Air France & Quantas

by Chelsea Lange, Research Intern for GLOBAL ID LLC

Many airlines have recently seen a decline in first-class and business-class tickets causing them to recoup sales by adding upgraded economy seating. Many airlines are removing business-class seating or shrinking it to add more premium economy and coach seats. Air New Zealand is adding lie-flat seats in coach. They are also adding premium economy seats where couples can relax together and dine at a common table. The “Skycouch,” can be made into a bed for two. Due to the economy, many airlines may be misjudging the market. It takes a couple years for a company to come up with a vision for the planes and a lot of money to implement the changes. If the changes were incorrect it takes a lot of time and money to rectify the mistake. Airlines could be missing out if the premium travel industry turns around. It is very important for companies to consider all of the possibilities before making large, time consuming and expensive changes.

Source:
http://www.businessweek.com/news/2010-03-14/air-france-qantas-enter-all-out-war-for-downgraded-fliers.html

Toyota

by Chelsea Lange, Research Intern for GLOBAL ID LLC

Recently Toyota has had some mechanical problems with their vehicles. Toyota“got carried away chasing high-speed growth, market share, and productivity gains year in and year out. All that slowly dulled the commitment to quality embedded in Toyota's corporate culture.” The problems began back in 1995 when Okuda took over the company. Bad decision-making and lack of execution began the downfall of Toyota. In 2003, the company began CCC21 ("Construction of Cost Competitiveness for the 21st Century"). Toyota began to focus on low cost. This caused the company to sacrifice quality for low price. Later came the aggressive version of CCC21, “dubbed Value Innovation, which promised more savings by making the entire development process cheaper and faster, further trimming parts, production costs, and time to market.” This Value Innovation led to an even greater decrease in quality. Earlier this year Toyota faced the sudden-acceleration problem in their vehicles as well as some other issues. Currently Toyota is offering incentives such as no-interest loans and discounted leases to try to win back customers. It takes a long time for companies to build up a good reputation and only a few problems to ruin it.

Source:
http://www.businessweek.com/magazine/content/10_12/b4171032583967_page_2.htm

Management Strategies for Subsidiaries

The attitudes of companies and managers can affect how they successfully adapt to foreign cultures. Polycentrism is one type of attitude towards cultural diversity in which the company believes that its business units must mirror its local competitors as much as possible. The problem with a Polycentric orientation is that the company can become too cautious about certain countries and pass up good opportunities. Also, home-country practices may actually work well in a foreign country, yet the company that is too Polycentric will not implement its home-country practices in its business units abroad.

Another management orientation towards cultural diversity is Ethnocentrism. This is the belief that what works in the home-country should work in the host-country as well. The problem with Ethnocentrism is that it ignores important cultural variables in the foreign country. Sometimes, companies understand the environmental factors affecting their industry, but fail to change their objectives to fit the foreign market. This results in a loss of long-term competitiveness in the foreign market as the business unit cannot perform as well as its local competitors.

Geocentrism is a third orientation that is between the extremes of Polycentrism and Ethnocentrism. This approach is implemented when the company adapts to the cultural differences abroad while also adopting some of the practices that are successful within the home market. This allows the company to increase its innovation as well as success rate in its international operations.

Importance of Culture in the Workplace

Cultural differences are one of the key components that companies must consider when expanding internationally. Culture is made up of attitudes, beliefs, and values that are shared by a certain group of people. These behavioral differences greatly affect how businesses operate as companies need to be aware of many aspects within a particular culture. For example, different social class systems can change what types of people the company should use in their marketing campaigns in order to reach their target market. There are several cultural factors that companies should consider when conducting business in a foreign society:

• Performance Orientation
• Gender Attitudes
• Age Attitudes
• Family Attitudes
• Occupation Perception

Companies need to be aware of cultural differences both in how they market their product and in hiring their employees. Cultural differences can affect employee performance due to differences in motivation, expectation, and assertiveness. Generally, people of dissimilar cultures are motivated differently. Some are motivated by material goods whereas others may be motivated by leisure time. This is an important factor in learning how to get the most out of a group of employees who are ethnically diverse. In urban Chinese cities many laborers that have migrated from rural areas are more motivated by gift cards to McDonalds than by overtime or pay raises, this is because these migrant workers must send their money to the families in the country-side.

Protectionism and Restricting Free Trade

by Brittney Smith, Research Associate with GLOBAL ID

Protectionism can no longer exist. The world has steadily become intertwined with one another as each country performs its own comparative advantage in hopes of receiving cheaper goods and services from abroad. This connected world can be seen in today’s current economical situation. One country (particularly the United States) began to decline, and like dominoes all lined up, the fall of one economy led to the fall of others. Globalization seems to be the easiest blame for this worldly recession, but (putting political corruption and greed aside) looking back on our own history we can see that opening up borders to the free flow of goods and services—with fair and limited regulation of course—in fact increases productivity and therefore, the economy as a whole, not decreasing it. During the Great Depression the United States imposed The Tariff Act of 1930, ultimately leading to a decrease in foreign exports as other countries followed suit. Fewer exports results in less revenues.

Restricting trade has proven time and time again to cause more harm than good. Many of the goods created are produced in various countries, not just one as it has been in the past. American cars may be put together in America, but the parts to these cars come from Mexico and other countries outside the United States. This integrated global supply chain hurts everyone across the globe when borders are closed to the outside and trade shrinks. It is obvious governments want to protect domestic interests, but looking ahead to better times, the only way these interests will be kept safe is if trade continues without any hindrances.

Holidays and International Business

Yesterday, my eastern European friend mentioned that the Americans working for multinational corporations in his country were on holiday (July 3rd was reserved). However, the Europeans had to go to work, of course, as they had no reason to celebrate. Maybe some of the British had reason to be morose, but they don’t let you go on holiday to sulk, do they?

I find it interesting that Europeans would let Americans celebrate their holidays while working abroad. I’m not so sure that Americans, with our tenacious “time is money” mentality, would allow expatriates to celebrate their home country holidays without requiring them to use personal vacation time. For example, every year we see celebrations of the Chinese New Year or Cinco de Mayo in the U.S., but how many Chinese or Mexicans living in America get to take off from work for their respective holidays without using their allotted vacation days?

Maybe this concept is just part of the European culture as a whole. They seem to work fewer hours than Americans and even entry-level positions start out with at least four weeks of paid vacation. Also, Europeans spend less money on healthcare than Americans. In general, they seem to be happier than Americans and they definitely live longer (if only by a few years). So is this the key?

The impact of the global economic crisis has made me reevaluate the best places to live and work. In many cases, emerging markets are recovering faster than developed markets. While Europe is far from perfect, their socialized system does more to protect European citizens than America’s broken system.

Recent issues of the Economist discuss Obama’s challenges with reforming healthcare as well as how the developed world will deal with aging populations. At least two more years of work, anyone? Maybe the European system is not the answer, but more vacation and living longer sure seems nice to me. Happy Independence Day!

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Surfs up with the Vietnam Economy

By Christian Losche, Research Associate for GLOBAL ID, LLC

Vietnam, in past years, has been posting economic growth rates consistently around eight percent. With inflation above 25 percent, the stock market taking a hit, and labor strikes, people are wondering if it was too much to fast. These are unusual events seeing as how a year ago Vietnam was predicted to be one of the top economies in the world. It would make sense with their population, low labor costs, and available resources. The inflation is not only due to imports, however; it would seem other elements contributing to the incredibly high rate are increased lending and government spending. This inflation rate has created problems for factory workers on minimal salaries, contributing to the labor strikes. With the inflation rate, labor strikes, and the stock market at a two-year low, people are seeing the true volatility of the economy. Considered to be the next emerging and extraordinarily successful market, Vietnam must now ride the wave of uncertainty and hope the economy reaches a balancing point.

Why Consider Countertrade?

By Christian Losche, Research Associate for GLOBAL ID, LLC

Countertrade refers to the trading of goods for goods between countries, rather than currency. This is an excellent way to trade if a company is looking to break into the international market, but lacks the currency at the time. It will also help in building customer relationships in different markets as long as the goods provided in the trade are of promised quality. The question may arise, how does one make money during the process of a countertrade? Take PepsiCo, who entered into a countertrade with Russia. In exchange for syrup provided by PepsiCo, Stolichnaya trades vodka. PepsiCo makes money off of this trade by obtaining the rights to sell the vodka in the U.S. With the partnership, PepsiCo adds additional sales and an addition of a new market to its list of endeavors. There are numerous other examples of countertrades, but once again the point must be stressed, when entering into a countertrade, the products exchanged must meet the standard of quality promised.

Trade Adjustment Assistance

By Christian Losche, Research Associate for GLOBAL ID, LLC

The Trade Adjustment Assistance program is for workers affected by an increase in international trade. With the numerous benefits of foreign trade, it is difficult to not pursue that avenue from an economic standpoint. When employees are either laid off, or hours are severely cut due to trade, the Trade Adjustment Assistance program helps these workers in different ways. The program provides for training to acquire a new job, if the reason for the lay-off can be linked to increased trade. The program also provides income support and job search and relocation allowances, among other benefits. Although this program is a step in the right direction for trade-affected workers, it still is being criticized for inaccurate methods of allocating funds and inaccurate data. The focus must remain on the fact that the program, although not perfect, is in place to help trade affected workers find re-employment in a short period of time, which is an extremely positive program.

A Reason to Outsource, how about Five

By Christian Losche, Research Associate for GLOBAL ID, LLC

In the business world today, outsourcing is proving to have numerous benefits for companies of any size. Several tasks and processes can be outsourced saving, and even improving, companies. Below are five common, but solid reasons for outsourcing:

1) Reduction of Operating Costs
Saving money is the most common reason for outsourcing. It costs less to outsource rather than create an in-house addition and accrue the costs that accompany it.

2) Use of Resources not Available Within a Company
Whether it’s a lack of staff or the specialized skills required, outsourcing is an efficient way of getting the job done.

3) Use of Skilled Specialists
When outsourcing, specialists are attained to quickly complete a task with no mistakes.

4) Time
With outsourcing, the process of training and monitoring is sidestepped.

5) Improved Company Focus
With the time being saved by outsourcing, it allows a company to focus and improve other aspects of the business.

Maximizing International Trade with South Korea

By: Kelly Kasic, president of GLOBAL ID LLC

South Korea is strategically located in the heart of Northeast Asia and is the 13th largest economy in the world. The U.S. has had a long history of successful trade with Korea and opportunities are continuing to increase due to this country’s sophisticated consumer markets and high-tech industry focus. According to the U.S. Department of Commerce, the U.S. and Korea exchange nearly US$83 billion worth of goods and more than US$15 billion in services annually -- that is more than 70 percent of the total bilateral trade that the U.S. enjoys with all 10 trading partners with whom we have implemented Foreign Trade Agreements since 2000.

Due to their favorable business climate, there are numerous reasons to expand your Asian presence to South Korea. The country houses several Free Economic Zones (FEZs), which are self-contained living and business districts that provide numerous advantages to a variety of industries. These districts are located in Incheon, Busan-Jinhae, Gwangyang, Hwanghae, Daegu/Gyeongbuk, and Saemangeum/Gunsan; and feature air and sea transportation, logistics complexes, international business centers, financial services, residences, schools, hospitals, shopping, and entertainment.

The main industries in which South Korea ranks high in global competitiveness include: Semiconductors, Shipbuilding, Automobiles, and Displays. According to the Korean Trade-Investment Promotion Agency (KOTRA), this country has captured 11.3% of the global semiconductor market, with US$39 billion in exports (2007). Additionally, KOTRA states that South Korea is ranked number one globally in terms of new ship building orders; capturing 40% of all worldwide orders.

With US$981.9 billion GDP in 2007 (a 4.9% real growth rate) along with low unemployment, South Korea is a viable market that should be considered; particularly in the industries of Information Technology, Biotechnology and Life Sciences, Nanotechnology, Aerospace and Defense, as well as the Entertainment industry.

When conducting business with South Korean companies it is important to building strong relationships with the best agents and distributors. Koreans tend to be more straightforward and individualistic in comparison with other Asian neighbors. When making business deals it is important to be sincere and honest; conduct meetings in person whenever possible. Sales and marketing techniques will need to be adapted to fit the Korean market. Companies should also consider joint venture partnerships. Whichever market entry method is chosen, ensure that you obtain legal consultation. Last, Korea is a collective culture where decisions tend to be made by group consensus; be patient as the process is often slower than in Western cultures.

GLOBAL ID LLC is a management consulting and international market research company that specializes in assisting small- to medium-sized businesses with international market expansion. If your company falls into one of the emerging industries in South Korea, contact us for a free 1 hour consultation: be sure to mention that you read this article in our blog. We can be reached at 720-334-6982 or Kelly@globalidllc.com.

Product Alterations in Foreign Markets

By: Carl Phelps, Research Associate with GLOBAL ID LLC.

There are three main reasons for making product alterations when introducing your product into a foreign market. Legal requirements may cause you to alter your product, usually related to product safety. All countries have different product safety requirements. For example, the United States has stricter pollution standards than many other countries, which causes foreign automobile manufacturers to alter their products. Additionally, foods and pharmaceuticals are often subjected to different testing and labeling requirements when exported to foreign markets.
There are also cultural reasons for the alteration of products. Religious differences can cause problems with the introduction of products. For example, food companies shouldn’t expect to sell as much pork in Islamic countries or as much of any meat in India. Other cultural differences are difficult to detect, and it often takes trial and error to correct the product. For example, Toyota was fairly unsuccessful at selling pickup trucks in the United States until they altered the trucks to have enough headroom for drivers to wear large cowboy hats.
A third reason for product alterations comes from economic differences. To accommodate countries with lower average incomes a company may have to design a cheaper model. It is sometimes more beneficial for companies to sell their products in smaller package sizes, as people with lower incomes tend to buy products as they need them, instead of planning ahead. Also, countries with lower average incomes tend to have poorer infrastructure, which cause alterations in products such as automobiles. For additional information on foreign production email: carlphelps@globalidllc.com

Mercantilism

The first form of international trade theory was the concept of Mercantilism. This theory began around 1500 AD and lasted through the colonial era. The theory behind Mercantilism was that measurement of a country’s wealth was based on the amount of gold it was holding. Therefore, it was important to export more than the country imported in order to gain gold from other countries. This gold was then used to fund armies and solidify a central government. Under this theory, countries would restrict their imports and heavily subsidize domestic industries in order to increase exports.

Mercantilism also encouraged countries to use their colonies in order to support their trade objectives. The colonies would supply raw materials and low value goods to the colonizing country. Colonies were also forced to import the high value goods from the mother country. Mercantilism weakened around 1800 AD as other trade theories were established and governments stopped limiting the development of industry within their colonies. Today, the term Neomercantilism is used to indicate that a country is trying to run a favorable trade balance in order to achieve some political objective.

Written by Carl Phelps, Research Associate for GLOBAL ID LLC.
For additional information, please visit our website: http://www.globalidllc.com/

The Foreign Corrupt Practices Act

In international business, bribery often takes place to influence government decisions. In 1977, The Foreign Corrupt Practices Act (FCPA) was passed by the United States in order to combat the growing problem of bribery. The act made it illegal for U.S. companies to pay bribes to any foreign government officials or political parties. Today, the act also applies to any foreign firms operating in U.S. territory or quoted on any U.S. stock exchange.

One motive for bribery is to facilitate government services such as registrations, permits, and import clearances. The FCPA allows payments to officials in order to expedite services that are legal, but does not allow payments to officials who are not directly involved in a process. The reason for this is that some foreign governments will stall imports at customs indefinitely until they receive a bribe. The FCPA allows for the U.S. companies to bribe the customs officials in order to obtain import clearance. There are many critics of the FCPA who claim that U.S. companies lose business in foreign markets because competitors from other countries are allowed and even encouraged to make bribery payments. Recently, the FCPA has appeared to be an effective deterrent of bribery as many executives of large companies have either resigned or been fined by the U.S. government.

Written by Carl Phelps, Research Associate for GLOBAL ID LLC
For additional information, visit our website: http://www.globalidllc.com/

EU-US Relations

The European Union (EU) and the United States (US) are two of the largest economies in the world. The two markets trade heavily with each other, as the US is the EU’s largest trading partner. Relations between the two, however, have always been strained. In 2001, the US passed steel tariffs and farm subsidies that worsened the relationship between the two powerhouses. The tensions eased, however, when the World Trade Organization (WTO) pressured the US into dropping the steel tariffs.

In 2004, a new dispute between the US and EU, arose regarding the aircraft industry. The US accused the EU of providing launch aid to Airbus, which are illegal according to the WTO. These soft loans would not have to be completely repaid unless Airbus performs well in the market. In retaliation, the EU accused the US government of giving Boeing illegal tax breaks and funneling Research & Development money to Boeing through NASA and the Pentagon. Both sides filed complaints with the WTO, and agreed to enter into bilateral negotiations in order to avoid harsh penalties from the WTO.

Today, the relationship between the US and the EU remains somewhat strained due to these disruptive disputes. Ironically, the largest union in the US, the AFL-CIO, will be lobbying the US government to purchase Boeing planes rather than Airbuses for an upcoming procurement. Union representatives will be in Washington DC on May 19, 2008.

Written by Kelly Kasic and Carl Phelps
For additional information, visit our website: www.globalidllc.com

Ethical Dilemmas in the Pharmaceutical Industry

Tiered pricing is the pharmaceutical industry’s answer to providing low-income developing nations with the drugs that they need. In order for pharmaceutical companies to cover their large Research and Development (R&D) expenses, they must charge a high price for their drugs while they are patented. Once a patent expires (usually about 17 years), the drugs are produced by several generic drug manufacturers that can charge lower prices because they don’t have the large R&D budget. Many low-income developing nations have the largest number of people who are in need of these innovative drugs (yet cannot afford them). As a solution, pharmaceutical companies employ a tiered pricing system in which they charge much higher prices in industrial countries, and a much lower price for developing countries.

One major problem with the tiered pricing system is that some deadly diseases don’t exist in industrial nations. This means that the pharmaceutical companies can’t use tiered pricing to cover their high R&D costs. As a result, there is no development by pharmaceutical companies of vaccines and drugs against some of the world’s deadliest diseases, such as malaria. This is where governments and companies fall short of expectations to be socially responsible and solve the problem of disease in developing countries. In the case of Malaria, not-for-profit organizations such as the Bill and Melinda Gates Foundation have stepped in to help fund the development and distribution of a vaccine that could help stop this deadly disease.

Written by Carl Phelps, Research Associate with GLOBAL ID LLC.
For more information, contact us: carlphelps@globalidllc.com

BOOM: why India's economy can't be ignored

India has the world’s second largest population (after China). The country’s economy is growing at a rapid rate, causing many U.S. businesses to consider this market for future product sales. As India’s middle class rises, discretionary purchases will become much more prominent.

We often think of India as a location for outsourcing, particularly within the Information Technology industry. This is due to the “Y2K” scare at the turn of the century when U.S. businesses were frantically searching for enough IT experts to assist with the problem, at the lowest possible cost. Y2K was India’s opportunity to prove that their technicians could not only solve the IT issues involved, but to do so at a reasonable price.

Outsourcing customer service to India is also on the rise. Who hasn’t called a help line and spoken to someone with a foreign accent? This trend has ultimately resulted in less expenses for many U.S. companies, which is then passed onto the customer.

Should we be outraged because U.S. jobs are being transferred overseas? Many would say “YES”!!!! But, the reality of the situation is that many more jobs are created within our own market due to an increase in global trade. Furthermore, we save money when goods cost less. Additionally, the outsourcing phenomena has created much more disposable income throughout India. We should view this as an opportunity to sell our products within the Indian market.

To learn how to sell to India, visit www.identifyglobal.com or contact Kelly Kasic directly: kelly@identifyglobal.com

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.

By Carl Phelps, Research Associate for GLOBAL ID, LLC.

For additional information, please visit our website: www.identifyglobal.com

How Cultural Difference Affect Business

Cultural differences are one of the key components companies must consider when expanding abroad. Culture is made up of attitudes, beliefs, and values that are shared by a certain group of people. These behavioral differences greatly affect how businesses operate as companies need to be aware of many aspects within a particular culture. For example, different social class systems can change what types of people the company should use in their marketing campaigns in order to reach their target market. There are several cultural factors that companies should consider when conducting business in a foreign society:

• Performance Orientation
• Gender Attitudes
• Age Attitudes
• Family Attitudes
• Occupation Perception
  

Companies need to be aware of cultural differences both in how they market their product and in hiring their employees. Cultural differences can affect employee performance due to differences in attitudes such as motivation, expectation, and assertiveness. Generally, people of dissimilar cultures are motivated differently. Some are motivated by material goods whereas others may be motivated by leisure time. This is an important factor in learning how to get the most out of a group of employees who are ethnically diverse. In urban Chinese cities many laborers that have migrated from rural areas are more motivated by gift cards to McDonalds than by overtime or pay raises, this is because these migrant workers must send their money to the families in the country-side.

By: Carl Phelps, Research Associate for GLOBAL ID, LLC.