Balance trade by boosting exports through government promotion

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import_tax_0The Trump administration is attempting to lower imports in order to rebalance trade after decades of U.S. neglect toward economic relationships around the world.  Rebalancing should not only be done by applying the stick of import reductions, but also by export promotion.

Exports make a firm’s markets grow and change its home nation’s currency value. When U.S. exports increase, the dollar typically goes up in value.Shrinking exports tend to weaken the dollar. Exports also shape public opinion of globalization and offer the opportunity for economies of scale.Higher production volume often means a lower cost of production.Since high exports also make imports cheaper, a firm may achieve lower costs and higher profits, both at home and abroad, through exports.

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9/11 In remembrance: Terrorism and International Business

TERRORISM AND INTERNATIONAL BUSINESS:

Michael R. Czinkota, Gary Knight, Gabriele Suder.

The airplanes of 9/11 forced countless multinational corporations (MNCs) to update their strategic planning.  Our work with executives at more than 150 MNCs shows that more than ten years later, companies are still grappling with how best to manage the terrorist threat.

In the two decades before 2001, the rate at which firms launched international ventures was growing rapidly. After 9/11, foreign direct investment fell dramatically as firms withdrew to their home markets. The popularity of international-sounding company and brand names decreased appreciably as managers now emphasize domestic and local affiliations.

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Trade Implication of the Product Cycle

Product cycle theory shows how specific products were first produced and exported from one country but through product and competitive evolution shifted their location of production and export to other countries over time. Figure 3.4 illustrates the trade patterns that Vernon visualized as resulting from the maturing stages of a specific product cycle. As the product and the market for the product mature and change, the countries of its production and export shift.

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The product is initially designed and manufactured in the United States. In its early stages (from time t0 to t1), the United States is the only country producing and consuming the product. Production is highly capital-intensive and skilled-labor intensive at this time. At time t1, the United States begins exporting the product to other advanced countries, as Vernon classified them. These countries possess the income to purchase the product in its still new-product stage, in which it was relatively high priced. These other advanced countries also commerce their own production at time t1 but continue to be net importers. A few exports, however, do find their way to the less-developed countries at this time as well.

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International Logistics, Part 4 : Management of International Logistics

The purpose of multinational firm is to benefit from system synergism. Therefore the coordination of international logistics at corporate headquarters is important. Without coordination, subsidiaries tend to optimize their individual efficiency but jeopardize the overall performance of the firm.

Centralized logistics Management

If headquarters exerts control, it must also take the primary responsibility for its decision. To avoid internal problems, both headquarters staff and local logistics management should report to one person. This person can then become the final arbiter to decide the firm’s priorities. Of course, this individual should also be in charge of determining appropriate rewards for manager, both at headquarters and abroad, so that corporate decisions that alter a manager’s performance level will not affect the manager’s appraisal and evaluation. Further, this individual can contribute an objective view when inevitable conflicts arise in international logistics coordination.

Decentralized Logistics Management

If a firm serves many international markets that are diverse in nature, total centralization would leave the firm unresponsive to local adaption need. If each subsidiary is made a profit center in itself, each one carries the full responsibility for its performance, which can lead to greater local management satisfaction and to better adaption to local market conditions. Yet often such decentralization deprives the logistics function of the benefits of coordination.

Contract Logistics

A growing preference among international firms is to outsource, often referred to as contract or third-party logistics (3PL) Most companies have outsourced at least one major logistics function such as customs clearance, transportation management, freight payment, warehouse management, shipment tracking, or other transportation-related functions. The main thrust behind the idea is that individual firms are experts in their industry and should therefore concentrate only on their operations. 3PL providers are experts at logistics, with the knowledge and means to perform efficient and innovative services for those companies in need. The goal is improved service at equal or lower cost.

Logistics providers’ service at equal or lower cost. Logistics providers’ services vary in scope. Some may use their own assets in physical transportation, while others subcontract out portions of the job. Certain other providers are not involved as much with the actual transportation as they are with developing systems and database or consulting on administrative management services. In many instances, the partnership consists of working closely with established transport providers such as the FedEx or UPS.

One of the greatest benefits of contracting out the logistics function in a foreign market is the ability to take advantage of an existing network complete with resources and experience. One of the main arguments leveled against contract logistics does not and should not require the handing over of control. Rather, it offers concentration on one’s specialization – a division of labor.

 

Hungary’s Unacknowledged Leadership

Hungary has a strategic position in the heart of Europe. The country offers a highly developed logistics system. Its traditional role as a trading post makes it important as a regional production and distribution center.  Porsche, General Motors, and Audi are now producing many of their cars in Hungary – with other suppliers working for and close by. A recent investment by Mercedes Benz re-affirms the auto cluster formation in Hungary. The significant development of industries like information technology, electronics and automotive has attracted Foreign Direct Investment (FDI) at a rising rate.  Hungary’s acceptance as a member of the European Union and the Schengen Zone further boosted its own and its European partners economic, social and political development and stimulated more R&D activities.

All this is now jeopardized because of major EU internal strife over immigration policies. I observed the early stage of human flow between Serbia and Hungary which was then a 200-kilometer long green zone. Groups of 30 to 50 men, women and children slowly walked across the border. The local chief of police shrugged since he neither had the manpower nor the physical resources to round up or process the waves of humanity. In 2015, more than 400,000 people entered Hungary from Serbia, aiming to settle in Germany, France or Britain. The march through Hungary used to encounter an ostrich policy of “carry on and ignore”. But the people who immigrate were worn out and not any less hungry because they were in Hungary. To rest, or feed themselves, they trespassed on property and took fruits and other food. Locals were weary and talked about organized protection for their harvest. Pressures and complaints are like sparks in a tinder box.

The government of less than 10 million Hungarians has only limited resources to respond to the clashes. A wall has been built to stop the immigration flow across the most accessible border areas. The public response in Europe to Hungary’s defensive measures have been complaints, accusations of government over reaction, and lack of sympathy towards restriction of mobility. Prime Minister Orban, a democratically elected head of government was accused of a lack of sentimentality and guilty of behaving like a political winner (DUH)!

Today, Hungary is again encountering its traditional environmental ambiguity. In history, the country has been too far East to be part of the West, and too far West to be integrated into the East. 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 of clamoring for change, for example, with its 1956 revolution against the Soviet Union, and the 1989 opening of its borders to help escaping East Germans.

Again Hungary has been an early proponent of the need to monitor refugee access to a country for purposes of justice, information, planning and control. Given its small size and population, repercussions of new factors are simply felt more quickly and demand more rapid actions than for nations which have lots of reserve resources to deal with new conditions. Even those players eventually recognize the need for new policies.

Accusing the Hungarians of inhumanity for their regulation of migration is unwise. To protect nations many walls have been built: just think of the Roman Hadrian or the Chinese Qin Shi Huang 2000 years ago. Walls are still being built today, by Austria, Serbia and now also by Turkey. Doing so is not a disregard for human lives, but rather an institutional requirement for control of the distribution of resources. Even Herculean effort is to provide food, shelter and security for migrants can fail if there is no timely count and assessment of human needs and the direction of the massive flow of people. It has not been sensible to overburden Hungary with expectations and demands for accommodative actions which, as we can see now, has shaken up major countries as well. In today’s times, leaders are all-to-often confronted with asymptotic conditions, where they encounter major demands for actions by outsiders who are shouldering neither the political burden nor are paying for all their wonderful suggestions. Later on, those who earlier decried and dismissed responsible government action often turn about and imitate the once so deployed steps. Particularly in groups of nations which disagree about idealistic policies, one winds up with the unfortunate constant of politics: foresight and early implementation of corrective action has no international payoff. No gratitude, no memory, no long term, no acknowledgment, just like an unhappy couple.