Prof. Czinkota is presenting collectively with Prof. Gary Knight and Prof. Zaheer Khan the latest research on International Marketing and Migrant Owned Enterprises. Click on the link to view slides highlighting insights from their research!
After six decades of communist rule in Cuba, the island is now governed by someone outside of the Castro family for the first time since the 1959 revolution. The new leader, Miguel Diaz-Canel, was vice president and a provincial party chief.
Many believe that the political and economic status quo of the Caribbean nation is unlikely to change. However, lessons from the business world indicate that any change in an organization’s key leaders ushers in a new era for a company.
Whether it’s an acquisition, merger or the appointment of a new CEO, these transformations usually carry enormous repercussions for key functions.
New priorities are typically manifested by new promotions, new players, new rules and new aims. In turn, this results in shifting financial conditions, new private developments and new service assortments.
When applying such transition effects onto countries, one could argue that there is an opportunity for President Trump to act decisively in formalizing and normalizing trade relations with Cuba if conciliatory and meaningful changes are made.
For example, changes could be made so that there are no longer higher hotel rates for Americans than for Europeans, as well as no more ongoing accusations or regurgitation of historic events that have long passed.
Curative International Marketing, a theory developed at Georgetown University’s McDonough School of Business, directly addresses past errors and focuses on long-term restitution and improvements.
Such a move would advance U.S. businesses and their strategic interests while allowing Cuban citizens to operate in the private sector independent of the communist regime.
So far in the Trump administration, the opposite tactic has been taken by restricting American travel and trade with Cuba, which is a reversal of President Barack Obama’s policies.
A pro-business posture allows for increased commercial relations (beyond cigars) that would be more effective in countering the interests of the Cuban military’s monopoly in business.
This policy would empower private Cuban entrepreneurs by eliminating their dependence on the Cuban state apparatus and open them up to U.S. leadership and influence in the region. Private success over public ventures would speak volumes in favor of new economic and social thinking.
As a first measure, restoring the capacity for U.S. citizens to schedule individual visits to Cuba, which was eliminated in 2017, should be considered.
The potential economic boon for Cuba’s tourist industry could eventually stimulate growth in both the U.S. and Cuban economies. Also, this measure would promote democratization and bolster innovation and an entrepreneurial spirit in Cuba.
The recent promising developments in the Korean Peninsula indicate that diplomacy rather than deterrence can advance American interests in places where ideological and strategic divisions run deep. As the White House approaches a deal in East Asia, it could apply the lessons learned from the North Korean negotiations closer to home in Cuba.
President Trump’s acumen for dealmaking can face an ultimate test in Cuba. Opening conversations — and trade — with the island could mark a vast improvement in the bilateral relationship. Hopefully, the American people can look forward to the use of politics that shapes a future good for all of us.
Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent.
Lisa Burgoa of the School of Foreign Service contributed to this commentary.
Here is my televised discussion with China Global Television Network’s Elaine Reyes on the possible outcomes for the US-China trade deal, following the agreement on Saturday. Enjoy!
Offsets: One answer to International Trade Imbalances
Michael R. Czinkota
When foreign governments shop for defense supplies, they are not solely motivated by price and quality. In light of the trade balance effects of major acquisitions such as aircraft or defense products, international customers often require U.S. vendors to purchase goods from them in order to “offset” the trade balance effects large purchases have on their trade flows. In light of enormous U.S. trade deficits, it is time for the United States to reciprocate with offset demands of our trading partners. Frequently we find ourselves in conditions where foreign sales to us are major and our sales to importers and their nations are minor. This leads to trade relations which are out of kilter. U.S. firms have accommodated foreign offset demands for decades. Now is the time when some give-back by our trading partners is the right medicine to improve world trade imbalances.
Offsets are industrial compensation arrangements demanded (so far only) by foreign governments as a condition for making major purchases, such as military hardware. Sometimes, these arrangements are directly related to the goods being traded. For instance, the Spanish air force’s planes – American-made McDonnell Douglass F/A-18 Hornets – use rudders, fuselage components, and speed brakes made by Spanish companies. U.S. sellers of the planes have provided the relevant technology information so that Spanish firms are now successful new producers in the industry. Under offset conditions, U.S. companies also often help export a client country’s goods go international, or even support the performance of tourism services. For example, the ‘Cleopatra Scheme’ allowed foreign suppliers to Egypt to meet their agreed upon offset obligations through package tours for international tourists.
In 2015, U.S. firms entered into 38 new offset agreements where they agreed to cause purchases with 15 countries valued at $3.1 billion. In 2017, the total U.S. trade deficit was $566 billion after it imported $2.895 trillion of goods and services while exporting $2.329 trillion. No country has a bigger trade surplus with the United States than China. In 2017, the U.S. deficit with China climbed to its highest level on record, amounting to a gap of $375 billion.
Eliminating imbalances is a core component of the Trump administration’s international economic policy. One policy approach has been the threat of tariffs against China,. One effective supplemental strategy could be the instigation of offset agreements with major trade surplus nations.
For instance, many American imports that contribute to the trade deficit are capital goods, such as computers and telecom equipment. An offset agreement between China and the United States could require China to use American-made components, perhaps even from Chinese owned plants. An example could be the export of Smithfield ham from the U.S. to be served in company cafeterias in China. Then there are excellent opportunities for Chinese tourists, particularly if equipped with high-spend budgets.
The American trade deficit is not easily resolved. Government would be well served to explore non-traditional options in order to develop more than one fulcrum for leverage. New use of offset agreements – which have provided our trading partners with past success at our expense – could help revitalize American industries and bring a new sense of balance to trade relationships. Our government should encourage offset commitments by foreign firms and countries who sell a lot to us. America deserves to reap the benefits!
Michael Czinkota (firstname.lastname@example.org) teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent, U.K. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE). Lisa Burgoa contributed to this commentary.