The Unspoken Truth about International Business

Language has been described as the mirror of culture. Language itself is multidimensional. This is true not only of the spoken word but also of the nonverbal language of international business.

Messages are conveyed not just by the words used, but also by how those words are spoken and through such nonverbal means as gestures, body position, and eye contact. These nonverbal actions and behaviors reveal hidden clues to culture.

Five key topics – time, space, body language, friendship patterns and business agreements – offer a starting point from which managers can begin to acquire the understanding necessary to do business in foreign countries.

Understanding national and cultural differences in the concept of time is critical for an international business manager. In many parts of the world, time is flexible and is not seen as a limited commodity; people come late to appointments or may not come at all.

In Mexico for instance, it is not unusual to show up at 1:45PM for a 1:00PM appointment. Although a late afternoon siesta cuts apart the business day, businesspeople will often be at their desks until 10 o’clock at night.

In Hong Kong, too, it is futile to set exact meeting times because getting from one place to another may take minutes or hours, depending on traffic.

Showing indignation or impatience at such behavior would astonish an Arab, Latin American, or Asian.

Perception of time also affects business negotiations. Asians and Europeans tend to be more interested in long-term partnerships, while Americans are eager for deals that will be profitable in the short term, meaning less than a year.

Individuals vary in their preferences for personal space. Arabs and Latin Americans like to stand close to people when they talk. If an American who may not be comfortable at such close range, backs away from an Arab, this might incorrectly be perceived as a negative reaction.

An interesting exercise is to compare and contrast the conversation styles of different nationalities. Northern Europeans are quite reserved in using their hands and maintain a good amount of personal space, whereas Southern Europeans involved their bodies to a far greater degree in making a point.

International body language, too, can befuddle international business relations.

For example, an American manager may after successful completion of negotiations, impulsively give a finger-and-thumb “okay” sign. In southern France, this would signify the deal was worthless, and in Japan, it would mean that a little bribe had been requested. The gesture would be grossly insulting to Brazilians.

Misunderstanding nonverbal cues can undermine international negotiations. While Eastern and Chinese negotiators usually lean back and make frequent eye contact while projecting negativity, Western negotiators usually avert their gaze for the same purpose.

In some countries, extended social acquaintance and the establishment of appropriate personal rapport are essential to conducting business. The feeling is that one should know one’s business partner on a personal level before transactions can occur.

Therefore, rushing straight to business will not be rewarded because deals are made on the basis of not only the best product or price, but also the entity or person deemed most trustworthy. Contract may be bound on handshakes, not lengthy and complex agreements – a fact that makes some, especially Western, businesspeople uneasy.

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Excerpt from Fundamentals of International Business, 3rdby Michael R. Czinkota, Ilkka A. Ronkainen, and Michael H. Moffett

Michael Czinkota (czinkotm@georgetown.edu) teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His latest book, forthcoming in October 2018, is “In Search for the Soul of International Business”.

 

 

The truth is Mexico’s new president will be neither socialist nor savior

BY JOHN PRICE AND JERRY HAAR, Miami Herald

Mexico’s newly elected president, Andrés Manuel López Obrador, is the personification of how Churchill described Russia–a riddle, wrapped in a mystery, inside an enigma. How will AMLO / Peje (his nicknames) govern? Even Mexican political analysts seem mystified.

Mexico has lived a century of political stability, dominated by one party, the PRI, and opposition from two established parties: the conservative PAN and leftist PRD. The election of López Obrador is remarkable because his Morena party is new and anti-establishment in nature. AMLO himself is a maverick, whose popularity has grown despite abandoning his own party affiliation three times en route to the presidency. Such irreverence frightening to Mexico’s elite ands exciting to the disenfranchised who thrust him to power.

Fed up with corruption, frustrated by the violence of organized crime, and humiliated by the rhetoric of its gringo neighbor, Mexico is ready to experiment with a leftist president. But can López Obrador deliver the changes voters expect of him? The simple answer is “no”. AMLO will neither destroy the prowess of Mexico’s private sector nor rescue the country from its greatest ails–corruption, insecurity and inequality.

To many, AMLO is an old-school leftist whose ideas were formed in the 1970s oil- rich heyday of the PRI. However, his big government instincts will be constrained by the market economy, by fledgling institutions and by the Mexican voter. Mexicans want justice and security, not socialism. In a global socialism survey conducted by IPSOS in 28 countries earlier this year, Mexicans consistently chose individual rights, competition and capitalism over social justice and collectivism– and they did so well above the global average. Mexicans voted for AMLO to spite the political establishment, not demonize capitalism. In Mexico, disdain for the pro-business PRI or President Trump is not synonymous with a hatred of capitalism or even American enterprise.

When López Obrador narrowly lost the 2006 presidential election, the swing vote belonged to the middle-class Walmart voter who rejected AMLO after he was effectively painted as the next Hugo Chávez. On the campaign trail in 2018, Peje changed tactics. To break through the 25% ceiling of his ardent supporters, he moderated his economic message while doubling down on promises to fight corruption and stand up to Donald Trump. AMLO has sought to assuage voter fears by naming a team of technocrats and business leaders in his future cabinet, and has promised: “no expropriations, no nationalizations”. Furthermore, AMLO pledged to accept the NAFTA that he inherits as president and keep in place Peña Nieto’s energy reforms. As mayor of Mexico City from 2000 to 2006, AMLO formed a successful alliance with Carlos Slim, the nation’s capitalist icon, to rejuvenate the city’s dilapidated historic center. He embraced the private sector while also expanding infrastructure and financing a progressive welfare program.

AMLO inherits a national budget that still relies on Pemex oil receipts for a third of its revenue. US fracking and Saudi-led OPEC acquiescence will keep oil prices low in the near-term, depriving AMLO of any tax bonanza.

In stark contrast to Hugo Chavez’s oil backed bolivar currency, Mexico has no choice but to float the peso, which trades each day at volumes of US$90bn. F/X traders can and will punish the peso at the first sight of reckless policy-making. Both the Central Bank and Supreme Court have evolved into autonomous institutions that serve as useful brakes on presidential power.

Too much concern is paid to the specter of a socialist AMLO. What should really worry investors is his naivete when it comes to tackling Mexico’s Achilles heel: a weak rule of law. AMLO’s proposal to offer amnesty to criminal leaders in exchange for peace is neither politically nor logistically feasible. After 12 years of a narco-decapitation strategy by the Calderón and Peña Nieto administrations, there are literally hundreds of splintered criminal groups reigning chaos in Mexico. Worse still, AMLO has no strategy in place to strengthen federal prosecutorial infrastructure, the most essential weapon for fighting corruption and crime.

Unveiling the enigma of AMLO will take some time, and longer still to judge his tenure as the 58th Mexican President. We predict that Mexico’s sizeable wealth will not be plundered by Morena policies. But disappointment is likely to be felt when voters realize that they elected a president ill-equipped to combat the very issues upon which he successfully campaigned: corruption & security.

JOHN PRICE IS MANAGING DIRECTOR OF AMERICAS MARKET INTELLIGENCE. JERRY HAAR IS A BUSINESS PROFESSOR AT FLORIDA INTERNATIONAL UNIVERSITY AND A GLOBAL FELLOW OF THE WOODROW WILSON CENTER IN WASHINGTON, D.C. THEY ARE AUTHORS OF “CAN LATIN AMERICA COMPETE?”

Price

Mexico’s newly elected president, Andrés Manuel López Obrador, is the personification of how Churchill described Russia–a riddle, wrapped in a mystery, inside an enigma. How will AMLO / Peje (his nicknames) govern? Even Mexican political analysts seem mystified.

Mexico has lived a century of political stability, dominated by one party, the PRI, and opposition from two established parties: the conservative PAN and leftist PRD. The election of López Obrador is remarkable because his Morena party is new and anti-establishment in nature. AMLO himself is a maverick, whose popularity has grown despite abandoning his own party affiliation three times en route to the presidency. Such irreverence frightening to Mexico’s elite ands exciting to the disenfranchised who thrust him to power.

Fed up with corruption, frustrated by the violence of organized crime, and humiliated by the rhetoric of its gringo neighbor, Mexico is ready to experiment with a leftist president. But can López Obrador deliver the changes voters expect of him? The simple answer is “no”. AMLO will neither destroy the prowess of Mexico’s private sector nor rescue the country from its greatest ails–corruption, insecurity and inequality.

To many, AMLO is an old-school leftist whose ideas were formed in the 1970s oil- rich heyday of the PRI. However, his big government instincts will be constrained by the market economy, by fledgling institutions and by the Mexican voter. Mexicans want justice and security, not socialism. In a global socialism survey conducted by IPSOS in 28 countries earlier this year, Mexicans consistently chose individual rights, competition and capitalism over social justice and collectivism– and they did so well above the global average. Mexicans voted for AMLO to spite the political establishment, not demonize capitalism. In Mexico, disdain for the pro-business PRI or President Trump is not synonymous with a hatred of capitalism or even American enterprise.

When López Obrador narrowly lost the 2006 presidential election, the swing vote belonged to the middle-class Walmart voter who rejected AMLO after he was effectively painted as the next Hugo Chávez. On the campaign trail in 2018, Peje changed tactics. To break through the 25% ceiling of his ardent supporters, he moderated his economic message while doubling down on promises to fight corruption and stand up to Donald Trump. AMLO has sought to assuage voter fears by naming a team of technocrats and business leaders in his future cabinet, and has promised: “no expropriations, no nationalizations”. Furthermore, AMLO pledged to accept the NAFTA that he inherits as president and keep in place Peña Nieto’s energy reforms. As mayor of Mexico City from 2000 to 2006, AMLO formed a successful alliance with Carlos Slim, the nation’s capitalist icon, to rejuvenate the city’s dilapidated historic center. He embraced the private sector while also expanding infrastructure and financing a progressive welfare program.

AMLO inherits a national budget that still relies on Pemex oil receipts for a third of its revenue. US fracking and Saudi-led OPEC acquiescence will keep oil prices low in the near-term, depriving AMLO of any tax bonanza.

In stark contrast to Hugo Chavez’s oil backed bolivar currency, Mexico has no choice but to float the peso, which trades each day at volumes of US$90bn. F/X traders can and will punish the peso at the first sight of reckless policy-making. Both the Central Bank and Supreme Court have evolved into autonomous institutions that serve as useful brakes on presidential power.

Too much concern is paid to the specter of a socialist AMLO. What should really worry investors is his naivete when it comes to tackling Mexico’s Achilles heel: a weak rule of law. AMLO’s proposal to offer amnesty to criminal leaders in exchange for peace is neither politically nor logistically feasible. After 12 years of a narco-decapitation strategy by the Calderón and Peña Nieto administrations, there are literally hundreds of splintered criminal groups reigning chaos in Mexico. Worse still, AMLO has no strategy in place to strengthen federal prosecutorial infrastructure, the most essential weapon for fighting corruption and crime.

Unveiling the enigma of AMLO will take some time, and longer still to judge his tenure as the 58th Mexican President. We predict that Mexico’s sizeable wealth will not be plundered by Morena policies. But disappointment is likely to be felt when voters realize that they elected a president ill-equipped to combat the very issues upon which he successfully campaigned: corruption & security.

JOHN PRICE IS MANAGING DIRECTOR OF AMERICAS MARKET INTELLIGENCE. JERRY HAAR IS A BUSINESS PROFESSOR AT FLORIDA INTERNATIONAL UNIVERSITY AND A GLOBAL FELLOW OF THE WOODROW WILSON CENTER IN WASHINGTON, D.C. THEY ARE AUTHORS OF “CAN LATIN AMERICA COMPETE?”

Haar

The New Edition of International Business

Prof. Czinkota is working with Cambridge University Press to prepare the new edition of International Business. Also, Prof. Gupta, Prof. Khan, and Prof. Ronkainen join us for the new textbook!

The new textbook is getting ready! Please keep using the worthwhile eighth edition textbook and enjoy anticipation!

Offsets: One answer to International Trade Imbalances

Offsets: One answer to International Trade Imbalances

Michael R. Czinkota

When foreign governments shop for defense supplies, they are not solely motivated by price and quality. In light of the trade balance effects of major acquisitions such as aircraft or defense products, international customers often require U.S. vendors to purchase goods from them in order to “offset” the trade balance effects large purchases have on their trade flows. In light of enormous U.S. trade deficits, it is time for the United States to reciprocate with offset demands of our trading partners. Frequently we find ourselves in conditions where foreign sales to us are major and our sales to importers and their nations are minor. This leads to trade relations which are out of kilter.  U.S. firms have accommodated foreign offset demands for decades. Now is the time when some give-back by our trading partners is the right medicine to improve world trade imbalances.

Offsets are industrial compensation arrangements demanded (so far only) by foreign governments as a condition for making major purchases, such as military hardware. Sometimes, these arrangements are directly related to the goods being traded. For instance, the Spanish air force’s planes – American-made McDonnell Douglass F/A-18 Hornets – use rudders, fuselage components, and speed brakes made by Spanish companies. U.S. sellers of the planes have provided the relevant technology information so that Spanish firms are now successful new producers in the industry. Under offset conditions, U.S. companies also often help export a client country’s goods go international, or even support the performance of tourism services. For example, the ‘Cleopatra Scheme’ allowed foreign suppliers to Egypt to meet their agreed upon offset obligations through package tours for international tourists.

In 2015, U.S. firms entered into 38 new offset agreements where they agreed to cause purchases  with 15 countries valued at $3.1 billion. In 2017, the total U.S. trade deficit was $566 billion after it imported $2.895 trillion of goods and services while exporting $2.329 trillion. No country has a bigger trade surplus with the United States than China. In 2017, the U.S. deficit with China climbed to its highest level on record, amounting to a gap of $375 billion.

Eliminating imbalances is a core component of the Trump administration’s international economic policy. One policy approach has been the threat of tariffs against China,.  One effective supplemental strategy could be the instigation of offset agreements with major trade surplus nations.

For instance, many American imports that contribute to the trade deficit are capital goods, such as computers and telecom equipment. An offset agreement between China and the United States could require China to use American-made components, perhaps even from Chinese owned plants.  An example could be the export of Smithfield ham from the U.S. to be served in company cafeterias in China. Then there are excellent opportunities for Chinese tourists, particularly if equipped with high-spend budgets.

The American trade deficit is not easily resolved. Government would be well served to explore non-traditional options in order to develop more than one fulcrum for leverage. New use of  offset agreements – which have provided our trading partners with past success at our expense – could help revitalize American industries and  bring a new sense of balance to trade relationships. Our government should encourage offset commitments by foreign firms and countries who sell a lot to us. America deserves to reap the benefits!

Michael Czinkota (czinkotm@georgetown.edu) teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent, U.K. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE). Lisa Burgoa contributed to this commentary.