>>this week on world business... >>shaking off a shaky image, the progress made by the frontier market of syria. >>opportunity was limited, the law was very complicated for investors. >>it's now the world's second largest economy, but is home to few well known brands. so why do chinese companies still lack international recognition >>many, many companies want to sell products fast - but no service! it's a disaster for brands. because only if you have good service, you can give satisfaction to the consumer. so we need a partner. >>and making scents, the lab in switzerland which creates the smells sold around the world. >>there is a lot of technology, but to find

the right flavour is still a lot of guessing. >>hello and welcome. i'm raya abirached and this is world business, your weekly insight into the global business trends shaping our lives. over the last decade syria has undergone a series of fundamental internal changes. once a soviet style command economy, it is now attempting to embrace features of a western style, social market. as part of our occasional series looking at frontier markets we went to damascus to find out how far it has come.

>>reporter: damascus. the world's oldest, continuously, inhabited city. and, for most of the last fifty years, acity living under the discipline of a state controlled economy. >>kahale: opportunity was limited, the law was very complicated for investors. and that's why people who were coming abroad to work in syria - it was like bringing a ferrari and let it run away in a desert. >>reporter: a move to a more free market was first considered in the nineteen eighties but the discovery of oil meant the government could continue business as usual. that oil though is now running out. >>sukkar: with the running out of the oil money the economy is now being threatened by the shortage of that money so the urgency of reform became again very important. >>reporter: the government has reduced marginal taxes on companies from around 90 to under 30 per cent; reduced tariffs on foreign goods by up to fifty per cent and encouraged competition. it

has also relaxed exchange controls. >>mayaleh: there is another decision that allows foreign investors to transfer the full value of their investments abroad. they are also allowed to transfer out the interest and the profits they have made throughout their investment. >>reporter: perhaps the most visible manifestation of the changes is that middle and upper class syrians can nowshop in western style malls - an unimaginable concept just ten years ago. >>al aktaa: to have a mall, you need to have products to sell in it. there were a lot of products that were not allowed into the country. but now that we have a lot of products and there is a lot more demand in the market, we have started building shopping malls. >>reporter: one feature of living under a command economy was that the country's family businesses tended to operate in the informal economy. now the government wants them to legalise their status, but after so long on the fringes they are now often unwilling to comply with tax regulations. >>shallah:

these companies probably... their book value is perhaps no more than one per cent of their actual value therefore when you come out with a huge sum the first thing that faces them is the fact that will have to be subject to paying capital gains tax or income tax and they won't like it. >>reporter: the government's answer has been to declare an amnesty on the under declaration of income and profitand to offer businesses, if they go public, a basic tax rate of 14 per cent. that said there is still some suspicion among the country's businessmen. >>kahale: i believe this is a good movement from the government but the application is not yet convincing people to open their books 100% >>reporter: the most significant change has been to the country's financial system. private banks were first introduced in 2004 and have grown rapidly

since then. rateb shallah is chairman of the bank of syria and overseas. it began operations with just 19 employees. >>shallah: now we have twenty four branches in syria and our staff are now over 470 employees. >>reporter: foreign deposits have increased from $500 million in 2005 to more than four billion dollars. syrian deposits are up two and a half times and lending has increased by more than five times. syria also now has a stock exchange - albeit one with some cautious regulations on its activities. rateb shallahis also chairman of the new exchange. >>shallah: i would allow him to invest in whatever he likes provided he does not borrow to finance his purchaseand he will not be allowed to sell short what he does not own. >>reporter: one factor, though, affecting the country's potential is that it remains under us sanctions - preventing a more

complete integration into the global economy - although the governor of the central bank maintains their impact has been minimal. >>mayaleh: regardless of the pressure we've been under in the recent years, american pressure or any other pressure - from any direction - i would like to repeat that the syrian economy has remained strong and the syrian currency and its exchange rate has remained stable. >>reporter: you can see the new syria in the mixed use residential developments springing up outside damascus. fdi has risen from $400 million dollars in 2004 to $2.1 billion in 2008. while annual gdp growth, until the global crisis, was around five per cent. this year the projection is again for 5%. what the reforms have not yet achieved is a reduction in the country's high rates of poverty, particularly in the agricultural sector which makes up 25% of gdp.

they have also failed to create enough new jobs. >>sukkar: every year we have about three hundred thousand new entrants to the labour market and these new entrants are not being absorbed by the rate of growth that we are having at the present time, i think weneed about seven or eight per cent a rate of growth a year. >>reporter: corruption too, among all levels of society, is certainly holding back the economy. but the real challenge, according to economists such as abdulkader husrieh, is to tackle the country's government bureaucracy. >>husrieh: it needs of course first of all a paradigm shift in the thinking of the administrative apparatus in the system. >>reporter: there's no doubt that syria has changed but the government needs to step up its programme of reform - and bring the country's businessmen along with them. until that happens a more fundamental and longer lasting improvement in the country's economic fortunes will still be held up.

>>last year china overtook japan to become the world's second largest economy and is still growing at a blistering rate. but few chinese brands are well known internationally and domestic consumers aspire to foreign products. however that could be starting to change. >>reporter: the factory floor at one of china's best known clothing companies that few abroad have ever heard of. >>reporter: inner mongolia's erdos (pronounced ar-doss) cashmere is 30 years old. powered by a huge ad spend over the years, it commands 40 percent of the domestic soft woollens market. >>reporter: but this sector, with its safe and comfortable image, is under pressure from the influx of aspirational, edgy, foreign fashion brands. so erdos is on a mission - not just to create new lines, but to revamp its entire corporate image >>zhang:

we can make the changes to our products but our biggest hurdle is to make sure this product now is able to be sold at the right place where you can meet the right kind of consumer - so i think this project is probably the biggest hurdle we are overcoming. >>reporter: the project is branding - creating a clear, credible, emotional and motivational personality that differentiates a company from its competitors. the erdos overhaul - from visual identity, to store image and product range - is a huge undertaking as the company seeks international-style street-cred as a fashion house. >>mackie: in china, this is blue-sky thinking. for years, companies had a command economy mindset: produce bigslogans, spend huge sums on tv advertising and expect consumers to believe them. but dogged with quality and copycat problems, few firms have succeeded in developing the all-important intangible, emotional attachment to their products and services - at home and especially abroad.

>>reporter: consumer research firm millwardbrown, however, says corporate attitudes are now clearly changing - that pressure from abroad is forcing boardrooms to be more sophisticated. >>spencer: in the last few years especially, in the internal and domestic marketplace, competition has grown - a lot of multinational brands are starting to exploit distribution channels and move into lower tiercities. so as competition increases in china, it's more and more important for products and services to be able to differentiate themselves. >>reporter: that said, the chinese government still fails to adequately protect firms from well connected counterfeiters - and this seriously undermines a good brand. and even the more progressive chinese companies are burdened with the "made in china" stereotype: low paid factory workers, shoddy goods and poor environmental standards. an accusation that for many simply isn't fair. but it is a market reality - especially abroad, notably in countries with a critical, unforgiving press.

>>spencer: some countries, this hurdle might be more difficult to overcome than others. so, this might be the case in the us where the pet food scandals, the melamine scandals certainly generated very, very highattention in the press and in the media. >>reporter: the reality of the "made in china" curse isn't lost on aigo (pronounced eye-go) - a popular maker ofusb memory sticks, mp6 players and digital cameras. as an olympics and formula one sponsor, aigo enjoys a high profile in mainland china. but its chairman accepts that to be credible, globally, the bar for chinese companies is high - and so, until aigo has a strong overseas service network, he's holding-off on expanding abroad. >>jun: many, many companies want to sell products fast - but no service! it's a disaster for brands. because only if you have good service, you can give satisfaction to the consumer. so we need a partner. >>reporter:

chinese exporters like white goods maker haier (pronounced high-er) and beer maker tsingtao (pronounced ching-dow) are strongly focused on service and brand awareness. that's why they're on the shortlist of chinese companies that foreigners might recognise. other players have raised their profilesby making big ticket acquisitions - like lenovo (pronounced luh-no-voh) which bought ibm's think pad and now geely (pronounced gee-lee) which recently purchased volvo. >>spencer: there's a logic to that, that seems to be: can we appropriate marketing sophistication; or can we appropriate an existing relationship with consumers in another market. >>reporter: but as the best connected chinese brands develop and expand internationally they will lose a protective umbrella that has served them well: the power to often stifle online criticism. in china, a whole industry has developed to erase unflattering comments. but the culture is very different on the otherside of the great firewall.

>>the head of branding at one of india's leading corporations, infosys, says scrutiny is now unrelenting. brands that cover-up or don't keep their word, do so at their peril. >>nath jha: you remember that sting song: every breath you take, every move you make, every smile you fake, i'llbe watching you - every company is being watched by all its stakeholders. and every misstep you make will be caught. it's the end of command and control communications. >>reporter: and this is corporate china's achilles heel. for companies must be loyal to the state - or, indeed, they may be state controlled. and among consumers in the wealthier markets, the chinese government is largely unloved - so much so, that a re-branding of the communist party itself, could well be goodfor business. >>still to come on world business... >>lilos were never meant for this! the white water glen nevis river race may look like

madness, but it's all for a good cause >>anything that raises money for the team is good because we survive on donations from the general public so it's always been a good money fund raiser for us >>and we visit the labs which sniff out the smells that sell. >>among these 2000 molecules we are evaluating every year, only 3 or 4 of these molecules will finish on the table of the perfumers. >>a nose for business... and the rest in just a moment on world business... >>from food and drinks, to household cleaners and fine perfumes, many modern products will contain afragrance or flavour created

and produced by a specialist manufacturer. we went behind the scenes of the world's largest flavour and fragrance company to find out more. >>reporter: the exterior is non-descript... >>reporter: ....but step inside and you'll find a hotbed of creativity...one that produces everything from the flavours for fast foods and soft drinks, to the fragrances found in shampoo or the world's finest perfumes... >>kaiser: here i'm trapping the scent of this lovely orchid hybrid... ...which is very much liked by one of our customers and this customer would like to have this scent reflected in his next female floral fragrance. >>alchenberger: what you need is a sort of imagination. creativity. this is like in music. >>reporter: 'cos i'd imagine that sometimes you come up with incredible flavours but they just don't work

with anything, or.. >>walter: sometimes not! >>reporter: because an industry worth around $18 billion is still built on a less than exact science... >>hefti: there is a lot of technology. but to find the right flavour is really still a lot of guessing. >>wullschleger: we know that we have 350 receptors in the nose, and 25 in the mouth. and we hardly know really how they work at present. >>reporter: according to leffingwell and associates ...5 firms account for about 60% of the global flavour and fragrance market...but givaudan is the largest, holding over 20% market share.... >>wullschleger: givaudan sells per year 50000 products whereof roughly 10000 are new... >>reporter: fragrance scientist roman kaiser specialty is extracting and analyzing the scents that nature provides. but first, he has to find them....and

no places are more bountiful than the world's rain forests... >>kaiser: in the canopy of the rain forest you can find about 60% of the biodiversity existing of our world. if i go to an expedition, let's say to amazonia for 2 weeks then i would perhaps trap 50 different interesting samples. >>reporter: whatever promising scent molecules he finds are handed on for further analysis...although the chances of them ending up as the basis of a fine fragrance are not particularly high... >>alchenberger: among these 2000 molecules we are evaluating every year, only 3 or 4 of these molecules will finish on the table of the perfumers. >>reporter: ...can you give me a banana? >>hefti:

of course we can >>reporter: taste is a relatively crude sense, triggered by the chemicals we smell, although even a banana...a simple fruit, has over 200 chemical components... >>it smells like a banana... >>reporter: this machine breaks flavours into their most dominant elements...which can be instantly adjusted... >>reporter: yeah, that's fruity...! >>reporter: its' especially useful in an industry where clients can find it extremely difficult to describe exactly what they're after... >>hefti: we are lacking a language to describe smells, and with the equipment we can produce the smell and i can directly see the reaction on it. >>i think we just had a trace of the methozet jasmine 8 ! >>reporter: a natural scent often has more than 100 elements...but only a well trained nose will identify it's truly important components...because machine still lack the subtlety required. >>kaiser: the reason is very clear because our nose is still around a factor of 100 more sensitive than the electronic

detectors. >>reporter: but whether it's fragrance or flavour...how do you know which direction your creations should be taking...? >>walter: a lot of it is monitoring menus. what are people ordering. how menus are being designed? what are the types of ingredients being used? what are the big cultural cuisines that people are eating? where people vacation to (sound up) it's like social science, it's helping to translate, it's very much the mood and the motion. >>reporter: creativity can be stimulated in other ways...givaudan has its own perfumery school...and claims thataround a third of the world's fragrances have been created by graduates like alain alchenberger....but even for the highly skilled...inspiration can at times prove elusive... >>alchenberger: you have sometimes long period of nothing...and it's difficult not to become depressed you know... >>reporter: a depressed economy has hit givaudan's fine fragrances themselves, with company sales dropping 7% this year....so

the pressure to deliver winning scents is constant... >>alchenberger: because now not only we have to make good perfume, but we have to make also with this perfume...money...at the end >>reporter: but while fine fragrances may be sensitive to economic conditions, its estimated overall sales in the flavour and fragrance market dropped by less than 2% in 2009..... >>wullschleger: roughly 80% of our portfolio is resilient. because you see whether you have an economic crisis or not. you need to drink, you need to wash, you need to eat.... >>reporter: ....and you need to keep chasing the next big thing...if you truly want to savour the taste of triumph...and sweet smell of success.... >>alchenberger: fruitiness is very important right now. >>walter: the biggest thing now is health and wellness. >>hefti:

more natural flavours. more healthy flavours. >>alchenberger: floral fruity. woody fruity. spicy fruity. >>kaiser: enjoy your job? very much. very much. it's a privilege to work in this field. >>the glen nevis river race is carving out a name for itself as a bizarre but spectacular sporting event for the super fit and the slightly mad. competitors must negotiate a two-mile stretch of one ofscotland's greatest rivers using little more than an air mattress. but it's all in a good cause... >>reporter: if throwing yourself into a fast-flowing scottish river while clutching an inflatable rubber mattress sounds like fun - then the glen nevis river race is for you! >>with little more than a helmet to protect them, seventy adventure sport enthusiasts braved

the icywaters, the churning rapids and a 30 foot waterfall jump to raise money for charity - and test their nerve. >>among them - steve ham heading up a six-strong team in this year's challenge. >>ham: i think these things are great to be to improve communication in the work place afterwards, we are also going to raise some money for lochaber mountain rescue team so there is money raised for good causes. >>reporter: that good cause ... the lochaber mountain rescue service - vital for the region's key earner - tourism. a free of charge rescue and recovery service for hill-walkers, climbers, skiers and outdoor enthusiasts. the region covers 2-thousand square miles of the scottish highlands and islands. running the 45-strong team costs more than a hundred thousand dollars every year, but only a quarter of its funding comes from the government - so rescue services need to come up with their own cash. >>stevenson: anything that raises money for the team is good

because we survive on donations from the general public so it's always been a good money fund raiser for us and we always enjoy it as well. >>reporter: steve and his team join the other competitors who have each paid around fifty us dollars to be in the race. the range of inflatables come in every colour shape and size but veterans opt for the traditional air mattress with tape bound around it providing something to grip onto. suited and booted everyone pays careful attention to the safety briefing. >>before the race gets underway some adjustments are made. >>muriel: the river's high water levels after recent heavy rainfall means this year's course is slightly shorter than average - but that small concession to safety doesn't mean this is a risk free experience. in fact you need to be very brave and just a little crazy to attempt the glen nevis river race.

>>reporter: the event also offers a great chance for a bit of corporate bonding. as manager of fort william's underwater centre on scotland's west coast, which trains specialist divers and rov operators for the international oil and gas industry - steve is used to the water - but perhaps not quite like this. >>ham: we spend all our working lives training, teaching people to stay under the water, today we're going to try and stay on top of the water - but it looks great. >>reporter: but as the race winner points out - anyone can do it! >>hammond: anyone can go down on a lilo, it doesn't matter what age or how fit you are you just sort of float down the river - and it's really, really good day for anybody and it is great atmosphere and there'syou know really good competitive people and there are people that are just doing it for a laugh. >>reporter: that much was clear. >>although some turned back from the trickier sections ...

others took up the offer of a helping hand. >>all seventy competitors finished the course ... with safety officials from lochaber mountain rescue keeping a careful eye. >>starkie: there's a rapid called leg breaker and it's called that for a reason obviously so we're starting just below that we've got safety cover on all areas that need safety cover. and obviously there's a chance you're going to get banged about and stuff but that's the nature of it really, and so long as you can stay on your lilo then it's all good fun isn't it? >>reporter: that was more than team member ingrid could manage - but she completed the course in 26 minutes 37 seconds coming a respectable 53rd out of 70. >>vickers: a couple of fingernails have gone, bruises on the knees and probably on the hips as well - but i survived! >>reporter: not only did she survive - but ingrid and the team raised over four hundred dollars. the first glen nevis river race in 1973 produced just

fifty dollars - barely enough for a pair of hiking boots - but as much as 20-thousand dollars has been raised in past years in an event that helps to keep the spirit of adventure very much alive in the scottish highlands. >>that's it for this week's world business. thanks for watching. we'll see you again at the same time next week.