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

The Rising Cost of Freedom

We are finding that the cost of freedom seems to be increasing lately. Terms like free trade or free choice have been misleading since they all come with a price, which international marketers pay in terms of preparing their shipments, scrutinizing their customers, and conforming to government regulations of tariffs or taxes. They pay ofr it when subsidies are reduced and markets are opened further, resulting in more intense competition.

Now prices are going up when international marketers have to file special paperwork or comply with security guidelines, which slow down the flow of merchandise. Every time a shipment is delayed, international transactions are less profitable and the subsequent business dealings become less competitive. Customers talk about unmet expectations and domestic firms point to the vagaries of itnernational markets.

We are all paying a higher price due to global terrorism, which has permeated the global marketplace. In most instances, terrorism is not an outgrowth of choice but rather the lack of it. Terrorists may succeed in reducing the freedom of others but not in increasing their own. The prinicpal choices played out between those exercising terrorism and those exposed to it are those consistent with economic theory of return on investment. When terrorists select targets in response to governmental implementation of anti-terrorism policies, the harder targets are likely to motivate them to go for easier ones. Increased protection of past targets may result in attacks on new and unexpected targets that are more likely to succeed. Similarly, if terrorists can no longer enter a country, they may attack that country’s symbols and representatives abroad. If embassies are then more secured and fortified, terrorists may attack that nation’s individuals and companies.

Who is typically most affected by terrorist acts? Attacks aimed at business, such as the infamous bombings of U.S. franchises abroad do not bring MNCs to their knees. The local participants, the local employees, the local investors and the local customers are affected most. Who can protect tehmselves against such attacks and who can afford to protect targets? Only the more wealthy countries and companies can. They have the choice of where to place etheir funds, with whom to trade, and whether to hold the enemy at bay through a security bubble created via exports, a franchise, or a wholly owned subsidiary. The poor players do not have any choices and ther alternatives are not improved by any gruesome act. The local firms, the nations with economies in development, and the poor customers continue to be out there, exposed to further acts of terrorism without the ability to influence events.

But international marketing can enable the disenfranchised to develop alternatives. As suggested by Prahalad and Hammond (2002), multinational firms can invest in the world’s poorest markets and increase their own revenue while reducing poverty. With support from shareholders and the benefit of good governance, marketers can, and should continue in their role as social change agents. It should be kept in mind that international marketing has value maximization at its heart. If it is worthwhile to fulfill the needs of large segments of people even at low margins, then it will be done.

Expanding into Global Markets: Direct Investment

Some companies find that they cannot meet their global marketing objectives by continuing to export, so they make direct investments in international markets to gain access to manufacturing facilities, supplies, or labor, among other reasons. They become multinational corporations which the United Nations defines as “enterprises which own or control production or service facilities outside the country in which they are based.” While this definition makes all foreign direct investors “multinational corporations,” large corporations are the key players.

Building and managing operations outside the domestic market requires skills and resources beyond those used for exporting. Multinational firms with subsidiaries and other investments in other countries also deal with issues ranging from local versus headquarters control, to product or service standardization versus customization for individual market needs. At the highest level of marketing globalization, companies integrate thie international and domestic operations into relatively seamless enterprises that have portfolios of nations that they market to with unified strategies.

Putting products into the hands of customers overseas involves some degree of direct financial investment, whether it is done by acquiring assets in other countries or gaining access to another company’s assets through contracts. International marketers invest directly via full ownership, strategic alliances, or joint ventures to create or expand a permanent interest in an enterprise. It typically requires substantial capital and an ability to absorb risk, so the most visible players in this arena are large multinational corporations who invest either to enter new markets or to ensure reliable supply sources.

Foreign direct investment is defined by the United Nations as “enterprises which own or control production or service facilities out of the country in which they are based.” U.S. firms have significant investments in the developed world as well as in some developing countries. It is a major avenue for global market entry and expansion.

The top multinational companies come from a wide range of countries and depend heavily on their international sales, with their original home market accounting for only a fraction of total sales. Some have revenues larger than the domestic output of some countries. Many operate in more than 100 countries and do not even reference “global” and “domestic” anymore. Through their direct investment, these companies bring economic vitality and jobs to their host countries, often paying higher wages than the average domestically owned firms. At the same time, though, trade follows investment, and companies that invest in other nations often bring with them imports that could weaken a nation’s international trade balance.

Afghanistan and the War against Terror: Business can make a difference

Michael R. Czinkota, Gary Knight, Gabriele Suder 

The “War on Terror” was launched ten years ago, on 07 October 2001.  It represents a battle against terrorism, extremism and global geopolitical adversity seen to oppose democracy and freedom of choice. In the intervening years, however, the War has produced various unintended consequences that threaten personal freedom and other liberties enjoyed by progressive societies worldwide. Stringent inspections delay cargo
and personnel at border crossings. In many cities, cameras constantly monitor the
movement of vehicles and civilians alike. Government wiretapping and
surveillance procedures have been expanded. Bank transactions are scrutinized
as never before. Airport security measures are annoying and sometimes even
humiliating. In many ways, such intrusions represent a victory for
terrorists.

An early casualty of the War on Terror was Afghanistan.  During much of the time since October, 2001, Afghans have seen little improvement in their lives and business conditions. Ten years on, Foreign Policy labels Afghanistan a “failed state”, especially regarding security, refugees, and legitimacy of the state. As the United States prepares an acceptable exit strategy, Afghanistan faces much risk and uncertainty. Divided by religious and political strife, the country’s per-capita income remains among the lowest
worldwide.  Adult literacy is below 28 percent and infant mortality is high. Following 30 years of war, Afghanistan’s social, institutional, and commercial infrastructures are in a decrepit state.

The World Bank and World Trade Organization (WTO) have pointed to constraints that
discourage corporate investment in Afghanistan: crime and disorder, inadequate energy
and transport systems, and insufficient access to finance. However, experts also suggest that, with appropriate local knowledge and collaborative efforts, companies can succeed
in Afghanistan. Success requires investments in education and training, creation of networks and infrastructure, and open-mindedness and flexibility towards the unexpected.  Firms with significant experience in troubled regions are most likely to succeed.

Recent changes in Afghanistan have produced significant potential opportunities for early investors, especially in infrastructure development. The World Bank views Afghanistan as a prospective hub for regional trade. The WTO points to significant
improvements in the categories of “Getting Credit” and “Registering Property”.
Thanks to a modern secured transactions law that helps companies obtain loans,
Afghanistan is now well ranked for “Starting a Business”.

Afghanistan’s economy is improving, especially in agriculture, commodities, and traditional industries.  The nation is home to a wealth of natural resources, including natural gas, petroleum, and certain key minerals.  It has benefited from billions of dollars of international aid and investments.  In many ways, Afghanistan is typical of troubled regions around the world.

Experience with Afghanistan and the War on Terror has provided important lessons for Western governments and businesses alike.  Companies now include terrorism as an
important factor in their international planning.  Firms are devising international strategies that emphasize flexibility and the ability to change course quickly, with less
dependence on vulnerable physical facilities. Foresight and skillful management
reduce the risk of loss and downtime.  Companies are putting more emphasis on developing closer relations with governments and other key players in uncertain foreign markets.

Since the launch of the War on Terror, many world regions have experienced attacks and conflict. But companies are fighting back.  Experienced managers are vigilant
and favor approaches that ensure long-term, sustainable success. Simultaneously,
governments are learning to strike the right balance between security and unneeded
intrusions in business and our personal lives.

Educators like us have an important role to play.  Alongside managers and public authorities, we share a responsibility to redefine global commerce. Increasingly, business must emphasize attitudes and behaviors that are not just ethical, but also socially responsible, compassionate, and focused on the long-term stability of nations worldwide.
Perhaps the best hope for a brighter future in troubled regions is business that, in addition to expanding profits, meets the social and economic needs of local stakeholders.

The struggle against terror, extremism and adversity is a long-term effort.  The costs in human and financial terms are extremely important. But hope remains eternal.  Responsible, collaborative business can go far toward improving the social, political and
economic landscape worldwide.  The global business community has both the capacity and responsibility to protect against the terrorist threat and to support development of a more sustainable, peaceful world.

Michael Czinkota teaches international business in Georgetown University’s McDonough School of Business and at the University of Birmingham in the U.K. He is a former deputy assistant secretary in the U.S. Department of Commerce. Gary Knight is a professor and expert on international business at Florida State University. Gabriele Suder holds the Jean Monnet Chair at SKEMA Business School in France, China and the USA and is a visiting fellow at ANU’s Center for European Studies.

Global Trade Barriers

The Office of U.S. Trade Representative’s National Trade Estimate Report on Foreign Trade Barriers published annually classifies barriers into ten categories:

  1. Import policies that include tariffs and other import charges as well as customs barriers
  2. Standards, testing, labeling and certification, which includes refusal to accept U.S. manufacturer’s self-certification that they conform to a country’s product standards
  3. Government procurement, including “buy domestic” and closed bidding processes
  4. Export subsidies including export financing on preferential terms and agricultural export subsidies that displace U.S. exports in third world markets
  5. Service barriers such as limits on the range of financial services that can be offered by outside financial institutions
  6. Lack of intellectual property protection– endangering patents, copyrights or trademarks
  7. Investment barriers, including limits on global equity participation, access to outside government-funded research and development programs, and restrictions on transferring earnings and capital
  8. Anti-competitive practices with trade effects tolerated by other governments, including anti-competitive activities of both state-owned and private firms
  9. Trade restrictions affecting e-commerce including discriminatory taxation
  10. Other barriers, such as those that might encompass more than one category–bribery and corruption– or that affect a single sector

Each year the report outlines the specific barriers in each of the largest export markets in the U.S., breaking them out according to 57 countries and several regions including the European Union and the Southern Africa Customs Union. It is essential reading for global marketers looking to expand into one of these nations or regions.

This is an excerpt from Dr. Czinkota’s book Global Business: Positioning Ventures Ahead, co-authored by Dr. Ilkka Ronkainen.

Michael R Czinkota and Ilkka A Ronkainen, Global Business: Positioning Ventures Ahead (New York: Routledge, 2011), pg. 17-18.

Click HERE to acquire the full book.