Global Business: Exchange and Value

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”.

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Country Overview: New Zealand Economy

from http://www.treasury.govt.nz/

New  Zealand’s high proportion of winter sunshine hours and
considerable rainfall provide an ideal resource base for pastoral
agriculture, forestry, horticulture and hydro-electicity generation.
Hydro-electricity provides a relatively cheap source of energy
and has allowed the development of energy-based industries
such as aluminium refinement. New  Zealand is also a popular
overseas visitor destination and tourism is an important source of
export income.
Over the last quarter of a century, the New Zealand economy has
changed from being one of the most regulated in the OECD to one
of the least regulated. The minority National Party Government
elected in November 2008, and re-elected in November 2011,
aims to lift the long-term performance of the economy through
six key policy drivers: a growth-enhancing tax system; better
public services; support for science, innovation and trade;
better regulation, including regulation around natural resources;
investment in infrastructure; and improved education and skills.

Real GDP strengthened further at the beginning of 2012, growing
0.9% in the March quarter. The growth in activity was reasonably
broad-based, including good pastoral growing conditions
providing a boost to agricultural production and food processing.
However, growth in the middle of 2012 was weaker with GDP
growth of 0.5% across both the June and September quarters,
supported by activity in the construction sector. The Canterbury
rebuild is expected to be a main driver of growth in the coming
year, gaining momentum in the first half of 2013.

In the December 2012 Half year Economic and Fiscal update
(HyEFu), the New  Zealand Treasury expected annual average
growth in the economy to be 2.3% in the March 2013 year and
2.9% in the March 2014 year, driven mainly by the Canterbury
rebuild and recovery in domestic demand. Recovering world
demand, as well as still-high commodity prices, should also assist
export growth, although this is dependent on the global outlook.

Geographic distribution of external Trade
New  Zealand’s trading relationships are becoming increasingly
based around Pacific Rim countries. New Zealand’s three largest
export markets – Australia, China and the united States –
accounted for 44.4% of New Zealand’s merchandise exports and
41.2% of merchandise imports in the year ended 30 September
2012. Japan remains an important trading partner, both as a
destination for exports and a source of imports. However, Asia
excluding Japan is growing rapidly in importance, with the region
increasing its share of merchandise exports to around 30%, up
significantly from a decade ago.

Record Philippines Growth Despite Devastating Typhoon

from Russia Today

The Philippines’ annual growth rate puts it close to the best-performing economies in Asia, just behind China which grew 7.7 percent last year, says Bloomberg.

President Benigno Aquino aims to achieve 8.5 percent growth by 2016 by turning the country into a manufacturing hub, expecting the recovery in advanced economies to support the GDP rise.

Stronger exports positively contributed to the recovery from Typhoon Haiyan, which inflicted an estimated $15 billion damage to the Philippines.

“The Philippine economy clearly still has strong momentum despite the typhoon,” Bloomberg quotes Edward Teather, an economist at UBS AG specializing on Southeast Asian markets. “That sort of strength in the context of an acceleration in developed nations increases the risk of overheating, something policy makers should keep an eye on,” he added.

Emerging challenges

In early December the World Bank warned against lower 2014 growth in developing markets which were exceptionally vulnerable to risk from US tapering .

The forecast has so far proved true. On Wednesday, the sell-off in emerging markets strongly intensified, after the US Fed said it would further scale back its massive monthly money injections to $65 billion per month.

In the Philippines, the peso lost 0.4 percent and plunged to 45.35 against the dollar at 11:51 AM, which is its lowest in more than 3 years. In the past six month Philippine stocks have fallen more than 10 percent, and is the sharpest drop after Thailand in the Asia-Pacific region.

Yes Virginia, the Ham Is Chinese (Part 3)

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.

Peru: Worth a Visit and an Investment

Lately, many of us have been culling our list of countries to visit. Many nations carry warnings because of civil strife, ubiquitous explosions or just random violence. Too bad for those of us who like to travel and see new things. Too bad also for nations for whom tourism is a key income source. Yet, here is some good news for a change: Visit Peru!

I just returned from a visit there, invited by the University Ricardo Palma for lectures. With lots of travel under my belt, I was impressed by Peru and recommend a visit. The Lima airport is large, transparent and well organized. No moment of mutual distrust at customs. You push a button and get a randomized response: Red –they’ll want to see your luggage, green you go on. Luggage carts are available and free (unlike in Washington D.C.’s Reagan Airport where you have to pay three dollars). The hotels are very nice, friendly, and, unlike in Paris, with free internet access as a basic service. Given the high altitude, reduced oxygen can result in a breathing problem. That is
why many locations offer complimentary coca tea or mate de coca, which, due is
the local remedy for fatigue and pain.

Traffic was heavy, but drivers skillfully negotiated the roads (though they did use every available inch of room). Parking is difficult – you’re better off to be driven. Sure they have earthquakes, but so does Washington D.C. There is good logistical thinking for troublesome times. When flooding had torn away part of a highway, a detour parallel to the road is rough but the re-routing takes only 10 minutes.

People are very kind and welcoming. When they say ‘mi casa es su casa’ they really want you to feel at home. They immediately provide appetizers or tea. Employees are empowered: At lunch at my hotel I told my visitors how hammering in the room next to us had awakened us. The lunch manager overheard our conversation, expressed his apology, and resolutely refused any payment for lunch for all four of us (including our two outside guests).

All University events we attended were accompanied by music, poetry, flowers, dance and song. There was ongoing reference to the need for balance in life.  Work has to be within a context of enjoyment. What an inspiring idea!

The country’s mountain city of Machu Picchu reflects Inca history, capability and determination. It also shows an extraordinary clash of cultural values in the 16th century. The Inca used gold for wallpaper on rocks, to reflect the much revered Sun. The invading Spaniards saw gold as treasure, and wanted lots of it. The Inca complied by filling rooms with treasure (or wall paper) only to be murdered in appreciation. It turned out to be beneficial for Spain not to keep any gold artifacts, but to melt them
all down and re-issue them as coins of the realm. That way, nothing had to be returned to Peru. But even today, Peru continues to be a leading producer of many valuable commodities, among them silver, gold, and copper.

Peru and Peruvians like to be part of the world. For example, there are at least 8 towns and villages in the United States carrying the name of Peru. The government has initiated contact with all of them, with a particular focus on Peru, Nebraska in order to build relationships. Peru’s athletes are quite successful, with women world champions in both featherweight boxing and ocean surfing. Peruvian chefs have opened highly rated restaurants, both in Lima as well as in New York.

The minister of the economy (U.S. educated at Johns Hopkins) discusses, with help of many precise power point slides, how the gap between poor and rich can be bridged. There is little talk about socialism, but much about how to boost simultaneously the economic performance in the Peruvian beach areas, the mountains, as well as the desert. Foreign investment is welcome and sought after. There are many ideas floating about how to serve clients better, and make investment opportunities more attractive in order to achieve a minimum annual growth rate of six percent.

Here are my lessons learned for take away: 1.when it comes to narrow, dusty and curvy roads, Mercedes busses seem to have it made.  So if you have some really heavy duty motoring tasks, you know what to do. 2. You can hike the Inca trails to Machu Picchu for four days and three nights to get to the top – a memorable achievement. 3. Don’t
underestimate the train getting you there from Cusco in 90 minutes. Its design is
modern with a crew offering fashion shows of desirable Peruvian products. It runs on time every half hour, and affords spectacular views. 4.  Tourists have to pay more for services than locals.  Discriminatory, yes, but fair when looking at income levels. 5. The favorite local alcohol is the pisco, a brandy made from grapes. Combined with egg whites, lime juice and bitters it becomes pisco sour, deserving of a global reputation.

There remains much to be discovered. Peru wants to be friends – even with Spain. Hundreds of years of overgrowth has lead to jungles and ingrown mountain sides which still hide many mysterious artifices. Peru and the Andean area have already saved the world from starvation due to presenting us with potatoes and corn. The future may bring more benefits as well.

Prof. Michael Czinkota