The Foreign Exchange Market

There are two main segments that define the foreign exchange market: the over-the-counter market (OTC), and the exchange-traded market. Most activity is in the OTC market, which is made up of commercial and investment banks as well as other financial institutions. The exchange-traded markets are securities exchanges in which foreign-exchange instruments are traded, such as the Chicago Mercantile Exchange or the Philadelphia Stock Exchange.

There are three types of traditional foreign-exchange instruments that are the most common:

Spot Transactions – A currency exchange the second day after an agreement to the transaction.

• Outright Forward Transactions – A currency exchange three or more days after an agreement to the transaction.
• FX Swap – A currency exchange in which currency is swapped on one day and then swapped back on a predetermined future date.

In addition to these traditional instruments, there are three other important foreign-exchange instruments:

• Currency Swaps – Exchanges of interest-bearing financial instruments.
• Options – The right, but not the obligation to trade foreign currency in the future.
• Futures Contract – Agreement to buy or sell a particular currency at a particular rate on a particular future date.

For additional information, contact Carl Phelps, Research Associate of GLOBAL ID, LLC. – a Management Consulting and International Market Research Company. http://www.identifyglobal.com/ (720) 334-6982

Foreign Safety Standards

In the United States we often take for granted the safety standards and regulations that are in place to protect us. The picture above from May 2007 demonstrates the conditions that window cleaners in Beijing endure. Without a safety net, these men hang from rope as they descend from floor to floor of a very large building (looking very similar to a cat toy). While I will always be a supporter of overseas investment, it is still important to think about the specifics as to why production costs are low in other markets. When investing in overseas production, ensure that reasonable safety standards are met. Be socially responsible to your foreign employees and implement the highest standards possible without sacrificing the benefit of accessing cheaper resources abroad.

To learn how you can meet partners throughout Asia, visit www.identifyglobal.com

Written by Kelly Kasic, President of GLOBAL ID, LLC.

Regional Economic Integration

Regional Trade Agreements (RTA) were developed following the rise of Bilateral Agreements. RTAs are trade agreements that involve two or more countries confined to a common region. Countries in close proximity tend to form trade agreements because of similar consumer tastes and shorter travel distance. Two types of RTAs are Free Trade Agreements and the Customs Union. As regional economic integration reduces trade barriers; producing static and dynamic effects.

Static effects are efficiencies that are formed through trade creation and diversion. In trade creation, barriers are broken down and production becomes more efficient because of comparative advantage. Trade diversion occurs because trade shifts to the countries that are members of the RTA, even if non-member countries are more efficient with no trade barriers. Dynamic effects occur when the overall size of the market increases due to the elimination of trade restrictions. When RTAs are established, and trade barriers between the countries are eliminated, the size of the market for a particular company grows from its home country to include all of the RTA member countries.

For additional information, contact Carl Phelps, Research Associate of GLOBAL ID, LLC. – a Management Consulting and International Market Research Company. http://www.identifyglobal.com/ (720) 334-6982

Beyond China: The Current Debate on Globalization

Lately, globalization has been a hot button among US manufacturing managers. While there is currently much debate about creating production centers in China to lower costs, I propose that you look past China. Although China does offer cheap labor and materials, quality control is still a major issue. In addition, while government crack-downs are improving, Intellectual Property Rights (IPR) violations can found in every major city and they are much more difficult to control in a country as large as China. Then there is also the high level of corruption: you may need to pay manufacturers just to maintain quality levels. What manager wants to worry about these issues?

There are two other Asian countries that also offer cheaper labor solutions, without as many IPR and corruption headaches. One of these countries is Vietnam, specifically Ho Chi Minh City. Known as the “Pearl of the Orient”, this city is growing at a rapid rate and it desires to “become a hub of industry, services, science and technology in Southeast Asia” according to city officials. Vietnam has the fastest growing economy in Southeast Asia, with a recorded growth of 8.4% in 2005 and a GDP growth of almost 50% over the last 5 years.

The opening of the Vietnamese economy, through accession to the World Trade Organization (WTO), will create extensive opportunities for US companies. WTO accession requires the Vietnamese government to promote transparency and eliminate corrupt practices in its effort to participate in the global rules-based system, effectively reducing your investment risk. Some people might argue that Vietnam is even more corrupt than China, but this is incorrect – Vietnam is a smaller country, less isolated from the West, and is taking the WTO much more seriously than China. In addition, Vietnam has finalized intellectual property regulations and legislation that is concurrent with the TRIPs (Trade and Related aspects of Intellectual Property Rights) agreement administered by the WTO – thereby safeguarding foreign companies from IP violations. These are only some of the implications of Vietnam’s accession to the WTO that could tremendously benefit your organization.

Another country that is receiving increased Foreign Direct Investment is Thailand. As a creation of the Thai Ministry of Commerce, the Department of Export Promotion (DEP) plays an essential role in the promotion of international trade with Thailand. The DEP seeks to boost exports in an effort to grow their national economy. To achieve its goals, the DEP is focused on developing the country’s core competencies to add value to locally produced goods and services. Additionally, the application of new approaches to international trade including the DEP’s 53 Overseas Trade Promotion Offices, have facilitated the growth of Thailand’s international trading network.

What could the DEP’s strategy mean for your company? First, by employing superior technology in manufacturing, product quality levels will increase. Global sourcing for raw materials, machinery, and other inputs will allow the maintenance of competitive production costs. Thai manufacturers will receive assistance from the DEP to raise product quality to international standards. And the elimination of trade barriers through numerous free trade agreements is streamlining all business activities. These are just few of the benefits arising from trade in Thailand.

While there are benefits to producing and sourcing in China, it is important to evaluate other viable alternatives. Vietnam and Thailand offer many benefits to foreign manufacturers and welcome foreign direct investment.
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For additional information, contact Kelly Kasic, President of GLOBAL ID, LLC. – a Management Consulting and International Market Research Company. http://www.identifyglobal.com/ (720) 334-6982

Beijing Travel Tips

Whether traveling to China for business or pleasure, it is helpful to know what to expect when you hit the ground. Starbucks is the first thing that you will see upon leaving Customs in Beijing. This capital city is growing and updating rapidly as they prepare for the 2008 Summer Olympics; construction cranes decorate the horizon. Yet, red and pink roses beautify street medians, while trees line the immaculate sidewalks. The skies are clear and blue as the government has stepped up pollution control tactics.

As I traveled from one cultural icon to the next (don’t miss the Great Wall), I had no problem locating a good restaurant. While I preferred to avoid the Bat on a Stick (seriously), I did make my way into several local restaurants. Many offer pictures or English on their menus, but for those that didn’t, communication was not too difficult and I was always able to order a delicious meal – often for less than $8. For those visitors that must have “American Food” while traveling abroad – McDonalds, KFC, Pizza Hut, Taco Bell, and Starbucks are everywhere.

The people of Beijing were very friendly, curious, and polite. The taxis were not – be careful as you walk down the street, taxis do not always obey road rules.

Written by Kelly Kasic, President of GLOBAL ID LLC

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Collecting International Research and Data

Companies conduct research when selecting a country that is appropriate for international business. This research is then used to narrow the alternatives in the country evaluation process. International research is also used to reduce uncertainties by answering the following questions:

“Can qualified personnel be hired?”
“Will the economic and political climate allow for a reasonable certainty of operations?”
“Where are possible new sources of funds or sales?”

Unfortunately, the inaccuracies of data on many countries sometimes create more uncertainties about location decisions. This inaccurate data comes from an inability of many governments to collect and publish the data. These governments have limited funds, and need to spend this money on fixing problems rather than reporting on them. Other inaccuracies form due to cultural differences and the government purposely publishing misleading data. Companies need to be careful when researching location to conduct foreign business, particularly when they are developing countries.

Written by Carl Phelps, Research Associate, GLOBAL ID LLC

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The Textile Industry of Vietnam

The largest sector in Vietnam is industry, accounting for 41.8% of GDP. One of the top industries in Vietnam is the textile industry. Vietnam exported $5.8 billion worth of textiles in 2006, and expects to reach $7 billion in 2007. This industry is Vietnam’s second biggest exporter, behind crude oil, and accounts for about 15% of the country’s export value in merchandise. Over 50% of Vietnam’s textile exports go to the U.S., and over 15% to the EU.

A drastic increase in U.S. textile imports from Vietnam occurred in 2001, after the U.S.-Vietnam Bilateral Trade Agreement was signed. In 2003, however, a U.S.-Vietnam Textile Agreement was put into place. This agreement set base quotas for 26 different categories of U.S. imports of Vietnamese textiles and garments, increasing at a rate of 7% annually. The Vietnam Textile and Apparel Association works to keep the Vietnamese textile industry expanding by aiding its member companies. The association supports its members by promoting their trademarks both domestically and in foreign markets. Diversification of products to meet specific markets as well as expansion into Africa and Eastern Europe is also being encouraged by the Vietnam Textile and Apparel Association.

Written by Carl Phelps, Research Associate, GLOBAL ID LLC

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Minimizing Risk by Engaging In International Business

One reason why companies engage in international business is to minimize risk. In particular, companies decide that it will be beneficial to go into foreign markets to minimize swings in sales and profits. This has to do with smoothing sales and profits, as a company will try to take advantage of a business cycle in another country that differs with their own. Sales will tend to increase or grow more quickly during an economic upswing and decrease or grow more slowly during a recession. It makes sense then for companies to expand to other countries with business cycles opposite that of their domestic country, in order to counteract slower sales during a recession in the domestic country. One example of this is when Nestlé experienced slower growth in Western Europe and the United States in the early twenty-first century, but this was offset by higher growth in Asia, Eastern Europe, and Latin America.

Also, by purchasing the same products, services, or components from different countries, a company can avoid being affected by price swings and shortages from one particular country. Companies will also do international business to defend themselves against competitors. They might need to counter an advantage that a competitor is getting from going global. These are all ways to minimize risk and some reasons why companies will decide to conduct international business.

Written by Carl Phelps, Research Associate for GLOBAL ID, LLC

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Government Regulations of U.S. Business in Thailand

Before companies decide to do business in any country, especially Thailand, they need to be aware of the government regulations. There are three basic laws in Thailand that restrict foreign business. Together, these laws state that business in Thailand is closed to foreigners except in a few industries and unless promoted by the Board of Investment. If a foreign business is promoted, its performance of certain business functions is still restricted by the Alien Business Act.

All U.S. businesses, however, are exempt from these Thai laws due to the Amity and Economic Relations Treaty signed in 1968. All American companies are allowed to maintain a majority shareholding in their investments in Thailand with few restrictions. There are strict limitations on inland communications and transportation, banking, and land ownership for U.S. companies in Thailand. The Amity Treaty provides international law protection for U.S. firms, not allowing Thai government to discriminate against them. U.S. firms in Thailand are protected against Thai expropriation and are allowed to return all profits to the U.S. without delay. These laws are reciprocated for Thai firms in the U.S. The Treaty of Amity has been successful in promoting investment between Thailand and the U.S. by creating a hospitable environment for foreign business.

Written by Carl Phelps, Research Associate for GLOBAL ID, LLC

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“Vietnam enters the WTO” – What could this mean for Your Company?

· Vietnam has the fastest growing economy in Southeast Asia, with a recorded growth of 8.4% in 2005 and a GDP growth of almost 50% over the last 5 years. The opening of the Vietnamese economy will create extensive opportunities for US companies.
· WTO accession requires the Vietnamese government to promote transparency and eliminate corrupt practices in its effort to participate in the global rules-based system – effectively reducing your investment risk.
· Vietnam has finalized intellectual property regulations and legislation that is concurrent with the TRIPs (Trade and Related aspects of Intellectual Property Rights) agreement administered by the WTO – safeguarding foreign companies from IP violations
· US companies will be able to pursue their rights through WTO dispute settlement and other WTO operations – promoting accountability and efficient dispute resolution process.
These are only some of the implications of Vietnam's accession to the WTO that could tremendously benefit your organization.

Written by Yeukayi Nenjerama - Facilitator of Sales and Marketing in Asian Cultures for Study Aboard.

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Trade Adjustment Assistance

There is much debate about the benefits and disadvantages of globalization. The main issue of concern is that many low-skilled workers in developed countries lose their jobs due to cheaper imports from low-wage countries. What alternatives do the displaced workers in the developed countries have when they are terminated?

In the United States there is one potential solution called the Trade Adjustment Assistance (TAA) Program. According to the US Department of Labor "The TAA Program provides aid to workers who lose their jobs or whose hours of work and wages are reduced as a result of increased imports. Workers whose employment is adversely affected by increased imports may apply for TAA. TAA offers a variety of benefits and reemployment services to assist unemployed workers prepare for and obtain suitable employment. Workers may be eligible for training, job search and relocation allowances, income support and other reemployment services."

When the Democrats recently took control of congress, they proposed an amendment to the TAA Program to assist both manufacturing workers as well as service workers whose jobs have been off shored. The amendment would also offer assistance to whole industries instead of just individual factories.

At GLOBAL ID, we believe that it is the ethical responsibility of companies that transfer production abroad to assist their displaced, domestic employees. Programs such as TAA allow companies to receive free assistance for the retraining of their displaced employees. We will continue to provide additional information about this topic in future articles. In the meantime, additional information can be found on the TAA Program at the following sites:
http://www.whitehouse.gov/infocus/internationaltrade/taapager.html
http://www.doleta.gov/programs/factsht/taa.htm

Written by Kelly Kasic, President of GLOBAL ID, LLC
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The Vietnamese Economy

The countries of Eastern Asia are some of the most exciting economies in today's world. Businesses around the world are looking towards this area for new growth opportunities. Vietnam has one of the leading economies of the Southeast Asia area, and one of the fastest growing economies in all of Asia. The country boasts a GDP growth rate of 8.2%, exceeding all other ASEAN nations (see chart). This is very impressive, as only China has a higher GDP growth rate in all of Asia. Vietnam has the lowest unemployment out of all the ASEAN nations, at 2%. This, however, is offset by the relatively high inflation rate of 7.5%. The high inflation rate is the weakest element of Vietnam's economy, and is the result of the political practices in the country.

Vietnam also has an industrial production growth rate of 11.3%, which is the third highest among all ASEAN nations, and higher than the industrial growth rate of the United States or Japan. Developing countries typically desire industrial growth as it helps stimulate the economy and leads to improvements in country infrastructure. Some of Vietnam's major exporting industries are Crude Oil, Electronics, Plastics, and Footwear. The United States is the biggest importer of Vietnamese products, followed by Japan, China, Australia, and Singapore. Vietnam is one of the most prominent emerging markets in the world, however, its citizens have very few political rights and the country is ranked 109th in the world in terms of Human Development.

Written by Carl Phelps, Research Associate for GLOBAL ID
Visit Our Website! http://www.identifyglobal.com/