Going Global

WellB-ing -- Every Business is a Global Business

Another long delay between blog posts, but the pandemic notwithstanding, it's been a productive interlude.   Some of the time was spent building on my book "Go Glocal" featured in the last post.  That involved more speaking engagements (many by Zoom over the past two years) and also led me into developing a curriculum now used to help immigrants and refugees start businesses connected back to their countries of origin.

Apart from being connected to my book on international market development strategy, the I&R course was also a part of a larger project I've been working on for the past 10 years or so -- that being teaching business to non-business people.   As our economy has shifted over the past 2 decades, many more people are starting their own businesses, whether as a side hustle or in an attempt to work on something they're passionate about rather than simply working for a paycheck (not that there's anything wrong with that -- I've certainly done both in my career).     

The work I have done on teaching business to non-businesspeople, has most recently led me to my newest entrepreneurial venture -- it's called WellB-ing and while I've created a number of resources, including a free eBook and a free YouTube channel, it is centered around an online course, The Aligned Practice Accelerator, teaching business to holistic and alternative wellness practitioners (acupuncturists, massage therapists, and similar practitioners).

An article appearing in Medium discussing why this group of small business owners is so in need of a targeted class on how to run their businesses can be found here:  "I set Out to Pursue My Passion and Wound Up Running a Small Business .  .  . Help!" 

At first blush, this doesn't sound like much of an international business, but it is on both ends of the supply chain.  The course sits on a platform owned by an Israeli company.  My project manager for the course development is in South Africa -- a big reason things like Zoom aren't going anywhere even as the pandemic fades.

As importantly, once a service is online, its available everywhere -- and there are of course massage therapists and acupuncturists and herbal medicine practitioners and yoga teachers and skin care professionals all over the world.  Even having spent a career traveling the globe, I was genuinely surprised by the diversity of geographies represented by people looking into the course.

I know of and indeed work with small business owners who find themselves in the same position -- they're focused on delivering a product or service and build an online presence, and while market reach is certainly a driver of the business model, going global is not. 

Now here's the kicker -- in my international market entry work, I talk a lot about not being an accidental exporter -- winding up servicing people in markets just because you happened to find yourself there.  Intentionally selecting your target markets may be the single most important step in developing a successful international strategy as it allows you to be intentional about everything from cultural issues around branding and value creation to critical regulatory and logistics issues crucial to your success.  And yet, having been focusing on the course development aspects and having defined my market by my customers' professions instead of where they live and work, I am an accidental exporter. 

So as this new business gears up, I need to step back and take my own advice.  Next step is to do some intentional planning around the geographic reach of our branding resonance and customer support logistics.  As I say repeatedly to my international clients, focus resources on the markets where you can realize the greatest success.    

Go Glocal: The Definitive Guide to Success in Entering International Markets

I haven't been very regular in blogging of late . . . but now I've done the next best thing, or maybe even gone one better -- I've written a book on entering new international markets.  The book, published by Lioncrest Publishing was released April 11, 2018.  It's available in paperback and a Kindle eBook edition on Amazon -- you can buy it here.  

The book is based around a few big picture strategic imperatives, illustrated by real world stories, and supported by lots of practical advice on how to successfully implement those strategies.

The 3 big big strategic ideas are:

1. To be successful in a new market, you need to be able to translate what makes you successful in your home market to a different cultural context. Because the very notion of value is inherently cultural, you can't just assume that what your existing customers find valuable and how you deliver that value will work in a new foreign market.  You need to proactively choose the markets which are the best fit for your business if you want to maximize your chances of success.
2. To sell your product or service abroad, you will almost certainly need to change some elements of what you sell and how you deliver it to your customers.  Those changes will reverberate throughout your organization, cascading down through product development, operations, sales and marketing, customer service, finance, HR, and legal.  You need to make sure your company is aligned with your international strategy in advance or you can experience dissonance in your corporate culture and disruptions in your operations which will not only undermine your new venture, but could very well damage your existing business.
3. The one thing that will allow you to sleep at night when doing business in sometimes distant markets is to know that you are doing business with good people who share your goals and with whom you've developed a solid relationship based on mutual trust.  Developing this kind of relationship requires an understanding of the impact of cultural context, including differences in communication styles, notions of value, and attitudes toward things like time and identity.

The book is NOT an academic tome.  It is a practical business book meant to be easily read and digested by business people, whether small entrepreneurs, "c" level executives at larger companies, or people directly responsible for exploring and developing new international markets.  It is intended to impart a few big strategic insights and provide executable tactics that will greatly increase the probability that a business of any size will be successful in entering new international markets.

So if you have found anything of value in my blog posts, by all means, buy the book!  I think you will find it helpful in ensuring your business's success in new international markets.

 

China: What are the opportunities today?

It wasn't all that long ago that opportunities for building business in China seemed to be everywhere as the booming economy created a voracious appetite for all things necessary to support that growth.  China is still growing at an enviable pace, but perhaps because of that growth, while some areas of opportunity have expanded, others have disappeared. 

I used to work with quite a few domestic manufacturers of basic industrial equipment and commercial goods who could easily find a market for their products so long as they did what was necessary to develop good relationships, to create a solid brand position, and to stay on top of the rapidly evolving demands of the Chinese customer.  Today I think it's fair  to say that China is more than capable of producing all the basic goods it needs and has an inherent cultural affinity for domestically sourced goods on that account.  But as those opportunities have largely dissipated, new opportunities have opened up.

As China's upwardly mobile consumer class has expanded, they have shown a considerable appetite for opportunities to showcase that upward mobility.  As a result, there is a strong market for recognizable luxury goods -- brands by which others can appreciate the owner's status.   And while these certainly include all the usual luxury names in cars, watches, clothes and accessories, a broader idea of what can constitute a luxury good is also present.  Starbucks, which has been very successful in China, for example, is essentially a luxury good --  a small affordable luxury that communicates one's ability to pay a fancy price for something more than a simple cup of coffee.      

Another area of opportunity is high tech, high sensitivity equipment -- things like navigational avionics for aircraft. The Chinese are more than happy to make the basic parts, but they seem to prefer imported tech.   Not too many Chinese have said it to me, but my sense is that they too are wary of the Chinese business ethics problems that can plague reliability.  As beautiful as the Chinese high speed trains are, for example, the important components are made in France.

Speaking of issues with quality control, another area of opportunity is in the food space.  I've worked with one company in China whose entire business model is to sell nothing but imported food to cater to middle class Chinese who are willing to take risks, but not with the health and safety of the food they eat.  The owner of this company is hopeful for the day when he can stock Chinese food items alongside his other fare, but that day hasn't arrived yet.     

China has always been a market that is about much more than just a lot of people.  As with any market, it is critical to understand the unmet needs and the cultural and political contexts underlying those needs.  

Russia, Soup, and the Challenges of Emerging Markets

Russia makes a lot of people's lists of hot growing markets into which American companies should expand.  It is the "R" in BRIC, the acronym describing "must be in" emerging markets -- the others being Brazil, India and China.  Emerging markets, even hot ones, however, can present a unique challenge for companies who have forged their product success in a developed market like the US.

As discussed previously in this blog, Russia is essentially a first generation capitalist economy, and one which by some measures seems to be backsliding into more state control such that much of the growth one sees in the economy as a whole is in govrnment dominated industries such as energy development.  Coupled with problems like the kind of coruption and relative lack of well devloped commercial legal constructs that can create problems in many developing economies, Russia can be a challenging market in which to actually turn a profit.

Perhaps the biggest challenge facing companies from developed markets when entering devloping markets, however, is a failure to appreciate the different cultural orientation toward certain developed market value propositions such as "fast, easy, labor saving" driven by the opposite relationship between the cost of labor and the cost of goods in producing final outcomes.  When the cost of labor is high and constitutes a greater relative cost than other inputs, fast and easy equals cheaper and more profitable -- it's a winner.  But when the value of labor is cheap, including the value of an individual consumer's own labor, compared with the cost of goods, then saving labor by incorporating those costs into a finished product through mass production doesn't translate into a winning proposition.

The latest example of a company to learn this lesson is Campbell Soup -- the iconic maker of concentrated soups and broth.  What could be easier than just add water, heat and serve for a quick meal.  Campbell launched into Russia with high expectations 4 years ago -- expectations based on the fact that Russians consume 32 billion bowls of soup a year versus only 14 billion consumed in the US.  Seems like a no-brainer -- a soup company with it's soup in an easily exportable form looking to a "hot fast growing" market of positively ravenous soup consumers.  In theory a market over twice the size of their US market.

The problem is, Russians like to make their soup themselves from scratch.  Some of this is a long ingrained cultural preference which is always a challenge to sell in the face of.  Another part is the fact that the value of their labor time is less relative to the cost of goods so that saving time in making soup is just not good home economics.  As a result, Cambpell just announced, as detailed in an article in today's Wall Street Journal, that it is exiting the Russian market and completely shutting it's operations there.  No report on how much money they lost over the 4 years invested there. 

So the lesson for other companies thinking about building a new market presence in a developing economy -- even one of the hot BRIC's -- is to be sure that your value proposition translates into the new cultural and economic environment that you will find there, and to be realistic about the real size of the market opportunity for your product.  If your success in your home market is based on "fast, easy, labor saving", you might be better off in western Europe or Japan.  

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.

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.  

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.

Presidential Primary Edition -- The Candidates, the Parties and Their Positions on Global Trade

This will be my only post for February, but the truth is it has taken all of February to research and write and it's been a moving target.  I started before Super Tuesday when each party had at least 3 candidates whose positions needed to be evaluated.  When time got away from me, it turned into an analysis of where we stood with the candidates still standing after Super Tuesday.  Well it's time to get it done for better or for worse, so having evaluated the candidates' positions on their official websites, as quoted in news stories, and as revealed in their voting records as public officials I've shortened up the analysis. In the end this is probably a good thing anyway -- let's face it, if you're looking to an international business blog to get a handle on where the candidates stand on global trade, you're looking to shortcut some of the detailed analysis anyway.

I should stress at the outset that this is not a political blog, but a blog about international trade and business -- and while I feel that international trade and relations is a critical issue for the US and its soon to be new president, there are certainly a great many other issues that can drive a legitimate difference of opinion over who is the best candidate.  Accordingly, this is not an endorsement column, but I did think it might be a good time to at least look at the remaining candidates' records and stands around international trade.

First off, as a general matter, it used to be that the Republican Party was pro-trade and the Democratic Party tended to be more protectionist given its traditional base of support among labor unions.  On the one hand Bill Clinton, the first Democrat to have been elected to two successive terms as president since FDR, was very much a free trade supporter having spent considerable political capital championing the passage of NAFTA.  At least among Democrats who share Bill Clinton's perspective, there seems to be a realization that the US needs to lead in the world and that exercising that leadership role requires active engagement with the world, and that global commerce is the principle platform on which the engagement will take place -- you need to either play or get out of the game, and they seem to realize that getting out of the game is not an option.

Conversely, the Republican faithful seem to have gone in the other direction.  While I can't lay my hands on the reference, there was a poll reported in the Wall Street Journal last year indicating that over two thirds of Republican's now feel that international trade disadvantages the United States, putting Republican's perspectives on an equally negative footing as the traditional Democratic protectionist view.  As discussed in previous posts, this perspective seems to rest on an unfortunate ignorance of the reality of global trade, but it is this ignorant perception that will nonetheless be forging the GOP platform going into the general election.

Bill Clinton's pro-trade policies notwithstanding, the fact also remains that a great number of the current Democratic leadership are still hostile to free trade. In a post last month on the Economist's View blog, there is a great quote from Alan Blinder in a piece from the NY Times entitled "Stop the World (And Avoid Reality)" in which Mr. Blinder writes:

Opinion polls show that Americans are both weary with and wary of the rest of the world. It’s as if they wish it would all just go away. Naturally, this sentiment is reflected in the current presidential campaign. Among Democrats, it may manifest itself in attitudes toward international trade that range from lukewarm support to outright hostility. Among Republicans, it shows up in attitudes toward immigration — and most things foreign — that border on xenophobia.

So the bottom line is that party affiliation is no guide as to where a particular candidate stands on free trade -- which brings us to the individual positions of the 3 remaining serious contenders and what I can now only describe as a couple of hangers on.

Given the general mood regarding global trade described in Alan Binder's article, I suppose it should be no surprise although it is still disappointing from an international business perspective that none of the candidates address free trade as an issue worthy of consideration on their official websites.  International issues are pretty uniformly cast in terms of the war in Iraq, combating global terrorism, support for Israel, and calls for reform and enforcement of immigration policies.

On the Democratic side, Hillary Clinton comes the closest to suggesting a stand on her official website, labeling one of the substantive issues "Restoring America's Standing in the World".  The discussion it turns out is more around engaging the world on social issues, but her emphasis on the need for America  remaining a "preeminent leader for peace and freedom" through cooperative alliances seems to echo Bill Clinton's view of the need for the US to be affirmatively engaged with the world, avoiding the protectionist jargon that colors so much political rhetoric on international issues.  As discussed more below, however, with the make or break primary in the industrial heartland of Ohio looming, Ms. Clinton's own position on international trade seems to be taking a sharp list on the road to nowhere.

On the Republican side, Mitt Romney (who unfortunately from an international trade standpoint has suspended his campaign effectively dropping out of the race) came the closest to addressing global trade issues on his official website, casting a part of his "Strategy for a Stronger America" as "Winning the Global Economic Competition."  Again, the discussion itself didn't exactly hit the nail on the head, focusing almost entirely on domestic tax policies that Romney promotes as a means of ensuring the competitiveness of American business, but the fact that he sees the issue in terms of competition in a global market of privately held businesses was at least encouraging.  Governor Romney is quoted as follows: "Are we going to stay ahead of the world, are we going to lead the world, or are we going to instead pull up the drawbridge and try to hang on to everything we've got and say we can't compete with the world" -- language reflective of arguments made elsewhere in this blog.

Given the critical importance of global trade to international relations and security and its increasing impact on our own economy, it is both a bit surprising and more than a little disappointing that none of the candidates are willing to address the issue head-on on their official websites other than the somewhat round about indicators on Ms. Clinton's and Mr. Romney's sites.   One would surmise that if the candidates truly believed some of the rhetoric that they use to pander to the protectionist rank and file, they would have no qualms about heralding those positions.  One possible explanation is that being leaders, they in fact recognize that global trade and engagement are real, inevitable and necessary, but rather than antagonize their party base they have decided the better part of political valor is to say nothing at all and hope no one probes too deeply on the question.

Given the paucity of clear positions on their official sites, we can examine their records on the issue.  With respect to voting records, unfortunately Mssrs. Romney and Huckabee (also pretty well out of it at this point), having been state governors but never having held a national office with responsibility for foreign trade issues, do not have any easily identifiable record.  I have not taken the time to this point to investigate with any state trade officials in Massachusetts or Arkansas what positions if any they took on trade related issues as governors.

From his public remarks, one would have to sum up Mr. Huckabees expressed positions as a bit out in left field.  On the one hand he expressed a pastor's compassion for immigrant families, but on trade itself, he has advocated the use of trade sanctions against countries in the Islamic world as retribution for what he sees as their discrimination against Christians.  Somehow further escalating tensions in the middle east and Asia by imposing faith-based and religiously motivated trade sanctions sounds like a step in a very scary direction.  The fact that it looks like we won't really have to answer for that is probably a good thing.

On the other hand, Senator McCain -- the "presumptive" nominee for the Republicans -- has the longest national public record of any of the candidates and therefore has established perhaps the most definitive positions on trade.   If one is pro international trade, McCain has a record to be admired.  According to OnTheIssues.org, the Senator has a near perfect voting record in supporting free trade agreements including NAFTA and even the recently defeated CAFTA.  Last October he gave a speech making the point that "every time the U.S. went protectionist, we paid a heavy price."  Just this month he gave a speech calling for a continued reduction in barriers to free trade, recognizing that "globalization is an opportunity."   

Of the 3 U.S. Senators in the race, Barack Obama has the shortest tenure and therefore a somewhat truncated voting record.  He was firmly against CAFTA.  Although he wasn't around to vote on it, he has made it repeatedly clear that he thinks NAFTA should be reopened and amended to provide more protectionist labor provisions.  In his one departure from a fairly consistent anti-free trade record, he voted in favor of a free trade agreement with Oman.  I'm not sufficiently familiar with the provisions of that agreement to understand what it was that distinguished that agreement from other FTA's in the Senator's mind, but at least it does indicate that he's not anti free trade all the time under all circumstances.

If I had completed this post closer to when I started it, I would have suggested that Hillary Clinton was the most pro free trade of the Democratic contenders including those that have dropped by the wayside.  In addition to the general comments cited from her campaign website above, although she voted against CAFTA, she has voted in favor of quite a few other free trade initiatives including most favored nations status for China, normal trade relations status for Vietnam, free trade agreements with Singapore and Chile, and the removal of many common goods from export restrictions.

Unfortunately, now that she has been forced to fight for survival in the remaining big primaries, she has had to veer back towards the partisan extremes that drive political debate leading up to a party's nomination, and in the case of Democratic activists in an industrial state like Ohio, that apparently means NAFTA bashing.  Although Ms. Clinton applauded NAFTA when her husband championed it during his presidency, and despite the fact that it is probably the single most important free trade initiative ever undertaken by the U.S., she now not only professes to be against it, but seems to feel the need to express shame and remorse for ever having supported it.  At the risk of saying too much, I like Ms. Clinton and think she would make a very good president, and I can think of numerous reasons why it's just plain time to have a woman president, but I do find the backsliding on NAFTA to be disheartening.

So to sum it all up, although Republicans as a group have become increasingly isolationist and protectionist, the party's apparent nominee seems to be very much a free trader, and is willing to go even further in staking out what I think is a sensible but apparently unpopular stance on immigration as well.  Among the Democrats, their records would suggest that Ms. Clinton has a more favorable view of international trade than Mr. Obama, though their pitched battle for the nomination is forcing both of them to skew their rhetoric to play to the protectionists in the labor movement bloc of the party.

Fortunately, each of the 3 remaining serious candidates seem to be bright worldly people.  I have to believe that whatever they may say in the nominating process to appeal to their party's extremes, when faced with the responsibility of leading the free world, they will recognize the benefits to the US of being fully engaged in international commerce and global competition.