Lunch with Dr. Theo Weigel

On the first of October, Professor Michael Czinkota hosted a private lunch with Dr. Theo Weigel at the McDonough School of Business, in collaboration with the Washington D.C. office of the Hanns-Seidel Foundation. Dr. Weigel served as the German Minister of Finance from 1989 to 1998, in the Cabinet of Chancellor Helmut Kohl. He was instrumental in the creation of the European monetary union, and the common currency. He was accompanied by a team of delegates that included his wife, Irene Epple-Weigel, the former alpine skier and Olympic medalist, and their son, Konstantin, a law student in Munich. Also part of the delegation was Richard Teltschik, the Director of the Hanns-Seidel Foundation in Washington. Georgetown University was represented also by Professors Thomas Cooke, Ricardo Ernst, Charles Skuba, David Walker, and Lee Pinkowitz. Also in attendance were three students – one from the McDonough School of Business, and two Masters candidates from the Walsh School of Foreign Service. Additional visitors came from the Hanns-Seidel Foundation and the German Embassy.

The lunch was inaugurated by Professor Czinkota, who gave a welcome address that included an introduction of Dr. Weigel’s many accomplishments. Following this, Dr. Weigel addressed the attendees of the lunch. He discussed his experiences with the creation and establishment of the Euro, relating both facts and anecdotes. One such story was of how the common currency came to be known as the “Euro,” rather than the other alternatives under consideration at the time, such as the Frank, Mark or ECU. He vehemently denied the common perception that the Euro was Germany’s reward of others for support of reunification, asserting that the two momentous events were planned and executed separately. Dr. Weigel talked about the fall of the Berlin Wall and the reunification of West and East Germany, at what was the eve of the 25th anniversary of the reunification. Yet it was not only German history that was discussed at the lunch, but also contemporary German politics and European current affairs. The issue of the refugee crisis in Europe was explored by Dr. Weigel as well as the other participants. Dr. Weigel believes that Germany can absorb the current volume of incoming refugees, approximately 800,000, for one year (possibly two). This will help the German economy, which is currently facing a demographic shortage of working-age and job-seeking citizens. Any absorption of refugees beyond this number, however, would end up harming the German economy.

For more than an hour, issues such as U.S.-Germany relations, collaborations and perceptions by the youth of the two countries, and Germany’s leadership role in the world were addressed in the question and answer session following Dr. Weigel’s speech.

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Volkswagen Crisis – A Lesson in Trust

By Michael Czinkota

The Volkswagen crisis, triggered by misleading emissions measurements, has reinforced the idea that truthfulness and simplicity are pillars of international marketing and integral to a business’ public face. The (formerly ?) largest car global manufacturer in terms of sales has been accused of fitting defeat devices into its diesel cars in the United States that can discern when the vehicle is undergoing emissions testing and turn on full emissions control for that duration. Once the testing is over, however, the emission controls are switched off and allow the cars to emit between ten and forty times the regulation standard of nitrogen oxide. Since this deception has come to light, Volkswagen’s stocks have crashed, with shares falling 38% in two days. This initial loss to investors and the brand alike showcases the importance of truthfulness in business operations.

Businesses are constrained by the nations and societies in which they operate. Their standards of conduct should ensure their business activities are beneficial to the people and society. Companies that are seen to violate such expectations will see their trustworthiness diminished. Reduced trust results in tangible losses for the company in terms of fines and costs of recall, and also causes the public to censure the company via strongly diminished sales. In order to regain the trust of the consumers, Volkswagen must engage with both short and long term measures.

Already, Volkswagen has taken important steps to punish those responsible (either directly or via neglect) for the violation of the emission standards and the disappointment of the public’s trust. Within five days, CEO Martin Winterkorn has resigned, although he denies having any knowledge of the wrongdoing. Additional heads will roll, with lay-offs signaling to the public that the company expects adherence to high standards of behavior, and is not lenient on those that break the social contract. Volkswagen has also set aside 6.5 billion euros ($7.3 billion) to cover the costs of recalling the cars with the defeat device, as well as any other damages. Together with future direct and indirect costs, this step curtails the company’s profits for years to come. Yet it goes a long way in indicating that Volkswagen is ready to accept responsibility and do what it must in reparation of the betrayal of the trust which customers and governments had placed in the company.

Public trust is an important determinant of a society’s willingness to allow international firms to do business in their nations. Volkswagen will have to rebuild this broken trust, and reinforce the values of truthfulness and simplicity in its workings. No longer will VW consumers allow the company’s real activities to be shrouded in complexity, or permit the lines of truthfulness to be blurred. For Volkswagen, standards will be scrutinized more and enforced more sharply. Its ways of doing business must become more transparent and understandable by the public. For a company that is at the heart of Germany’s manufacturing and export economy, and thought to reflect the social responsibility and consciousness of its home country, this active misleading of regulations and claims is a shock for supporters and customers, particularly those who bought a VW diesel to help the environment. Also affected is the general German reputation for fine workmanship and honesty – in other words all fellow firms doing business in and from Germany. The economic downdraft which results from the misstep also major collateral damage. For example, missing billions of revenue means that money targeted to help the migrants in Germany, will be much less available.

Volkswagen now will have to prove itself anew as an honest partner, and engage in curative marketing to heal the wounds. Doing so will be a very expensive uphill task, considering the magnitude of the deception and the corresponding stain on the “People’s Car”. Best wishes to the firm and its workers.

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View on migrants entering Hungary

Hungary has been the spotlight of the news recently with reports of the maltreatment of migrants entering and passing through the country. While I do not agree with the drastic measures taken, Hungary’s short-term solution is mainly about concern for its own economic stability.

I spoke with CCTV’s Asieh Namdar regarding my thoughts on the issue. You can view the video here: http://youtu.be/A6X4m-aWP-8

Hungary Deserves Our Attention

I just returned from a visit to Hungary, focused on the country’s market thinking and practice. I find Hungary to be a long term partner and deserving of our support.

I was impressed by the breadth and depth of the courses offered by the Corvinus Hungarian Business School, which does not play second chair to most U.S. universities. The admissions process, the scoring of applications, the transparency of decisions, and the competition for seats, were heartening indications of a market economy.

Society now clearly offers a service orientation. At the airport there was good help with baggage and a distinct pride in the service rendered. My taxi service was metered with no unsolicited detours. After a major thunderstorm in Budapest, people were on the street within minutes to clean up the damage. Bravo! When a guest had trouble walking in my hotel, the manager personally drove short distances between buildings for meals. In stores, employees no longer hide to keep the customer at a distance, but approach with a smile and an offer of help. A recent investment by Mercedes Benz re-affirms the auto cluster formation in Hungary. Some of these positive shifts were perhaps present earlier, but were not as ingrained as they are now.

There are shortcomings: In downtown Budapest buildings still have damage from bullets and grenades. These reflect the wounds of conflicts past, but they also indicate the underfunding of renovation efforts – particularly when it comes to public buildings in prime locations. Some funds allocated for public works disappear with limited impact on their designated purpose – which many attribute to corruption. Health care is limited and requires ‘tips’ paid to doctors. Ignaz Semmelweis, one of Hungary’s medical heroes, was always in favor of clean hands!
BN-JB601_hungar_J_20150624071544Immigration represents a major burden. I observed the human flow between Serbia and Hungary, a 200 kilometer long green zone. Groups of 30 to 50 women, children and men slowly walk across the border. The local chief of police shrugs, since he neither has the manpower nor the physical resources to round up or process the waves of humanity. There is talk that in the first six months of 2015, more than 60,000 people entered Hungary from Serbia. Right now, they aim to settle in Germany, France or Britain. The march through Hungary encounters an ostrich policy of “carry on and ignore”. But The people who immigrate are worn out and not any less hungry because they’re in Hungary. To rest, or feed themselves, they trespass on property and take food. Locals are weary and talk about organized protection for their harvest. Growing pressures and complaints risk sparks in a tinder box.

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The government responds with very limited resources. Right now, a wall is being built to restrain the immigration flow across the most accessible border areas. Complaints, ignore Hungary’s need to contain the threat of conflict. Proactive steps need to be accompanied by targeted help from abroad.

For centuries, Hungary has been too far East to be part of the West, and too far West to be integrated into the East. Throughout its history, there have been long term occupations by the Tatars, Ottomans and Austrians. The treaty of Trianon, removed large portions of Hungary’s population and resources. During the Cold War Hungary kept conditions at least lukewarm with its Gulyas communism, and was often at the forefront, for example, with its 1956 revolution against the Soviet Union, and the opening of its borders to escaping East Germans.

I return cautiously impressed by a country which needs our help, and more yet, our understanding. Hungary’s history and traditions point the nation towards the West. By acknowledging its many accomplishments, and by making allowances and providing support for further change, we can help Hungary, the immigrants and the reformation of Europe.

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Too much Information for Germans and Americans

By Michael Czinkota

The intelligence communities on both sides of the Atlantic (and probably the Pacific too) are reeling. Major accusations are levied about the inappropriateness and possibly even illegality of their data collection efforts. Going far beyond the Edward Snowden revelations, the claim is about systematic industrial espionage, with data scooping far in excess needed for the battle against terrorism. German chancellor Merkel Germany is accused of either having approved industrial espionage assistance provided to the U.S. by the German Federal Information Service, or of not having kept up with such assistance practices by Germany’s secret trolls.

The accusations do not differentiate between the collection of information and the subsequent usage of the information. Information gathering is akin to panning for gold. One does not know what is there until one has it. Here can be indications, impressions, rumors, suggestions – but what matters in the end is what one actually has in hand.

Once information is available, the question becomes what to do with it. Here it is important to remember the purpose and rationale for the collection process, which can cover issues ranging from nuclear non-proliferation to safeguarding against terrorism, or tracking of potential attacks. There is temptation to think of secondary uses for new knowledge, particularly when it could be worth hard percentage points on the competitiveness scale, such as new insights on hydraulics, or new genetic understandings of agricultural production.

Such possible collateral data benefits, which were not (or should not have been) part of the original collection plan, represent high temptation for abuse, and can lead to an abyss of distrust. Once discovered there is psychic distancing between governments, and growing legal uncertainty for firms who have received and used information. What may appear like a good deal now, may, in future lay the foundation for massive punitive payments which could lead to ruin.

New heydays for attorneys and notaries follow as well, since all sides want to be protected. Transactions slow down and become more expensive because counsel needs to be consulted and more participants provide input, for a price. Clandestine information inflow makes collaboration more difficult and reduces the ability to develop far reaching visions. One can’t always attribute new insights to late night eureka moments.

Just because something can be done does not mean that it should be done. Particularly in the international realm it is important, just as it was centuries ago, to be known as an Honorable Merchant whom others can trust and join in collaboration.

On the German-American information collection side there are few problems: Reinhard Gehlen, Germany’s spy chief of last century’s fame, writes in his memoirs in the late 1960’s about the permanent U.S. right to collect data in Germany. Even without any agreement, such sharing of insights is still reasonable today.

An analysis of the use of collected data (or lack thereof) can benefit from German literature. Franz Kafka’s “The Trial” shows how non-transparent information in the hands of public authority can diminish humanity. Max Frisch in his “Arsonists” explains the danger from evildoers who are not restrained in their actions. Unless society is sensitive to these issues, otherwise, Frisch concludes, the house will burn.

Using information obtained for sovereign protective purposes to enhance corporate competitive advantage, is wrong. Doing so, distorts market signals to investors, producers and customers. These signals provide free nations with economic superiority, capabilities and innovation. Those who manage information on terrorists have no advantage in providing information to businesses.

Government actions can push firms in directions which they would not have taken, to everybody’s detriment. We have seen such distortions for computer chips in the past, and in solar technology at present.

We live in an era of transition. Entirely new ways for information collection and use are becoming possible. We all have to learn to understand new conditions and expectations. The economic dimension is important but not the only dimension leading to societal and individual content. Those that collect, use, and distribute data must clarify their purpose at least internally, already early on obtain insights from data use specialists, and attain agreement on collaboration and then stick to the plan. Otherwise the benefits which look good now will come back to haunt us all later. The German and American governments and firms deserve better.

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This has been published in the Sri Lankan Guardian.

Prof. Czinkota (czinkotm@georgetown.edu) teaches international business and trade at Georgetown University’s McDonough School of Business in Washington D.C. He served as Deputy Assistant Secretary for Trade Information and Analysis in the U.S. Department of Commerce during the Ronald Reagan Administration