Archive for February, 2011

#78 Chinese Exports Revisited

Wednesday, February 23rd, 2011

china-flagInteresting piece in the McKinseyQuarterly about metrics for Chinese exports. Very much in line with my recent postings, this contributes a bit to the debunking of the China myth. Don’t be afraid! All will be good!

#77 Transnational Take-Over Alert: Deutsche Boerse – NYSE

Friday, February 11th, 2011

stock exchangeLooks like Deutsche Boerse and the New York Stock Exchange are in their final stages of negotiations over a takeover by the Germans. Price-tag: about 10 billion. Upside: synergies and better competitive position vis-a-vis emerging stock exchanges in other parts of the world. Downside: integration is never easy. Neutral: the home of capitalism is no longer American.

#76 Will there be a US Export Avalanche?

Tuesday, February 8th, 2011

usa empty chairExports were mentioned repeatedly in President Obama’s  State of the Union address. Such U.S. presidential focus is very special and hasn’t happened since the “Export Now” campaign in Reagan days. Though exports have no party affiliation –the policies leading to them do.

The U.S. economy needs a boost. Though the world may count on the U.S. import locomotive, this time around, U.S. exports have global priority. In the ten years from 2000 – 2009, U.S. exports grew by about 50 percent. The President’s goal to double U.S. exports by 2014 requires twice the increase in half the time. It’s hard to generate trade momentum that quickly. But it can be done.

Americans generally are quite good in working their way up to a leadership position. But since the 1980’s, ongoing large and growing trade deficits have undermined its economic foundation. Just as one thinks about America as a nation of open skies and new opportunities, exports must become a national objective. Export not only help an economy, but also allows the sharing of quality, choices and lower prices with the world.

Conditions and preparation matter.  A company in Israel or Liechtenstein never questions whether or not to export. Their small home market makes exports a condition of survival. The literature calls those firms “born global”. German exports in 2009 were $ 13,670 for every man, woman, and child, while for the United States they were only $ 3,238. U.S. firms tend to focus on the substantial opportunities at home. But they need to recognize the export imperative as well.

U.S. consumers are wealthy and interested, and Americans are willing to give outsiders a chance. They enjoy trying a new product early and to exercise their right and capability to choose. This desire and capacity to innovate needs to be translated into the design and export of new goods and services.

Historically, U.S. trade policy has not been very helpful to exporters. Congress typically intervened by restricting, rather than liberalizing trade flows. Concerns mostly focused on helping other nations get their feet back on the ground. Now American firms need some better track shoes.

Today, exporters face new conditions. Technology has reduced global distance. The cultural diversity of America overcomes psychological distances between countries. Immigration brings expertise and encourages new business activities abroad. Increased knowledge reduces the burden of foreignness when going international.

Trade imbalances generate new export opportunities. For example, the U.S. trade deficit makes it much cheaper to ship a container to Asia, than to bring one from there into the U.S.   A lower dollar makes it easier to export, but also reduces U.S. purchasing power. There is little benefit to exporting if one receives little in return.

There is new interest in U.S. international business performance. The Korean Free Trade Agreement, the renewed negotiations with nations in international forums such as the World Trade Organization, and the just announced deal between the United States and China for $ 45 billion of U.S. exports provide impetus.

During the past forty years, the largest U.S. trade growth was in the import arena – that’s where the money was. For those looking to international markets today and tomorrow, the shoe is on the other foot – the exporters will have it. Now it is the U.S.’ turn to export – both a challenge and obligation to U.S. firms and government.  At the same time, trade distorting subsidies need to be curtailed. Exports need to be the result of capability and responsiveness to international needs.

History is characterized by non-linearity – not everything always keeps going the same way. Discontinuities and structural breaks herald new directions. There may well be a U.S. export avalanche and the world needs to get ready for it. This is a unique opportunity for bipartisanship and cooperation by the President and a Republican House. Voters will want to see now, how words are translated into action. Government support of exports needs to be streamlined and attain a new priority. Just as ambassadors know to track and support policies abroad, exports need to become a new key concern for many. One could even envision an ‘export impact statement’ for new regulations. For budget hawks it’s worth remembering that export promotion is an investment rather than an expenditure, which, if done right, earns powerful ongoing returns.

(Reposted from Michael Czinkota’s blog at http://michaelczinkota.com with permission by the author. Prof. Michael Czinkota teaches international business and marketing at Georgetown University and the University of Birmingham in the U.K.  He served in trade policy positions during the Reagan and Bush administrations.)

#75 The Dragon is Only Nibbling

Thursday, February 3rd, 2011

dragon2Not too long ago, at the end of the 1980s (although I acknowledge that for some of the followers of this blog this equals a lifetime), Japanese investment in the United States peaked at about US$ 20 billion. By then, management scholars had long begun to study the Japanese miracle. Based on a general fear that Japanese companies would completely control the US economy, US authors such as Bill Ouchi (in his 1981 book ‘Theory Z: How American Management Can Meet the Japanese Challenge) introduced new ideas, and US companies implemented new processes such as the Toyota system of manufacturing. Everybody was up in arms about the Japanese threat. As always, history seems to repeat itself.

In the context of Chinese president Hu Jintao’s recent visit to the US, there have been nervous reports about Chinese companies taking over US businesses. And indeed, there have been some well-publicized cases – Chinese consumer electronics producer Haier’s early Greenfield investment in 2002, or the more recent Beijing Automotive Industry Company’s (BAIC) acquisition of General Motors’ Saab division, Beijing West Industries’ purchase of Michigan-based automotive supplier Delphi Corporation, or numerous smaller investments in US companies by China Investment Corporation (CIC). Obviously there’s enough activity to make The Economist cry out that China’s buying the world and to ask the question what it is like to be ‘eaten by the dragon’ (The Economist, November 13th, 2010). Relax, knowledge of foreign languages is always a good thing, but it isn’t time yet that we all learn Mandarin. Why? Let’s take a closer look at the data: Out of the total book value of foreign direct investors’ equity in US companies in 2009 (it’ll take a while until we have 2010 data) of US$ 2,319.6 billion, China’s share is still insignificant. The largest investing countries are still based in the Western Hemisphere – the United Kingdom (19.6%), the Netherlands (10.3%), Canada (9.7%), Germany (9.4%), Switzerland (8.2%), and France (8.2%). The only exception, of course, is Japan which holds about 11.4 % of the total foreign direct investment in the United States. In a July 2010 report by the Bureau of Economic Analysis (BEA), China isn’t even mentioned – and that’s for a good reason: China’s total assets in the US are about a 300 times smaller than those of Japan. Even small countries’ foreign direct investments in the United States such as Austria or Panama are larger than China’s. Of course, there’s no question that Chinese investment in the US is growing fast and may soon outgrow the “Other” category on the BEA pie charts, but it’s still to early to panic. And even if China held a lot more assets in the United States, it probably would not mean the end of the world just like Japanese investment in the United States hasn’t. The world is flat, and an increased involvement of China in US companies may be a source of (desperately needed) capital, (desparately needed) new energy and motivation, learning, and global stability.