globalEDGE Blog Archive July 2016

The USA, more than most other countries, has been reluctant to engage in trade agreements. As a backdrop, the US-Israel Trade Agreement is the oldest agreement involving the US and it went into effect on September 1, 1985. Since then, the US has signed 13 more trade agreements, covering 20 countries in total with the Israeli agreement (with 18 more agreements being deliberated).

But, during the same 30-year period the world has seen 256 new trade agreements involving a large portion of the world, as registered with the World Trade Organization (see my article in The Conversation). Nineteen trade agreements were in force worldwide in 1985. Now there are 275, with 132 agreements being implemented in the last decade. The bottom line is that the US is very reluctant to engage in almost any form of trade agreement compared with the rest of the world.

The Philippines Commission on Human Rights (CHR) has sent a 65-page complaint to about 47 different energy and mining giants, accusing them of contributing to climate change and thus violating the fundamental rights of Filipino citizens. Grievances listed include violation of the rights to "life, food, water, sanitation, adequate housing, and to self determination." The document demands that the corporations respond within 45 days with formal plans to either eliminate or lessen their carbon footprints. Major companies listed in the dispatch include Shell, BP, Chevron, ExxonMobil, and BHP Billiton. Both human rights and environmental organizations are calling this a "landmark case." 

Even after Britain’s vote to exit the European Union, Europe still stands strong and connected in many ways. The European Union is a treaty with 28 country participants, developed to bind its members with specific laws and an internal market. The Union was originally created after the Second World War to unify Germany and France, but now it serves its main purpose to allow the free movement of people, capital, goods and services between its members.

Britain’s historic decision to leave the European Union (EU) has caused massive economic and political chaos. World financial markets tumbled immediately after the vote and the British pound fell tremendously. Britain will look to further engage in trade to offset some of its economic loss.

Having lived in the United States since 1987, off and on, and then becoming a U.S citizen in 2004 after Sweden allowed dual citizenship starting in 2001, I’ve become entrenched in the “American” culture and way of live. I’m happy to live in the United States; it’s a great country with great opportunities, but it is not America!

America consists of 55 countries and territories, including of course the United States of America. The U.S.A. is the largest of the 55 entities, with more than 320 million people, followed by Brazil with about 205 million, Mexico with about 121 million, and then the population figures drop below 50 million for all other countries and territories. Colombia, Argentina, Canada, Peru, Venezuela, Chile, and Ecuador - in that order – are in the top 10 most populous countries in America as well. These top 10 most populous countries in America make up about 88 percent of the total population of some 982 billion people in the region which, by continent, includes North America and South America.

As someone who played tennis at a high-level from kindergarten into my 20s (plus engaged competitively in other sports), I have always believed my drive to do well vis-à-vis the competition (versus others and versus my own past accomplishments), in anything I set out to do, is rooted in a values-structure tracing to my competitive tennis days. Some even argue that tennis players make the best employees! Now, this is not about tennis; it’s about former athletes being global leaders.

But this is not any athlete. Most people play sports as a part of their upbringing. If you are like me, I had my children try out a bunch of different sports to see what they liked, didn’t like, and what could diversify their mindsets. This recreational, low-level sports engagement makes for well-rounded individuals, I believe, but doesn’t make them leaders per se. High-level sports, at least college sports or equivalent, and preferably some kind of professional level where you can at least make some money, is what sets the tone for global leadership.

From 2012 and 2015, it was estimated that budget deficits for governments in the Eurozone were reduced by 40% because of lower borrowing costs. The reduction in the cost of borrowing can be attributed to central banks policies. Low bond yields allow for governments to reduce their deficits and possibly lighten their current austerity measures, and lately, many yields have fallen into negative territory.

Somewhat provocatively, let's pose the question: Are good dictators better for a country (and the world) than bad elected presidents?

Traveling the world, mainly for business-related reasons, has gotten me thinking about country governments, infrastructure-building, and the world community. The United Nations has 193 members, which means almost all countries in the world are UN members (54 countries or territories, recognized as such, are not, including notable exceptions such as Taiwan, Kosovo, Vatican City, and Palestine).

On my most recent trip to Kenya and the meetings of the United Nations Conference on Trade and Development (UNCTAD) and the World Investment Forum, there was a plethora of countries represented and numerous high-level officials. And, since the meeting was in Africa, most of the 55 countries in Africa and its 1.2 billion people were represented by officials. Africa has seen its share of “dictators” and elected leaders, and that begs the question of which is the best – it seems the answer should be easy, but is it?

China has set a deadline to significantly increase its robotic presence in its manufacturing industry by 2020. Currently, there are 36 robotics per 10,000 industrial workers; the 2020 goal is 150 per 10,000 workers. The driving forces of this shift include labor shortages due to an aging population, as well as the rising of wages due to decreased interest for low-level jobs. 

The United States Justice Department has concluded that the Malaysian prime minister is linked to the billions of dollars embezzled from the 1MDB. This news comes a year after investigative journalists first uncovered the possible connection.

In 2009, Brazil won the 2016 Summer Olympics bid. Their economy was healthy, the sixth largest in the world by 2011, and the Olympics were expected to be exceptionally profitable. Despite this, with less than one month until the start of the Summer Olympics in Rio, Brazil may be experiencing one of their worst economic crises since the 1930's. Brazil has been declared a state of financial disaster, and has remained entrapped in a recession causing their economy to shrink 3.8 percent in 2015. A federal bailout of $900 million given to the government was insufficient to revert the crisis. Government corruption, tax exemptions, falling commodity and oil prices, and the Zika outbreak are all contributing factors to the economic turmoil.

U.S. crude oil prices have been falling for the past two years and some claim that prices may not change until 2019, when oil production will reach its peak. Ever since the global oil-price collapse, oil has become a lot more affordable for consumers, hitting a two-month low on Wednesday, July 20th. As a result of excess oil productions, many suspect that oil prices may go back to $20 per barrel while others predict prices to reach $80 a barrel because the excess is overestimated.

Want a quick way to compare data across multiple countries? The globalEDGE Comparator Tool offers an easy way to find labor, health, economic, and trade data for various countries, using data from the World Bank. Data fields include population, total tax rate, adult literacy, foreign direct investment, and more. The tools allows users to compare up to five data fields and twenty countries at once, in an easy to read format. Check out the Comparator Tool, a great way to gain more international business insights!

This blog was written using a wealth of materials promoted by the United Nations, UNCTAD, and various UN Forums, such as the World Investment Forum, but with my take on the implications and where to go from here. This inclusion of official, publicly available UN materials sets the tone for the debate about UN’s Sustainable Development Goals (SDGs), the 2030 Agenda, funding and bold leadership required, and the worldwide collaboration needed by the UN’s 193 member states. My take is that collaboration – whether it be structured as a series of multilateral agreements and/or regional agreements – is the way to go over any form of isolationism.

Ok, so normally my globalEDGE blogs are a bit more topical, serious, and germane to my international business and trade interests. But I’m finding myself up early, from jetlag, in my hotel room in Nairobi, Kenya where I am attending the joint meeting of UNCTAD and the World Investment Forum, and it strikes me that cocoa beans have been in the news lately. And the world may not have noticed!

Let’s connect the dots. Kenya is of course in Africa, and Africa accounts for 73 percent of the world’s cocoa bean production according to a 2016 report by UNCTAD (but only 19 percent of the cocoa bean roasting/grinding/refinement which is done mainly in other parts of the world, led by Europe at 39 percent). In Africa, Ghana and Cote d’Ivoire lead the way – each country has about 30 percent of their export earnings coming from the cocoa bean commodity. And therein lies the crux perhaps; that cocoa beans are viewed as a commodity.

Nairobi, Kenya is the scene for the 2016 World Investment Forum and also the United Nations Conference on Trade and Development (UNCTAD). The parallel, and in some cases joint, meetings attract a plethora of intellectual power, decision-making authorities, and other invited and influential parties. A key agenda item across the meetings is investment opportunities based on the newly established Sustainable Development Goals.

Big data has long been a buzz word in the business world, with the seemingly endless benefits more data can bring. Companies use data to spot trends and find consumer preferences, allowing for things like personal advertising and targeted pricing. While big data can be very helpful, some businesses find trouble transforming the vast amount of information into useful insights.

This blog is about Second Shift: The Inside Story of the Keep GM Movement, a business trade book coauthored by Tomas Hult, Director of Michigan State University’s International Business Center, which is the developer of globalEDGE. The book was coauthored with David Hollister, Ray Tadgerson, and David Closs, and published by McGraw Hill Professional in 2016.

The Second Shift Model discussed in the book was “the dynamic, collaborative management model that saved a U.S. manufacturing city." When car-making giant General Motors decided to close its plant in Lansing, Michigan, in 1996, one person—the city’s newly elected mayor—stood up and said “no.” Initially, it was the cry of a man in the wilderness. Not once in its century-long history had GM reversed a decision to close a plant. But Mayor David Hollister quietly went to work building the ”Lansing Works! Keep GM!” movement and succeeded in defying all the odds.

On July 11, Canadian Prime Minister Justin Trudeau, Ukrainian President Petro Poroshenko, and Ukrainian Prime Minister Volodymyr Groysman together signed the Canada-Ukraine Free Trade Agreement (CUFTA). The agreement, signed in Kiev, is meant to further improve market access between the two countries, settle trade conditions, create jobs, and cement their status as allies. The Canadian government has been a fervent supporter of Ukraine ever since the nation's first clashes with Russia, which left Ukraine in war-torn, economically faltering conditions. Talks for CUFTA between the two countries had been going for months before final negotiations wrapped up last year. Now, the confirmation of CUFTA signifies Canada's continued support of Ukraine in the face of its struggles.

Theresa May became Prime Minister of the United Kingdom on July 13, 2016, after David Cameron stepped down as the leader of the Conservative Party following UK’s June 23, 2016 referendum on European Union membership. The UK population voted for BREXIT, and the formal UK exit from the EU will start when Article 50 of the Treaty of the European Union is triggered by the UK.

The United Kingdom is predicted to file paperwork to trigger Article 50 within six to nine months from the June 23, 2016 vote, although many expect the UK to drag it out as long as possible to potentially negotiate or at least discuss options for UK to be as favorable as, at this time, conceivable. This is where Angela Merkel comes in.

By 2050, the world’s population will have grown by 32%, but the working age population (ages 15-64) will have only expanded by 26%. Amongst the more advanced economies, by 2050, the working age population will have shrunk 26% in South Korea, 23% in both Germany and Italy, and 28% in Japan. India’s population is expected to grow by 33%, however Russia and China’s working population will contract by 21%.

Chevron and partners in the Tengiz oil field in Kazakhstan will help to increase crude oil production in the field by about 260,000 barrels per day with the development of its Future Growth and Wellhead Pressure Management Project. This expansion is estimated to cost $36.8 billion but will increase the field’s total daily production to about 1 million barrels. Multiple companies own portions of this oil field: Tengizchevroil is 50% owned by Chevron and owns and operates the Tengiz field. However, another 25% is owned by Exxon Mobil Corp, 20% by Kazakhstan’s state-owned energy company, KazMunayGas, and the final 5% is owned by a subsidiary of Russia’s Lukoil.

Foreign interests in the American real estate market have dropped recently. A report released this week by the National Association of Realtors indicated that foreigners are buying U.S. residential real estate at the lowest levels since 2013.

Companies’ supply chains should be strategic, analytical, total value systems that are focused on bottom-line profit. The days when supply chains were an operational activity to get a truck from point A to point B are long gone. The leverage that supply chains need to give companies and, by extension, customers is telling.

Nowadays, depending on where you live, some 70 to 90 percent of what we buy for regular consumption and use are not made in our local area. And supply chains are increasingly becoming more strategic; companies leveraged supply chains for 17 percent of their strategy in 2005 and now that number is 21 percent.

China devalued its yuan in 2015 by calculating the reference rate on a daily basis and letting market forces affect the value. For some, it seemed like a good idea to get China more into the dynamic financial market. For others, it’s not playing out that way.

With the Iran nuclear deal and US sanctions lifted, Iran’s market – read oil production and related industries – should open up to companies. Not really. There is just too much bad feeling and economic turmoil for some to engage.

While the cases of China and Iran involved decisions being made (by China and by the US vis-à-vis Iran), TPP has been in negotiation since March 15, 2010 without an agreement. TPP, often talked about, seldom spelled out, refers to the “Trans-Pacific Partnership” and involves 12 primary countries as potential trading partners. Nineteen official negotiation rounds between 2010 and 2013 and numerous other meetings since led simply to indecisiveness.

International trade has become a negative phenomenon in the US election cycle in 2016 as well as influenced the BREXIT. Last year, on October 5, 2015, US President Obama used the “fast track powers” granted to him by Congress to seal the Trans-Pacific Partnership agreement. TPP involves the US and 11 Pacific nations that encompass 40% of global trade (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, US, and Vietnam).

But is US trade a lost cause and is the signing of TPP too late to be helpful for US trade? The US share of the Asia-Pacific region’s imports declined about 43% from 2000 to 2010. Gaining that back would mean an additional $600 billion annually by 2020, supporting some 3 million US jobs. Now, other countries are exporting much more to these countries, and at an increasing rate. Why is that?

As a result of corporate scandals such as oil spills, carbon emissions, and injured workers, technology—more specifically social media—is putting pressure on companies to clean up their act.

The Olympic Games are the biggest collection of sporting competitions in the world. Occurring every two years, a multitude of countries compete for medals in a variety of sporting competitions ranging from track and field to basketball. This year, Brazil will be hosting the 2016 Summer Olympics which has raised a lot of debate considering Brazil’s current economic, health, and political situations.

Economists warn of a sudden recession due to the uncertainty of Britain’s exit from the European Union and the lack of a strong plan for the future with minimal further disruption of the global markets. Over the past 2 weeks, the British pound has dropped to record 31 year lows against the American dollar, and the Bank of England recently stated that it would likely combat the financial turmoil through quantitative easing and rate cuts. Current economic predictions of households delaying consumption and corporations postponing investment would further lower the demand for labor and increase unemployment. However, despite the potential signs of further economic turmoil, there are silver linings that are becoming more apparent, such as emerging markets and the role of uncertainty.

Celebrations and support from the people of Panama erupted on Sunday, when the expanded Panama Canal was opened on June 26th, 2016. Panama Canal is mainly used by the United States and China for trade and transportation. The new canal is said to allow for the passing of 98 percent of the ships in the ocean and will account for 80 percent of the current “world liquefied natural gas tanker fleet, compared with the 7 percent that could pass through old facilities.” With the $5 billion ten year expansion project, Panama hopes to generate three times the amount of revenue from canal shipping fees, and wants to make transportation more efficient with its new locks. However, these goals may still take some time to reach due to the drop in shipping prices and the unexpected problems that have arisen with the expanded canal.