News from the USTR: Trans-Pacific Partnership (TPP) Negotiations

On July 25th, 2013, strong progress had been reported about the TPP negotiations that ended that same day. Japan was welcomed into the negotiations while TPP leaders hope to reach agreement by the end of the year.

The United States’ goal of this agreement is “to advance a 21st-century trade and investment framework that will boost competitiveness, expand trade and investment with the robust economies of the Asia Pacific, and support the creation and retention of U.S. jobs, while promoting core U.S. principles on labor rights, environmental protection, and transparency.”

Yes Virginia, the Ham Is Chinese (Part 3)

Another concern is more xenophobic.  Many Americans are worried about lessened American competitiveness and the rise of China. There were similar concerns about the wave of Japanese cars and the purchase of iconic real estate by Japanese investors in the 1980’s and 1990’s.  In fact, the success of Japanese brands, like Toyota, Honda, and Nissan, was mostly positive for Americans, particularly for consumers, as it was accompanied by new capital, more sophisticated domestic manufacturing, new product ideas, and, eventually,  improved competitiveness of American car companies. Now individual states in the U.S. have learned to compete to attract manufacturing and services company investment in their communities. No reason not to expand such activities into the agricultural sector as well.

Of even more interest is the reverse flow, where international investments have a spillover effect on home country markets. Why not eat Hunan pork with Smithfield ham during a picnic at the Yangtze river? What pork other than Smithfield’s should be specified when planning the Chinese  government-subsidized opening of  restaurant chains in Africa ? The Smithfield acquisition opens new markets both for the Chinese investors as well as for American ham. Such is the path of true globalization.

The recent meeting between Presidents Obama and Xi Jinping demonstrated, that the United States and China have more to gain from a cooperative, albeit competitive, rather than a conflict based relationship.  Given President Xi’s experience as a student living in Iowa, we can hope that he is instinctively more likely to be drawn to the value of a asymptotic relationship with the United States, rather than one based on abrasive disagreement.

One of the principal motivators for the deal from Smithfield’s point-of-view, was the ability to more successfully sell its products to the huge Chinese market. That such an approach can work is seen in the acquisition of European car-maker Volvo by the Chinese company Zhejiang Geely Holding in 2010.  Not only is Zhejiang looking to profit from the existing global business of Volvo, but it is also expected to help the brand further penetrate the Chinese market, the largest and fastest growing automobile market in the world.

This article is a part of a series written by Michael Czinkota and Charles Skuba. Read part 2 here.  Guest writer Charles Skuba teaches international business and marketing at Georgetown University. He served in the George W. Bush Administration in trade policy positions in the U.S. Department of Commerce.

No More Silos! (Part 5)

The New Transatlantic Trade and Investment Partnership (TTIP).

Andreas Pinkwart, former minister of science, technology, research and innovation, and now president of Handelshochschule Leipzig in Germany, said that if innovation and free trade are maintained, they will stimulate open borders. He sees negotiations on agriculture as a key impediment to progress in a transatlantic partnership but expects its success.

The TTIP, a newly inaugurated trade negotiation between the United States and the European Union may lead to further open export markets, expand the U.S. and E.U.’s investment partnership, address non-tariff barriers, and increase cooperation on issues including combatting discriminatory localization trade barriers and promoting SMEs’ global competitiveness.

The three key challenges that the partnership must address are climate problems, terrorism and economic imbalances. Also, the TTIP collaboration will serve well as a political and economic counterweight to China, even though the European Union and the U.S. combined are likely to soon have a lower GDP than China.

Speaking on behalf of the German government, Peter Fischer, head of economic affairs at the embassy of the Federal Republic of Germany, suggested strong encouragement of a TTIP. Since the E.U. and the U.S. are the largest economies in the world, their collaboration could only strengthen world trade, in particular with a convergence of regulatory approaches. Results would be achieved within 18 to 24 months, he said.

Howard Fogt, a partner at Washington, D.C.-based law firm Foley & Lardner LLP who specializes in international trade regulation, took issue with such a time frame. He believes that the implementation of an agreement would be long, slow and expensive. Politically, he sees the leadership for a TTIP as emerging from the bottom, if major movements are to be achieved. He also stated repeatedly that culture matters and economics cannot be negotiated by itself, particularly when fundamental issues such as food are to be discussed. (For example, the acceptance or rejection of hormone-injected beef demonstrates national differences.)

This article is a part of a series written by Michael Czinkota and Charles Skuba who report on the March 2013 meeting on trade policy and international marketing, a collaboration between the American Marketing Association, Georgetown University and the U.S. International Trade Administration. View part 4 hereGuest writer Charles Skuba teaches international business and marketing at Georgetown University. He served in the George W. Bush Administration in trade policy positions in the U.S. Department of Commerce.

No More Silos! (Part 4)

Export Promotion and Assistance.

Charles Ford, acting assistant secretary for trade promotion and director general of the U.S. and Foreign Commercial Service, spoke about new export insights generated through research and analysis. Of all the U.S. firms that export goods, 58% only ship to one country and another 25% only export to two or three countries. If the skills, competence and competitiveness are already there, then such firms should be encouraged to serve more countries around the world.

Export assistance to large exporters suggests the largest yields of governmental support efforts, yet large exporters need help the least. Small and medium-sized firms can use the support most but often are uninformed and disinterested in engaging in exporting.

Based on World Bank data, $1 dedicated to export promotion generates up to $40 in actual exports. A new strategy intends to achieve exports by investing in the United States, particularly by making use of existing and growing university networks in export promotion.

Caroline Freund, a chief economist for the Middle East and North Africa region in the World Bank who specializes in international trade and finance, reported on research on firm size effects on export success. She found that there was little evidence of rapid growth from small to large exporters. Rather, exporters tend to be already large when they start with the export effort. Most of the trade is seen to take place on an intra-industry level, and more than one-third within firms. The top 1% of firms in a country typically carries out 80% of the export work, and export activities are characterized by a very high market entry and exit of firms, according to her research.

This article is a part of a series written by Michael Czinkota and Charles Skuba who report on the March 2013 meeting on trade policy and international marketing, a collaboration between the American Marketing Association, Georgetown University and the U.S. International Trade Administration. View part 3 hereGuest writer Charles Skuba teaches international business and marketing at Georgetown University. He served in the George W. Bush Administration in trade policy positions in the U.S. Department of Commerce.

What Drives Globalization? Part 4/4

Globalization is driven by four factors:

  1. Cost
  2. Market
  3. Environment
  4. Competition

Competition:

To remain competitive, global rivals have to intensify their marketing everywhere by attempting to sustain advantages that, if weakened, could make them susceptible to market share erosion worldwide. Competitive companies introduce, upgrade, and distribute new products faster than ever before. A company that does not remain ahead of the competition risks seeing its carefully researched ideas picked off by other global players.

Leading companies drive the globalization process. There is no structural reason why soft drinks should be at a more advanced stage of globalization than beer and spirits, except for the opportunistic behavior of Coca-Cola. Similarly, German beauty products maker Nivea is driving its business in a global direction by creating global brands, a global demand for those brands, and a global supply chain that helps the company meet those demands.

Nonetheless, the four global drivers have affected countries and industrial sectors differently. While some industries, including paper and soft drinks, are truly globally contested, some others, such as government procurement, are still closed. Commodities and manufactured goods are already in a globalized state, while many consumer goods are accelerating toward more globalization. Similarly, the leading trading nations display far more openness than low-income countries and that openness is advancing the positive state of globalization in general.

This is an excerpt from Dr. Czinkota’s book Global Business: Positioning Ventures Ahead, co-authored by Dr. Ilkka Ronkainen.

Michael R Czinkota and Ilkka A Ronkainen, Global Business: Positioning Ventures Ahead (New York: Routledge, 2011), pg. 92.

 

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