Archive for February, 2011

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NU Kellogg prof on country-market selection

Friday 25 February, 2011

Northwestern University Kellogg business school adjunct professor of marketing Phil Corse conducted this seminar Where in the World is Your Next Customer? Foreign Market Selection and Entry  hosted by the Industrial Council of NearWest Chicago.  I heard Phil speak before & wrote about it here10 Questions You Should Ask About Doing Business in China (pardon the quality of this post, but it was from when I 1st started blogging).  Phil was good enough to forward his presentation so here it is:  IL Feb 16 Pres

Here’s his running commentary:

Like many, while his failures have been many & successes rare, he continues to serve FMCG (fast moving consumer goods) & B2B clients seeking to go global.  In assessing whether or not your company is global-ready, rate your firm from 1-5 on these questions:

  1. What’s your global budget?
  2. Do you have a global strategy/plan?
  3. Are you wired for e-commerce, (which makes you global automatically)?
  4. How is your firm’s international management expertise?
  5. How are your global contacts?
  6. How many global customers do you already have?
  7. Is moderate risk acceptable to you? In assessing risk, Corse poses the questions, “Are you willing to quote prices in their currency?” & “Does it make sense to abdicate your markets to local representatives?”
  8. Are you comfortable getting out of your comfort zone?
  9. Are you willing to invest in global expansion?
  10. Will you accept foreign currencies?
  11. Are you culturally sensitive?
  12. How well-traveled are you?

His CAGE acronym stands for Culture, Administration, Government, & Economy.  Only big companies can handle expanding into 3-5 countries @ a time.  Examples of winners of global markets in his 3 spheres are Wrigley’s gum in distribution, Coke in branding, & the iPhone in innovative products.  Phil adds Indonesia & VietNam & drops Russia from the BRIC acronym to create BVIIC & differentiates China from India by noting that the former has better hard infrastructure & the latter has better soft infrastructure.

Q&A

  • PC recommends in-country localization/translation through a local agency.
  • Since it’s no longer a big deal to have offices in many locations, the trend is toward more regional headquarters organizations.
  • The A in his CAGE acronym refers to the forms you’re required to do business in any country.  The G refers to 1 of Porter’s 5 forces.
  • While in the past SME’s might have serendipitously stumbled into global business in the past, it’s tough for SME’s to pursue it now because of their scarcity of different resources.  Serving foreigners here is 1 way to dip your toes into these waters.
  • Transparency can work for & against you when pursuing world-wide markets.
  • Corse has never done a letter of credit in his entire international career.

To add some real world application, Phil tasked the group with an exercise:  identify & rate the top 3 selection criteria & markets for Dell’s new Android tablet computer.  I wasn’t able to stick around to get the results, but this always enables the newbies to confront, at least @ a superficial level, all of the complexities that go into these kinds of decisions.

A fellow Chicago Triathlon Club member attended as the local representative of this program Trade Adjustment Assistance.  Check it out to see if it can be of help competing against foreign imports.

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is it now a 0 sum world?

Friday 18 February, 2011

The chief foreign affairs commentator for the Financial Times, Gideon Rachman, finished a book entitled Zero-Sum Future:  American Power in the Age of Anxiety & was in town to talk about it @ Zero-Sum World sponsored by the Chicago Council on Global Affairs.  The basic premise of the book is that the world has transitioned from from a perceived win-win mentality to 0-sum game.  When Hu Jintao was in the US recently, he made a point of saying the world economy is not a 0-sum game, as have had all US presidents since Bush the 1st.  This issue is not only economic, but political as well.

Rachman divides the last 30 years into 2 eras:

  1. 1978-1991:  Capitalism wins.  China opened up.  The USSR failed.  Europe came together.  India averted bankruptcy & opened up.
  2. 1991-2008:  Native optimism, indicated by Krauthamer’s American unipolar moment defining globalism, the technology boom, Europe expanded & debuted the Euro, Latin America democratized, & Brazil emerged.

The economic crisis changed things.  It accelerated the shift of the economic axes from West to East & North to South.  China & India decoupled from the world economy by growing despite the crisis.  It’s come into question whether or not the EU is sustainable.  These shifts in power have created tension.  The Germans are resentful of bailing out the Greeks, while the Greeks & Irish are resentful of the impositions being placed on them.  Global problems like the environment & nuclear proliferation can’t be solved by 1 country alone.  The G7 realized it couldn’t work without others, so it expanded to the G20, but currency issues are still unresolved, Kopnhagen was a debacle, reflecting that national interests are more starkly opposed.

The US-China rivalry is at the core of this debate.  The economies are firmly interlocked, but does a richer China, (which is actually both richer-in the cities & poorer-in the countryside), mean a poorer US?  Today not only labor is endorsing protectionism.  China is a growing military threat in the Pacific & becoming more territorial with India & Taiwan.  They simply expect the US to pull back.  The Chinese don’t want confrontation;  they simply expect power to fall back to them.  America can’t afford to defend the rest of the world.  While allying with the US & trading with China, other Asian countries are simply acknowledging the creation of a new Sinosphere.  The Chinese have a much longer time horizon:  the question is “Will China still be a good neighbor to the US in 1000 years?”

On other topics, Rachman said integration into the global economy is the solution in places like Egypt & the Middle East.  Although democracy has won, we have a bumpy road ahead.  We must regain faith in economic solutions in the US & Europe.  Obama’s Spudnick moment seems appropriate.

Q&A

  • World War III is too dangerous & not required for an economic recovery-mutually assured destruction as a deterrent is old cold war thinking
  • Whether or not a US economic & military pullback is positive depends on your point of view.  Is leaving a single power more stabilizing in the Pacific?  We’ve always assumed there were enough resources for the world, but commodity prices are rising.
  • Human rights in China are an up/down issue.  Hillary Clinton has downplayed it & Obama has been interpreted as backsliding on the issue, while the US endorsed the Nobel Peace Prize being awarded to an imprisoned Chinese dissident.
  • The west has been ambivalent while China has courted influence in Africa to secure resources.   Kofi Annan was surprised to find Chinese television stations in Sierra Leone.
  • The enlargement of the EU created a backlash & it’s doubtful they will expand much more.  1M Poles relocated to the UK rather than the expected 13K, which resulted in lower prices for services there.
  • The Chinese currency is essentially pegged to the US$ against which the Euro has been appreciating, so Europe won’t necessarily lose as China cozies up with the US.
  • Turkey’s relationship with the US has changed from being a staunch ally to voting against the US & European positions on Iran & Israel.  Despite being a Muslim democracy, the AKP party makes the US uncomfortable.
  • Although center-leaning economists are opposed, isolationism & protectionism are increasing.  No 1 wins in trade wars.  Business lobbies for access to China’s vast market, but the Chinese are now demanding technology transfers.
  • Europeans don’t want a Brussels solution.  They’ve rejected a EU constitution, but a voluntary agreement might work.  Stronger integration would require an even bigger crisis-it’s now like herding cats.
  • Increasing Muslim populations in Europe is a problem for which there is no solution.  You can’t impose values, which is resulting in a massive security effort.
  • Russia’s future hinges on the price of oil.  Putin wanted to embrace the west, but is still a nationalist & pushed back against democratization.  He’s trying again to create another sphere of influence.
  • The 2008 loss of confidence in free market models has brought back the debate as to whether or not authoritarianism works.   The debate will be won by those who best unleash creativity in changing technologies, etc.
  • The internet hasn’t created freedom the way Bill Clinton predicted it would.
  • Completing the Doha round of WTO talks has become a cliche.
  • The EU still thinks of China as an emerging market.
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whither the european union?

Friday 11 February, 2011

Ralph Folsom was back for his 10th annual lecture on international business & trade law @ the John Marshall Law School Center for International Law in a talk entitled “Whither the European Union?”  He opened by quoting Yogi Berra, a favored quipster, “If you don’t know where you’re going, how will you know when you get there?”  Folsom essentially took us through a legal history of Europe decade-by-decade since 1949, weaving in some themes that spanned over time, such as human rights.  These were spawned by the European Convention on Human Rights by the Council of Europe in 1950, & culminated in the Treaty of Nice EU Charter of Fundamental Rights “declared” in 2003 & became binding law in 2009 (UK & Poland opted out).  Interesting things to note:

  • the extent to which France led the initial integration, (although perhaps it shouldn’t be, as it was in response to “the German problem”)
  • the slowness of the Brits to integrate, 1st because of their own hesitancy to give up the notion of their empire, & then blocked by deGaulle for 10 years
  • Greenland “withdrew” from the EEC in 1983 to escape the highly regulated fishery industry in the EEC
  • Although not members of the European Union, Norway & Switzerland have aligned themselves tightly with the EU by mirroring much of the legislation the EU has passed.

So “Whither the European Union?”  Iceland wants in, so they can be ripe to be bailed out.  The Balkans show growth for the future, but what does that mean for Turkey?  How will the economies of Portugal & Spain hold up after the financial breakdowns in Greece & Ireland?  The people of Europe have spoken a number of times when European constitutions have been voted down in France &  Holland.  As the largest economy in Europe with the most financial might, biggest contributor to & benefactor from a unified Europe, Germany is a key decision-maker in the future of Europe.  The general questions posed to them are how committed are they to the EU as is stands now?, & how much are they willing to pay to keep it that way? They’ve already put 100M Euros in to bring in the IMF as sheriff in Greece & Ireland & created a 1TR Euro safety net to protect against future crises.   German elections are coming in the spring, so we will find out soon what the German electorate thinks.

Folsom doesn’t see a break-up or breakdown of the EU.  Although the legislators might have been ahead of the people in proposing a European constitution & there is still concern that they may be creating a federal monster in Europe, French & German leadership is strong.  Chancellor of Germany Angela Merkel suggested a potential free-trade agreement (FTA) for Europe with the US as a result of the failure of the Doha Round of WTO negotiations.  Canada is negotiating right now with Europe on an FTA, which could be a model for the US.  A key sticking point is agriculture.   They know where they’re going, as the EU structure has endured.

Q&A

  • China has bought goodwill in Europe by buying Greek & Irish bonds.  The Chinese trade surplus is not nearly as great with Europe as it is with the US.
  • There is no formula to resolve the issue of managing a currency, the Euro, with central monetary control of the money supply by the European Central Bank (ECB), but without any fiscal control of many very diverse federal country budgets over what they spend.  It’s been suggested for the ECB to enforce sanctions, but a unanimous vote of financial ministers is required & that won’t happen.  They can’t even agree on a definition of insolvency.  The Germans simply want to make sure that federal government deficits don’t exceed 3% of each country’s GDP.
  • An alliance between the EU & NAFTA makes sense, but again, the hang-up is on trade in agriculture & Europe’s Common Agricultural Policy (CAP).
  • There are rumblings of undercurrents of opposition to increased federalism in Europe.  There is a reason the German government hasn’t asked its people to vote on it.  The ringer is that the German constitutional court hasn’t bought into the sovereignty of the European Court of Justice.  Merkel doesn’t want to surrender German sovereignty to Europe.
  • The UK actually joined the EU with a trick that did not require the OK of its parliament.  The Brits are team players with the EU, playing by the rules & implementing lots of legislation, but they do lose a lot of debates there.
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swiss financial history lesson in america

Friday 4 February, 2011

Albert Gallatin was America’s longest serving U.S. Secretary of the Treasurer. He was born (2011 marks his 250th birthday) in Geneva, Switzerland & became the most prominent Swiss-American in U.S. history.  THE NEW NORMAL – GALLATIN’S LESSON commemorated his birthday & provided some lessons which might be helpful today.  The event was hosted by The Swiss American Business Council, Consulate General of Switzerland, Economic Development Council, International Trade Association of Greater Chicago, & the Chicago Association for Business Economics.

Minister Martin von Walterskirchen, Regional Director-Americas of Switzerland Trade & Investment Promotion opened by remarking that @ that time the wealthy kept government kept government frugal, while today Swiss companies employ 500K in the US & 600 US companies work in Switzerland.  The panel consisted of Jean-Daniel Gerber, Swiss State Secretary for Economic Affairs, Randall Eberts, President-Upjohn Institute, Terry Savage-nationally syndicated financial columnist, (& University of Michigan alumna), & was moderated by (world age-group champion triathlete) Elizabeth Brackett-correspondent, WTTW tv.

Gerber started the discussion by noting that the U.S. does more trade with Switzerland than with Russia or Scandinavia.  Back to history, Gallatin cut America’s national debt by 50% in his 1st year as Treasury Secretary, which is comparable to the changes Paul Volker enacted in 1978 as head of the Fed.  We are still not out of the financial crisis yet because the debt issue still prevails.  Greece has never had a surplus since 1946 despite GDP growth, & when GDP has fallen they’ve had to take drastic measures.  There are 2 theories about how to get out of this mess:

  1. spend our way out ala Keynes & Krugman
  2. tighten our belts & reduce debt as Gallatin did, which builds confidence, reduces instability & risks, but is unpopular (Rogoff).

The sequences of earlier crises were the same:  debt leads to insolvencies, all of which need time (10 years) to work themselves out, depending on the relationship between federal banks & fiscal policies.  Switzerland had dismal growth in the 1990’s, but had the fastest growth 2003-2010.  Although their social security & health care are problems, they recognized they couldn’t spend like before & changed their debt rates.  People demand transparency in how to get out of the crisis to endear trust.

Eberts pointed out 5 lessons from Gallatin:  we need to;

  1. reduce our debt by balancing our budget
  2. make good government investments, as Gallatin did with the Louisiana Purchase
  3. recognize the importance of a strong central bank
  4. demand transparency & accountability
  5. recognize bipartisanship, as Gallatin recognized his rival Alexander Hamilton, but still embraced some of his policies.

Terry Savage majored in American Civilization @ Michigan, but requested we bring more Swiss bankers here.  In the stimulus vs. austerity debate, our political system is tilted so that too many vested interests receive government spending monies so that there is no will to stop them.  Austerity means increasing taxes, but not government spending, which doesn’t necessarily lead to a balanced budget.  The US$ is trending downward, while gold trends upward.  America’s Social Security system is the world’s biggest ponzi scheme.  Check out this website to see the official & unofficial US National Debt Clock .

panel Q&A

  • re: increasing the debt ceiling; Gerber maintained that despite health expenditures taking an increasing part of budgets & doesn’t “last long,” some other expenditures are productive investments with an ROI.  Europe is decreasing its expenditures on the military while they’re increasing in the US.  We need to deal with the problem step-by-step rather than in a revolution.  Savage noted that Japan has been in financial crisis for 20 years.
  • re: 1st steps; Savage proclaimed we need a dictator in Congress who will stop spending & publish on the internet every $.01 the government spends.  By 2030 we will collect 23% of our GDP in taxes & all of that will go to social security, medicaid & -care, interest on our debt-there will be none left for armies.  We need to cut spending.  Eberts chimed in that Gallatin made others pay for debt by levying an import tariff.  David Riccardo dictated that transparency is important.  Since we don’t export much, we sell internally, & thus need to double job creation.
  • re: inflation; Gerber observed that it’s not a problem yet, but if it becomes 1, the Fed will have to withdraw $ from the economy & raise interest rates, which will lead to inflation & debt.  Europe fears a drop in the $, so inflation policies need to be implemented worldwide.
  • re: trade policy;  Terry put forth, China holds $1TR of our debt, & we’re trying to tell them to float their currency?  The Chinese have bought lots of Euro-debt too.  REberts stressed we need to increase exports as the Asians pull away from exports to insulate themselves from risk.  Gerber summarized that China does not trade fairly with its undervalued currency, but a protectionist path against it is just as wrong.  Gallatin laughed last:  as a long-standing treasury secretary, he was able to see his policies implemented.  We need long-term bipartisan policies to do this.

open Q&A

  • Although China has effectively free-trade agreements with most everyone, more FTA’s worldwide would help, thus rekindling the Doha round of trade talks could be helpful.
  • Innovation in a knowledge economy should theoretically lead to successful trade, but if those new innovations are Facebook & Google, where is the payoff?  Regardless, it does make $.  Since 1980 technology doldrums, we had a 20 year technology boom.  Lower taxes help (IL is going in the wrong direction):  JFK was 1 of the biggest tax cutters by lowering rates to raise tax revenues.  We need to encourage free trade & sound currencies.

This book details his life:  Gallatin:  America’s Swiss Founding Father