globalEDGE Blog Archive March 2014

For those of us who drive, we are well aware of how unavoidable major traffic can be. While en route to work or on a road trip, it can be a nuisance to have your estimated time of arrival continually pushed back. But can you imagine consistently attempting to travel somewhere, while living in a city with congested roadways? In Dubai, this is a daily reality. As an affluent city in the United Arab Emirates, the number of cars has grown so much that traffic is a rising issue for the country. Orthodox methods to combating the problem such as increasing prices of parking, fuel, and insurance have proved fruitless so government leaders are seeking a new strategy: putting in place an income threshold for the ownership of vehicles.

Last week, a panel from the World Trade Organization announced that China had broken international trade law by restricting its exports of rare earth metals and other metals critical to the global manufacturing industry. The panel discovered that the export taxes, quotas, and bureaucratic delays in Beijing artificially raised the prices of exports and created shortages for foreign buying nations. The panel also determined that these export quotas, which the Chinese argued were intended for environmental protection, were actually instituted to achieve industrial policy goals aimed at promoting the continued growth of the Chinese economy.

“Ten to 20 years from now, we may look back on the present as the dawn of the Smart Era: a time when rapid and continuous innovation changed almost everything about the way we live.”  This quote, spoken by Ernst & Young’s Global Technology Sector Leader Patrick Hyek, exhibits how quickly smart devices have inundated the business world.  The expansion of smart technology in the business world has created new opportunities for industries and companies around the globe that at one time had little interaction with technology.

For the first time in China’s history, a Chinese company defaulted on its bond payments, signaling a change in the country’s economic policy.  Shanghai Chaori Solar Energy Science and Technology, a company that produces solar panels, could not make its interest payments on a one billion yuan bond, and defaulted after the Chinese government refused to bail the firm out. This is a stark change from previous actions by China, which has always bailed out onshore companies that were on the verge of defaulting. This decision to allow Chaori to default shows China’s commitment to a more open economy, in which investors cannot fall back on the government to bailout bad business decisions.

Out of the millions of U.S. businesses, only about 300,000 individual companies made an international sale in 2012. Although the U.S. is the world’s number one exporter, there is potential to grow exports by small and medium sized businesses. In its book Exporters!, the U.S. Commercial Service interviews 28 of its current clients that are small businesses, which export their goods or services. Each company covered in the book is unique and has a different story of how they first began exporting. One common theme was the benefits and resources provided by the U.S. government.

Economist Milton Friedman once said, "responsibility... generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom". Business ethics reflect the fundamental purposes of a company and are extremely important for multinational corporations, especially when trying to expand their brands into new countries and cultures. As globalization further expands, multinational corporations find that business integrity is perceived differently in different countries and often poses a challenge for business expansion.

The North American Free Trade Agreement (NAFTA) came into effect January 1, 1994, creating the foundation for economic growth and strengthening trade relations between Mexico, Canada, and the United States. Now in 2014, it has been over 20 years since NAFTA has been in place. To better understand the economic impacts of NAFTA, we have prepared a table showing trade statistics before and after NAFTA.

On February 19th, President Barack Obama flew to Mexico to meet with Mexican president Enrique Peña Nieto and Canadian prime minister Stephen Harper, approximately twenty years after the three nations had signed NAFTA. The goal of the Toluca summit was to attempt to reduce trade frictions and come to agreement on trade conflicts between these countries. Issues discussed included Obama's trade executive order, the controversial Keystone XL oil pipeline, the "trusted traveler" program, updating NAFTA, and the Trans-Pacific Partnership.

Few things are more for the global economy than world trade. Ever since Adam Smith laid out the economics of comparative advantage in his magnum opus, The Wealth of Nations, countries have understood the importance of specialization and trade. The importance of trade remains the same today - if not more important.

In his 2010 State of the Union address, United States President Barack Obama announced the US National Export Initiative to improve conditions affecting exporting in the private sector. Obama hoped to double exports by 2014. This would include working to remove trade barriers abroad, help firms and farmers enter new markets, and help with financing. Since the initiative was announced, over a million export-supported jobs have been created and exports have increased by over fifty percent. In 2012, US exports set a record reaching $2.2 trillion, which was 13.9% of overall GDP.

Have you visited the Business Review section of globalEDGE recently? If not, this would be a great time to start, as the second article in the 2014 Volume 8 edition has recently been released. What is the business review and what is its target audience you may ask? The globalEDGE Business Review is a collection of monthly comprehensive articles that focuses on major international business matters. The review examines a topic question and pieces together international research that includes a breakdown of background information, introduction of the topic issues, analysis of different characteristics in business operations, and offering strategic solutions in an abridged fashion. The review also includes helpful aids such as graphs and data tables that help visualize and support key points. Based on professional and highly acclaimed international research, feature topics target business executives with the purpose of identifying key areas of development, whether marginal or major, that can have a positive effect on business operations.

A big topic in business today is the evolution of the new digital world. It is vital to businesses that want to continue being successful to recognize and adapt to the new trends. Companies will either take flight in the new age or dwindle and faze out. This holds true for nearly every industry as global business has become technologically advanced.

Corporate style management is set to replace the current bureaucratic system of the Holy See in the near future. On the 24th of February, the Pope announced in a public statement that he is planning to make changes to its financial system by centralizing budgetary and administrative functions. As the first economic overhaul to the Vatican in over 25 years, it was decided that the Holy See will begin to operate with a system of corporate governance.

Peru is currently the third-largest producer of copper and the sixth-largest producer of gold in the world.  Peru’s mining industry is booming and government officials expect copper production to double by 2015.  Because of this projected growth, it is no surprise that Peruvian officials and business executives are visiting cities like New York City to attract foreign investments.  Forecasts indicate that by 2015, investment in the mining sector will make up close to 50% of total investments in Peru.

When naming the most innovative place in the world, Silicon Valley of the United States is usually everyone’s first response. However, that might not hold true in Europe. The tech-savvy country of Estonia is proving to be an important focal point for entrepreneurship and innovation. Right on the edge of Europe, Estonia has a total population of just 1.3 million. Estonia may be considered an extremely small country, but in terms of technology and innovation, it’s a giant.

The evolution of technology has opened the Internet for cross-border collaboration and has enabled a whole new range of economic activity that includes online trades, big data, and online advertising. According to the McKinsey Global Institute, from 2004-2009, the Internet contributed up to 21 percent in GDP growth in the developed world and 11 percent in the BRIC countries (Brazil, Russia, India, China). This blog will discuss the international trade benefits created by the Internet and the risks associated with online cross-border trade.

The Trans-Pacific Partnership, or TPP, is a trade agreement between twelve countries, including China, Japan, the United States, Canada, Mexico, Chile, and Peru. This agreement, if ratified, would eliminate almost all trade barriers between these twelve countries, uniting them in the largest free-trade zone in world history. The problem is, it doesn't seem to be getting approved anytime soon; talks that occurred just last week in Singapore ended with the countries reaching no finalized agreement that would put the TPP into effect. As the partnership has been undergoing negotiation talks for years, it is wondered how much longer it will take for the countries to cooperate on certain final issues and establish the partnership.

In the midst of what appeared to be a comeback for the European automotive market, which includes western Russia in international marketing figures, the current political crisis in Ukraine has spurred on fears that Russia's days as a growing reliable source of car sales may be coming to a quick halt. Seeing as Russian forces in the Crimea region has resurrected Cold War tensions between Russian and Western supported factions, American and European investors in the Russian automotive market have reportedly lost confidence in Russia as a continued source of fuel for the sector's global recovery. These tensions come alongside economic turmoil that the international automotive industry has been handling in other emerging markets, which includes the currency market problems that are worsening prospects in the emerging-market countries of Turkey and South Africa.

Brazil’s economy posted surprisingly good numbers for the fourth quarter of 2013, renewing hope that the country’s economic fortunes can turnaround. Brazil had seen its GDP contract by .5% in the third quarter, leading some analysts to speculate that the country was headed for a recession. The new numbers for the fourth quarter show that the economy grew .7% from the previous quarter and 2.3% over the entire year, numbers that no one expected to see. This news brings some relief and encouragement to Brazilian officials, who currently have their hands full with issues surrounding the economy, protests, and major upcoming sporting events.

Ever since the financial crisis hit the world in 2008 discussion has ensued on who is at fault and how can we make sure something like this never happens again. At the heart of this debate are banks - especially global ones. Legislative bodies across the globe have acted in an attempt to stabilize the banking system and stop financial panics that dry up credit. From Basel III to Dodd-Frank many attempts have been undertaken.

This September, the ballot to vote on Scottish Independence will be held. Scotland’s North Sea possesses a great amount of oil revenue for the United Kingdom, which poses a threat to the United Kingdom if Scotland were to become independent.  What does this mean economically and politically for the country of Scotland, the United Kingdom, and the European Union? A lot of uncertainty. The rarity of the creation of a new state in Western Europe poses a lot of questions that economists do not know the answer to.