Going Global

Is Now the Time to Begin Exporting?

Exports are down and economies everywhere are contracting as our global interconnectedness is proving both blessing and challenge.  Amid the downturn companies are cutting marketing budgets, travel expenses, and, most importantly, people.  One might reasonably ask whether this is the time to start or expand exporting.  I suppose part of the answer may depend on your general view as to whether these are times to hunker down and hold on or to seek out new opportunities to replace the old ones that aren't there anymore.

If your market at home has slowed, and who's hasn't, you may have some capacity that you could cut -- or you could redeploy it elsewhere.

Despite some additional strength over the past 6 months, the dollar remains relatively weak against many foreign currencies down about 50% from it's peak against the Euro.  This means that as against a few years ago, goods produced in dollars are still relatively cheap in many markets abroad.

Judging from dry bulk shipping rates, the cost of getting exports abroad is at an all time low.

As the power of business networking over the internet continues to expand, the ability of smaller companies to access resources for foreign trade has continued to increase and the cost of reaching out to for flung customers has decreased. 

And even if the market opportunities abroad are not as robust as they were a year or two ago, they still exist -- and their relative value given the shrinking opportunities at home may be just as great.  Plus, when things begin to turn around, there is much to be said for having the advantage of having gotten in early.  You may have as good a shot now at gaining the interest of a potential top distributor or business partner abroad as at any time in the past few years -- after all, they're perhaps a little slow as well.

The biggest challenge may be whether you can get in fast enough to take advantage of the opportunities.  One of the tough things about international business is that it takes time -- time to develop the kind of relationships you need to make sure you're working with the right partners abroad, time to get your product through the testing and certification requirements that may exist abroad, time to get your branding and marketing approach adapted to the different cultural sensitivities of a foreign market, time to get your people trained in export documentation and logistics.

Now is a good time.  The key to success may be finding ways to accelerate your ability to make it happen without sacrificing the need to do it right.  I have some ideas on that topic as well, but I'll get to that in a next post.  In the meantime, opportunity awaits.

Discussing Politics While Building Relationships Abroad

With the U.S. in the throes of a widely watched election, it is not surprising that American business travelers abroad are often asked to engage in a conversation about American politics and the election.  And I suspect that this will continue for some time after the elections as well, the question then being not "what do you think will happen?" but "what do you think of what happened?", which in its own way may be an even more treacherous question.  The intense international interest in the U.S. election is nowhere better illustrated than in a Pew Global Attitudes poll (published along with an article in last Tuesday's USA Today) indicating among other findings that a higher percentage of Japanese (83%) describe themselves as "somewhat/very" interested in the U.S. election than the percentage of Americans (80%) that claim to have the same level of interest.

At some level, the rules on topics of conversation when trying to build a business relationship abroad are somewhat like the old rules for polite conversation everywhere -- best to avoid religion, politics, sex, and your personal finances.   Obviously, if you're trying to build a relationship with a potential business partner, best to avoid a heated argument or needlessly indicating your position on an issue that they might feel, correctly or not, diminishes your standing in some way.  In the same USA Today article quoting the Pew Global Attitudes survey, international business etiquette consultant Mercedes Alfaro advises that political discussions should be avoided "as graciously as possible."  The article summarizes her advice in a sidebar as "Don't bring up politics yourself", and "Don't get involved".

While this advice is worth considering as a starting point, the problem is that your foreign associates may be looking for someone who is wordily and informed and capable of having an engaged conversation about a topic of obvious global importance.  Trying too hard to avoid the topic may leave you looking more like someone who is uninformed, unengaged, and lacking the strength of spirit necessary to persevere in the international marketplace, which could kill a deal quicker than a  political argument.  Along these lines, Steve Livingston, a professor of diplomacy and political communications at George Washington University is quoted in the USA Today piece as arguing that failure to engage in a political discussion "may be seen as being rude or not being engaging or capable of having an intelligent conversation."   

So should you dive in or not dive in?  Whose advice do you follow?  As a starting point, if you are on the front lines of international business, hopefully you have the people skills and sufficient cultural sensitivity to sense whether the other person is looking to engage in an interested discussion, or looking to pick a fight.  The first one begs indulgence, the second should be avoided.  Here's a few other tactics you might employ:

(1) Turn the question around to them in a polite and interested way -- "Who do you think is likely to win?" or "What do you think of the results?"  Or more generally ask them, "From your point of view, what qualities do you think would be important in the president of the U.S.?"  If done correctly, this shows that you are interested in their opinion, not just in spouting your own which they will take as a compliment -- a good way to build a positive relationship.  In general it seems that whatever people ask in a conversation, they are often more comfortable speaking themselves than listening, so the other person will usually take the ball and run.  And of course if successful this also allows you to smoke out where they're coming from so that you can tailor your own comments to be engaging but avoid needless argument.

(2) Turn the topic from the result to the process.  For example, if someone asks who you think will win the election, rather than giving a simple choice answer off the top, try explaining that it is a difficult question to judge even for professional pollsters since so much of the result depends on the oddities of the American electoral college system.  If you're prepared, in my experience, this can lead to an engaging conversation about political systems and electoral politics generally without having to stake a claim to one side or the other.  Another variation on this is to ask your host, on the global political spectrum from left to right, where would they see the real divide between American Democrats and American Republicans?  Of course this assumes that you understand that both American political parties are relatively centrist compared with the extremes operating in many other countries around the world.  If, on the other hand, you do view the battle between Democrats and Republicans as a do-or-die struggle for the ultimate fate of humanity, then this approach won't be of much help. 

3) If your foreign counterpart has at some point indicated an interest in government and politics, ask them about their country's government or politics -- not in a critical or ignorant way of course, but in a way that shows your genuine interest in their country.  You should have hopefully done enough homework on their country before meeting up with them to know who their key leaders are, what form of government they have, and whether there are any elections or other upcoming critical political events.  They will be happy to have the opportunity to talk about their homeland and just having asked the question likely will set you apart from the average American that they've had occasion to meet before you.

Perhaps the most important thing to remember is that if your foreign business contact is sincere, they too are interested in building a relationship with you, and that commonality should go a long way toward allowing you to feel your way through this minefield the same as with any other budding relationship.  And remember if you do wind up in a political conversation directly related to who you think should win or should have won the election, your foreign contacts can't and won't vote in our elections, so there is no percentage in trying to convert them into true believers of your point of view.  Your goals should always be to (1) learn as much as you can about them and where they're coming from, and (2) leave them with the impression that you are a smart, capable and trustworthy business person.

Trade Policy in an Age of Protectionism -- How Governments Can Promote Free Trade through a Domestic Agenda

I had the opportunity to attend a meeting this morning with Dr. Laura Tyson, professor at UC Berkeley's Haas School of Business, a former chair of the Council of Economic Advisers under Clinton and one of Obama's chief economic advisers.  She addressed the current economic and financial morass in a way that was clear, succinct and persuasive unlike anyone else I've heard speak on the subject to date.  Indeed she assuaged many of my doubts about Obama's candidacy all of which centered around his policies on trade, taxation and government investment.  Actually, I wish that she were running for president instead of either of the two guys who are.

 

Among the many topics she addressed was how any given country's government (she was speaking of course specifically about the U.S.) can solve a globally integrated economic crisis when our political institutions are strictly nationalistic.  This blog had a post a year ago on the challenges faced by central banks dealing with the then developing sub-prime mortgage implosion as a result of the contravening impact of LIBOR versus the federal funds rate that raised this issue.  Her first point in addressing this conundrum revolved around her historical and continuing support of a strong role for international structures such as the WTO and the IMF.  It's heartening to hear a key adviser to a liberal politician speak favorably about an institution such as the WTO.

 

She then, however, made an interesting connection between international trade and domestic policy.  She argued (I think correctly) that there are 3 simultaneous realities about international trade -- (1) free trade has greatly benefited the US in the aggregate, (2) decisions about the future of trade are being driven increasingly by powers outside the US and beyond our control, and (3) the benefits of trade have not been shared uniformly by all people creating an insecurity on the part of many people that they blame on international trade, whether or not that blame is founded in fact. She made the point that all 3 of these realities exist and that it's not helpful to choose one or two as a matter of ideological perspective while disregarding the others in forming policy. 

 

Her greater point then was that in order to effectively expand free trade -- which she strongly believes is beneficial and indeed essential for the economic well being of both developed and developing countries alike -- it is critical to address and ameliorate the insecurities that cause nationalistic populations to resist free trade.  Certainly one would have to agree that these days opposition to free trade is rampant on both the Democratic and Republican sides of the aisle fueled by angry constituent mail from people who perceive (whether accurately or not) that the U.S. is being disadvantaged by international trade.  If one does not act to remove these barriers to sound trade policy, it is difficult for any administration to move ahead with a free trade agenda. 

 

The beauty of her argument is that the policies necessary to ameliorate this insecurity and reduce protectionist reaction are largely "domestic" and thus ones over which national governments still have significant control.  Among the specific domestic agenda priorities that Dr. Tyson listed as providing a foundation for a successful trade policy in her mind are (1) portability of health insurance, (2) expanded job displacement support and retraining, and (3) investments in infrastructure and R&D that promote global competitiveness on the part of domestic companies.   It's hard even for a rampant free trader to argue against the reasonableness of that list of priorities.    

 

A New Paradigm for a Dynamic International Market for Sustainable Energy -- The Conclusion

This is the post that concludes the themes raised in the immediately preceding two.  Part I posed the dilemma of creating a rational energy policy in a net oil consuming nation given the lack of free competition in current international energy markets where the power over the key raw material inherently lay with some countries and not others, and the fact that alternative energy sources such as solar and wind do not present a favorable financial case on a return on investment basis and therefor, despite obvious strategic imperatives, are not good substitutes on a price elasticity basis for traditional carbon based fuels.  Part II attempted to lay the foundation for a resolution to this dilemma by examining how we assign value to both seemingly different and seemingly similar goods in the marketplace.

Succinctly stated, the conclusions are these: (1) if we are to be successful in developing a sufficiently robust market for sustainable energy, we have to move from thinking of it as a substitute for or alternative to oil and gas to seeing it as a fundamentally and technologically different market with different value propositions driving its demand and price; and (2) given the greater fluidity in a market for sustainable energy production than is possible in a market based on extracting oil, this new paradigm could provide the basis for a dynamic and competitive international market for sustainable energy technology.

When the PC with word processing first came into the office environment, it presented an extremely expensive replacement for the typewriter, at least on an equipment for equipment basis not adjusted for increases in other productivity.  The key is that, while the PC did in fact ultimately wipe out the traditional typewriter as an office tool, it was not bought because it provided a price elastic substitute for the typewriter.   Instead, the PC provided an entirely new value proposition around the production, sharing and management of all sorts of data.   It was an entirely new technological paradigm for the office.    If it had been sold strictly as an "alternative" to the typewriter, I don't think businesses would have shelled out the money for all the work stations at a cost many times the price of a typewriter.

When the iPod hit the market, you could buy a pretty decent portable CD player with headphones for about $20.  You could also fairly easily carry a CD "wallet" in your car or carry-on bag with more than   enough music to last you for your average trip across town or across the country.  If the iPod were merely an alternative music player, people would not have paid up to $500 for an iPod to replace a CD player that cost 1/20th as much.  Again, the fact is that the iPod was not a price elastic substitute for the portable CD player.  It was an entirely new technological paradigm with its own value proposition around buying, sharing, storing and playing music entertainment.

And so it is with sustainable energy.  So long as it is pitched as an "alternative" to fossil fuels, it will be a long time until its cost is reduced to the point that it will function as an acceptable substitute for traditional oil based energy on the basis of return on investment and the price elasticity of demand.  But I think it can be so much more than that.   It needs to be viewed and analyzed as an entirely new technological paradigm with its own value proposition around quality of life and strategic control and other emotional motivators that cause consumers to value a product.

If properly positioned and correctly understood, it shouldn't matter that it costs $10 to produce through solar the same quantum of energy that we can derive from a $4 gallon of gas anymore than it matters that we can get the same gallon of water out of a tap for free that we are willing to pay $10 for in a clean looking attractively labeled bottles.  They are different products, not strictly substitutes.

If sustainable energy in its many possible forms were to tale off to the same extent as PCs or iPods, it would spawn a truly dynamic global market that would have far more economic fluidity than the oil market. 

Inefficiencies in International Energy Markets and the Search for a New Paradigm for the Value of Renewable Resources -- Part II

This is Part II of what I anticipate will be a 3 part post.   In Part I, I tried to set up the intractable dilemma that has prevented the net oil consuming nations such as the U.S. from formulating a rational energy policy that the majority of people can readily support. 

On the one hand, the international oil markets are not open and competitive in that the majority of producing oil reserves are in the hands of countries which view it not as an open economic commodity but as a strategic asset with political ramifications.  As such, the historically high and escalating prices that are constraining economies worldwide cannot be simply relegated to the inevitable consequences of supply and demand and market economics and the limited control of these strategic assets poses a risk to the stability of the global economy.

On the other hand, current alternative energy technologies such as solar and wind are not yet financially viable and therefor economically rational substitutes for oil as an energy source, particularly if one honestly assesses the social costs associated with their large scale implementation.  Their position as viable economic substitutes is further diminished by the unpredictability of oil prices which are not reflective of a competitive market such that a near-term price reversal could be engineered to undermine at great cost whatever investment were spurred in alternative technologies by the current high price levels.

The Basis of Economic Value -- Why We Want What We Want and Why We're Willing to Pay What We Pay

As a foundation for finding a way through this dilemma, I think we need to consider what drives certain people to want one thing and others to want something else, how diverse goods wind up priced relative to one another, and how we decide what we're willing to pay for both seemingly similar and seemingly different products.  Or to put it differently, how a value proposition relates to the economic value we see in a certain good or service.

The value inherent in a good as reflected in its price has been a key question for economists since there became such a thing as an economist.  Early on, economists postulated that the value of a good should correlate to the extent that the good is needed by consumers.  This quickly gave rise to the classic paradox of diamonds and water -- other than some very specialized industrial cutting applications, diamonds are hardly needed at all, and yet they have always been priced far higher compared to water which we can't live without and yet is virtually free.

From this line of thinking quickly came the idea that prices are determined by scarcity -- the harder a good is to come by, the higher the price it can command.  While scarcity is certainly a driver of prices, it can only impact the prices of things for which there is a corresponding demand -- people must want it for some reason -- must attach some value to it -- or it doesn't really matter whether its scarce or not existent at all.  And the issue of scarcity itself can be more complex than it might seem at first blush.  Applying the question to alternative energy, there is no scarcity of sun and wind in many parts of the globe, but the high cost of converting these resources to energy is not a function of the availability of the underlying resource itself.

Some understanding of how we place value on things can be gained by comparing buyers of different automobiles.  Take for example a Toyota Prius, a Porsche 911, and a Hummer.  At the root they are all means of transportation, and similar means of transportation at that -- four rubber tires driving along the identical asphalt roadways powered principally by internal combustion engines.  Further, they are all sold to consumers through pretty much the same distribution channels -- independent dealers relying primarily on direct sales through show rooms.

But I don't think anyone would seriously believe that a person buying one of these three cars is buying the same thing as someone buying one of the others.  Indeed, I'm not sure a person buying a Prius could even have a civil conversation with a person buying a Hummer.  The importance of the emotional value we associate with the things we purchase and how the alignment of our world views with a product's value proposition affects our desire to make a particular purchase and how much we're willing to pay for a particular good is well presented in the works of a number of modern marketing gurus, my favorite of which is Seth Godin (author of such must read books as "All Marketers Are Liars" and "small is the new big"). 

The buyers of a Prius might say that they are trying to save money on gas, but most studies I've seen make it pretty clear that it takes a few years to save enough gas to make up for the higher price of the hybrid engine in the first place.  The truth is, the owner of a Prius is willing to pay a little more for the car than can be saved in gas because at a deep emotional level they want to be doing something to help save the planet.  It's not a car as much as a statement about environmental consciousness.  The buyer of a Hummer, on the other hand, doesn't need to save the planet -- he owns the planet.  He rules it whether it's paved or not.  Meanwhile, the Porsche buyer is seeking to be one with the world -- at least that part of the world covered with long stretches of smooth asphalt and well engineered curves.  Zen meditation would probably be a cheaper route to "oneness", but for this person "oneness" isn't about the price tag, but about speed and handling. 

The point here is that people want these things and are willing to pay certain prices for them not because they need the particular functionality or because of their relative scarcity or availability, but because of a deeper emotional value associated with what the product says about them as people.

Another modern illustration of this is how people are willing to pay considerably more for a cup of coffee at Starbucks when they could get a very similar cup of coffee elsewhere for much less.  Let's face it -- when it comes to Starbucks, the higher price is certainly not because they're scarce.  Starbucks would be the first to say that coffee isn't even their core product.   They sell a community and a sense of cultural identity that sparks a gratifying emotional response from their loyal customers.  Serving coffee just happens to be one part of creating that emotional response.

We can come full circle on this by updating the paradox of the economic value of water -- only instead of water and diamonds, we can compare water and bottled water.  In most places in the developed world, clean drinking water is free.  And yet millions of people pay quite a bit of money for bottled water.  Indeed, when translated from the average 16 ounce to 24 ounce bottle to a gallon, the price of this water can be well over $10 per gallon -- and we willingly pay this price when in most cases we could get a cold drink of water for free.  And yet we blanch at $4 per gallon gasoline.  Talk about a paradox.

Some of this water comes from as far away as Fiji, and some is bottled from the municipal water supply.  The price isn't driven by the cost of the container or the cost of transporting the water from the well head to our refrigerator.  And it certainly isn't driven by the scarcity of the product or unique control over the essential natural resource or the value of some proprietary technology for finding and bottling water.  Bottled water readily commands a price that is more than twice that of a gallon of premium gasoline because of some intangible emotional response between the consumer's world view and the value proposition wrapped around their perception of battled water.   In some cases it has to do with the simple convenience of ready portability in an off-the-shelf container.   In other cases it has to do with an emotional response to staying clean and healthy by, for example, avoiding chemical additives such as fluoride or chlorine often found in tap water.

The point here is that bottled water does not seem to be a price point sensitive substitute for tap water.  One is delivered directly to your home for free while obtaining the other requires a trip to the store and a cost of $10 per gallon.   Viewed from the vantage of the emotional laden perceptions that drive economic value and what consumers are willing to pay, these are obviously quite different products.

My contention is that understanding this paradox and how different goods are in fact valued by consumers provides the key to overcoming our energy policy dilemma and, in turn, can provide the basis for an openly competitive and vibrant international market for energy resources for the 21st century.  But that final leap is for Part III of this post yet to come.

Inefficiencies in International Energy Markets and the Search for a New Paradigm for the Value of Renewable Resources -- Part I

Regular readers will have noticed the lack of recent posts -- I've been too busy with business lately to blog.  I always keep a running list of potential blog topics, but unfortunately many of the short pithy ones are related to some immediate event in the news that makes them relevant, and once the moment has passed without the opportunity to sign on and put a post up, they no longer seem quite so pressing or interesting.

Since I don't have as much time these days to get at it, I thought I might try to tackle instead one of the big ideas I've been noodling about.  It's a work in progress and will need to be laid out in several parts, but I wanted to begin to get some of these thoughts out there on one of the huge issues of our day for any comment or further thinking that it may stimulate.  I'm afraid at times it may seem more like theoretical economics than international business, but my thinking begins and ends with the topic of this blog -- where and what are the opportunities for businesses in the international marketplace.  In this case the specific international market I'm focused on is energy resources, production, and whatever it takes in the way of services and equipment to support those markets.

Oil Cartels and the Impact of Market Inefficiencies

One of the critical inducers of economic turmoil in the world today is the historically high and continually escalating price of oil and the myriad of products and services derived from or dependent upon oil whose own cost structure is adversely impacted.  At first blush it is easy to explain much of this by the simple supply and demand dynamics in the international markets for crude oil -- as a finite natural resource, the supply is continually being depleted while the high octane industrial growth of emerging markets such as China and India are simultaneously pumping up demand.  Higher prices are the natural and inevitable consequence.

The problem with this simple explanation is that for supply and demand to drive price in such a predictable way, it assumes that the market is free, efficient and competitive.  In reality the vast majority of currently producing oil reserves are in countries with relatively autocratic governments which, not surprisingly, view their oil reserves as a key strategic and political asset.  The means of production are not under the control of freely operating private enterprises responding rationally to the price mechanism created by supply and demand.  Instead, these resources are controlled largely by governments themselves or government controlled corporations whose decision making is directly and usually not so subtly influenced by their domestic political and economic agendas.  As such, the international energy markets seem to be anything but bastions of free, open and competitive trade that would allow for the efficient distribution of resources across borders. 

Without an openly competitive international market for energy resources, it is at best difficult to determine how much of the high price of oil is due to the predictable market dynamics of supply and demand and how much is due to engineered inefficiencies tied to some country's or cartel's own political agenda.

In a functioning market, of course, the price elasticity of demand would result in the development of alternative energy resources as substitutes for high priced oil.  The problem is that, even at currently inflated oil prices, currently feasible alternatives are still not economically viable in a free market governed by rational returns on investment, and even less so if one considers social costs such as the massive despoliation of land and visual pollution associated with large scale solar or wind farm projects or the risk of a nuclear plant malfunction or disposal of radioactive waste.  The risk of investment in these alternative resources is further exacerbated by the fact that because the current high prices for oil are not truly the result of competitive market forces, the controllers of the oil reserves potentially could engineer a price decline sufficient to wipe out the value of any investment in alternative energy just when it was looking promising, pulling the rug out from under the entire economic rationale for substitute energy sources.  Anyone who saw the boom and subsequent collapse of the shale oil industry here in Colorado in the 1980's knows how this fool's game is played.  

Thus, as the international energy markets currently function, those of us in net oil consuming countries are damned if we do and damned if we don't.  We can either continue playing the losing game of consuming a finite product subject to inevitable depletion but priced low enough to prevent the rational development of economic substitutes while fluctuating at high enough levels to pose an on-going threat to our economic well-being, or we can make what by any rational economic estimation remains a bad financial investment in alternatives subject to potentially high and insufficiently accounted for social costs and a near certain collapse of the price support creating what financial rationale for the investment does exist in the first place.

We are trapped in a box that makes it nearly impossible to formulate a rational energy policy on which even a majority of intelligent and clear thinking individuals can agree.  It seems to me in pondering this dilemma that the only way out of the box is to make a paradigm shift in how we understand and respond to the market for and economics of energy resources and production.  And with that steep and craggy climb in sight, I will pause before picking up again in Part II of this post.

The United Nations Speaks Out for Free Trade -- At Least When It Comes to the Global Food Supply

Among the many positive attributes of the United Nations, and I think there are many, I wouldn't normally include a penchant for free trade.   Sure it's an international body and by its very nature is on the leading edge of political globalization, but when it comes to commerce, like most government funded bureaucratic oriented institutions, my impression of the UN is that it favors public regulation and oversight.  It was for this reason that I found some of the official comments made at the UN summit on the global food crisis held this week in Rome to be both surprising and a bit heartening.

The participants at the summit of course argued over the multitude of contributing causes to the current problems resulting from the recent run up in the prices for basic foods which, as noted elsewhere in this blog, imposes a more egregious penalty on poor nations whose populations must spend a far higher percentage of their incomes on basic necessities.  These causes include increasing demand by the growing (both in numbers and in wealth) populations of India and China, the energy policies of nations such as the US which are using subsidies and government mandates to move agricultural product from food source to the raw material for bio-energy production, as well as localized weather phenomena that affect local food supplies.

But the number one cause zeroed in on by many of the participants, including UN Secretary General Ban Ki-moon, was the refusal of governments to allow free trade in the import and export of food supplies.  As quoted in a report from Reuters, Ban complained that "[s]ome countries have taken action by limiting exports or by imposing draft controls."  He argued (correctly I might add) that this "distorts markets and forces prices even higher."

Similarly, while defending his country's bio-fuel policies, Brazilian president Lula da Silva decried what he described as "intolerable protectionism" -- a phrase I never thought I'd hear said in a positive vein at a UN summit.  Succinctly stating the case that I think would be made by most rational economists who study international trade theory, Lula da Silva went on to state that "[s]ubsidies create dependency, breakdown entire production systems and provoke hunger and poverty where there could be prosperity. It is past time to do away with them."

While it is encouraging to hear such sound economic analysis providing the framework for a UN summit, I hope that the august members of this body remember that these comments apply equally to other goods involved in international trade, not just the food supply.  The next time there is reason to decry the impact of the globalization of commerce at an environmental or labor oriented confab, it would be helpful if these same international governmentalists keep in mind their own arguments to the effect that protectionism, whether through government mandates, trade restrictions or subsidies, distorts markets, causes higher prices, breaks down entire production systems, and provokes poverty where there could be prosperity. Strong but wise sentiments.  

Responding to the Earthquake in China -- Global Companies, Global Customers and Global Responsibilities

One of the things that great companies have in common, or at least companies that are great at product development, marketing and customer service, is that they have a genuine empathy for their customers.  This inherent customer centric view allows them to anticipate and respond to customer wants and needs even before the customer has asked.  Talking with the leaders at these companies, it becomes clear that they care about their customers as people.

As a result of this, another phenomenon you can observe at companies such as this is that they tend to be active in the community in causes that are important to their customers.  One can be more or less cynical about this, but my observation is that at truly good companies, their sense of social responsibility is not a contrivance to ingratiate themselves to their customers but stems from a genuine desire to have a positive impact on their customer's lives.  As a result, they naturally support the good works that are important to their customers -- they raise money for the childrens' hospital, they sponsor the community little league, their employees organize crews to work on habitat for humanity houses.

One of the things that happens when a business goes global, of course, is that your customers become international, and if you are as genuine about your customers abroad as you are about your customers at home, you will find the call to grow beyond just being good citizens in your local community to being good citizens of the world.

Now I would think that anyone with a conscience feels for the victims of the recent earthquakes in China, but if you have a company or you individually are doing business in China, and you aspire to be great in that endeavor (and if you don't aspire to be great at it, what's the point -- to be mediocre at it?), then you should feel a particular pull to respond to this need.  So here's my suggestion -- go to the China Esquire China Law and Business Blog.  Read its ongoing coverage of the earthquake and more importantly go to the specific post entitled "More Ways to Help in the Aftermath of the Earthquake - Updated".  You will find numerous ways to help out including links to a host of charities supporting the relief efforts, at least one of which should appeal to your sensibilities.  I used the site yesterday to navigate to the American Red Cross where I was readily able to immediately make a donation specifically to its efforts directed toward the China earthquake victims.

Now that your business is international, the community that you should give back to is a little bit bigger.  And there are lots of opportunities to give back -- starting now.

Can Today's Mis-educated High Schooler Become Tomorrow's Global Leader?

Among the concerns with secondary education today is that in teaching to the lowest common denominator dictated by standardized tests, the average American high school student is woefully undereducated in subjects critical to the world of the future (and today of course), particularly math and science. Add international trade to the list of subjects in which a good education is lacking.

I have the pleasure of serving as a mentor in a program for students attending one of our local large urban public high schools.  We were catching up this morning on how things were going in his geography class.  When I asked what they were working on, I was momentarily pleased to hear that they were studying international trade.  My pleasure turned sour when I asked what he was learning about global trade.  His answer:

Basically we're learning how international trade is good for rich countries like the United States, but that it's really hurting the poor countries in the world.

I guess I should have seen that coming.  I asked whether there is much class discussion or whether it was primarily lecture from the teacher.

There's discussion . . . but since we don't really know anything about it other than what our teacher tells us, basically what we discuss is how harmful trade is to the poor countries in the world.

My mentee's teacher is not alone of course in substituting a belief in a political ideology for a grounded understanding of international economics and business.  An example of this school of thought is found in Antonia Juhasz's book "The Bush Agenda, Invading the World One Economy at a Time"  in which the author argues that the only country benefiting from globalization is America to the point that she believes that globalization itself is a conspiracy between the U.S. government and its large corporations to use global economics as an express arm of foreign policy enabling the U.S. to assert its hegemony on the world without having to resort to strictly military means.

There are a number of aspects of this view that strike me as odd -- not the least of which is that in this presidential election season the two liberal candidates are bashing international trade and calling for the renegotiation of agreements such as NAFTA claiming that international trade only helps other countries while harming the U.S.   And in the strange bedfellows department, this anti-trade chorus is joined by right wing pundits such as Lou Dobbs who in his utterly wrong headed diatribe entitled "Exporting America", argues that the only people benefiting from globalization are foreign countries which are taking advantage of what he sees as a conspiracy of greed driving American corporations to export jobs and to undermine the very existence of the American way of life.  It seems that quite a number of ideologues outside of this teacher's classroom think international trade is bad for exactly the opposite reason -- that it is bad for the U.S.  [The coexistence of these contrary ideological views of the role of the United States in world trade is discussed in a slightly different context in an earlier post entitled "Ben Bernanke on the Benefits of Globalization".]

I also wonder how my mentee's geography teacher addresses the real world juxtaposition of the experience of countries such as China and India when contrasted with countries such as North Korea or Myanmar.   Not too long ago, both China and India had nationalistic policies that isolated them from world markets.  They were also among the world's poorest countries.   Since fully embracing international trade, of course, they have become shining examples of the ability of expanding markets to produce widespread economic opportunity to a previously destitute population.  Meanwhile countries such as North Korea which have regimes that continue to isolate their people from world markets in order to keep the citadel walls around their autocracies remain countries with the most abject poverty.

My student told me that his teacher particularly focused on poor countries in Africa as examples of how international trade keeps poor countries under the boot heels of wealthy nations.  As discussed elsewhere in this blog, interestingly the problem many countries such as those in Africa have with making headway in a global marketplace isn't international trade, but the lack of free trade.  The principal products that many of these countries could naturally export in order to gain the currency necessary to participate in international trade are agricultural.  But it is in agriculture that the wealthy nations are most protectionist both in terms of subsidies to their domestic agri-businesses and tariffs on the import of agricultural goods from elsewhere.  This is exactly the problem that the Doha round of trade talks is trying to address -- talks repeatedly scuttled by the wealthy nations' insistence on protectionism, not the existence of free trade.

I suppose it would be too much to ask that a teacher broaching the subject of international trade begin by imparting an understanding of the theory of comparative advantage and then allowing students to examine case studies of how the theory plays out for better or worse in the real world and then see where an objective discussion on the subject leads from there.  In any event, global commerce is a significant part of the world dynamic that future leaders need to understand and be comfortable with, and if our education system in this area concerns itself with political ideology rather than established trade theory and practice, our future in this regard will not be so bright.

So here's a few suggestions:

• Business organizations (chambers of commerce, World Trade Centers) and individuals engaged in international business might volunteer time and resources to support secondary education in the area of global trade and economics;
• College degree programs aimed at future teachers might include more substantive education in international economics and business as a core subject;
• Secondary schools might offer a course in business and economics rather than leave the subject up to ill-prepared geography and social studies teachers to cover as an aside to other topics such as the comparative wealth of nations. 

If suggestions such as these were to be implemented, I would be saved from having to dispense the wimpy advice that I ultimately imparted to my mentee this morning -- since my role in this particular program isn't to provide an alternative education, but rather is to help the kid get through high school, after suggesting some alternative ideas on international trade, I counseled him that usually with teachers such as this, the way to get a better grade is to parrot the teacher's political view point.  My charge was happy with that advice, particularly since the only information he has on the subject is what he was told by his teacher -- which is where the problem starts in the first place.

What It Took for an American Icon to Become #1 in China -- Another Lesson in Global Marketing

Regular readers of this blog know that from time to time we've examined whether global companies have the power to impose standardization upon foreign markets (ala Ted Levitt's original conception of globalized business), or whether the most successful global competitors are those that can adapt their products and business models to work in the face of divergent cultural tastes and norms.  Looking at global behemoths such as Disney and Wal-Mart, leading edge product platforms such as My Space and industry trends such as micro brews and the beer industry, the conclusion seems to be that the modern world of information driven consumerism has changed the game since Professor Levitt's seminal article in the Harvard Business Review.  As with everything else in the internet age, customer specific customization seems to present the winning formula.

The latest example of this that I've seen is the experience of Kraft Foods selling it's iconic Oreo cookie in China.  The Oreo has long been my personal favorite store bought cookie -- so much so that when my kids were little, Oreos were called "Daddy Cookies" in our house.  Particularly dunked in milk, they are almost the perfect snack food.  If there were any product I can imagine that should sell itself anywhere in the world just by getting people to try it, this would be it.

Alas, in the world of global consumer tastes and preferences, such is not the case.  Kraft, the world's second largest food seller began marketing the Oreo in China in 1996 (84 years after it was first introduced in the U.S.).  Like many "can't miss" products, it in fact struggled.  It was too sweet for the Chinese palate.   The packaging offered too many at too high a price to be seen as a good buy.

Kraft's efforts under CEO Irene Rosenfeld to become more entrepreneurial in its market approach is highlighted in an article in last Thursday's Wall Street Journal entitled "Kraft Reformulates Oreo, Scores in China."   As profiled in the article, a team led by Shawn Warren who took over Kraft's push in China in 2005 completely reworked the product to the point that a Chinese Oreo would be virtually unrecognizable in the U.S.  It is a reduced sugar concoction rolled around a combination of vanilla and chocolate creme and dipped in a chocolate coating.  The thing that it shares in common with its American namesake is that it is now the country's number 1 selling snack cookie. 

As I think about this story, it seems to me there are two distinct approaches for a company looking at entering international markets -- are you trying to find foreign markets for your existing U.S. products, or are you trying to expand and diversify your company into global markets.  If it is the former that you seek, then you need to be careful to vet the wants and needs of consumers in particular markets to be sure that they align with the value proposition used to sell your current products.  If you are seeking to accomplish the latter, however, aspiring to be a truly global company instead of an American company with products that are sold overseas, then you need to be flexible and innovative in designing products that are right for the markets you are seeking to enter.   Understanding this critical difference may require some initial soul searching that in my experience most companies don't do an adequate job of before taking the plunge into international markets.