Posts Tagged ‘Globalization’

Cuba Policy Needs Updated

Thursday, November 19th, 2009

The House Foreign Affairs Committee held a hearing today on the federal ban on travel to Cuba. Supporters of the ban claim that allowing U.S. citizens to travel to Cuba would only serve to line the  pockets of Fidel and Raúl Castro, while opponents argue that the ban is an antiquated and failed policy experiment that infringes on the liberties of U.S. citizens.

Smeal’s Terrence Guay agrees with the latter:

U.S. policy toward Cuba is outdated. We have had travel, trade, and investment bans against Cuba for almost 50 years, and they have not achieved their intended purpose—to make the Cuban government more democratic. Economic sanctions usually don’t work unless a large number of countries participate in the process.  But that is not the case with Cuba, where the United States is the only country in the world enforcing sanctions. 

Certainly, Cuba challenged U.S. foreign policy interests during the Cold War, and it would be nice if it were more democratic today.  But the United States allows companies to trade with and invest in dozens of authoritarian countries around the world (China being the most prominent example), and U.S. citizens do not face similar travel restrictions by our own government to other locations.

The policy hurts U.S. interests at two levels.  Economically, it gives companies from other countries (e.g., in Europe and Asia) an advantage over U.S. firms because they can do business in Cuba. Politically, it makes the United States look silly to the rest of the world, particularly in Latin America where the U.S. has important strategic, political, and economic interests.  It would be great to see Congress and President Obama lift not just the travel ban, but all U.S. sanctions toward Cuba.  After all, the belief that economic engagement can lead to political reform has shaped U.S. relations with other countries around the world.  Unfortunately, such a radical shift of policy will be difficult to pull off, even 20 years after the end of the Cold War.

Tags: Globalization, Guay, International Relations, Politics
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Non-Latin Web Domains

Friday, October 30th, 2009

“By the middle of next year, Internet surfers will be allowed to use Web addresses written completely in Chinese, Arabic, Korean, and other languages using non-Latin alphabets,” The New York Times reports. “In an action billed as one of the biggest changes in the Web’s history, the board of the Internet Corporation for Assigned Names and Numbers—or Icann—voted Friday during its annual meeting, held in Seoul, to allow such scripts in Internet addresses.”

Smeal’s John Jordan weighs in on the business implications and historical significance of this decision:

The expansion of the Internet domain name system from 37 Latin characters (26 letters, 10 digits, and a hyphen) to include character-based languages is a landmark event for the globalization of communications. More than 100,000 characters will eventually be added, so at one level the decision by Icann to accept the technical challenge (particularly, but not exclusively, at the level of the root name servers) is noteworthy. From a business standpoint, the decision marks a recognition of the growing importance of such character-based languages as Arabic, Chinese, Japanese, and Korean. Billions more people will be able to connect to the Internet using their native language and keyboards.

The decision raises a variety of fascinating questions. Given the rapid adoption of mobile Internet in the developing world, how will the availability of domain names in numerous character sets affect the design of smartphones for these markets? Given that Chinese relies on about 6,000 characters, for example, a RIM Blackberry-style keyboard would be difficult or impossible to implement.  On the marketing front, how will global brands adapt to the wider availability of non-Latin representation online? How will native-language Internet naming affect literacy efforts and measurements? How will a vastly multiplied character set affect security efforts?

At another level, the action is a splendid piece of historical timing: The first Internet message was sent 40 years ago this week, and the Netscape Navigator browser launched 15 years ago this month.  Predicting where the international, mobile Internet will be in even five years is impossible; coping with change of this magnitude at this speed is unprecedented in human experience.

Tags: Globalization, Jordan, Technology
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H1N1 and Our Global Health Infrastructure

Thursday, October 22nd, 2009

As the H1N1 pandemic continues its spread around the world, many businesses, governments, and NGOs are learning that they are ill-prepared to handle such a disease outbreak. Earlier this year on Business Casual, Smeal’s Fariborz Ghadar warned of this scenario:

Some developed countries have systems to track, identify, and quarantine outbreaks such as this, but many developing countries simply cannot do it. Compounding the problem is the fact that very few national entities talk to one another. The current infrastructure leaves much to be desired.  To manage potential pandemics, we need  global mechanisms in place beforehand to handle situations like this as they arise, not after.

In his book Global Tectonics: What Every Business Needs to Know, co-authored by Erik Peterson of the Center for Strategic and International Studies, Ghadar elaborates on the weaknesses in our global health infrastructure and offers some solutions:

Countries need a global health infrastructure that responds quickly and effictively to epidemics … or to terrorist-induced disease outbreaks. In this era of increased economic and social integration, an outbreak in one country can develop into a global pandemic in a matter of days. As a result, governments, nongovernment organizations (NGOs), and private companies must devise health care solutions that cross borders as effectively as the infectious agents they work to contain.

International disease control will present vast opportunities and challenges to businesses operating in afflicted countries or working to provide containment products and services. The ability of these corporations, along with governments and NGOs, to react and respond to outbreaks, and to devise solutions that meet the health care needs of the world’s population, will be critical to continued global prosperity.

More specifically, what should businesses be doing to prepare for contingencies arising from natural or deliberate epidemics and disease-related volatility? First, they need to engage in scenario-analysis in order to begin to define their reactions in the event of an epidemic. Second, they should assess the extent to which international and national institutions are prepared for such contingencies—especially because public-private sector partnership is critical to defining and implementing solutions. Finally, the growing threat of bioterrorism suggests new possibilities for the private sector to marshal its resources and technological innovation in support of new biodefenses and procedures.

Tags: Ghadar, Globalization, Pandemic, Swine Flu
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Pennsylvania and the G-20

Thursday, September 24th, 2009

With 20 world leaders meeting today and tomorrow for the G-20 summit in Pittsburgh to discuss the health of the world economy, Smeal’s Terrence Guay has penned an article outlining the importance of this meeting for Pennsylvania’s economy. Here’s an excerpt from the article, which appeared in the Patriot-News on Monday, and the Morning Call and Centre Daily Times today:

Why does all of this matter to Pennsylvanians?

The main reason is because the commonwealth’s economy is intertwined in the global economic web. With almost $35 billion in merchandise exports, Pennsylvania sent more goods abroad than all but 10 states in 2008. And it is not just multinational companies that are doing the exporting.

Of the 12,295 companies that exported goods from Pennsylvania in 2007, 10,900 (89 percent) were small and medium-size firms with fewer than 500 employees. Additionally, foreign-controlled companies employed 249,000 workers in Pennsylvania in 2006, the fourth-highest total among the U.S. states, with almost one-third of these jobs in the manufacturing sector.

This means as the global economy goes, so goes Pennsylvania’s economy. The statewide unemployment rate was 8.5 percent in July—the highest in 17 years.

Residents are concerned about the security of their jobs, stability of household incomes and the future well-being of their families. The sooner the global economy recovers, the sooner Pennsylvania’s economy will recover.

Improvement in the health of the global economy will result in more goods and services exported from Pennsylvania to the rest of the world, more investment in the commonwealth by foreign companies, a more stable tax base and more good-paying jobs.

You can hear more on the G-20 summit from Guay and Smeal’s Fariborz Ghadar here.

Tags: Economic Crisis, Economy, Globalization, Guay
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The Kraft-Cadbury Waltz

Tuesday, September 8th, 2009

Kraft Foods is continuing to pursue its takeover bid for Cadbury despite the fact that Cadbury rejected Kraft’s first bid of $16.7 billion, or about 31 percent more than Cadbury’s Friday per-share closing price. Smeal’s Fariborz Ghadar says this back and forth is all strategy, and he expects the deal to ultimately succeed:

Cadbury’s rejection of Kraft’s initial bid doesn’t mean the deal will not eventually go through. As many analysts are suggesting, both companies are now weighing their options. Kraft is likely considering placing a higher bid, while Cadbury directors are deciding whether to stay independent, seek a higher price, or entertain other potential suitors like Hershey’s or Nestle.

Whatever the final outcome, the deal is going down so far like a well-choreographed dance: Kraft privately bids on Cadbury. The Cadbury board, looking out for its own best interests, rejects the offer. In return, Kraft takes the already-rejected bid public, ratcheting up the pressure on Cadbury’s directors, who reject the offer again. The next step is likely to be a higher price negotiated by the Cadbury board, making everyone look good.

Regardless, such activity is yet another positive sign for our economy. Conditions are improving and we can expect to see more deals like this one and the Disney-Marvel deal as the economy continues its rebound.

Tags: Ghadar, Globalization, M&A
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Detroit Bias

Friday, August 28th, 2009

With the U.S. government serving as a majority stakeholder in General Motors and the House of Representatives passing bills that forbid federal agencies from buying cars not made by Detroit, foreign automakers are becoming concerned over a Washington bias in favor of Chrysler, Ford, and GM.

Smeal’s Terrence Guay comments:

Despite rhetoric to the contrary, there is a tendency for all governments to protect strategic industries, although the definition of “strategic” can differ across countries. The automobile industry is considered strategic by most countries that have one (like the United States, Europe, and Japan) or are trying to create one (like China and India). The U.S. automobile industry, including its supplier network, still makes up a sizable part of the U.S. economy, although it has declined over the past two decades.  So it should come as no surprise that the U.S. government is trying to support it in various ways. 

While foreign companies may complain, these policies probably will have little effect on the U.S. industry if it is defined as GM and Ford. Chrsyler is now owned by Italy’s Fiat, and European, Japanese, and South Korean companies now have strong U.S. roots. Two-thirds of all “foreign imports” are built in the United States. CSM Worldwide, an automotive market forecasting group, predicted earlier this year that foreign-based car makers will build more vehicles in the U.S. than the “Big 3″ by 2010—and this was prior to the Fiat-Chrysler merger. 

The point is, foreign automakers will increase their presence in the United State in terms of sales and production regardless of what Washington does to protect the remnants of indigenous companies.  As this happens, the lobbying clout of foreign companies soon may drown out the voices of GM, Ford, and their protectors.

Tags: Auto Industry, Globalization, Guay, Politics
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The Repatriate Blues

Tuesday, August 11th, 2009

The New York Times reports on the growing trend of American college graduates seeking refuge from rising unemployment at home by accepting entry-level jobs in China. “They are lured by China’s surging economy, the lower cost of living, and a chance to bypass some of the dues-paying that is common to first jobs in the United States,” according to The Times. But what happens when they return home to the United States? Jonathan Woetzel, a partner with McKinsey & Company in Shanghai, tells The Times that Chinese work experience is not an automatic ticket to the top, nor is it noted by employers as an accomplishment on par with an Ivy League education.

This news may come as a disappointment to repatriates, who often feel like their organizations do not recognize or value their international experiences, according to research by Smeal’s David Harrison. This disillusionment often leads to the repatriate’s departure from his/her organization.

“Repatriates who come back from international assignments have paid a huge price,” Harrison says. “They feel like they’ve sacrificed a lot. Just as importantly, they have a whole new, global or international identity for themselves that they would like to see reinforced by their firm. They are no longer who they used to be, and their firm—which asked them to sacrifice friends and sometimes family during their expatriation—is not validating who they are now.

“They come back with an expectation that all the new knowledge they’ve gained will be used by the firm, they’ll be paid more, and have a nicer job with more responsibility; but, for the most part, they’re severely disappointed,” Harrison says. This disappointment leads to tensions of identity distress, which often leads to turnover.

To combat these effects, Harrison recommends that employers recognize and validate repatriates’ international employee identity by involving them in international operations, giving them the chance to utilize the skills they learned abroad while contributing to the organization. Employers can also use repatriates as a resource to prepare other expatriates and repatriates with their transitions.

Tags: D. Harrison, Globalization, Human Resources
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Easing Drug Patents

Tuesday, July 21st, 2009

The Economist reports that drugmakers GlaxoSmithKline, Novartis, and Roche are relaxing patent restrictions on their pharmaceuticals to allow for greater access to the drugs in poorer countries. “Health care activists have long maintained that the system for granting patents on drugs denies the poor access to essential medicines and discourages pharmaceutical firms from collaborating to develop new ones for neglected diseases.”

According to Smeal’s Daniel Cahoy,the  international rules outlining when and how governments may “break” pharmaceutical patents also reduce incentives for innovation, in addition to failing to increase access to medicines in poor nations. In his 2007 paper “Confronting Myths and Myopia on the Road from Doha,” Cahoy proposes a new, compensation-based approach to drug patent compulsory licenses, which force drug patent holders to relinquish their property rights during a time of crisis.

Cahoy’s proposed licensing regime keeps innovation incentives intact, but also ensures that developing countries have access to pharmaceuticals.

During public health crises, he argues for a three-tiered arrangement, in which remuneration is based on the economic status of the country issuing the compulsory license. Industrialized nations will be required to pay full market price, even during a pandemic. Developing countries would be allowed a limited free ride, with royalties based on the individual country’s ability pay. Finally, the world’s least developed countries would be granted the ability to issue royalty-free compulsory licenses during health emergencies.

More on Cahoy’s plan is online here.

Tags: Business Law, Cahoy, Globalization, Health Care, Pharmaceuticals
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Intel Hit with Record Antitrust Fine

Thursday, May 14th, 2009

The European Union yesterday levied a record $1.45 billion fine against Intel for antitrust law violations. CNNMoney.com reports, “The European Commission said Intel, the world’s largest chipmaker, violated European antitrust laws by unfairly paying computer makers to delay or even cancel products that contained chips made by rival AMD.”

Smeal’s Terrence Guay, says the fine ”illustrates the fact that the EU has replaced the United States as the regulatory capital of the world.”

More from Guay:

If previous cases are any indication, the company’s appeal is unlikely to change the outcome, as General Electric and Microsoft learned to their dismay in recent years.  The EU has major reservations about companies that hold a dominant position in their industry, such as Intel and Microsoft. 

What is interesting is how U.S. competitors have used the EU as a forum to punish these three companies.  Advanced Micro Devices (AMD), Intel’s primary competitor, brought the case to the EU and provided information used in the antitrust ruling.  Authorities in Japan and South Korea previously had ruled that Intel had engaged in anti-competitive practices, although no fines were imposed.  AMD realized that the EU would be tougher on Intel than would U.S. regulators, given the relaxing of antitrust policy under the Bush administration. 

Similarly, Microsoft’s competitors went to the EU after losing their case in the United States in 2001, and won in Europe in 2004.  Until this week, Microsoft held the ignominious record for the largest fine imposed by EU competition authorities.  And General Electric’s 2001 attempt to acquire Honeywell was thwarted by the EU, despite winning approval from U.S. authorities. 

The Obama administration signaled last week that it would get tougher on antitrust matters, which suggests a move toward the EU model of antitrust policy.  Companies have to realize that the world’s largest market is no longer the United States, but the EU.  And if they want to compete there, then they must abide by EU regulations, be they antitrust, environmental, product safety, or labor-related.  Companies that dominate industries also need to be aware that their competitors will pursue them around the world as they “shop” for favorable regulatory environments.

Tags: Globalization, Guay, Technology
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Swine Flu and Globalization

Monday, April 27th, 2009

As the number of people killed by swine flu in Mexico continues to climb, the health commissioner for the European Union has warned against non-essential travel to the United States and Mexico. Fariborz Ghadar, director of the Center for Global Business Studies at Penn State’s Smeal College of Business, says pandemics such as this will continue to present formidable challenges to world leaders in an age of globalization.

It is estimated that  it took 18 years for the bubonic plague to reach the shores of Europe from its origin in China and another 30  months to reach England from Venice. A couple years ago, when SARS hit Asia, it could have reached  Canada in 72 hours. Now, swine flu from Mexico is discovered in New Zealand before anyone knows what’s going on.

Some developed countries have systems to track, identify, and quarantine outbreaks such as this, but many developing countries simply cannot do it. Compounding the problem is the fact that very few national entities talk to one another. The current infrastructure leaves much to be desired.  To manage potential pandemics, we need  global mechanisms in place beforehand to handle situations like this as they arise, not after.

Ghadar is the co-author of “Global Tectonics: Underlying Trends Shaping the Future of Business.” The book identifies the 12 trends in technology, nature, and society that will present the most formidable challenges in the next 30 years.

Tags: Ghadar, Globalization, Pandemic, Swine Flu
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