When it comes to business, there is more than one important facet to creating a successful and productive company. Most importantly, is the part culture plays. Think about it. Culture, defined, is an integrated system of learned behavior patterns that are characteristic of the members of any given society, and culture is thus shared through various groups of shared interests. Essentially, it’s the things people share together; language, social cues, behaviors, religions, and even various attitudes and manners that are accepted. In order to produce a successful business globally, you must learn these special aspects of culture, otherwise, you risk not only embarrassing yourself, but loosing an important deal.
President Trump has issued a new executive order focusing on international cheaters, who do not pay their debts due to dumping penalties. The order targets the problem of unpaid special customs duties known as “Countervailing Duties” (CVD), levied on products from companies found guilty by an “anti-dumping” investigation.
First to the jargon: “Dumping” refers to a type of predatory trade practice. In its simplest form, it amounts to a company selling a product in a foreign market for less than it costs to make it. In theory, the goal of “dumping” is to drive down the price, and in doing so, muscle out smaller, weaker competition in order to later establish a monopoly status on that market. Under the rules of the World Trade Organization, dumping is a prohibited practice, and countries are permitted to levy special taxes on goods found to be unfairly dumped in their market in order to rebalance the price level. These tariffs are called “Countervailing Duties”, abbreviated as CVD.
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.