How should we measure the winners?

The recent Olympics presented some interesting perspectives on competition: How do we find out who is actually winning? Is performance to be measured by wealth (medals), by leadership (Gold only) or by industry competitiveness (e.g. gymnastics)? Should the progress over time play a major role, or the number of winners as a proportion of population?

In business terms, the expression ‘competitiveness’ is viewed differently by different parties.  For example, for a firm, competitiveness means expansion, growth and profits. Whether any of these originate in or outside of a ‘home’ country plays a secondary role. When governments assess the competitiveness issue, the search is for employment growth, wide income distribution and tax revenue, and location is important for all of them. Individuals, in turn, think mainly about whether or not they will keep their jobs and have their standard of living increase. For them, location is not just one thing, it is the only thing.

Sport contests reflect capability, enjoyment and the creation of goodwill, but there are other facets as well. Performance on the sports field can affect and even transform the national spirit. It is hard to forget the national triumphant feeling in the United States in 1980 when the U.S. ice hockey team beat the Soviet Union in the same year the Soviets invaded Afghanistan.

International sports performance can also be a political gesture and a test of national virtue. For example, four decades ago when President Richard Nixon and the U.S. ping pong team visited China, the US-Sino relationship was officially established. At that time, China was considered an emerging economy and a Chinese excellence in a rather narrow sport was not seen as significant.  Now, although the U.S. is still the largest economy in the world, China is catching up and China’s teams receive global attention.  Its economy is the second largest in the world and its market is the U.S.’s third largest export destination, after Canada and Mexico.

The composition of trade between the two countries, just like the composition of the winning teams at the Olympics, has changed and demonstrated that the two economies have become more integrated than expected.  In fact, China is the only nation which imports U.S. products at the level President Obama envisioned in 2009 when he postulated that U.S. exports should double in five years. U.S. top exports to China are some agricultural crops, but also electronic and mechanical appliances, chemicals, and transportation equipment such as automobiles and airplanes. China is now General Motors’ most important market.

When China imports those manufactured goods, it assembles them and then ships them to other markets around the world, including to the U.S. market. If China’s exports drop, the demand for U.S. goods will also drop, leading to a slower growth of U.S. exports (just like the participation of fewer athletes in the Olympics makes for less interesting games).

Rule changes also have a great effect on competition. In the Olympics, the definition of what constitutes an ‘amateur’ has changed over time and has led to an increase in the number of full time athletes and to an improvement in individual performance. Similarly, what counts as a performance enhancing drug matters a lot and can lead to the disqualification of athletes. The business equivalent here is the value of the Chinese currency. Even though the Renminbi has depreciated in the last few months, many see the currency value as a determinant of Chinese competitiveness and therefore a primary issue that needs to be changed.  Similarly, export control systems in both countries take on a growing role and sometimes even appear to play out in a “tit-for-tat” game. For example, when the U.S. curbs high-tech product exports to China, China limits its rare earth exports in return. Just when the two economies are becoming deeply integrated, the US-China relationship is fraying, says former secretary of the treasury Henry Paulson, Jr.

It seems that policy decisions were more easily made when China was still a third-world country and the U.S.’s leading position was not challenged. With China moving up the scale economically and politically, there is the temptation to view China as a potential threat and adversary. However, just like the Olympic rivalry for medals, the issue to argue over should not be who has the largest overall GDP, or who exports more to whom. The world economy is becoming increasingly integrated, and we should not look for development and leadership in all fields, but rather in fields of specific capabilities and advantages.  Just as with the Olympic Games, it doesn’t matter who wins the largest number of medals; what matters is that preparation and training, competitive encounters, and excellence can lead to a more inspired and better world.

*by Professor Michael Czinkota and Eva Y. Tang from Georgetown University.

Weekly News – Russia Joins WTO

Source: WTO Website

Russia will become the 156th WTO member from August 23, a month after President Putin signed into law a protocol ratifying the country’s accession to the WTO.  Then, Russia is expected to lower import taxes and open its market.

The news of Russia’s acceptance to the WTO was praised by U.S. government. According to Office of the United States Trade Representative, Russia’s membership in the WTO brings significant commercial opportunities for U.S. exporters in several sectors, such as agriculture, high-tech products, services, and retails. (www.ustr.gov)  A House committee also approved legislation to ease trade relations with Russia. (www.businessweek.com, July 26, 2012)

How Russia will handle its WTO membership remains unveiled. But it is certain that Russia is paving its path toward a more rule-based system and a more open economy. United States Trade Representative Ron Kirk stated that Russia’s acceptance to the WTO marks a historical event in the evolution of the WTO and the global trading system. With the last country of BRIC entering the world trade arena, we are expecting to see a more integrated world economy that provides important opportunities for international business and trade.

WTO Members Meeting Updates – Cocoa and Chocolate

At the WTO Sanitary and Phytosanitary (SPS) Measures Committee meeting on 10 – 11 July 2012, several countries raised their concerns about EU’s recent decision to amend its regulation on maximum levels of cadmium in chocolate, milk chocolate and cocoa powder. They believe the move threatens their exports and the livelihoods of smallholder cocoa farmers.

According to a report published by Journal of Occupational Medicine and Toxicology, cadmium is a type of heavy metals which may accumulate in the kidney, inducing kidney dysfunction, skeletal damage and reproductive disorders. However, its maxim amount of allowance varies among individuals depending on their diets and health conditions. [1]

The concern, first raised in October 2011, is elaborated in a paper from Cameroon, Colombia, Ecuador, Ghana, Mexico, Nicaragua and Peru, and is also supported by Guatemala, Dominican Rep, Venezuela, Cuba, Jamaica and Costa Rica. The EU agreed to listen to all the concerns at the meeting.

For more information: WTO News and Updates

Next WTO members meeting will be on 17–18 October 2012.

  1.  Godt, J., F. Scheidig, C. Grosse-Siestrup, V. Esche, P. Brandenburg, A. Reich and D. A. Groneberg,  The tocity of cadmium and resulting hazards for human health.  Journal of Occupational Medicine and Toxicology. 2006 ;1:22. doi:10.1186/1745-6673-1-22.

U.S. Trade Policy – Past, Present and Future

Historically, U.S. trade policy has not been very helpful to exporters. Congress typically intervened by restricting, rather than liberalizing trade flows. Concerns mostly focused on helping other nations get their feet back on the ground. Now American managers need some better track shoes.

Today, exporters face new conditions. Technology has reduced global distance. The cultural diversity of American overcomes psychological distances between countries. Immigration brings expertise and encourages new business activities abroad. Increased knowledge reduces the burden of foreignness when going international.

Trade imbalances generate new export opportunities, sometimes of the two-faced Janus type. For example, the U.S. trade deficit makes it much cheaper to shop a container to Asia, than to bring one from there into the U.S. But a greater flow of gods to Asia will likely raise shipping prices. A lower dollar makes it easier to export, but also reduces U.S. purchasing power.

During the past 40 years, the largest U.S. trade growth was in imports – that’s where the money was. For those looking to international markets today and tomorrow, the shoe is on the other foot – the exporters will have it. Now it is the U.S. turn to export – both a challenge and obligation to U.S. firms and government.

Meanwhile, trade distorting subsidies need to be curtailed. Exports need to be the result of capability and responsiveness to international needs. Our trading partners need to accept that exports and imports do not happen in a vacuum. They are linked and their desire for market preservation requires their interest in a strong U.S. economy enhanced by U.S. exports.