globalEDGE Blog - By Author: Jacob Simon

Russia continues to slide towards a recession, as more reports from different industries show contraction. One of the more recent, undesirable stories comes from Russia’s auto industry. In the month of March, Russia’s auto industry faced a slew of indicators that reflect a downturn. A consumer report found that car demand decreased, while two of the world’s largest car manufacturers, General Motors based in the United States and Volkswagen from Germany, announced plans to downsize operations in Russia.

Imagine a scenario where a market is losing value (deflation), which in turn scares away investors and greatly reduces cash flow in the active market. This stems growth, as more people lose confidence in a downward spiraling market. This is a scenario that the European Central Bank (ECB) would like to avoid, as the Eurozone is currently experiencing -0.1% deflation. Perhaps the ECB’s most important response has been through quantitative easing, which has had a substantial impact on the Eurozone's economy.

China’s manufacturing and factory sector hit an 11-month low in March, alarming investors worldwide. This indicator is yet another under-performing expectation that will likely have a negative effect on China’s gloomy first quarter. Ultimately these results are detrimental to the Chinese Government's 7% GDP growth target and will likely lead to new stimulus measures during a period of slow economic grw.

As the Eurozone progressively works on pulling out of financial distress, the economy is getting a much needed boost from its relatively weak euro. The euro has fallen 19 percent against the U.S. dollar ($1.11/euro) and 12.5 percent against the U.K. Sterling (0.73/euro).The weak euro is a distinctive element for providing a big boost for exporters. Moody’s, z credit rating agency, explains the drop in the euro as “positive for companies that have the majority of their cost bases in the euro area with significant sales to regions outside it."

Exchange rates for currencies across the world are akin to a seesaw - they need a balance. As a result, the simplest differences in the exchange rates can have drastic ripple effects on economies due to the economic purchasing power principle. If your domestic currency is trading strongly (weakly) against a foreign currency, you have increased (decreased) your purchasing power and can purchase more (less) just from currency swapping. The effects of currency exchange on purchasing power can be in the form of government policy, such as Japan, or based on the nature of current positive market conditions within the economy like the United States. As you will see, exchange rates can have a drastic impact on tourism globally.

Ask and you shall receive. The Greek population decided it was time for a change in government and just last week, Greece elected and swore in its new prime minister, Alexis Tsipras. The prime minister represents a leftist party and reflects the desire of the Greek people for reform just years after a major bailout. Tsipras ran his campaign based on the issue of renegotiating the ensuing debt that citizens have blamed for large increases in unemployment and a recession.

This past Monday, Standard & Poor’s Ratings Services downgraded Russia’s credit rating to BB+, also known as “junk”, for the first time in more than 10 years. This means that it is below investment grade, reflecting the country’s struggling financial position. The Russian economy has been thrown in a downward spiral because of intensifying pressure from sanctions from the United States and the European Union over the Ukraine crisis, and the steep decline in oil prices, an industry from which Russia derives much of its revenue from.

The United States has pledged financial support of $2 billion to Ukraine to help them prevent a looming bankruptcy, and boost recovery efforts amidst the financial turmoil in Europe and Asia. Ukraine is trying to recover and stabilize its economy, but the waging conflict in Eastern Ukraine with Pro-Russia rebels is hurting the economy and driving down consumer spending.

Governor Rick Snyder of Michigan recently returned from a week long business investment trip to China. In an effort to promote international trade, Snyder continued his mission of increasing trade between Michigan and Asian countries. Snyder first embarked on this mission in 2011 and has made trips every year since. He has visited China, Japan and South Korea with a concentration on the automotive industry. He wishes to build a long term relationship to increase business investments.

Amidst the overshadowing election events, a Texas company defied the norm and exported domestic oil to a foreign customer, despite the government ban on exporting crude oil. This ban has been in effect since the 1970’s Arab Oil Embargo crisis. The company, BHP Billiton, struck a deal to sell $50 million worth of a lightweight-oil called condensate to foreign purchasers without government approval. This is the first instance where a company has exported US crude oil without the consent of the government. Since the 1970 ban, the US has kept all crude oil within the country and as a result created a huge surplus in storage. With all of this extra oil build up, companies have been longing to sell it and remove the ban. However, this could have big implications for US consumers of oil.

What is something that we have we learned from medical epidemics? Globalization is a gift and a curse. As the world continues to unite and globalize goods, services, and cultures, there is one element that is still lagging behind - the globalization of healthcare. With globalization, traveling has never been easier as you can go from and to any part of the world in 24 hours. On top of that, growing cooperation between countries has decreased the alertness on country borders. Ultimately, this has become one of the causes of the global spread of diseases and infections, since they can spread at a rapid and dismantling pace. Attempts at addressing this problem and increasing globalization have been demonstrated through medical tourism, which has made progress but also suffered some setbacks.

It is no surprise that the German economy has been instrumental in balancing the struggling Eurozone. France, along with Germany, are the Eurozone’s brightest economies and are leading the way towards a much needed economic recovery. Germany has been able to weather the strained economy and has held its own during the recession with positive growth projections. However, the woes of the Eurozone countries, along with foreign factors, are beginning to wear on the German economy and are causing more setbacks than before. A survey taken by the German Ministry of Economics shows that Germany's manufacturing activity has shrunk for the first time in fifteen months, an example of how the stalling Eurozone economy is affecting Germany.

As a result of a three day summit in which Chinese President Xi Jinping visited India, both countries signed landmark deals that will open up vast commercial and trade channels for two of the most populous nations in the world. These events will help accelerate India’s economy and industry, as well as strengthen China's regional relations.

Nearly a decade ago, many foreign companies began or significantly increased their presence in China. The country had many attractive business advantages including relaxed regulations, cheap manufacturing costs, and low labor wages, among others. China was providing companies with every reason to invest in its country. Now foreign companies from the US, Europe and Japan are beginning to get the ‘cold-shoulder’ and feel unwelcome in China.

This past weekend, European Union nations experienced eventful elections for the Europe Parliament that will cause a stir on future economic reforms. This election term saw a very aggressive battle between two opposing forces – pro-European Union parties supporting strong central powers, and anti-European Union parties (also known as Eurosceptics), who are nationalists that want to decrease central powers of the union. The elections were forecasted to see anti-European forces make major gains and double their seats in parliament as a result of increasing unrest caused by unfavorable union wide measures.

As the western allies prepare to impose new sanctions on Russia, the complexity of Germany’s relationship with Russia is becoming increasingly apparent. German Chancellor Ms. Merkel will have to be mindful of the regional economic ties some states have with Russia, as she sides with her western allies.

Thanks to positive growth measures, the economy of the euro zone for the past month grew at its fastest rate in three years. Specifically, the release of the monthly Purchasing Managers Index (PMI) was an ample measure to earn more confidence from investors in European economy.

In an increasingly competitive business world, continuous technological advancements are providing businesses with more opportunities to get ahead of the curve. Specifically, geo-location is starting to become a big asset in helping businesses grow by giving them greater market reach. Successful businesses can only grow if they strategize to meet consumer demands that require services to be fast, reliable and relevant. Geo-location is able to fulfill this criterion because of the wide use of phones, tablets, and computers, but the collection of this sensitive data also pressures businesses to be cautious in their approach.

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.

The resurging automotive manufacturer, Ford Motor Company, has made a big splash on the international automotive and commodity industries with their revolutionary light-weight body design. Thanks to Ford securing a hefty amount of aluminum for their flagship product, automakers are scrambling to prepare their supply chains to handle the next big metal demand. This comes at a critical time when the international aluminum market is suffering. Though the metal is in healthy supply, stockpiles are entangled in financial transactions making it hard to get aluminum at all. 

This past week, the World Economic Forum (WEF) hosted its 44th Annual Meeting 2014 in Davos-Klosters, Switzerland. Every year, the WEF brings together the leaders of the world to reflect on the past year and discuss the significant global issues to focus on for the year. The list of attendees are considered the world’s most influential leaders including government officials, economists, top corporate executives, actors and activists, among other prominent figures.

The effect of time zones has been a little-known but important issue for international business. Country time zones have been historically influenced by trading patterns and partners. Setting the same time zone to a partner makes it easier to conduct trading since business hours match. Different time zones force businesses to factor in time zone conversion when dealing with international business and can negatively impact worker productivity.

The World Economic Forum (WEF) has released its annual Global Competitiveness Report (GCR) for 2013-2014 on September 3rd. The 2013-2014 GCR is unique in a way that it is a significant measure of the health of global economy during an economic shift. As emerging nations continue to fuel rapid economic growth, and financial-burdened countries regain positive economic momentum, the report captures the economy during a sensitive shift. The top three spots from the previous years’ report remain unchanged as Switzerland, Singapore and Finland respectfully prevail in descending order. The GCR can be found as a ranking for each country under the indices section on country pages such as Switzerland. The Netherlands, Denmark and South Korea dropped three to five spots for larger losses. On a positive note, Norway, New Zealand, and United Arab Emirates gained an impressive four, five and five spots representing a strong push for global competitiveness.