Here you are, visiting the ever beautiful London, when you come across a shop with the most beautiful pair of shoes in the window. You notice they’re designer, vintage even, and in the perfect condition, and look, the price says £150. That’s reasonable you say, until you get to the counter to pay for the shoes, only for your mom to point out that £150, is actually $200 in U.S. dollars. This is called an “exchange rate”.
AKIN OYEDELE for Business Insider
“Our global growth forecasts continue to drift down, and we are cutting 0.1 percent off our 2015 forecast this month, and now look for global GDP growth of 2.8% this year and 3.3% for 2015 (at current exchange rates),” Buiter wrote. “This is the second consecutive monthly downgrade to our 2015 growth forecast, while in total we have cut our 2014 forecast by 0.5 percent (from 3.3% to 2.8%) since January.”
Buiter’s 52-page note offers commentary on every major economy covered by Citi’s army of economists. We highlight a few of the viewpoints for 36 major economies in the Americas, Europe, Asia-Pacific, and Africa. We also include GDP growth forecasts through 2018.
US economy forecast
“Improving consumer and business fundamentals, along with supportive financial conditions (including a massive rise in wealth) are pointing to a solid 3 percent (or better) growth in the next few quarters,” writes Citi’s Peter D’Antonio. “The rebound in growth, especially in private domestic demand, should help drive the unemployment rate below 6 percent later this year.”
In each one of these stages, firms have different concerns. For example, at the
awareness level, firms worry mainly about information on foreign markets and
customers. At the interest stage, firms become concerned about the mechanics of
exporting such as packaging or shipping. During the export tryout, communication,
supply chain management, and the sales effort become key considerations. At
evaluation time, regulations and financing take on greater importance. In the
adaptation stage, service delivery and control are major issues.
As a firm moves through these stages, unusual things can happen to both risk and
profit. Management’s perception of risk exposure grows. During domestic
expansion, the firm has become more familiar with the market, and has seen its
risk decline. During international expansion, the firm encounters new factors such as currency exchange rates,, greater distances, new modes of transportation, new government regulations, new legal and financial systems, new languages, and cultural diversity. As a result, the firm’s actual risk increases. At the same time, due to the investment needs of the exporting effort, in areas such as information acquisition, market research, and trade financing, the immediate profit performance may deteriorate. Even though eventually international market familiarity and diversification effects will reduce the risk and increase profitability, in the short and medium term, managers may face an unusual and perhaps unacceptable situation: rising risk accompanied by decreasing profitability. In light of this reality, and not knowing whether there will be a pot of gold at the end of the rainbow, many executives either
do not initiate export activities or discontinue them. Therefore, a temporary gap in the working of market forces exists. Government export assistance can help firms over this rough patch to the point where profits increase and risk heads downward. Bridging this short-term market gap, which lasts typically for 2 to 3 years, is the key role of export assistance, and the major justification for public sector involvement.
Exports are important. Yet, why should firms be enticed into exporting through the use
of public funds? Profit opportunities for exporters should be enough of an
incentive for firms to export. To explore this issue, I will use our Georgetown University research, which was initially published in the AMA Journal of International Marketing. First off, it is helpful to understand the export process within the firm. Typically, firms evolve along different stages to become experienced exporters. They start out being uninterested in things international. Management frequently will not even fill an unsolicited export order. Should international market stimuli continue over time, however, a firm may move to the stage of export awareness, or even export interest. Management will begin to accumulate information about international markets and may consider the feasibility of exporting. At the export trial stage, the firm will fill selected export orders, serve a few customers, and expand into countries that are geographically close or culturally similar to the home country. At the export
evaluation stage, firms consider the impact of exporting on overall corporate
activities. Unless initial expectations are met, the firm is likely to discontinue its export efforts, seek alternative international growth opportunities or restrict itself to the domestic market. Success will lead the firm over time, to become an export adapter, make frequent shipments to many customers in more countries, and incorporate international considerations into its planning.
By: Michael R. Czinkota