globalEDGE Blog Archive October 2015

As of October 29, 2015, China has abolished the one child policy that had been in place since 1979. Couples will now be allowed two children under the new policy. China originally started the policy due to “fears that an exploding population would slow economic growth.” This change in policy has huge economic implications due to the prospective increase in population in the world’s most heavily populated country. Mead Johnson Nutrition (MJN) saw its shares increase 4% on Thursday since the announcement, in part due to MJN being one of the leading sellers of baby formula in China. More children means that companies that make goods tailored towards a younger clientele will see their profits increase in China.

For many businesses, branding plays a vital role in their success. A recognizable brand that consumers can trust helps companies grow and expand, while also granting staying power as the business moves up the industry ranks. As companies have expanded internationally, branding power has only increased in importance, leading many businesses to spend large amounts of resources on the brand. With these large investments, companies view legal protections, such as trademarks, as an extremely important issue when doing business in a country, or when looking at prospective countries to enter.

In the latest globalEDGE Business Beat, MSU’s International Business Center Director Tomas Hult discusses U.S. international trade opportunities with Stefan Selig, who is the Under Secretary for International Trade at the U.S. Department of Commerce’s International Trade Administration. Their conversation focuses on three different U.S. trade initiatives, as well as the great potential for U.S. export growth.

Europe is in the midst of an immigration crisis of historic proportions. Since January of this year, the European Union (EU) has received an influx of an estimated 1 million asylum seekers, with the promise of many more to come. These refugees are fleeing conflict and persecution, much of which can be linked to the rise of insurgency, specifically the Islamic State, in the Middle East. Human rights violations by the oppressive regime in control of Eritrea are also a major cause for the influx of refugees. It is believed that approximately 60% of all immigrants are coming from Syria, Afghanistan, and Eritrea. Refugees select Europe as their destination due to the relatively close proximity and the economic prospects for a better life. While the European refugee crisis is first and foremost a humanitarian crisis, it will undoubtedly have a significant impact of the Eurozone economy, both now and for decades to come.

South Africa is one of the most prominent wine-producing countries in the Southern Hemisphere. With more than 300 years of winemaking history, it is now the ninth-largest producer of wine in the world, with some 250,000 acres under vine. The wine tasting trip to Stellenbosch provided the perfect introduction to the South African wine industry.

According to figures released last Thursday, unemployment in Spain fell to its lowest level in four years. This figure could increase the chances for Prime Minister Mariano Rajoy to win the general election, as unemployment is currently a hot topic for discussion in the country. The rate fell from 22.4% in the previous quarter to 21.2%, bringing the number of people without work down to 4.85 million, which is the lowest it has been since mid-2011. At the peak of the economic crisis during this time, unemployment reached a record of nearly 27%.

The Arab League considers itself a loose confederation of 22 Arab nations, whose broad mission is to improve coordination and communication among its members in terms of common interest. The League was developed in response to concerns about post-war colonial territory divisions. The initial agreement was signed in Cairo on March 22, 1945 by representatives of the first six member states–Egypt, Iraq, Jordan, Lebanon, Syria, and Saudi Arabia, and there are indications that they will be signing another agreement on the basis of an Arab military force in the near future. 

Since 2011, Syria has had civil unrest beginning with the Arab Spring protests, which were nationwide protests against the government which resulted in violent crackdowns by the Syrian government. Soon enough, it changed from protests to armed rebellion from various groups formed during the protesting process. Groups involved include al-Qaeda affiliates, the Islamic State of Iraq and the Levant (ISIL), the Syrian Government, and the Free Syrian Army (FSA). Since the FSA is considered an opposition faction, it is able to receive support by the United States and other Gulf Countries, giving it increased fighting capacity. During the Syrian crisis, around 5 million citizens have fled the country seeking a new home. It is believed by many that the movement of Syrian refugees into many Middle Eastern and European Union countries is becoming economically unstable.

As of October 15, 2015, USA Trade Online is now free for all users. For those who are not familiar with USA Trade Online, it is a dynamic data tool provided by the U.S. Census Bureau that provides U.S. export and import data. In addition to becoming free for all users, many new data fields and functions have been added. These changes have made this resource an even more powerful tool for exploring U.S. international trade data.

The Gulf Cooperation Council (GCC) trade bloc has six member states within the Middle East: United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar, and Kuwait. The trade bloc was entered into force on December 1, 1981, covering goods and services as well as military trade between the countries.

Since Iran refused to suspend it uranium enrichment program in 1979, various international sanctions have been imposed on this country in order to restrict its policies of developing nuclear weapons. The cost of such military development is the loss of the oil production capacity, which decreased from over 7 million barrels per day in 1979 to around 4.2 million in 2003. Iran has realized the need to boost its oil output for economic growth and it has agreed to curb its nuclear program. In July, Iran signed a historic nuclear deal with six global powers to waive the sanctions, which are expected to be lifted in early 2016. The country is now preparing for the expected economic growth in the coming year.

Manufacturing was the most prosperous sector in the early twentieth century in South Africa because of low input costs and developed infrastructure. However, the industry is now facing great challenges. During my trip to South Africa, I observed some weaknesses in the country’s manufacturing industry.

Doing business in a foreign country or region can be challenging, especially when the culture is substantially different from what one is used to. Thus, informing oneself of the cultural norms and the way business is conducted in a given country can be extremely beneficial and help to prevent mistakes that could damage business relationships. When conducting business in the Middle East, there are several things a businessperson should keep in mind. This blog post highlights some of the key cultural differences to be aware of.

Japan’s recent recovery, frail as it is, is doing far better than the failing endeavor it’s been pegged as in mainstream media. Understandably, claims on the many faults of Prime Minister Abe’s Quantitative Easing policy have been warranted. This year alone, Japan has faced a shrinking economy in its second quarter and came uncomfortably close to the same designation in the third quarter. Most notably, inflation has been on a steady decline since April and has since stabilized but remains alarmingly close to zero. Dismal as the outcomes have been thus far, the island nation is inching closer to its goals.

Ever since the 2008 financial crisis, emerging markets have received less investment from other countries. This is due to falling demand for the commodities that have traditionally powered these countries' exports. In addition to this, flows to emerging markets decreased even further in 2014 due to unease in the markets. Now it is looking even grimmer. By the end of 2015, capital inflows to emerging markets are projected to reach $548 billion, while emerging markets are only expected to have about $540 billion in outflows. These numbers are troubling, for if the gap between capital inflows and outflows continues to decrease, net capital flows to emerging markets may go negative for the first time in decades. 

After multiple offers, Anhesuer-Busch (AB) InBev has reached a $106 billion takeover deal with SABMiller. AB InBev, owner of Budweiser, Stella Artois, and Corona, will now become the controlling player in the international beer market after the purchase of SABMiller, owner of Miller Lite, Peroni, and Fosters. As a result of the merger, the newly created company will hold about 30% of the global beer market share. The $106 billion deal is atop the record charts for beer acquisitions and is one of the highest-dollar corporate takeovers in history. AB InBev and SABMiller’s combination sets the stage for many shifts in the international beer market.

Natural resources businesses in the Arctic are facing a complex economic situation. A new economic organization, the Arctic Economic Council (AEC) Secretariat, was recently founded in the region to help small to medium-sized businesses and promote favorable business policies. However, many countries are reassessing their strategies of drilling for oil and gas in Arctic region because of falling oil prices and the downturn of the global economy.

Private Equity and Africa are not often associated with one another. Most notable private equity firms stick to established and stable markets such as the U.S. & Europe, where there are ample opportunities to invest in mature and steady companies. However, times change, and this is apparent in Africa, where the opportunity to connect the continent like never before is drawing in unprecedented amounts of capital. 

Oudtshoorn, the capital of ostrich industry, has been enjoying prosperity from ostrich farming since the 1880s. These big-eyed birds provide jobs to the locals and attract tourists from all over the world. Before I went on this trip to South Africa, I never knew ostrich farming could be turned into a profitable business. During the visit, I observed several advantages and disadvantages of ostrich farming.

This coming week will provide several indications of the recovery of the global economy, amid increasing concerns of another economic downturn. A major point of worry for economists is that there are limited tools that Central Banks can use globally to avoid another recession. China is expected to release data that is leading to expectations of an increase in stimulus measures to avoid a sharp downturn. The European Central Bank has been attempting to raise inflationary pressure to spike a raise in prices. Inflation numbers for some member countries are expected to be published this coming week and are expected to confirm that prices fell by 0.1 percent annually last month. Banks globally have been taking either a more hawkish stance, where there may not be an extension of quantitative easing, or a stance of allowing more money to enter the economy through increased stimulus.

On Monday, October 5, the OECD published a new package of international corporate tax standards that is expected to be approved by the G-20 nations. One of the main goals of the new standards is to limit “profit shifting”, which occurs when companies develop legal structures to report profits in the lowest tax jurisdictions available. If the new standards are enacted by the G-20, it is estimated that governments around the world will recover between $100 and $240 billion in lost revenue per year.

The European Court of Justice declared the 2000 “Safe Harbor” agreement between the United States and the European Union invalid on October 6. This is important because the agreement allowed U.S. tech firms to transfer large amounts of data from European users to American servers. The lawsuit first came to light when Max Schrems, an Austrian law student, noticed that “Facebook transfers his personal data to the U.S., where it can be accessed by authorities with little respect for his privacy.” Many companies such as Facebook, Google, Amazon, and Twitter are left in a sort of “legal limbo”, as described by The New York Times. This essentially means that large tech companies, like those aforementioned, can no longer transfer such data to the United States.

The Trans-Pacific Partnership (TPP) agreement has been a focal point in international business news over the last few days. Tomas Hult, Director of Michigan State University’s International Business Center, wrote an article discussing the ramifications of the TPP for the United States regarding trade with the rest of the world. The United States’ share of imports in the Asia-Pacific region has been declining as of late, but the TPP could provide the U.S. with the spark it needs to regain its strong presence in this market. Click here to check out Tomas’s article in the online publication The Conversation.  

On Monday, October 5, 2015, the Trans-Pacific Partnership (TPP) was officially signed into existence by the twelve Pacific Rim nations.The countries involved in the deal include the United States, Japan, Canada, Mexico, Australia, New Zealand, Chile, Peru, Malaysia, Vietnam, Singapore, and Brunei. China, the world's second-largest economy and the biggest trading partner for over half of the countries involved in the TPP, was not included in the list, and they are hesitant about showing support for the new deal.

After years of negotiation, the Trans-Pacific Partnership (TPP) deal was finally reached on Monday. This means that a new trade bloc has been created with reduced trade barriers among the 12 countries that signed. Since these countries together are responsible for 40% of the world’s GDP and 26% of total trade, the impacts of TPP are far-reaching and significant to the world economy, as well as to the U.S. economy.

The Internet has become an indispensable element in peoples' lives in the 21st century. South Africa is no exception. The Internet user base in South Africa increased from 2.4 million in 2000 to 12.3 million in 2012. The increasing number of internet users presents great opportunities for online businesses.

The Internet’s impact on international business has been incredible. Nowadays, companies invest large sums of money to grow their business through the internet, and it is normal for a business to be based solely on the web. The Internet has allowed companies to market their products to consumers halfway across the world and has helped connect employees situated around the globe. One of the major features of the internet has been its openness and free content, a business model mainly made possible by advertising revenue. The recent rise in popularity of ad blocking software is threatening to change this model, potentially impacting businesses operating around the world.

Volkswagen, one of the world's largest automobile makers, was recently exposed as having cheated on diesel emissions tests as far back as 2009. The Environmental Protection Agency said that Volkswagen could face penalties of up to $18 billion for their wrongdoings. Potentially worse is the fall out from a class-action lawsuit, as anyone who bought one of the affected cars now owns a vehicle that is illegal to drive in the United States.  Along with severe repercussions to Volkswagen itself, there could also be difficulties that the German economy faces.

Cybersecurity remains one of the largest concerns for many of today’s largest institutions. Hackers have become more prevalent than ever and are always finding new ways around the latest internet security precautions. There are many different kinds of information that these hackers seek. It can range from medical information from hospitals, staff and donor information from universities, or inside information from public or private companies. Whatever the targeted material may be, hacking is putting companies and even countries at risk to have this information stolen. Multinational cybersecurity corporations such as Cisco and Fortinet have tackled the task of creating cybersecurity systems to protect complex data and operating systems used by many institutions. As the internet grows every day, these cybersecurity platforms need to fend off new and improved cyber threats.