April 2010

The China ASEAN Pact was formally launched on January 1. It follows years of relationship building in the region by the Chinese, but it is just the beginning of a new era of future cooperation. However, China is such a huge economy compared to other countries in the pact, it will be interesting to see how the “win-win” approach China has taken will play out.
For companies doing business in China or Southeast Asia, this pact could provide both new opportunities or new challenges depending on how the business model and regional relationships are structured. Companies just now considering expansion into China or Southeast Asia may want to reassess their entrance strategy into the region to take advantage of potential, new benefits or mitigate risks. Taking the longer view might be the best strategy.

Airlines stand to lose millions in revenue due to the volcanic ash, but some business pundits claim that it won’t have a big impact on commerce. (http://news.bbc.co.uk/2/hi/business/8624663.stm) Others forecast some impact for companies in industries like pharmaceuticals, where air freight is utilized more.

How can companies prepare for these kinds of unexpected disruptions to business?  One argument might be that in today’s world contingency planning is easier than ever due to communications networks and the interconnectedness of businesses worldwide. The counter argument might be that the same global interrelationships and fast turnaround has build service and turnaround expectations that will leave customers frustrated and dissatisfied in the case of business disruption. Where does your company stand?

Implications for your international business?  Tracking and understanding the most relevant data that will impact your products and your customers. Europe’s economy barely grew in the fourth quarter of 2009 vs. the third quarter (sequentially), and actually fell 2.3% on a year-over-year basis vs. the fourth quarter of 2008. U.S. real gross domestic product increased at an annual rate of 5.6 percent in the fourth quarter of 2009, (that is, from the third quarter to the fourth quarter). In the third quarter, real GDP increased 2.2 percent.

Read more: http://www.businessinsider.com/europe-gdp-slows-2010-4#ixzz0ku8qipGV

European Economic Headlines have focused on the European Union response to the Greek debt crisis.  While some European leaders called for changes in the treaty – a long and painful process – other leaders focused on the possibility of tightening the Stability & Growth Pact, such as allowing the EU to flag looming problems in member countries and pressing local governments to change course.  While pushing for greater economic coordination in the future, member countries – including Portugal, Spain and Ireland, all experiencing financial difficulties themselves – are stepping forward now to provide a rescue mechanism for Greece.

In the short term this can mean a favorable exchange rate for U.S. companies selling into the EU. Longer-term, it can also mean an even stronger European Union, and stronger Euro.  The economic health and practices of the European Union are of critical interest to the rest of the world, particularly the U.S.  Companies have already altered course where they can to adjust strategies. What course of action is your company taking?  Longer term, what opportunities or challenges will be presented to foreign companies doing business in the EU as member countries work for closer economic cooperation?

“WTO rules and principles have assisted governments in keeping markets open and they now provide a platform from which trade can grow as the global economy improves. We see the light at the end of the tunnel and trade promises to be an important part of the recovery. But we must avoid derailing any economic revival through protectionism,” said Director-General Pascal Lamy. Exports from developed economies are expected to increase by 7.5% in volume terms over the course of the year while shipments from the rest of the world (including developing economies and the Commonwealth of Independent States) should rise by around 11% as the world emerges from recession.The WTO notes this strong expansion will help recover some, but by no means all, of the ground lost in 2009 when the global economic crisis sparked a 12.2% contraction in the volume of global trade — the largest such decline since World War II.

 Good news. At the same time, last week Doha members quietly set aside a 2010 deadline – some say reflecting the reality of the current global economy, others worried that it is risking suspension of negotiations. With France due to take over the G8 and G20 chairs next year, and Obama’s continued focus on and push for financial reform, do examples like the recent Sarkosy visit to the bode well for potential, further economic recovery, and opportunity for international trade?  Other factors to watch will be unemployment figures, and individual nations’ approach toward protectionism.

What does your company pay the closest attention to – what will likely have the biggest impact on your international business?

“We need new measures of progress.” Point #9 focused on discussions around GNP and GDP as inadequate measures of a nation’s progress. The premise is that these measure ignore activities that are beneficial, such as volunteerism, and ignore events that support growth, but are evidence that social well-being is negatively impacted, such as when a pandemic boosts sales in the medical industry. Forum attendees generally felt positive about supporting new measures of success being developed by some governments and academics when back in their own countries. Question for International Business: will this impact your ability to expand internationally? Will businesses be held to an even higher standard of social responsibility than today, and how will different cultures affect those decisions?

 Lastly, point #10 is easily linked to #9, but also starts to paint a picture of the broader thinking of attendees at Davos 10. A new big idea: The Global Commons relates to the shared planetary resources like atmosphere, oceans and space. It also references successful global collaborations for the greater good, such as sharing basic intellectual property to bring medical products to market faster. The underlying premise is that the current generation has an obligation to pass on an undamaged planet to our children, and we have a lot of work to achieve that, and that our young people hold great potential. This has even more implications for companies looking to expand international operations, from a financial perspective, a human resource perspective, and an operations perspective.

 Across all 10 points, what should companies take away? If we didn’t realize it before, the past couple of years have taught us that the world is interrelated in ways both obvious and not so obvious.  The author talks about a “sea change” with women’s roles, but this conference gives us another indication that there is a sea change underway that will change the way governments work, business is conducted, and individuals interact and impact the world. As global businesspeople, what foundations can we put in place today to give our companies the best possible chance of both short- and long-term success?