http://asset3.pnn.com/graphics/show_square/10930/40/image.gif http://clynchinternational.pnn.com/4505-home?sudomain=clynchinternational http://clynchinternational.pnn.com/4505-home Wed, 27 Aug 2008 03:46:02 GMT A PNN Broadcast by: Chris Lynch If you ever lived through a period of hyper-inflation, you know the effects on an economy. Savings are lost, basic necessities become scarce and credit disappears. Ending a period of high inflation always requires major contractionary policies, policies that inevitably hit the poor and weakest members of society the hardest. I remember one time visiting in Brazil when the prices changed from the morning to afternoon. I was completely dumfounded by the currency -- there were several varieties floating around and in one case the government just added six zeros to the old currency. One curious fact that I realized is that in high inflation economies, there are no coins. The metal in the coins rapidly becomes more valuable than the currency and bad money (cheap paper bills) drives out the good (copper or even aluminum). The New York times reported this week about the crippling effects that inflation has had on Vietnam. The country's fledgling stock market, which had been booming a year ago, has fallen in volume by 95 percent and is at a virtual standstill.Squeezed on all sides, people are cutting back on food, limiting travel, looking for second jobs, delaying major purchases and waiting for the cost of a wedding to go down before marrying. More importantly, the downturn has crushed hopes for a better life. The mood in Vietnam, after years of upward mobility, is tense, said Kim N. B. Ninh, the Asia Foundation's country representative. "I think people are pessimistic," she said. "You sense a tougher environment, a more restricted environment, a more pessimistic environment. It's a moment of turmoil, I think." So how does the international businessperson cope with the highly inflationary atmosphere? The answer to remember that "Cash is King." You certainly cannot extend credit in the local currency. You also have to check that your banks will continue to extend trade finance -- if conditions worsen, even respected guarantee agencies like EXIMBANK will go off cover for a country. All transactions have to be in a stable international reserve currency -- usually the US dollar. Obviously a currency hedging strategy is useless with such volatility. But even be careful of contracts in dollars backed by dollar deposits from within the country. Argentines woke up in 2002 to find that their dollar deposits were frozen -even to pay for international contracts. Lastly, rely on your customers to figure out how to handle the inflation and resulting foreign exchange problems. Frankly in the 1990s and early 2000's the average taxi cab driver in Buenos Aires or Sao Paulo knew more about foreign exchange strategies that all but a handful of traders in London or New York. If you work with your established customers during the down times, they will remember you when the market stabilizes again. It always does return -- the question is just how long until "again" arrives. Wed, 27 Aug 2008 03:46:02 GMT Wed, 27 Aug 2008 03:46:02 GMT Chris lynch July 31, 2008 The media is reporting today that the latest round of WTO talks has (again) collapsed. Having been involved with trade talks since the mid 1970's, my reaction is 'it ain't over until its over.' Talks may string out over time but they eventually pick up where they left off. That being said, today's news comes at a difficult moment for the world economy. The US is finally accepting that it is in recession (housing prices nationwide down 16% yr/yr and where I live 35%) and there is a real credit crunch at this moment. Europe, also suffering from a bursting real estate bubble and run-up in oil prices, also faces a period of slow growth -- perhaps even a downturn. It's at times like these, that our political leaders have to take brave steps of keeping open and expanding markets despite domestic political pressures from declining industries. It is particularly ironic, however, that China and India seem to bear the responsibility for the latest breakdown in the trade talks. Their economies have the most to gain and the most to lose in this period of economic uncertainty. Both have just emerged on the world stage as important exporting nations. With that newfound status playing as equals on the stage of the major industrialized countries, comes the responsibility to resist domestic political pressures to protect traditional markets. Having benefited from GSP and other programs, their products have had for years preferential access to developed country markets with little required in return. To go the next step, the countries will have to make meaningful concessions, particularly in agricultural markets. Ag markets worldwide have been the last to lose protection, but trade barrier reductions in this area that will benefit consumers worldwide, particularly as we see food commodity prices soar and shortages develop. There is no question that overall the world is better off for having undertaken over a half-century of tariff and trade barrier reductions. We are a much more interdependent world and political relations between countries have strengthened as trade ties have increased. It's always a hard sell to the public, but our political leaders know the benefits. And that is why we will have to complete these trade talks, eventually Tue, 12 Aug 2008 02:40:02 GMT Tue, 12 Aug 2008 02:40:02 GMT Chris lynch International Trade is again an issue in the Presidential campaign. John McCain was in Colombia this week and spoke out in favoring the Free Trade Agreement (FTA) with the country, calling Obama and the Democrats "protectionists". The most famous FTA, the North American Free Trade Agreement (NAFTA) was a major issue in the 1992 campaign. H. Ross Perot pilloried NAFTA claiming there would be a "great sucking sound" as Mexico would siphon off jobs from the US to Mexico. That never occurred, and although there were never the major job gains that the George H.W. Bush promised, the US clearly has benefited from tremendous increase in bilateral trade. How do FTAs work? The countries involved (this could be bilateral as in the case of Chile-US or multilateral as with Central America and the Dominican Republic -CAFTA-DR- with the US) negotiate on both tariff levels and codes of conduct. Most tariffs are reduced to zero, but inevitably some politically sensitive products are excluded (so most are "Almost Free Trade Areas"). On codes of conduct, the countries negotiate on issues like intellectual property, standards, financial services, etc. using the original NAFTA agreement and the WTO codes as a starting point. The resulting agreements have to be ratified by the respective legislative bodies. (In the US, under the negotiating authority, the House and Senate approve it on an up/down vote (no amendments allowed), as opposed to other international treaties which require a 2/3 vote of the Senate. Once the agreements are ratified the governments must pass implementing legislation to bring national law into conformity with the FTA. The FTAs also provide for consultations and dispute resolution mechanisms to ensure that both sides are living up the bargain. For the US, the FTA is usually a great deal since the US has relatively low tariffs and already has strong laws that the codes cover. The pending agreement with Colombia is a case in point. Virtually all of Colombia's exports enter the US duty free and Colombian companies already enjoy all of the protections in terms of intellectual property, investment guarantees etc. On the other hand, US exporters face considerable tariff and non-tariff barriers going into Colombia. Clearly the US has lots to gain from an agreement with our South American partner. Why then is there such opposition from groups like unions and environmental groups? The unions may affected by job losses for union members who are protected from international competition. Frankly, with greater and greater trade, the marginal effect of an FTA with Colombia or South Korea on union jobs will be so small that it would be hard to detect by most statistical analyses. Nevertheless, manufacturing jobs are being outsourced (largely to countries with no FTAs, like China and India) and the unions are looking for scapegoats. On the environmental front, there is the concern that increased production will result in increased environmental damage. The FTA's all contain environmental clauses, not as strong as some enviros would want, but considerably more that there are in the absence of FTAs (again China and India are prime examples.) We are in an increasingly interconnected world and FTAs increase the interconnectedness. While there are some inevitable unintended results from FTAs, overall the global economy benefits. Tue, 12 Aug 2008 02:38:02 GMT Tue, 12 Aug 2008 02:38:02 GMT Chris lynch June 11, 2008 The Bank of China again raised the amount of cash that banks must keep on hand. The reserve requirement limits the amount that a bank can on-lend. At its current level of 16.5%, a bank can lend out approximately six times the deposit base. Until mid-2003, the level was only 6%, allowing the banks to lend out 16 times the deposits. The authorities are trying to limit money supply (M1) growth and this rapid increase in the reserve requirements has done that. Interest rates (both lending and deposit) are up about 100 basis points although inflation remains a concern, particularly in the wake of skyrocketing prices for crude oil and other commodities. Usually Central Banks regard changing reserve requirements as a sledgehammer approach to controlling inflation. Why did China pick this policy? The basic answer is that the continuing trade and current account surpluses are creating challenges in controlling the money supply. When a dollar comes in from an exporter, the Bank of China is required to convert it into yuan, thus increasing M1. With such a large and continuing surplus, the normal monetary policy controls (buying and selling of treasury notes) are overwhelmed. China has also been reluctant to use the other instrument of a major revaluation of the currency. (Note: the Peoples Bank of China has put the Yuan on a 15% percent annual appreciation course; nevertheless most observers believe that the currency continues to remain undervalued.)The change in reserve requirements is a much more blunt instrument and has effects of tightening credit, taking some wind out of the overheated economy. As noted in previous posts, watch out for major economic contractionary measures after the Olympics. Tue, 12 Aug 2008 02:38:02 GMT Tue, 12 Aug 2008 02:38:02 GMT Chris lynch I was speaking with the site manager for a large corporation that has a significant R&D component. The Company has steadily off-shored manufacturing of its sophisticated product and little traditional manufacturing is left in the US. What is new is that the company is being tempted to offshore its R&D jobs as well. In this case Ireland is offering incentives of 20,000 per research worker. I remarked to him that that was "real money" -- the incentive being in Euros instead of dollars. Another factor was that Ireland has a low corporate income tax rate and that in particular moved decisions at the US headquarters There is an on-going discussion about whether offering incentives produces real long-term economic growth. There are certainly lots of examples where the jobs never materialized or the industry hit hard times later on and the new plant shut down. On the other hand there are examples like the German and Japanese automakers who opened sites in the US South, bringing jobs and prosperity to those regions. There are several issues to be addressed -- does the industry fit the development strategy of the region? Putting a heavy polluting plant in Northern California would be a non-starter. Trying to develop a Web 2.0 cluster in an area of the country where few such companies exist may not result in lots of jobs. Another issue is the net effect on government revenues - i.e. taxes. Some countries and localities have given such large concessions that the result is that the government unit has greater costs with a permanently lower income level (look at some of the oil drilling concessions). On the other hand, a good project will produce not only more jobs in the long run but also greater prosperity for the community and a larger tax base. With the aid of economic models, those contributions can be quantified. Do incentives work? There are lots of examples where they have made an impact but the government authorities must carefully craft a package appropriate to the economic development strategy. Tue, 12 Aug 2008 02:36:02 GMT Tue, 12 Aug 2008 02:36:02 GMT Chris lynch Taiwan made an important historical choice on March 22 when it elected Ma Ying-jeou, former Nationalist party mayor of Taipei, as its new president. The country is well along a path as a mature democracy, putting back in power the party that had been associated with the dictatorship of Chiang Kai-Shek. Ma won handily 58 to 41% as the electorate strongly supported his policy of closer ties to Beijing. The Taiwan economy finds itself in a peculiar place. The self-imposed limits on doing business with the mainland, which date back to the Cold War, had limited economic opportunities. It is estimated that almost a million Taiwanese live again in the PRC, with the largest concentration in Shanghai. On paper, Taiwan is the number three foreign investor in the mainland but many independent observers believe that the amount is much larger since Taiwanese companies have had to resort to setting up shell companies in Hong Kong and other countries to get around the official limits on investment in the PRC. Taiwan's growth this decade has been strong, but many look with envy toward the explosive growth on the mainland. With a higher level of English literacy, Taiwan should be a portal, not a detour, to doing business with China. My visit to Taiwan occurred two weeks after the elections. The country seemed confident of moving ahead, but like its neighbors it has to deal with the problems of pollution and congestion. The freeways and major highways, many of which are now 40 or 50 years old, are clearly inadequate. But the living standards are clearly on a par with the other Asian democracies and this most recent election bore testament to the strength of democracy in Taiwan, something was in doubt up to only a decade ago. Tue, 12 Aug 2008 02:34:02 GMT Tue, 12 Aug 2008 02:34:02 GMT Chris lynch On the Oceania Cruise, we stopped in Hiroshima, Kobe and Okinawa. Kobe offered insights into Japan's economy. The area has always been a major sea-port and the new airport juts out into the Bay. We took the latest, fastest and most energy-efficient version of the bullet train to Kyoto. It is another symbol of the technical prowess of Japanese engineering. Compared to the German, French or Spanish fast trains, the Japanese one is quieter; the connections between cars are hardly noticeable; the overall feel is smoother. While the latest version of the bullet train goes 5% faster, it uses 35% less energy due to aerodynamic features. The major change that I noted since my last visits to Japan is the increase in upscale spending. Kobe has always been noted as a sophisticated city and the department stores in the city center carried all of the world noted luxury brands. You could see that orinary citizens dress well and wear brand-name accessories. Japan emerged from the doldrums of the 1990's by making some tough economic reforms. The government streamlined both regulation and the bureaucracy. The banking sector wrote off many bad debts -- including real estate loans that had been on the books for years. (I would encourage our economic policy makers in the US to look at that example. The current trend is to postpone the day or reckoning in the US.) All of the changes and reforms coincided with the global upswing from 2004-2007 and Japan prospered. Most importantly the ratio of exports to GDP rose significantly during the period. Japan had returned to its traditional export-led economic model, except that this time it was without the heavy-handed "guidance" from the Ministries in Tokyo. As I noted before, Japan is spending its money on consumption, moving it a bit closer to the US model. The Japanese are now enjoying the fruits of their hard work. In the pure economic sense, saving too much (Japan over the past fifty years) is a drag on the economy as well as saving too little (the US since the 1980's). Allowing the markets to find balance is everything in economics Tue, 12 Aug 2008 02:32:02 GMT Tue, 12 Aug 2008 02:32:02 GMT Chris lynch Beijing It is certainly busy times for China. Flights across the Pacific remain full, despite the run-up in oil prices. Those on board the flights include businessmen and more importantly China is a burgeoning tourist destination (in fact a bargain compared to Europe in these days of the plummeting dollar). From the airport to the port at Tianjin revealed the explosion in infrastructure spending. There were literally hundreds of apartment buildings or new factories under construction. The construction at the Tianjin airport zone continues, supplementing the dozens of existing structures. The new apartment boom continues apace with 20 and 40 story structures rapidly going up. In the mean time, the shoddily constructed structures of the Mao era, particularly in Tianjin, are being abandoned and torn down. The highway from Beijing to the port was chockablock with trucks carrying containers to the port for export to the US and the rest of Asia. There were almost as many trucks coming from the port. China has increasingly become an assembly location for consumer goods being designed in Korea and Japan. Both countries already have major automotive assembly operations in the country and the streets have brand names from US, Germany, Japan and Korea. (While I was Consul General in Hamburg, I had a tour at the VW factory in Wolfsburg and then VW CEO Piech underscored the growing importance of the Chinese market to their global operations.) As we went down the highway, I was thinking about the volume of new construction and what might happen if there is a slowdown. These apartments are being built on the assumption that the economy will continue growing at a 10% growth path. There are two possible scenario for the slowdown - exports to the US fall as the US economy cools or China pulls the reins in on the economy after the Olympics. One only needs to remember the decade of the 90's after the Japanese boom collapsed. So, how will China's new found banking system deal with an eventual slowdown The Yellow Sea as a Highway Today is an at-sea day for the cruise. What struck me was the huge volume of inter-coastal freighters going from Japan and Korea to Tianjin. I presume this reflects the flow of semi-manufactures to China for final assembly. Over the past five years, the economies of East Asia have prospered as interregional trade has increased. Given the geography of the area, goods flow by these small freighters using the Yellow Sea. The more apparent route from Korea to China by land is blacked by North Korea. In addition, the Chinese rail system is largely focused on the movement of people, not goods. Thus the solution is that goods are shipped by container on these small coastal freighters. This trend will likely intensify as manufacture and investment flows become more intertwined over time. China has financed an incredible expansion in its highway system by using toll roads, at fairly steep prices for a developing economy. In California, the current debate is on expanding the roads leading out of the ports. The state passed a multi-billion dollar bond package to relieve port congestion. Maybe we should be investing more in toll roads? After all, we're just at the other end of the Yellow Sea Asian Highway. Seoul South Korea has moved into the developed country category. You can see it in Seoul not only in the impressive skyline but also in the incredible shopping districts. The stores were filled with shoppers at mid-day on a Wednesday and the young population seems confident in their own future. This is still the land of the small shopkeeper and the mega-retailers have had limited success. On the way to and from the port of Inchon to Seoul, you could see the small hardware and grocery stores that line the sides of the main highways. Seoul is largely built out but there is incredible amount of in-fill development and renovations to structures that were built during the go-go years of the 70's and 80's. The heavy manufacturing locations have largely left the city but there are nevertheless quite a large number of decaying factories. It's ironic that a country that made its debut on the world market as a low-cost labor country is losing business to countries with even lower wage costs. One common thread of all of the East Asian countries is dealing with congestion. Seoul, with a metropolitan area population of 23 million, faces gridlock 24/7. The same challenge faces Japan, Taiwan and China. Beijing, with a rush to finish infrastructure, has traffic jams throughout the city. As with other cities around the world, you can't seem to build enough highways or public transportation to meet the demand for additional time. The same is true on the US side - - because of the deteriorating state of the interstate routes and railroads, congestion is lengthening time to move goods from the port to the final destination. Tue, 12 Aug 2008 02:32:01 GMT Tue, 12 Aug 2008 02:32:01 GMT Chris lynch Sailing into Shanghai's harbor was an amazing sight. By the entrance from the ocean, the banks of the Yangtze River were littered with the relics of the heavy industry investments of the Central Planning years under Mao and early years of Deng Xiao Peng. As we grew closer to the City, newer construction started to appear. When we rounded the final corner, the massive and daring buildings of new Shanghai appeared. Shanghai is busy and bustling. As you look up and down busy Nanking Road, people are everywhere, shopping and carrying out business. Along the way, buildings from the Mao era and from before the revolution are being gutted and restored. New highrises are going up by the dozens. Beside the new Shanghai, there are symptoms of other social problems. The Chinese authorities attempt to slow the rural to urban migration by requiring work visas before the peasants can look for work in the City. As a result, there is a vigorous informal economy. Along the waterfront by the Bund and Nanking Road are hundreds of street vendors selling all manner of goods. We got a number of "Mao" watches with the face of the Chairman and a waving hand -- taken from the wind-up Mickey Mouse watches we had as kids. As with all the cities on our Asia journey, traffic is overwhelming. New freeways are going up but there are already too many vehicles. One can smell the exhaust everywhere. While the new cars must meet strict standards, every effort is made to keep older vehicles running, particularly for delivery vehicles. Shanghai is the symbol of new China - rapid growth, highly populated and facing major environmental challenges. Tue, 12 Aug 2008 02:28:02 GMT Tue, 12 Aug 2008 02:28:02 GMT Chris lynch As the Democrat party race for the nomination has tightened, trade became a major issue in the debate. Hillary Clinton claims that the US needs to take a second look at NAFTA and negotiate a better deal. Barak Obama made similar statements while campaigning in Ohio, although an aide explained to a Canadian diplomat that the statements were just political posturing. The bulk of the academic studies come to the conclusion that NAFTA had little impact on employment in the US and that there was a net contribution to economic growth. In fact, the greatest growth in imports came from China and the value increase in oil imports as crude prices have soared. In the traditional manufacturing areas of the mid-west, jobs have been dwindling for decades as new technologies have moved in and high-labor content has moved off-shore. Many manufacturing processes have been automated. I remember touring a Caterpillar factory in the 1990's in which an entire line used to make transmission gears had been automated. What was surprising was not the absence of workers but the fact that the machine could consistently manufacture gears to tolerances that were 10x better than the best master lathesman could do. The sad fact is that most of these jobs would have gone in any case and the workers were caught in the middle. The frustration by the states which had lost many of these jobs without seeing new opportunities replace them focused on NAFTA. States like California which also lost manufacturing jobs were able to replace them with new jobs scarcely mention free trade arrangements. I do think there is one issue about NAFTA and job losses that does bear discussion. Mexico opened its borders under NAFTA, particularly to agricultural products. The result was that traditional subsistence level farms in southern Mexico failed and the peasants fled to large cities in Mexico and to the US. Some studies of immigration in the US suggest that over 8 percent of the Mexican population has moved to the US in the past 15 years. Many African countries that have experienced civil conflicts have not displaced such a large percentage of their populations. The US could have learned an important lesson from the EU with its expansions. The EU gave billions in development aid to the new entrants to build infrastructure and jobs to avoid large migrations of workers for jobs. This clearly worked with the expansion to Spain and Portugal and to a good extent with admission of the former East Bloc countries. The US should make part of its policy a determined policy to help out with economic development in Mexico and Central America to ensure that local citizens find good jobs at home where they will buy goods manufactured in the US. Tue, 12 Aug 2008 02:26:02 GMT Tue, 12 Aug 2008 02:26:02 GMT Chris lynch My family and I have had the privilege of living in five countries and three continents. Being nomads of sorts, we frequently talk about our experiences. Tonight, my daughter Megan brought up the issue of differences in boundaries in personal relationships across cultures. She had been talking over the past few weeks with friends from several countries where we had lived. In Latin America, families were all encompassing and everyone was free to involve themselves in another family member's life. We were lucky because of our position in the embassies to get to know and be accepted by families in the area. Certainly a lot of that is due the outgoing personality of my wife Linda. Once we were accepted, we were able to be part of the families, lack of boundaries and all. Being part of the clan also brought obligations. Sometimes that put me in an uncomfortable position as an official American (visas were always a topic of discussion). Megan noted by contrast that Germans have strong boundaries around their personal lives. One calls work colleagues as "Herr" and "Frau" I remember one time when I wanted to send an invitation to an Embassy reception to a colleague at the German Foreign Ministry. I knew him only as Herr Hoffman and so I called to ask about his first name for the invite. He had been working in the office for years and not one person knew his first name. Most Germans have only a handful of friends with whom they use the informal you "du" (In University, it is a symbol of collegiality to call many of the classmates "du" but that seems to vanish as students graduate and enter the workforce.) This issue of formality and informality vary by culture. Americans tend to be at the informal end and Japanese at the other. Learning how to conduct business with other cultures requires an understanding of how to navigate the varying degrees of formality and boundaries. Fri, 22 Feb 2008 04:46:03 GMT Fri, 22 Feb 2008 04:46:03 GMT Chris lynch GM posted this week a record loss of $722 million for last quarter. But digging into it further the loss was from the sagging North American operations where the company is rapdily losing market share to Toyota, Honda and other international manufacturers. For 2007, GM's revenue was flat in North America compared to the 50% gain in Latin America and 20% growth in Asia Pacific. The company continues to lose automotive U.S. market share-falling from 23.6% in 2006 to 23.1% in 2007. GM barely held on to its title as the largest automaker in the world, beating Toyota by just 3,000 vehicles. This result came at a time when the dollar was at record lows against the Euro and was relatively weak against the Yen. Yet international carmakers figured out how to cut prices of exports to the US. Most of the international auto makers also have operations in the US and they also managed to profit despite the rise in prices for imported components due the weaker dollar. GM, like most US manufacturers, exports relatively few cars. It chose a strategy after the Second World War of having local assembly or manufacture. In fact, GM cars in Europe bear little resemblance to the ones produced in the US. There is some sourcing of parts from the US but most of the content is local. Over the past two decades, GM and Ford international operations have been more efficient and profitable than the domestic counterparts. But it leaves the auto makers unable to take advantage of a weak dollar since they export little. On the other hand, when the dollar is strong, imports are more competitive. The US automakers have vigorously fought the new high fuel efficiency standards. They now must retool to produce more efficient engines. The international manufacturers, particularly the Japanese, have already made the investments in clean technology. GM has much to do with "right-sizing" its domestic operations. It also faces challenges in "greening" its fleet. However, if the company loses such money in weak dollar environment, watch out if the dollar suddenly strenghens. Fri, 22 Feb 2008 04:40:03 GMT Fri, 22 Feb 2008 04:40:03 GMT Chris lynch My observation over time that the most frequent mistake that international companies make is sending the bright young sales or operations manager to head up an international operation. You're taking someone who had succeeded in one business culture and assuming that s/he can similarly run an operation under very different cultural ways of doing business. The worst mistake is picking someone who has succeeded in only the domestic operation. The downside risks of having the wrong executives in international positions are considerable. Some estimates are that it costs over $300k to post an executive overseas. Even if you are managing an international operation from the domestic offices, the wrong kind of executive may result in having a manager who misses the cultural cues, doesn't understand the international legal structures, doesn't understand the risks of international business and the dificulty of manging employees from another culture. So what are some characteristics of successful international executives? They are curious about other people and are accepting of differences. Having someone who expects others to adapt to his/her ways of doing business will inevitably lead to problems. This kind of inflexibility is mistaken for the positive trait of drive. A goal-driven executive will recognize when tactics need to be altered and that executive will get that information by reasearch and personal interaction. They listen well to what is or is not being said. To interpret what is being said, the successful international executive has experience in the other culture or has asked experts about how to interpret what is going on. The successful international executive can think strategically, several moves ahead, like a good chess player. S/he develops options and contigency plans that reflect the business culture and legal systems. Speaking another foreign language is a plus. To speak another language fluently is to understand how language influences thought patterns. One senior executive of an accounting firm remarked to me that it took two to three years for an executive to reach fluency; to learn differing accounting and business practices took only months. Hence he hired only language qualified executives, even if he had to go beyond the firm. The international executive has to be trusted that s/he is representing the company interests, not those of the international employees or customers. In the diplomatic world, the problem is called "localitis" -- when a diplomat is representing the views of the country s/he is posted to and not the other way around. The same goes for international executives. One solution is to rotate the executives around a fairly constant basis. If an executive is being sent overseasand has a family, the family has to have the same characteristics of curiosity and willingness to accept people of different cultures. Several times I saw talented executives cut their international postings short because the family couldn't adapt to the strains of international living. In most cases, the executive goes to a structured office that resembles the ones back home -- the family has to adapt to the daily challenges of the new culture. I'll be adding comments over the next few weeks on other topics associated with international recruiting. Please join in with your comments Mon, 04 Feb 2008 05:52:02 GMT Mon, 04 Feb 2008 05:52:02 GMT Chris lynch What was interesting about the tumult of the last week in global stock markets is that the concerns began in Asia about worries over the direction of the US economy. That led to Asian investors pulling out of US stocks and European investors followed suit. The US markets were closed on Monday but it was clear to the Fed and US Treasury Department officials that with the drop around the world, the US markets would face a tsunami of sell orders at opening bell. The Fed reacted quickly by cutting some rates by 3/4 of a point and the President and Congressional leaders advanced their timetable on a stimulus package. Was it enough? We'll have to see but the markets are still clearly worried at week's end. My personal opinion is that there are short term liquidity issues that the markets are reacting to and long term growth issues as the US consumer has cut back on spending due to changes in the mortgage market. The equity line of credit piggy bank, which financed most of the growth in consumer spending since 2002, has been broken. It's going to take a while for the consumer to pay down debts to start consuming again. But let's think through the international business implications of the policy changes in Washington this past week. The cut in interest rates made short term financial investments in the US less attractive versus the Euro or Yen zones. That will keep the dollar weak, now at $1.46/Euro. That will be good for US exporters and for foreign tourism coming to the US. That will also make it more difficult for European countries to expand their economies via the traditional export markets. I would expect the ECB to also cut rates, even with the fears about inflation. The economic stimulus package will also affect the other major trading partner of the US, namely China. With the Yuan tied to the dollar, the interest rate cut will have little effect. However with a larger percentage of US income being spent on imported goods (estimated to be 21% today versus 19% in 2001), the stimulus package will increase demand for goods from China and part of the stimulus package will leak out of the economy. Bottom line -- Weak dollar, boost for US exports to Euro-zone and boost for Chinese exports to US. Sat, 26 Jan 2008 05:16:01 GMT Sat, 26 Jan 2008 05:16:01 GMT Chris lynch Clean technology will certainly be one of the fastest growing international markets over the next five years. Both governments and consumers are demanding reductions in emissions and more environmentally friendly products. New products will be created around the globe and good ideas created in one place will quickly migrate worldwide. One good example of the flow of ideas and technology is between the United States and Germany due to a common effort of governments, associations and private sector producers. Germany recognized early on that it needed to lessen dependence on imported oil and gas, not only for national security reasons but also for environmental health. The country started a research program through its research laboratory system in the late 1970's. With reunification, ordinary Germans were confronted in the former East Germany with the consequences of governments ignoring environmental impacts. The research programs continued producing number of interesting advances in both wind and solar generation, but the costs were still far above conventional generation. When the SPD came into power in 1998, the government instituted subsidies for solar and wind installation and set up a system that allowed producers to sell back to the grid. Having demonstrated that renewables could be competitive given the right regulatory framework, the German companies turned toward the US market as a way to allow greater efficiencies of production. I accompanied Sigmar Gabriel, then Minister-President of Lower Saxony and current Environment Minister of Germany on a visit in 2000 to Boston, San Francisco and Silicon Valley. Accompanying him were the manufacturers of solar and wind generation equipment. In addition, German companies started their own marketing efforts. When I came to live in the Bay Area in 2002, I joined the fledgling German American Business Association of California. GABA early on focused on clean tech, providing a platform for German companies to meet US customers and to understand the regulatory environment. It is not surprising that the leading international companies in renewable energy are German. The takeaway from this discussion: To develop international clean tech markets, we need to put together coalitions of governments, associations and producers. Those efforts will only be successful in so far as technologies are price competitive, given the right incentives from the regulatory structure. Sun, 20 Jan 2008 19:52:01 GMT Sun, 20 Jan 2008 19:52:01 GMT Chris lynch