the best and the brightest traditionally, although they're moving more toward private money paying for education.  Considering China has 1.3 billion people, the U.S. is behind in the number of students attending college.

Someone asked how students are accepted to these schools and we learned that students take a national entrance exam they must pass.  Students spend their entire last year of high school to prepare for this exam.  Zhejiang University gets a large portion of the top performing students.  The 2,700 students admitted this year to Zhejiang University were from the top 4,500 ranked students who applied to all colleges in China.  Meaning, of the top 4,500 students taking the national entrance exam, 2,700 of them went to Zhejiang University.

There are certain instances in which you can bypass this entrance exam to get into college.   They, for instance, can pick 500 students in specialty areas with special talents, such as students who are really excelling in language.  Also, high schools can recommend some of their very top students.

There were a lot of new buildings at Zhejiang University, including a new school for agriculture and life sciences.  This demonstrates their commitment to renewed energy and agriculture.  They also built a new indoor-outdoor stadium which was pretty fantastic. 

Yang, who has visited IU, spoke about the economics of the country and how its impacting the school.  He stated that Zhejiang University is looking at three main ingredients for economic growth: investment (which is doing well - it grew almost 30 percent in the last year); consumption (which is also doing well – it has increased about 15 percent); and import/export (which unfortunately has decreased about 15-20 percent over the last year).  The university wants to do more "internationalization," and by that they mean more international collaboration and also recruiting more international faculty. 

The research grants have increased dramatically since 1998 to 2008.  And patents have also greatly increased since 1998.  For the last three to fours years Zhejiang University has been the leader in the application of patents.  They have two different types of patents: invention patents and progress patents.  An important component of growing the number of patents is to train faculty on the importance of patents, and also the respect of having patents.

There are major reforms in place at Zhejiang University.   The first is dealing with their undergrad program.  In the past, they had 112 undergrad programs in 24 schools, and now they've put everything into just 6 categories.  They believe this allows students more time to develop their interests.  For the first two years they are exposed to a variety of classes because they take what we would consider "general studies" and in the last two years they focus on a specific area.  Each of the six different categories have different color t-shirts that the students wear so they can be easily identified.  This is obviously more ritualistic than in the U.S.

Another major reform in the university is that they've signed an agreement with the Hangzhou government to bring more investment and to grow the university in other regions.  They've added a national park and another university, and they're working to build campuses about the same size as the existing campus that we visited today in another location within the city. 

The university has a river on the main campus, and they're trying to connect the river to the main river locally, and then to the main river in Zhejiang.  This would allow a continual flow of water from the campus all the way up to Beijing. 

The university has a hospital system and a medical school on the main campus, which consists of seven affiliated hospitals and a staff of over 7,000.  The amount of money generated from the hospital system is significant; about $750 million in U.S. dollars.  This is approximately the same amount of revenue generated by the total university.  The university has joint research centers with other international universities, such as Singapore, Hong Kong, and the University of California. 

Important new initiatives the university is focusing on include sustainable energy, water pollution, e-service (which is a collaboration they have with IBM), social entrepreneurship (which includes a law school supported by a Taiwanese foundation), as well as a digital library which includes over 20 universities. 

Zhejiang University is in close collaboration with both Purdue and IU.  In fact, Zhejiang University has 16 students attending Purdue this year and they also have administrative staff that are going for training.  The Zhejiang University intends to double its student exchange in the next three years.  The majority of overseas students are language students.

In the afternoon, we attended a seminar dealing with investment and cooperation opportunities in Indiana for representatives of Chinese companies seeking to invest in the state.  There were over 84 participants at this seminar.

We also visited a "vineyard" for tea.  Tea is such a traditional drink in China that I'm going to go into more specifics in a later posting.

We ended the day at a banquet hosted by the governor of Zhejiang, Lu Zushan.

Tomorrow we are traveling to Japan and I look forward to learning about these very different Asian business and social cultures.

Wednesday, September 9, 2009 – Afternoon and Evening of Day 3

This afternoon we attended the launch of the Hangzhou hybrid transit buses motorized by Cummins Engines.  Cummins sold 95 hybrid buses to Hangzhou and to the Hangzhou Public Transit.  This is a tremendous step in Hangzhou utilizing a transit system that will provide energy savings, low emissions and high performance.  The Hangzhou officials stated the importance of having the launch on 9/9/09 because of the significance the number 9 plays in the Chinese society. 

In the evening we attended a banquet hosted by the party secretary of the Zhejiang province, Zhao Hongzhu, celebrating the 22nd anniversary of the sister-state agreement between Indiana and Zhejiang.  Former Governor Robert Orr signed a sister state agreement with Zhejiang in Indianapolis in 1987. 

In the U.S. these types of banquets would typically include a speech or comments given to the entire group.  In China, it is custom for the hosts to go around to each table to give toasts.  These toasts are the means by which business is conducted.  I mentioned these toasts in a previous post and I have learned during this trip the significance the Chinese place on them.  In China, it is not appropriate to decline a toast or drink.  It is a sign of your ability to stand behind your word and your product. 

During this banquet I was able to observe first hand the beautiful silk dresses that are associated with formal Chinese dress.  The banquet also included beautiful music from Chinese children and a wonderful 10 course meal.  The ceremony and presentation are very important to the Chinese.  The fact that our delegation was a strong representation of Indiana political, business and economic development leaders demonstrated a great deal of goodwill and our serious intent to build bridges, develop economic ties and conduct business together.  It was a very beautiful event and was genuinely and sincerely attended by all the parties. 

While I've been in China I've been able to observe and learn about many aspects of the Chinese culture.  I've noticed that many women carry umbrellas or parasols.  In this society it is desirable to be as pale as possible.  Chinese women don't understand why women in the U.S. go to tanning salons and sunbathe. 

I've also learned that the education system is similar to that in Japan.  Heavy emphasis is put into what we would consider primary education (K-12) and college is typically more of a technical training, like an Ivy Tech.

I've also had the fortune of learning that jade and pearls are very popular here.  And I have purchased a few tokens of these delights to bring home with me.