Last week French Finance Minister Michel Sapin spoke out against the United States’ dollar’s standing as the world’s reserve currency. Upset with a $9 billion fine leveled by the U.S. against French bank BNP Paribas for helping nations like Sudan and Cuba avoid U.S. sanctions, Sapin called for a “rebalancing” of currencies used to make global payments. Translation: The dollar has to go.
The Financial Times reported that it’s been nearly 50 years since Valéry Giscard d’Estaing, then France’s finance minister, spoke out against the dollar’s position as the reserve currency, calling it an “exorbitant privilege.” Since then, the dollar has been attacked and besmirched time and time again. As John Connally, treasury secretary for Richard Nixon, once said about the dollar, it is “our currency, but your problem.” Indeed, the world is getting sick of the problem.
No one can doubt the U.S. dollar’s dominance in the world today. After Sapin’s comments, financial writers quickly pointed out that no currencies currently exist that can compete with the dollar. Thus they have no choice but to continue to use the dollar to finance international transactions. “They may not like it,” the Financial Times reported, “but it is not clear what France and other critics can do to alter the status quo.”
As U.S. foreign policy continues to alienate its allies, nations beginning to establish regional alliances to protect themselves. This applies not only militarily, but also financially. One of the most recent regional economic alliances is between Brazil, Russia, India, China and South Africa (BRICS). Investment group Goldman Sachs speculated back in 2003 that by 2050, these five nations would be wealthier than most of the current major economic powers.
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Despite weak economic growth in the United States and Western Europe over the past several years, the world economy is on course for strong growth over the next 40 years. In fact, projections indicate that global GDP could rise from $72 trillion in 2010 to $380 trillion by 2050. This infographic examines which regions are expected to drive that growth, and why emerging economies will have the biggest role to play.
The emerging middle class in China represents enormous opportunity not only for Smithfield but also for many American companies. For companies like General Motors, Procter & Gamble, Yum Brands, and Caterpillar, China is where the growth is. Coca Cola has described China as “the commercial opportunity of the 21st century”. In 2013, KFC, McDonald’s, and Starbucks will reportedly each open one new restaurant every day in China. But, such market expansion must be a two-way street. For more American firms to be able to have access to the Chinese marketplace, Chinese firms must be allowed and encouraged to compete in the United States.
Previous investment attempts by Chinese companies have not always gone smoothly. A big obstacle has been that many deals have touched on national security sensitivity. The Committee on Foreign Investment in the United States (CFIUS), is a U.S. inter-agency government panel that reviews foreign deals for national security issues. In 2005, Cnooc tried to buy Unocal but ran into insurmountable U.S. political opposition and retreated from the deal. In 2011, China’s Huawei had attempted to acquire the U.S. technology company 3Leaf Systems but withdrew after CFIUS stipulated restrictions. In 2012, a CFIUS review of an acquisition of Oregon wind farms by Ralls Corp, owned in turn by executives of the Chinese Sany Group, collapsed, since some wind farm properties were located near a sensitive U.S. naval facility. Even the Cnooc acquisition of Canada’s Nexen had to accommodate concerns raised by CFIUS over U.S. operations.
While Chinese deals for energy, technology, and infrastructure businesses are likely to draw serious scrutiny by CFIUS, consumer goods businesses are a different matter. These deals will be far less sensitive.
For our and their investment benefit, Chinese companies should focus on companies that are heavily dependent on consumer choice and preference like Smithfield. Will American customers continue to prefer these brands after a foreign acquisition? If the brands continue to pursue the marketing discipline of providing great value and pleasure, the answer is likely to be a resounding “yes”.
This article is the final part of a series written by Michael Czinkota and Charles Skuba. Read part 3 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.
Between 1980 and 2010, the middle class worldwide nearly doubled in size, growing to almost 2 billion people. By the year 2030, it is likely to reach nearly 5 billion people. The middle class is the largest group, demographically, in terms of consumers of various products and services. However, growth of the middle class poses pressures on the natural environment and demand for resources, such as energy, food, and raw materials. Rising world population and increased production and consumption raise concerns about sustainability, which refers to meeting humanity’s needs without harming future generations. On the one hand, rising consumerism is a sign that living standards are improving worldwide; billions of people are emerging from the poverty that besets humanity. On the other hand, growing population and consumerism pose important challenges to planetary well-being.
The World Economic Forum has proposed various ideas for addressing sustainability, while ensuring people can obtain the products and services they need:
1. Emphasizing durable over disposable. Firms and consumers alike benefit from products that are relatively durable, as opposed to disposable goods that use more resources and fill up landfills.
2. Using renewable versus disappearing resources. Renewable resources are usually more cost-effective and encourage sustainability. For example, energy generated from solar and wind sources can be maintained indefinitely, while fossil fuels are dwindling over time.
3. Sharing resources. Firms and consumers must think increasingly about developing and using goods that they share with others. For example, homeowners tend to use lawnmowers, snowblowers, and other home-care equipment only intermittently. Economies result when such resources are shared among several households.
4. Favoring virtual products and delivery methods. Online product vendors use resources more efficiently than physical, “brick-and-mortar” retailers. Some products can be offered electronically, which saves paper. For example, many consumers opt for digital books they can read on Kindles, Ipads, and similar devices. Such approaches help reduce the destruction of forests and other resources.
5. Consuming locally grown goods. Many agricultural products must be transported long distances, which contributes to air pollution and needless resource usage. An emphasis on consuming locally-grown farm products can help increase resource sustainability and decrease pollution.
To thrive while preserving natural resources, companies will need to include sustainability in their strategy-making. Managers need to improve their understanding of how resources create new risks, but also produce new opportunities. Firms must devise sophisticated approaches for conserving resources and offering sustainable products and services.
For example, Otis makes the Gen2 elevator, which uses up to 75 percent less energy than conventional elevators. Recently, Otis established a green manufacturing facility to produce Gen2’s in Tianjin, China, which reduced site energy use by more than 25 percent. Builders are adopting Gen2 elevators and escalators, to save energy and help the environment. The Dutch consumer products company Unilever is cutting water usage and greenhouse gas emissions in its factories. The firm aims to increase recycling and recovery efforts in manufacturing, and reduce by one-third the use of materials in its product packaging by 2020. The Swiss food company Nestlé works with farmers around the world to help them increase crop yields, while minimizing their water usage and pollution. Nestlé has allied with nongovernmental organizations such as the Rainforest Alliance to focus on how farmers can improve access to clean water and sanitation.
Sources: Business & the Environment, “Food and Beverage Companies Serve Up Sustainability,” October 2011, pp. 1-3; Richard Dobbs, Jeremy Oppenheim, and Fraser Thompson, “Mobilizing for a Resource Revolution,” Mckinsey Quarterly, January 2012, accessed at www.mckinseyquarterly.com; World Economic Forum, Consumer Industry Emerging Trends and Issues (Geneva, Switzerland: World Economic Forum, 2011), accessed at www.weforum.org.