Posts Tagged ‘Globalization’
Wednesday, May 11th, 2011
Smeal’s Fariborz Ghadar, director of the Center for Global Business Studies, was recently interviewed by Voice of America television regarding his book Global Tectonics: What Every Business Needs to Know. The book identifies twelve global trends that will present the most formidable challenges to world business leaders in the next 30 years.
View his interview online here.
Monday, January 10th, 2011
On the heels of Gap’s logo change (and subsequent change back to the previous logo) this fall, Starbucks has released a new logo. Similar to past logo changes for Gap, Ikea, and even Apple, consumers are immediately expressing their dislike for the new logo. It might be surprising to many that those who are the most loyal customers and thus are expected to best support the brand tend to be those who are most upset. But if one considers that consumers develop relationships with brands, then this change to an integral part of the brand may threaten the customer’s relationship with the brand. Change is hard for many of us after all, so perhaps it’s no wonder those loyal customers are upset when “their” brand’s logo changes.
But unlike Gap’s return to its prior logo after customer complaints on social media networks, there may be an upside to Starbucks’ logo change. Its updated logo became more rounded, dropping the angular text in the previous logo. Rounded designs tend to be more appealing to consumers in Eastern cultures or those with an interdependent self-construal. If Starbucks continues to grow in these cultures, its revised logo, while perhaps upsetting to loyal U.S. customers, may appeal to their newest customers in these collectivistic markets, and that just may be where it matters most.
More on Winterich’s research on logo redesigns can be found online here.
Tuesday, January 4th, 2011
The New York Times recently reported on China’s entry into the U.S. wind energy market. “While proponents say the Chinese manufacturers should be welcomed as an engine for creating more green jobs and speeding the adoption of renewable energy in this country, others see a threat to workers and profits in the still-embryonic American wind industry,” The Times reports.
There may be some benefits and drawbacks from the Chinese entry into the U.S. wind market. The Chinese heavily subsidize their domestic solar and wind industries via low-interest loans and make it difficult for foreign competitors to enter China. That allows them considerable scale to lower costs. They already have gained significant share in the U.S. solar market, and this may happen for wind too. The U.S. government has subsidized wind mainly through the Production Tax Credit, but low or zero profits have reduced its attractiveness. Wind demand in the United States is driven mainly by Renewable Energy Standards in the 30+ states that mandate renewable energy. Chinese entry won’t increase demand much via lower prices because coal is cheap and natural gas is especially cheap now.
The Times article points out that foreign firms already make up most of the wind market. GE and Clipper have relatively small shares compared to Siemens, Vestas, Suzlon, and Mitsubishi. These latter companies import most of their high-value-added, high intellectual property components because there is a limited skill-base in the United States to make these components. U.S. manufacturing focuses on towers, nacelle covers, engine mounts, and blades, which are either low-value-added components or too big and too heavy to import.
The best that we can hope for in the near term is increased jobs for people who manufacture the low-value-added components, assemble turbines from imported components, and construct towers and maintain them. That’s not insignificant growth, however.
Tuesday, November 23rd, 2010
President Obama returned from his Asia trip earlier this month without accomplishing one of his principle goals: negotiating a new free trade agreement with South Korea.
Smeal’s Terrence Guay explains what tripped up the deal and what it indicates about the U.S. and global economies:
President Obama’s November trip to Asia sought, among other initiatives, to finalize a free trade agreement with South Korea. With negotiations concluded and a treaty signed in 2007, the U.S. Congress balked at ratifying the treaty. In effect, President Obama tried to persuade the Koreans to amend the treaty to allow greater access to U.S. automobile and beef exports. His inability to do so reflects several changes in the domestic and international political economy.
First, South Korea successfully stood up to U.S. pressure to change the terms of the treaty. The Asian country refused to weaken its fuel economy regulations, which are higher than U.S. standards and impose additional costs for U.S. auto companies seeking to expand into the Korean market. Also, due to citizens’ concerns about the safety of U.S. beef (the “mad cow” phenomenon), the Korean government refused to relax its regulations on beef imports. That two products presented an obstacle to completing a trade agreement with our seventh largest trade partner suggests that American influence on global economic matters is in decline. For further evidence, see the inability of the United States to persuade other countries at the G20 summit this month to apply pressure on China to revalue its currency, or the nine-year (and counting) negotiations on the World Trade Organization’s Doha round of global trade talks.
Second, the failure to reach a trade deal with South Korea underscores the growing distrust of many Americans and politicians of the benefits of global trade and investment flows, especially during “the Great Recession.” The global economy played virtually no role in the recent Congressional elections, other than the simplistic campaign ads blaming China for our economic problems. And while a Democrat-controlled Congress was wary of approving trade agreements with South Korea, Panama and Colombia for a variety of reasons over the past three years—including concerns about labor and environmental issues in those countries—it is not at all obvious that a Republican-controlled House of Representatives will pursue trade agreements with any greater fervor. Most economists expect modest contributions to domestic job and economic growth should these trade deals ultimately be implemented. But with opinion polls consistently showing an American public wary of globalization, the benefits of free trade, and the increasing global influence of other countries, there is little to be gained by congressional Republicans or Democrats using political capital on an issue where the benefits are not widely acknowledged.
Monday, March 29th, 2010
“The European Union and the United States agreed Thursday to expand a three-year-old accord that allows airlines to operate more freely across the Atlantic,” The New York Times reports. “The move will increase access to each other’s markets and narrow differences over environmental regulations, but industry executives were disappointed that no agreement was reached to remove the remaining barriers to foreign ownership and control of airlines.”
Relaxing the restrictions on foreign ownership would allow British Airways and other foreign carriers to serve U.S. locations that are underserved now. It also would avoid the reduction in routes and elimination of cities served when two U.S. carriers merge. And for anyone dreaming of decent meals and better service—even in economy class—foreign airlines have a lot to offer, as almost anyone who has flown abroad can attest.
So why isn’t this already happening? One reason is that the Federal Aviation Act of 1958 requires that, for airline corporations, 75 percent of the voting interest must be held by U.S. citizens, and two-thirds of its board of directors must be U.S. citizens. Such restrictions seem absurdly arcane 50 years on, in a far more interdependent global economy than was the case during the Eisenhower administration.
… Perhaps most important is the message of hypocrisy that protectionism over the U.S. airline industry sends to the rest of the world. At a time when our own trade representatives are demanding that other countries open their financial, retail, and other service industries to competition from U.S. companies, we refuse to open our airline market to others. Yet this is the best strategy to improve the financial health of U.S. airlines, while allaying the concerns of travelers in smaller cities and their elected representatives who justifiably fear that a merger between any two major U.S. airlines will adversely affect choice and cost. This kind of foreign aid would be a win for the airline industry, air travelers, and U.S. trade policy.
Wednesday, March 17th, 2010
Another group of Smeal’s first-year MBA students recently returned from their global immersion week in New Delhi, India. In addition to deepening their understanding of global business, the immersion trip affords students the opportunity to meet with business leaders to learn how they position themselves in both local and international economies. Below, Smeal’s Dennis Sheehan, who accompanied the students on their trip, highlights a particular company and the breadth of Smeal’s network around the world.
When Selva Vaidiyanathan tells you that his workday typically begins at 1 p.m., you first think the pace of business in India must be awfully relaxed. That is, until he tells you it typically ends at 2 a.m. Selva is a 1997 graduate of the Penn State Smeal MBA program. He spent about ten years with Chrysler, then Daimler-Chrysler before returning to India to accept a job with Genpact. Selva spoke with Smeal’s second-year MBA students who were on their global immersion in Delhi, India.
Genpact is one of the largest business process outsourcing (BPO) firms in India (http://www.genpact.com/home.aspx). Their annual revenues are currently $1.1 billion, growing at a rate of 20%+ per year. They do all sorts of back-office process work such as finance and accounting, procurement and supply chain, collections, customer service, human resources, risk management, and IT infrastructure; they are one of the leaders in applying Lean Six Sigma methodology to process reengineering.
If you want an example of the globalization of business, you probably couldn’t find a better one than Genpact. It’s a firm that was started in Gurgaon, India as a spinoff from GE Capital; it is currently headquartered in Hyderabad. It is listed on the New York Stock Exchange and has several large VC investors involved with the company; all its financial statements are denominated in dollars. Selva is in charge of an 800 person team with people in India, China, Mexico, Poland, and Romania.
The firm recently bought the back-office operations of a leading U.S. firm located in the Midwest, and Selva is in charge of integrating those operations into Genpact. Genpact is going to keep all the people who currently work there, but now those people are going to be working for a global BPO firm. It means learning new things for everyone, but those new skills will open up possibilities for doing BPO work for other firms. It’s an amazing example of the power of globalization to reshape the local economy in a place very far from the center of outsourcing.
Selva spent several hours with us one afternoon, talking about Genpact and his role there. We then had the pleasure of sharing several hours more with him on a much more informal basis over drinks and dinner, where he answered all sorts of questions from the students about his career path. And he even suggested that he might need a few interns this summer in the United States. Halfway around the world, the Penn State network is helping current students!
Wednesday, March 10th, 2010
Smeal’s first-year MBA students recently completed their global immersion week, in which they spend a week abroad to get a glimpse of the international economy and the particular challenges and opportunities associated with doing business in another culture and under different laws and regulations. Terrence Guay, clinical associate professor of international business, accompanied one group of MBAs as they visited Shanghai, China. He shares a bit of the experience below:
The economic transformation in China is occuring on a massive scale and in light speed. During the first week of March, I took 27 first-year MBA students to Shanghai to see these changes firsthand.
We visited one French and eight U.S. companies, almost all of them names that every American would recognize. Their reasons for being in China vary. Some, like GM and Johnson & Johnson, are producing for the local market. Others, like Caterpillar and Alcoa, are utilizing low-cost labor and exporting most of their products out of China. Some companies have more flexibility in managing their operations, while others like Bank of America and Deloitte face restrictions in competing due to greater regulations in the service industry.
Most students were surprised that, in a country of 1.3 billion people, almost all companies spoke of difficulties in finding highly skilled workers, especially at the middle-manager levels. Yet every company was enthusiastic about the opportunities that exist in China. Goodyear views the country as a blank slate where companies can re-position themselves, while Disney sees a promising future in selling merchandise to the two parents and four grandparents who dote on each child.
Walking and riding through the streets of Shanghai, one would hardly notice that over half a billion Chinese citizens cannot afford any of the products that these companies sell. The skyscrapers, lights, and bustle look more like New York or Chicago. But the few hundred million middle and upper income Chinese consumers are rapidly transforming this country, and taking the global economy along with them.
Monday, January 25th, 2010
The Wall Street Journal and the Heritage Foundation last week released their annual rankings of the freest economies in the world, with Hong Kong and Singapore retaining the No. 1 and No. 2 spots, respectively, for the 16th straight year. Smeal’s Austin Jaffe recently visited these two areas (along with South Korea), and wrote about their real estate economies on Just Listed, the blog of the Pennsylvania Association of Realtors:
Though capitalism has been in vogue for a generation in these countries, it sometimes takes different forms from the American version we’re used to.
For example, Singapore is one of the most dynamic city states in the region, yet its government is involved in virtually every decision (certainly all real estate decisions) on the island. Democratic principles sometimes give way to government mandates and many controversies remain close to the surface. Hong Kong is a Special Administrative Region of mainland China and has a delicate relationship with Beijing. South Korea remains dynamic and considerably different from its closed and very poor neighbor to the north.
There are also similarities among real estate markets in each of these three countries. For the most part, the decision to develop land is strictly a government affair; state agencies maintain tight control over the supply of land. Given the high population densities, especially in Hong Kong and Singapore, most housing units are apartments or condominiums. In Singapore, home ownership rates are among the highest in the world (over 90 percent) since the Singaporean government has long had a policy of privatization of flats to sitting tenants at deep discounts, using the state’s pension fund for financing. Given Singapore’s continuing economic growth, trading up from “HDB flats” (public housing projects) to higher quality condominiums (generally privately developed and managed) is a national obsession.
It’s said in Hong Kong that real estate is the only business in town. Indeed, I heard about the new record price of a condo sale in Hong Kong: HK$92,000 (or almost $12,000 USD) per square foot! The talk of the real estate community for several months, this vast sum is thought to be even too high by local standards.
In Singapore, prices continue to rise and construction continues around the site where one of two casinos is being developed. Once considered offensive to Singaporean sensibilities, the casinos are scheduled to open next year—with entrance fees of more than $100 USD! In Seoul, real estate values are escalating, along with bumper-to-bumper traffic.
Read Jaffe’s complete post here.
Thursday, January 21st, 2010
Smeal’s Rajeev Sooreea says that Google’s threat to leave China is a risky move that could damage its ability to succeed in China if it ultimately decides to continue operating there:
Google’s threat to exit China is not only an economic decision but also a key strategic one.
J.P. Morgan has estimated that Google could potentially lose $600 million in revenue if it withdraws from the China market. And such market share could be a boon for companies like Microsoft, which is there to stay, and Baidu, which already has 63.9 percent of the market, compared to Google’s 31.3 percent.
Whether Google leaves or stays essentially comes down to how it prioritizes its goals: market presence versus market growth. If Google leaves, it could still have an indirect market presence by transferring its China businesses to local players in exchange for equity stakes. But then it would severely compromise its market growth. Microsoft has had bumpy times with the Chinese authorities but its focus is on growth. For Microsoft, the China market is too big to walk away from. Over the years it has learned its lessons and Google will have its own if it stays.
It is important for foreign firms to realize two things: First, successful longstanding multinational companies in China are those that contribute to the welfare of the economy. Second, the business-government relationship and culture in China are far more complex than what one could anticipate. One of the premises on which Google is founded is freedom of expression. But freedom of expression is molded to a large extent by culture, and what may be valued and promoted in the United States may not be admissible in some other cultures, including China. Besides, in some cultures, freedom of expression may not be a social or political priority.
Google’s threats to exit China could be viewed in several ways. It could be real or strategic. If it is real and Google exits, it will lose a big market (but it may be honorable in the sense that Google was already struggling against competitor Baidu and it has upheld its no censorship philosophy). If the threat is fictitious and used to strategically force information out of the government, then it may land itself in a worst-case scenario, making its future growth in China more politically difficult. This could well be the case, too, even if the threat is real and Google stays in China.
For the company’s sustainability in China, threats seem to be damaging because the stick component of the carrot and stick is seldom welcome there. Again, the parallel is with Microsoft which used to send threatening letters to the Chinese authorities in its early years but then it had to change its strategy and adopt a friendlier approach. Today it is more successful than ever before.
On the other hand, China has to proactively do its fair share of the trade. Google simply withdrawing from China will not make the attackers go away. All across Asia, China is renowned for giving red-carpet treatment to foreign multinationals. If it wants to maintain its leadership, it should realize that the playing field is flattening out, and reinforcing its intellectual property laws would be a key factor for its own long-term success. Hacking is a deliberate violation of privacy and this is an area where the Chinese authorities need to do something more concrete. Only collaboration between Google and the Chinese government could be welfare-enhancing for both.
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.