The Colonial Pipeline: Prepare for the Unexpected

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Hello everyone! I would like to share this new commentary of mine that was recently published in The Hill and MSN among others. I hope everyone has enjoyed a safe Memorial Day weekend.

Prepare for the Unexpected

Michael R. Czinkota

     Music aficionados connect the month of May with Mozart’s minuet written as a five year old” komm lieber Mai und mache…,” but for many Americans this year the link came from a curtailment of gas It was reported that almost 80 percent of fuel depots in Virginia and North Carolina were running on empty. Lines of cars seeking gas quickly brought back eerie memories of the 1970s.

    That shortfall is said to stem from private sector adversaries who had successfully shut down the flow of liquid energy. The result was a major decline in distribution capacity, particularly of Colonial Pipeline. Evildoers apparently had employed software manipulations to severely disrupt fuel flow. They informed their targets that this ransomware disruption would prevent the flow of gas until a large payoff had been made. The amount ranged between 5 to 20 million dollars. Colonial could not reverse the impact. Payment was allegedly made, and the energy flow was slowly restored.

    A lack of gas sounds bad enough, but it may be only one of simultaneously appearing evils. If the action was meant to distract, what was the issue to be covered up? What nation gets the next turn? If this was just a preparation for future malfeasance, what obligations will arise and how costly will they be? When taking off shoes as a security precaution at an airport, it is not just the action that matters but rather the rationale and background that makes such actions necessary.  Research at Georgetown has clearly indicated that the long-term indirect effects of terrorism far outweigh the short-term direct ones. When combining all these cost factors one can conclude that somewhere someone is cooking our goose and we struggle to protect limited targets and save up the ransom money.

    We need to find and combat the culprits of such threats, and often it is us. With all our elegant computerization and artificial intelligence, we have largely lost control of management capabilities both at work and at home. At the same time, we are increasingly exposed to sudden shifts in our lives. We often work without backup with rising risk. Only five years ago, who would have prepared for a large and convenient “home office”? Many of us encounter a lack of clarity in communication that weakens our capabilities The Covid-based loss of one whole school year will offer serious repercussions for years to come.

    Here is a collateral damage example. My family went to dinner leading up to an outdoor performance. We had explained our plans well in advance, including the dinner timeline so that we would be punctual. The time came and went, but no hosts were in sight. We knocked on the kitchen door where we found waiters in distress. As they told us, the computer did not perform and they did not know how to directly deal with pricing, adding, and allocating meal expenses to guests. What a pity!

    We need an annual event devoted to catching up. That time would help us to see and test the shortfalls in our understanding of processes. Flipping a switch or pushing a button should alert the system that attention is needed. Those on the controls need to know why they have just undertaken a measure and what it does. We need to remember what we may have forgotten. We must recall with a personal, replicable event the rationale, causality, and linkages of our actions. Doing so will greatly strengthen our capabilities to plan, understand, and reduce risk exposure.

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.

Book Foreword: IN MY OPINION

My colleague and former student Dr. Valbona Zeneli, recently, published her book IN MY OPINION. The book presents 39 short articles about the core issues of European security, international trade, and the Western Balkans. She also uses cartoons with each topic. All of which have been drawn by her 12 year old son.

I had the pleasure to write the Foreword of the book as follows:

Foreword

I like this book. The many articles of Dr. Zeneli provide a 360 degree view of the world. This collection of articles offers new decisions and policies that impact current events in our  turbulent times. Equally important, Dr. Zeneli recognizes the fact that even those interested in a topic may not have the time to read and reflect on many lengthy academic treatises. The subsequent risk for the world are decisions made by  policy makers, business executives, and researchers themselves, which are based on very limited information, fragmented insights, and very limited overall comprehension.

With the work presented here, Dr. Zeneli provides an answer to this problematic. She identifies core international policy and trade issues and addresses them with depth and parsimony, thus helping to create a new bedrock of understanding. Her answer is the new use of short and pertinent  commentary.

Her background provides unique strength and capabilities to Dr. Zeneli. She was born and raised in Albania, and educated at leading global institutions. Combined with her exposure to practice, she is  able to bring to her analysis and writing a rare combination of academic expertise and “real world experience”. Her training in economics and security studies took her from Italy, to the United States, and to Germany at the famous George C. Marshall European Center for Security Studie.

I  have known Valbona for 15 years, since  she was my students.  in  International Marketing class at Georgetown University in Washington D.C. she excelled then and ever since I have enjoyed working with her in researching and writing on current important in the fields of global trade, international marketing,  trade agreements, corruption, and international terrorism.  Her extensive exposure to and participation in policy, business, and academic research allows her to glide easily  between the three worlds, and to understand different perspectives. Her international experience at the Marshall Center, where she works with leaders from  all continents to discuss current  security issues and future trends, is clearly demonstrated in her comparative comments, which allows readers to look at different perspectives.

Valbona Zeneli has written numerous research papers in her academic life, and has been a contributor of editorial commentary in the international business and security field. Her work has been published in well-known outlets such as The Diplomat, The Globalist, The National Interest, Atlantic Community, The Japan Times, SriLanka Guardian, Affari Internazionali among others.

Dr. Zeneli’s focus on economics, governance, and the interlocking aspects of world trade matter in these turbulent times.  Her ability to capture current events and connect them to the foundation and requirements of governing and responsible decision making is truly special.  This is where her skill shine best. Her ability to make sense of what makes societies successful, or causes them to fail, is both subtle and effective. By examining her thinking and it’s development over time,  we are treated to key insights into the ongoing rapidity of   change and the consequences of bad decision making. There articles provide us with key lessons.

She is a strong supporter of European integration of the Western Balkans, and a believer oin open trade and strong transatlantic bonds. A  Europeanist and internationalist at heart, these feeling are evident throughout her writings.

Of equal  importance is the fact that the articles presented here illuminate the mistakes to be avoided in a period of our history where decisions made with  rapid reaction but often based on  poor and even deceptive information  are becoming the norm. Zeneli argues with a constant  key take-away in mind. We live in a globalized world and we are highlyinterconnected.. Policy decisions are seldom exclusively national but have regional and global repercussions.  Zeneli’s collection is a reminder of the butterfly effect where seemingly local actions can lead to major shifts even far away. Events such as poor governance, corruption,

migration, and the like in the Balkans can have a far reaching impact in Europe and beyond.  Trade policies need to be separated from emotions with a heightened sense of clinical rigor and honesty and honor. Already today, but even more in the future, will these concerns be the bane of society. They therefore require our concentrated  attention.

Dr. Zeneli’s articles are  accompanied by  a cartoon. With the artistic support of her eleven-year old son this book offers drawings reflecting both simplicity and understanding of  her commentaries, appealing to the reader with words and sights, and and adding the dimension  of humor to complicated security issues.

Valbona Zeneli’s articles capture what are still current events but she tells a story that will endure. I therefore encourage you to go to your nearest book store and buy this book. It is worth your effort to do so, since a systematic reading of the material presented, your reflection of the ongoing implications and your review of the cartoons, will likely make you the smartest person in the room when it comes to discussions of security, regionalism and trade. My congratulations go to Dr, Valbona Zeneli for the fine work she has conducted.

Michael R. Czinkota

Georgetown University

Washington D.C., January 2018

Free Trade Zones and Counterfeit Goods

The European Union Intellectual Property Office (EUIPO) and the Organization for Economic Co-opertaion and Development (OECD)’s recent report claims that free trade zones may be facilitating illegal activities, such as trade in counterfeit and pirated products, by providing good infrastructure with little oversight over its use.

Free Trade Zones (FTZs) encompass a broad range of activities, from tourism to retail sales. They typically represent duty-free customs areas, or offer benefits based on location, in a geographically limited space. Today, there are over 3,500 zones in 130 economies, collectively employing 66 million workers worldwide.

A number of benefits drive countries to embrace FTZs. In general, these areas increase a nation’s foreign exchange reserves and improve the balance of payments. On a local level, new supply chains increase business for domestic producers that sell inputs by zone-based firms. Finally, these areas provide jobs that bolster employment and, at least in developing countries, can lead to higher wages over time.

Apart from FTZ’s benefits to their host country at both a local and national level, there may also be economic exposure to criminal activities as a result of insufficient regulation. Research shows that the number of FTZs in an economy appears correlated with the value of exports of counterfeit and pirated products.

With less oversight, rogue actors are attracted to FTZs to engage in illegal and criminal trade. The OECD’s findings indicate that one additional FTZ within an economy increases counterfeiting by 5.9 percent on average. It also appears that FTZs tend to be overly permissive by letting companies get away with poor safety and health conditions. This limited oversight is particularly troubling when one considers the potential for exploitation in areas such as human trafficking.

The OECD and EUIPO both stress the need for future action to curb the misuse of FTZs. They recommend developing clear guidelines for countries to increase transparency and promote clean and fair trade in FTZs, based on the involvement of industry members and key stakeholder of the trade supply chain.

The organizations identify three areas for future analysis. The first is the measurement the role of FTZs in the trade of illicit and counterfeit goods. The next step requires a fuller quantitative analysis of counterfeit goods. Finally, further research needs to explore why counterfeit profiles differ from similar economies.

FTZs provide a number of advantages to economies, but without further regulation and research, they may induce heightened criminal activity. Both public and private actors must devise and apply strong deterrents to the establishment of criminal networks.

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

Lisa Burgoa of the Georgetown University School of Foreign Service contributed to this comment.

Sometimes even rankings can be Christmas presents

GoogleRankingCongratulations to Professor Dr. Michael R. Czinkota on being recognized as one of the world’s leading authors on international business and marketing for publications during the period 1980-2015! Throughout the 35 years, Professor Czinkota has always stayed in the top 20 of the prolific authors list from different sources.

“An analysis of significant contributions to the international business literature” in the Journal of International Business Studies rated Professor Czinkota among the top 3 most prolific authors worldwide, 1980-1989.

An analysis in the Asian Pacific Journal of Management ranked Professor Czinkota as #4 in the Journal of World Business, #7 in the Journal of International Marketing and #14 in all 6 leading business journals in the world for the time period 1996-2006.

More recently, Professor Czinkota was recognized among the top 8 pioneering researchers in international marketing around the world. He was also ranked among the top 20 most prolific international marketing authors during the period 1995-2015 in an anthology by Leonidou, Katsikeas, Samiee and Aykol. (2018)

In December 2017 – right before Christmas, Professor Czinkota occupied the first place of Global Google citations for export promotion and export management. He also ranked in second place for trade policy and place 8 for International Marketing, which is an exciting present for Christmas.

Professor Czinkota teaches at the McDonough School of Business of Georgetown University and at the Kent Business School, University of Kent. He was awarded the Significant Contribution to Global Marketing award by the American Marketing Association in 2007. Professor Czinkota is the co-author of International Marketing, 10th Edition, Cengage (with I. Ronkainen); International Business, 8th Edition, Wiley (with I. Ronkainen and M. Moffett) and Fundamentals of International Business, 6th Edition, (with I. Ronkainen and M. Moffett), Wessex. His blog also was named the third most successful international business blog.