International Business News: 

  • January 26, 2013 10:19 AM | Anonymous
    In November I quit my job as the editor of Wired to run 3D Robotics, the San Diego-based drone company I started with a partner as a side project three years ago. We make autopilot technology and small aircraft undefined both planes and multirotor copters undefined that can fly by themselves. The drones, which sell for a few hundred bucks, are for civilians: they don’t shoot anything but photographs and videos. And they’re incredibly fun to build (which we do with the ample help of robots). It wasn’t a hard decision to give up publishing for this. 

    But my company, like many manufacturers, is faced with a familiar challenge: its main competitors are Chinese companies that have the dual advantages of cheap labor and top-notch engineering. So, naturally, when we were raising a round of investment financing last year, venture capitalists demanded a plausible explanation for how our little start-up could beat its Chinese rivals. The answer was as much a surprise to the investors as it had been to me a few years earlier: Mexico. In particular, Tijuana. 

    Like many Americans, until recently, when I heard “Tijuana” I thought only of drug cartels and cheap tequila. “TJ,” though, is a city of more than two million people (larger than neighboring San Diego), and it has become North America’s electronics assembly hot spot: most of the flat-screen TVs sold in the United States, from companies like Samsung and Sony, are made there, along with everything from medical devices to aerospace parts. Jordi Muñoz, the smart young guy who had taught me about drones and then started 3D Robotics with me, is from TJ undefined and he persuaded me to build a second factory there to supplement the work we were doing in San Diego. 

    Shuttling between the two factories undefined in San Diego, where we engineer our drones, and in TJ, where we assemble them undefined I’m reminded of a similar experience I had a decade earlier. In the late 1990s and early 2000s, I lived in Hong Kong (working for The Economist) and saw how that city was paired with the “special economic zone” of Shenzhen across the border on the Chinese mainland in Guangdong Province. Together, the two created a world-beating manufacturing hub: business, design and finance in Hong Kong, manufacturing in Shenzhen. The clear division of labor between the two became a model for modern China. 

    Today, what Shenzhen is to Hong Kong, Tijuana is becoming to San Diego. You can drive from our San Diego engineering center to our Tijuana factory in 20 minutes, no passport required. (A passport is needed to come back, but there are fast-track lanes for business people.) Some of our employees commute across the border each day; good doctors are cheaper and easier to find in TJ, as are private schools, although it’s generally nicer to live in San Diego. In some ways, the border feels more like the notional borders of the European Union than a divide between the developed and developing worlds. 

    And it’s not just TJ. To the east, in Juárez, Dell computers are built by Foxconn, the company that manufactures more than 40 percent of the world’s electronics (including Apple’s iPhone and iPad). To the south, in Querétaro, a factory builds the transmissions that General Motors installs in its Corvettes. The design of General Electric’s GEnx turbine jet engine and the production of interior elements of Boeing’s 787 Dreamliner also happen in Mexico. Manufactured goods are the country’s chief export, with private investment in this sector among the highest in the world. 

    The notion that Mexico offers only cheap labor is just plain off the mark. Mexico graduates some 115,000 engineering students per year undefined roughly three times as many as the U.S. on a per-capita basis. One result is that some machine specialists are typically easier to find in TJ than in many big American cities. So, for that matter, are accountants experienced in production economics and other highly skilled workers. 

    What all these pieces add up to is a model undefined one that might hold the long-sought answer for how American manufacturers can compete with those in China, India and the next generation of economic powerhouses. That’s because the TJ template isn’t so much about outsourcing as it is quicksourcing. And that’s also the way to create thousands of good jobs in the United States. 

    As any entrepreneur can tell you, the shorter and more nimble a supply chain is, the better. 

    First, a shorter supply chain means that a company can make things when it wants to, instead of solely when it has to. Strange as it may seem, many small manufacturers don’t have that option. When we started 3D, we produced everything in China and needed to order in units of thousands to get good pricing. That meant that we had to write big checks to make big batches of goods undefined money we wouldn’t see again until all those products sold, sometimes a year or more later. Now that we carry out our production locally, we’re able to make only what we need that week. 

    Second, there’s less risk. If we make an error in a design, we’ve wasted at most a few days’ worth of production. If there’s something wrong in the production process itself, we can spot it fast. We control the component inventory, so we can see what’s going into our goods and know that we’re not being ripped off with used or pirated parts. And if we want to protect our intellectual property, we can do so without having to trust that other companies will uphold our interests above all others. And that’s saying nothing about political risk, environmental risk or P.R. risk, all of which companies like Apple and Walmart have learned about in China the hard way. 

    Third, it’s simply faster. We still order some parts from China, and even though we use FedEx, it always seems to take weeks, and sometimes months, longer than we’d planned. That’s not a criticism of China; it’s merely intrinsic to any arm’s-length relationship between small buyers and big makers. If we were Apple, we’d get overnight service. But we’re not, so we wait. 

    Finally, a short supply chain is an incentive to innovate. If you’re outsourcing the manufacturing of huge parcels of a product, you can’t change that product until you’ve sold all the ones you’ve already made (at least not if you want to stay in business). So that often means sitting on your hands, waiting for Version 1 to sell out before starting to make Version 2. But when you’re doing just-in-time manufacturing, you can change the product every day if you want undefined whether to take advantage of some better or cheaper component or to improve the design. 

    In the land of the long supply chain, meanwhile, things are changing, too. Inflation-adjusted labor costs in China have more than tripled in the past decade. Wages in China’s southern cities are approaching $6 an hour, roughly what they are in Mexico. 

    Whether factors like these are enough to turn American businesses from outsourcers to quicksourcers remains an open question. But I’m betting my money that they will. The sense of possibility I felt when I first crossed from Hong Kong to Shenzhen in 1997 is what I now feel when I cross from San Diego to Tijuana. The trade routes of the 21st century don’t have to follow Marco Polo from West to East. Indeed, in the new manufacturing landscape, the routes don’t have to take you far at all. 

    _____________________________________________________________________
    Chris Anderson is the former editor of Wired and the author of “Makers: The New Industrial Revolution.”

    Reprinted from The New York Times, January 26, 2013. To view article, go tohttp://www.nytimes.com/2013/01/27/opinion/sunday/the-tijuana-connection-a-template-for-growth.html?_r=0 

  • January 02, 2013 10:17 AM | Anonymous
    Deadlock in Israel (2013-01-23)
    Thanks to an unexpected surge by a new center-left political party, Israel’s parliamentary elections resulted in an even split between that country’s right-wing and center-left blocs. This split will make it difficult for current Israeli Prime Minister Benjamin Netanyahu to form a new coalition government, as he will have to now negotiate with his current religious hardline allies as well as parties on the center-left. As a result, the deep divisions within Israel over the status of the country’s fast-growing ultra-Orthodox Jewish population and the peace process with the Palestinians will be exposed.

    Polls taken before Israel’s parliamentary elections suggested that Prime Minister Netanyahu’s Likud-Yisrael Beitenu alliance would win the largest share of the vote, which it did. However, this right-wing alliance saw its number of seats in the 120-seat parliament fall from 42 to 31. Meanwhile, the newly-formed center-left Yesh Atid party performed surprisingly well, finishing in second place with 19 seats. While the spilt between the right-wing and the center-left blocs was 60-60, 18 of the seats on the center-left are for Israeli Arabs and it is highly unlikely that they will be asked to join a new government, allowing the right-wing to lead the efforts to form a new government.

    This deadlock in Israel will have a major impact on three major issues in Israel. First, the Yesh Atid party has made in clear that it will not join any new government unless the law that allows ultra-Orthodox Jewish seminary students to defer their military service is changed, a move that is staunchly opposed by Prime Minister Netanyahu’s hardline allies. Second, the center-left has insisted that the peace process with the Palestinians must be revived, something that the prime minister appears not interested in pursuing. Finally, the center-left’s better-than-expected performance was due in large part to the growing problem of wealth inequality and the rising cost of living in Israel, and this will force any future government to pay more attention to economic issues.

    Positive Signs from the Chinese Economy (2013-01-21)
    With Chinese economic growth levels rebounding from a 13-year low in the latter part of 2012, there is growing optimism that China can once again become a leading engine of global economic growth. In particular, there are hopes that China begins to realize its potential as one of the world’s leading markets for exporters from around the world as purchasing power levels in China continue to rise. While the outlook for the Chinese economy is generally positive, it is highly unlikely that China’s economy will return to the soaring levels of growth that it reached before the recent downturn.

    The Chinese economy grew by 7.9% on an annualized basis in the fourth quarter of 2012, up from the 7.4% growth rate that was recorded in the previous quarter. This growth was largely driven by the Chinese government, which boosted spending on infrastructure projects late last year and which launched a series of incentives designed to increase consumer and business spending inside China. Moreover, Chinese exporters are benefitting from the recovery underway in North America and the higher rates of growth in some key Asian export markets, which have helped to offset the current weakness in export markets in Europe.

    As wealth levels in China continue to rise and as the country’s work force begins to decline, China will not be able to match the incredible high rates of economic growth that it did in the years before the recent downturn. Instead, economic growth rates are forecast to hover between 7% and 9% in the years ahead, which is still a very respectable level for an economy at China’s state of development. Moreover, this growth will be increasingly driven by rising levels of domestic spending in China, as export growth is forecast to slow as production and labor costs rise in China and as other countries’ export competitiveness improves vis-à-vis China. For global exporters, this means that China will remain a leading growth market in the years ahead, although growth rates will not match earlier levels.

    A Crucial Period in the Middle East and North Africa (2013-01-16)
    The Middle East and North Africa is facing another critical period as the fallout from the Arab Spring continues to destabilize the region. So far, the Arab Spring has produced four deadly civil wars (Yemen, Libya, Syria and Mali) and the level of instability in a number of other countries in the region has risen to dangerous levels. Moreover, Israel’s relations with the Palestinians show no sign of improving, while the political situation in the most populous country in the region, Egypt, remains highly fluid.

    Of the four civil wars that have been generated by the Arab Spring over the past two years, only one (Libya) has come to an end, and that country continues to face serious instability. In Yemen, the government is continuing to struggle to assert its authority over the entire country due to separatist movements in the north and south of the country and the presence of large al-Qaeda affiliated groups in the southern part of Yemen. In Syria, the civil war continues, having already claimed more than 60,000 lives and having displaced more than 2.7 million people. Finally, the ongoing civil war in the West African country of Mali is also a direct result of the Arab Spring, as it was arms flowing from Libya that allowed Islamist and Tuareg rebels to seize the northern half of that country.

    The Arab Spring has also had a profound impact on two of the most important countries in the region, Egypt and Israel. In Egypt, the Islamist President Mohamed Morsi has expanded his powers since taking office last year and is in the process of creating an Islamist state there. This, coupled with the civil war in Syria and the unrest in Lebanon and Jordan, is alarming Israel, for the relatively stable relations that it had with its neighbors in recent decades are under threat by the changes wrought by the Arab Spring. This will be foremost on the minds of Israeli voters when they go to the polls next week amid seemingly increasing support for hardline political movements in that country.

    Europe: Economic Recovery or Political Instability (2013-01-15)
    From a financial standpoint, the crisis in the Eurozone appears to be easing as fears of a collapse of the euro or of countries being forced out of the Eurozone have receded for the time being. Nevertheless, much of the Eurozone remains in a recession, and even Germany is seeing its pace of economic growth slow dramatically. Moreover, unemployment rates in many Eurozone countries remain dangerously high and there is a real possibility that this, coupled with the overall downturn of the region’s economy, could lead to severe political unrest in some Eurozone countries.

    Businesses and investors around the world are slightly optimistic that the worst of Europe’s financial crisis has passed and that a recovery, albeit one that is very sluggish, could begin to emerge in 2013. This has fueled the appetite for risk, a development that is actually harming the Eurozone by raising the level of the euro. Should the euro continue to rise, Eurozone exports could falter at a time when key export markets in North America and Asia are recovering. This, in turn, could prolong the recession in the Eurozone and prevent the sort of recovery that is needed to reduce Europe’s rising unemployment rates.

    This recession and the unemployment crisis that has accompanied it are threatening to further weaken job markets across the Eurozone, a development that could fuel significant political unrest in those countries where the unemployment rates are the highest. 2012 saw massive protests across much of southern Europe and if the situation in those countries does not improve, 2013 could see even larger protests. These could develop into actual threats against existing governments (such as in Greece) or into separatist movements that could threaten the unity of some Eurozone countries (such as Spain or Belgium). If governments do not do more to promote economic growth and job creation in the Eurozone, political risk levels there will rise accordingly.

    Iran's Crippled Economy (2013-01-09)
    With the announcement by the Iranian government that Iran’s oil exports had fallen by 40% over the past year, it is becoming clear that the international sanctions that were put in place against Iran in recent years are having a major impact on that country’s economy. Not only are oil exports falling sharply, but it is becoming increasingly difficult for Iran to do business outside of its borders and this is leading to major shortages within Iran. With the United States government unlikely to back military action against Iran in the coming months, it will be these economic sanctions that remain the international community’s leading method of pressuring Iran to abandon its nuclear program.

    Until recently, the Iranian government had vehemently denied that international economic sanctions were having a major impact on the Iranian economy. However, evidence has begun to mount that these sanctions are in fact having a massive impact on Iran and are costing the Iranian government much of its popular support. For example, Iran’s currency has weakened dramatically in recent months and this has fueled severe inflationary pressures inside Iran. Furthermore, pressure from the United States has convinced many of Iran’s leading markets for oil and gas exports to seek alternative sources of these natural resources and this has led to the sharp decline in oil and gas exports over the past year.

    Given the fact that the Iranian government will almost certainly continue with its nuclear program over the near-term, international sanctions against Iran will remain in place for the foreseeable future and could be tightened further. This will lead to the continued collapse of the Iranian economy as shortages worsen, potentially fueling hyperinflation. Moreover, oil and gas exports will continue to fall as Iran’s leading export markets continue to find new sources of oil and gas. As the economy collapses, Iran’s political stability is likely to be diminished as popular anger against the Iranian government mounts. This could lead to a major uprising against the hardliners that rule the country, or it could convince the Iranian government to launch a war against one or more of its neighbors in a bid to distract the Iranian people from their economic situation.

    The Coming War in Mali (2013-01-08)
    With Islamist militants in control of the northern half of the vast West African country of Mali, and with a number of foreign countries preparing to create a military force to retake northern Mali, the coming war in that country will be crucial for the security and stability of West and North Africa. If these Islamist groups are able to consolidate and expand their hold on northern Mali, they will be able to provide a haven for terrorist groups affiliated with al-Qaeda that could use this remote region as a base for their operations in Africa and further afield. Given the remoteness of the region and harshness of the terrain, ousting these Islamist rebels is likely to prove difficult.

    In early 2012, Islamist groups led by the Ansar Dine group allied themselves with local Tuareg rebels to seize control of northern Mali. Subsequently, the Islamists marginalized the Tuaregs to gain control over all of the cities and towns in that vast region. Meanwhile, the Islamists were aided by a series of coups in Mali that greatly weakened the government and the armed forces of that country. As a result, the Islamists were free to consolidate their control over northern Mali and there was little or no fighting between the two sides for nearly one year. However, Islamist rebels have recently launched attacks on government-held cities and towns in central Mali and could threaten the country’s main population centers in the southern part of Mali in the near future.

    Fearful of the impact that the Islamist rebels could have on the region, several members of the West African bloc ECOWAS agreed to form a military force that would join with Mali’s armed forces to retake northern Mali beginning later this year. Moreover, this force is likely to be aided by the United States and France, both of whom are concerned about the Islamist rebels’ ties with terrorist groups as well as their ability to destabilize much of West and North Africa. It now appears as if the Islamist rebels will attempt to seize more territory before this foreign military force can be assembled, and if they succeed, it will be even more difficult to oust them from Mali. As such, this makes this little-known conflict one of the key flashpoints of 2013.

    What the Fiscal Cliff Deal Means for the Global Economy (2013-01-02)
    With no time remaining, the United States Congress reached deal, albeit a temporary one, to avert the “fiscal cliff” that consisted of major tax hikes and government spending cuts. In this deal, taxes on the wealthiest Americans will be raised, as will payroll, estate, capital gains and dividend taxes. However, while some short-term government spending will be cut, this deal did nothing to reduce the longer-term spending that threatens to add to long-term US debt levels. Moreover, the short-term nature of this deal means that a new round of negotiations will have to take place in the near future over raising the US debt ceiling, a deal that could prove very difficult to reach.

    There were fears that, should a budget deal not be reached by the New Year, the impending tax hikes and spending cuts could reduce GDP growth in the United States by as much as 2% per year over the near-term. Fortunately, the deal that was reached should not have as much of an impact on the US economy as no deal would have, and this will allow the US economic recovery to continue in 2013, with GDP growth approaching 3% this year. However, the fact that the deal that was reached is only a temporarily solution will result in investment and hiring levels being held back from their full potential and this will prevent the US economy from achieving even higher levels of economic growth.

    For the world economy, this deal, even if it is a temporary solution, will be a welcome development. First and foremost, this deal should allow for export demand in the United States to continue to accelerate, permitting the US to regain its position as a key pillar of global economic growth in 2013. This is particularly vital for any European bounce back in 2013 as domestic demand in Europe will remain weak and the US remains a leading market for many European exporters. Likewise, East Asia’s export-driven economies will also welcome this deal as they have slowed significantly over the past year. With the US set to record healthy economic growth in 2013, the global economy could be on the brink of significantly higher economic growth rates in the years ahead.

    US-Chinese Relations in 2013 (2013-01-01)
    More than ever, the bi-lateral relationship between the United States and China will be the leading factor in determining global peace and security in 2013. The United States remains the world’s dominant military power, possessing more power than the next-most-powerful countries combined. Meanwhile, China’s military build-up has resulted in it becoming the unquestioned number two in terms of overall military power. As the US shifts more of its military power to Asia, these two powerful militaries will increasingly face off with one another and how these two countries manage this relationship will go a long way to determine global stability and security in 2013 and beyond.

    The United States’ overall military power remains far in excess of that of any other country in the world, giving the US the ability to intervene militarily in almost any area of the world. In recent years, the Obama Administration has rightfully identified Asia as the region that will have the greatest impact on US security in the 21st century and is transferring military resources from Europe and the Middle East to Asia. This shift is occurring as China is rapidly expanding its own military resources by becoming the world’s number two in terms of military spending. With Chinese military spending forecast to continue rising at a rapid pace, China will gradually close the military power gap with the US, while becoming far more powerful than most other significant global military forces.

    China’s various territorial disputes in the waters off of East Asia are likely to intensify in 2013 and this will raise tensions between China and some of the United States’ leading allies in Asia. Moreover, China’s presence in South Asia, Central Asia and the Middle East is on the rise, potentially threatening US interests in these regions. With new leaders taking power in China, there is little chance that China will back down in these territorial disputes or slow its expansion into regions it considers vital to its interests. This could lead to a new Cold War in Asia, pitting the world’s two dominant military powers in a host of disputes across Asia and raising the global political risk levels significantly.

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    Reprinted from ISA Report published January 2, 2013 (updated January 23, 2013), International Strategic Analysis, http://www.isa-world.com/main.php  
  • December 06, 2012 10:16 AM | Anonymous
    More than ever, consumers in the U.S. and China are looking for the “Made in the U.S.A.” label when purchasing consumer goods, and they’re willing to pay a premium for these products, according to new research.

    In 1985, Ronald Reagan declared December to be “Made in America” month. Nearly 30 years later, products manufactured in the United States are in high demand and command premium pricing, both domestically and abroad.

    Approximately 65 percent of U.S. consumers are willing to pay more for 10 key product categories, from baby food and appliances to electronics and apparel, as long as these goods were made in the U.S., according to a recent study from the Boston Consulting Group.

    In every one of the 10 categories tracked by BCG, “at least 20 percent of U.S. consumers are willing to pay a premium of more than 10 percent. Nearly 60 percent of U.S. consumers had chosen ‘Made in U.S.A.’ products over less expensive Chinese goods at least once in the month before the survey.”

    The findings are part of an ongoing research project known as “Made in America, Again,” which shows that the U.S. is becoming increasingly attractive as a location for making certain products for the domestic market, as well as becoming a base for global exports.

    More surprising is how eager Chinese consumers are to buy American manufactured products, even at a higher price. More than 60 percent of Chinese consumers are willing to pay more for U.S.-made goods, and nearly 50 percent prefer a product made in the U.S. to a Chinese product of equivalent price and quality.

    More than half of the Chinese consumers surveyed by BCG chose U.S.-made products over less expensive Chinese goods at least once a month.

    Buyers’ preferences may be indicative of a broader trend that is making the U.S. more competitive with China as Chinese manufacturing costs rise. In fact, BCG notes, it’s possible that higher U.S. exports along with production reshored from China could create 2.5 million to 5 million new U.S. jobs in manufacturing and related services by the end of the decade.

    “[A] combination of economic forces is fast eroding China’s cost advantage as an export platform for the North American market,” Harold L. Sirkin, BCG senior partner and one of the study’s coauthors, explained. “Meanwhile, the U.S., with an increasingly flexible workforce and a resilient corporate sector, is becoming more attractive as a place to manufacture many goods consumed on this continent.”

    The survey is based on data from 5,000 respondents in the U.S., China, France and Germany. Unsurprisingly, French and German respondents expressed strong support for homemade goods, with an estimated 65 percent voicing a preference for domestically produced items.

    The main reason Chinese and American consumers say they’d pay anywhere from 10 to 60 percent more for U.S.-made goods is that American-made products are seen as being of superior quality. The study notes that 85 percent of consumers in the U.S. and 82 percent in China believe American-made products are of higher quality.

    In fact, even when comparing U.S. and Chinese products of similar price and quality, the study found that 47 percent of Chinese consumers would still buy the American-made items.

    “The higher brand value of U.S.-made goods is a further reason why companies should rethink their global manufacturing footprint and consider the U.S. as a manufacturing location,” BCG Partner Michael Zinser said.

    “Retailers may want to adjust their strategies to capitalize on the strong consumer interest,” Sirkin advised. “The Chinese consumer is quietly concerned about what they’re getting.” There have been several recent high-profile scandals involving tainted milk and lead paint in toys manufactured in China.

    There are also certain cultural factors affecting buyers’ preferences. Americans are generally willing to pay more to support U.S. companies out of patriotism, while in China there is a certain cachet associated with foreign goods, as is common in emerging affluent societies, where owning imported goods is seen as a status symbol.

    ______________________________________________________________________
    Reprinted from Industry Market Trends, December 6, 2012. To view article, go tohttp://news.thomasnet.com/IMT/2012/12/06/american-and-chinese-buyers-prefer-made-in-the-u-s-a
  • December 01, 2012 10:15 AM | Anonymous
    China's Improving Economic Outlook (2012-12-19)
    With China’s economy having slowed to a 13-year low in 2012, there were fears that the Chinese economy could be headed for a prolonged slowdown that would have major implications for the global economy. However, there are increasing signs that China’s slowdown is coming to an end and that economic growth will accelerate in 2013. Nevertheless, there is little chance that China will return to the double-digit GDP growth rates that it achieved in the years prior to the global economic crisis, but it should remain a key pillar of global economic growth.

    The Chinese economy, now the second-largest economy in the world, is forecast to grow by 7.7% in 2012, the lowest rate of annual economic growth in China since the 7.6% growth that was recorded in the wake of the Asian financial crisis in 1999. Moreover, growth rates in China have trended downwards in each of the first three quarters of 2012 as domestic demand has slackened and key export markets, particularly Europe, have remained weak. This downward trend, coupled with the continued weakness in many export markets, raised fears that GDP growth in China could fall to below 7% in late 2012 or early 2013.

    Fortunately for a global economy that is increasingly reliant upon economic growth in China, the outlook for the Chinese economy is beginning to improve. For one, domestic demand appears to be rebounding thanks to stimulus programs initiated by the Chinese government that are boosting investment levels as well as industrial output in China. Second, export demand appears likely to rebound as long as the United States does not fall over the fiscal cliff and as long as other Asian export markets continue to grow. These factors will help to boost China’s economic growth rate to at least 8.0% in 2013 and could push growth rates towards 9.0% by 2014.

    The Return of the LDP (2012-12-18)
    After three years out of power, the once-dominant Liberal Democratic Party (LDP) returned to power in Japan after winning a crushing victory in last weekend’s parliamentary elections in that country. Back in power, the LDP will find itself confronting many of the same problems that it did when it was last in power. However, Japan’s relative decline has made many of these problems even more difficult to solve and it is hard to believe that the LDP will be the party to enact the painful reforms that are needed to boost Japan’s prospects in the coming years.

    As expected, the Liberal Democrats easily won last weekend’s parliamentary elections in Japan. In the lower house of the parliament, the LDP won 294 of the 480 seats in that body, while its New Komeito allies won an additional 31 seats. As a result, the coalition between the LDP and New Komeito will have a two-thirds majority in the lower house and this will allow the new government to override the upper house of the parliament if it attempts to block its legislation. Meanwhile, the governing Democratic Party was handed a massive defeat in these elections as the number of seats in held in the lower house was reduced from 230 to just 57.

    For new Prime Minister Shinzo Abe, a number of political and economic challenges await. On the political side, the foremost challenge is the rising assertiveness of China, which has manifested itself in the territorial disputes between China and Japan in the East China Sea that have led to a sharp deterioration in bilateral relations in recent months. Economically, the new government faces the same challenges as it did when it was previously in power; most notably attempting to boost Japan’s export competitiveness as its domestic market continues to shrink at an alarming pace. To do this, massive economic reforms will need to be enacted, but the LDP has a history of failing to promote such reforms, a major reason why the Japanese economy has struggled so much over the past two decades.

    Flashpoints to Watch in 2013 (2012-12-12)
    2012 has proven to be a violent year for many areas of the world, with major conflicts taking place in Syria, Afghanistan, Somalia, Congo-Kinshasa and Yemen. Moreover, political tensions have risen in many areas of the world in recent months and this is raising the possibility that more significant conflicts could erupt in 2013, while these ongoing conflicts continue to take lives and drive people from their homes. More ominously, some of the world’s leading powers could find themselves involved in some of these conflicts, endangering global peace and security.

    Three flashpoints bear watching in 2013 as they could drag one or more of the world’s leading powers into a conflict in the coming year. First, China’s maritime disputes with its neighbors in the East China Sea and the South China Sea will become even more dangerous in 2013 as China’s assertiveness in these bodies of water increases and as the United States moves to support counter-claims from countries such as Japan and Vietnam. Second, Israel (and possibly the US) could launch an attack on Iran’s nuclear facilities, a move that would likely prompt Iranian reprisals in the Middle East and Afghanistan. Finally, the Caucasus region is growing increasingly volatile as Azerbaijan and Armenia edge closer to war, a conflict that could involve neighbors such as Russia and Turkey.

    There are a number of wars that have continued in late 2012 that are show no sign of coming to an end in the near future and will be destabilizing factors in the coming year. The most important of these is the civil war in Syria, as rebel forces continue to gain international support in their efforts to oust President Bashar al-Assad. Meanwhile, wars in Afghanistan and Yemen will continue and could destabilize larger neighboring countries, while involving the United States. In Sub-Saharan Africa, a host of conflicts will continue, with the unrest in Congo-Kinshasa threatening to involve a number of that giant country’s neighbors. This is already the case in Mali, where 2013 will see if an international military force can retake the northern half of that country from Islamist and Tuareg rebels.

    Economic Threats to Watch in 2013 (2012-12-11)
    The world economy has undergone a tumultuous five years in which most of the world’s leading developed economies have been battered and some of its most dynamic emerging markets have been severely weakened. As 2013 approaches, the most pressing question is whether or not the global economy can stage a more sustained recovery from the second downturn of this five-year period than it did following the first. Standing in the way of such a recovery are a number of key threats to the global economy that could have a major impact in 2013.

    A number of the leading threats to the global economy in 2013 have been in place for some time now. For example, the Eurozone’s debt crisis could flare up again as southern European economies remain deep in a recession that is now spreading to northern Europe’s export-oriented economies. Another holdover threat from 2012 is the sluggish (by their standards) growth in domestic demand in some of the world’s largest emerging markets that are now a key pillar of growth for the global economy. Finally, the threat of disruptions to the oil supply of the Middle East by a conflict involving Iran will remain firmly in place in 2013 and could result in a major spike in inflationary pressures next year.

    In addition to these longer-standing threats, the global economy will face a number of new risks in the coming year. The most immediate risk is in the United States, where growth could slow sharply if that country’s politicians do not avoid the impending “fiscal cliff” that consists of tax hikes and public spending cuts. Another threat is the growing fear that Europe’s debt crisis is turning into a growth crisis that may well result in Europe experiencing “lost decades” just as Japan has done over the past 20 years. Finally, growing demand for natural resources could spark any number of conflicts in 2013 that could severely disrupt the global economy, including potential dangerous disputes in East Asia and Central Asia.

    Key Opportunities for Foreign Investment in 2013 (2012-12-05)
    With the global economy forecast to experience a slight upturn in 2013, opportunities for foreign investment will increase, even as many risks will remain in place. The world’s largest economies, the United States and China, will provide many of these opportunities as both countries are forecast to record higher levels of economic growth next year, although both countries continue to face risks that could derail their recoveries. In contrast, other key foreign investment recipients will struggle in 2013 as economic growth rates remain weak, in large part due to the weakness of their domestic markets.

    The United States and China are the world’s two leading recipients of foreign investment and both countries should see an renewed influx of foreign investment in 2013. The US has the world’s most affluent domestic market, but this market has been damaged by the collapse of the US housing market and higher levels of unemployment. However, these factors are improving and this will again allow the US domestic market to attract significant foreign investment. Meanwhile, China’s economic downturn appears to be ending and growth is forecast to return in 2013. More importantly, this growth will be driven by the vast Chinese domestic market, who’s massive size will continue to attract foreign investment to China.

    Other large economies such as Europe and Japan are forecast to continue to struggle to achieve economic growth in the coming years and this will have a detrimental impact on foreign investment in those regions. In contrast, some key economies such as Southeast Asia and Brazil are forecast to recover from 2012’s downturn and these markets’ vast potential will result in a new surge of foreign investment in 2013. In addition, natural resource demand will continue to rise and this will result in a continued influx of foreign investment in natural resource-rich countries. When taken all together, 2013 will be the year in which foreign investment levels recover from their recent downturn and this upward trend is forecast to continue in the years thereafter.

    2013 Will be a Crucial Year in the Middle East (2012-12-04)
    While 2011 will go down in history as the year that the Arab Spring ushered in unprecedented changes to the Middle East, 2013 could prove to be an even more decisive year in determining that region’s direction. For one, the political transition that began in many countries in 2011 is far from complete in the four countries that have changed governments over the past two years as well as in the host of countries in which governments are facing higher levels of opposition to their rule. Meanwhile, Syria’s civil war continues to rage, while Israel contemplates attacks on Iran, Hamas and Hezbollah.

    In the wake of the political upheaval across the Middle East that began in 2011, it is easy to surmise that an Islamist tide is sweeping across the region. In fact, Islamist groups in various guises are now in power in Egypt and Tunisia and form the largest opposition groups to the governments of Jordan, Kuwait, Libya and Syria. However, factional divisions may be the greater legacy of the Arab Spring as countries such as Iraq, Syria, Lebanon, Yemen, Bahrain and Libya are all struggling to maintain their unity in the face of sectarian violence. As a result, the potential for even greater unrest across the Middle East in 2013 is substantial.

    For a region that has already suffered from countless wars in recent decades, the Middle East faces the threat of a number of potential conflicts in 2013. One conflict that is already underway is the civil war in Syria and, despite rebel gains in recent months, the Syrian government appears likely to hang on to some degree of power well into 2013. Meanwhile, 2013 could be the year in which the Cold War between Iran and Israel finally turns hot, a development that could be one of the most destabilizing events in the modern history of the region. Finally, many countries in the region face the threat of a civil war such as the one that has devastated Syria. Should such a conflict erupt in one of the larger countries in the region (such as Egypt or Iraq) the potential for massive upheaval across the region cannot be ruled out.

    Mursi's Power Grab (2012-11-28)
    The decision by Egyptian President Mohammed Mursi to assume a wide range of new political powers has shaken Egypt and is threatening to lead to a new round of political unrest in that country. For the Muslim Brotherhood, this move is being viewed as a necessary step in preventing Egypt’s armed forces and supporters of former President Hosni Mubarak from rolling back the democratic advances made in Egypt over the past two years. However, for the president’s opponents, this move is seen as an effort to hijack Egypt’s revolution and allow the Muslim Brotherhood to dominate the country.

    While President Mursi enjoys a good deal of support within Egypt, the fact that he did not consult with other political forces in the country when he decided to take additional powers was seen as a highly autocratic move. Moreover, this power grab was made at a time when Egyptian leaders are preparing to write a new constitution and has sparked concerns that President Mursi intends to prevent his opponents from stopping the country’s constitutional assembly from drafting an Islamist constitution. As a result, most of the political forces in Egypt opposed to President Mursi and the Muslim Brotherhood have taken to the streets to demand a renunciation of these new powers by the president.

    This struggle for power threatens to unleash a new round of unrest in Egypt and to expose widening sectarian divisions within the country. Moreover, a destabilization of Egypt would have major ramifications for much of the Middle East. For one, the situation in neighboring Israel and Gaza remains highly unstable and Egypt has played a leading role in reducing tensions between Israel and Hamas. Furthermore, Islamist movements have been making major gains across the region in the wake of the Arab Spring and could be emboldened by President Mursi’s efforts to seize more power in Egypt. From Syria’s civil war to Tunisia’s newfound democracy, Islamist movements are becoming the dominant political force in the new Middle East and developments in Egypt could accelerate their rise to power.

    Mexico's Bright Economic Future (2012-11-26)
    After the creation of the North American Free Trade Agreement (NAFTA) in 1994, the Mexican economy was expected to realize soaring growth rates as it was given near-total access to the United States and Canadian markets. However, in the 18 years since NAFTA went into effect, Mexico’s average annual GDP growth rate has been only 2.7%, one of the worst performances by any large emerging market during this time frame. Fortunately, Mexico’s economic competitiveness has begun to improve in recent years and the outlook for Latin America’s second-largest country is dramatically improving.

    With is proximity and access to the vast US and Canadian markets, Mexico is in an enviable position when compared to its emerging market rivals. However, Mexico failed to improve its economic competitiveness after the creation of NAFTA and was soundly defeated by rivals such as China and South Korea when it came to recording export growth to the United States and Canada. Despite a flood of investment from its northern neighbors, many foreign investors preferred to locate manufacturing operations in East Asia given the low labor costs there and the rapid growth in that region’s domestic markets.

    As labor costs in China and other Asian economies have soared in recent years, Mexico’s export competitiveness has significantly improved and this has led to a new wave of foreign investment in Mexico’s manufacturing sector. As a result, Mexico has seen a sharp increase in exports not only to the rest of North America, but throughout Latin America as well. In fact, Mexican manufacturers are now competing with their Chinese rivals for market share in Brazil and other Latin American markets. If the new Mexican government can do more to reform the country’s economy, there is a strong chance that Mexico could enter into a prolonged period of high levels of economic growth, particularly as the outlook for growth on the United States export market is improving.

    No Peace in Gaza (2012-11-21)
    The latest conflict between Israel and Hamas was sparked by an increase in rocket attacks on Israel from Gaza, prompting a large-scale air and missile assault on Hamas targets by Israeli armed forces. This Israeli offensive has already resulted in more than 120 deaths inside Gaza, while retaliatory rocket attacks by Hamas on Israel have thus far killed three Israelis. Notably, Hamas was, for the first time, able to launch rocket attacks against Israel’s two largest cities, Tel Aviv and Jerusalem. Regardless of how this latest conflict ends, the prospects for a lasting peace between Israel and the Palestinians remains remote.

    Much as Lebanon’s Hezbollah militants did in the wake of their 2006 war with Israel, Hamas was able to expand and improve its arsenal of rockets in the years following its previous war with Israel. This led to an increasing number of rocket attacks on targets in southern Israel in recent months. In response, the Israeli government under Prime Minister Benjamin Netanyahu felt compelled to respond in a very forceful way as it prepares to contest national elections in early 2013. Moreover, Israel’s armed forces are feeling pressure from all sides, with Hezbollah gaining power in Lebanon, Syria’s civil war threatening to spill over into the Golan Heights, Jordan facing increasing unrest and Egypt’s Sinai Peninsula becoming a hotbed of militant activity.

    Regardless of how this conflict develops, there is almost no chance that Israel will be able to impose peace on Hamas. First, Israel does not have the will to bear the growing costs that taking control of Gaza on the ground would entail. Second, for the first time since Israel and Egypt signed their historic peace treaty in 1979, Israel is facing major threats on all of its borders, straining the capabilities of Israel’s armed forces. Most importantly, Israel’s relations with Egypt have changed dramatically in the wake of the ousting of President Mubarak last year and this is likely to lead to less cooperation between Israel and its most powerful neighbor in the coming years. Finally, Israel’s willingness to seek peace with its neighbors is being constrained by the rise of ultra-nationalist and religious political movements inside Israel, leading to a hardening of positions on all sides in the region.

    Another Recession in Europe (2012-11-18)
    The European Union officially fell back into a recession in the third quarter of this year, highlighting the deteriorating economic situation in Europe. While the debt crisis has eased in Europe (outside of Greece) in recent weeks, the region’s economy continues to weaken as austerity measures have damaged domestic markets and as export growth has slowed. As a result, austerity measures are not having as great of an impact on debt and deficit levels as had been hoped for due to shrinking tax revenues. Nevertheless, European leaders possess the ability to solve the debt crisis; but they do not have the ability to solve the worsening growth crisis in Europe.

    The European Union’s total GDP contracted by 0.4% on an annualized basis in the third quarter, while the Eurozone’s economy contracted by 0.6%. As usual, Europe’s debt-laden southern economies fared the worse, with contractions recorded in Greece (-7.2%), Portugal (-3.4%), Italy (-2.4%) and Spain (-1.6%). Meanwhile, a number of northern European economies also saw their economies shrink, including the Netherlands (-1.4%), Finland (-0.8%) and Belgium (-0.3%). Finally, the Eurozone’s two largest economies, Germany and France, both recorded very low rates of economic growth (0.9% and 0.1% respectively), and both countries’ economies are forecast to slow further in the months ahead.

    There are no easy solutions for returning the European economy to better health. Domestic markets will remain very weak as austerity measures reduce growth opportunities over the near-term and demographic decline reduces long-term growth prospects within Europe. This makes Europe increasingly reliant upon exports for growth. However, near-term export growth is unlikely as key export markets have weakened and as the euro has not weakened as much as had been hoped for by European exporters. Over the longer-term, Europe’s export competitiveness is likely to deteriorate when compared to key competitors, reducing this avenue of growth for Europe’s leading economies. As a result, long-term stagnation, as witnessed in Japan over the past two decades, is most likely the future outlook for the European economy.

    Can Syria's Opposition Unite (2012-11-14)
    The creation of a unified opposition coalition in Syria has raised hopes that the civil war in Syria can be brought to an end with the eventual overthrow of President Bashar al-Assad and his closest allies. However, despite this agreement, deep divisions remain within the coalition, particularly between the political groups that make up the coalition and the rebel armed forces that are battling against Syrian military. If these divisions cannot be bridged, there is a strong possibility that the civil war in Syria could go on for a long time, costing huge numbers of human lives and devastating the country.

    The new opposition coalition, known as the National Coalition for Syrian Revolutionary and Opposition Forces, was formed at a meeting of the leading Syrian opposition groups in Qatar. This new coalition will be led by Moaz al-Khatib, a high-ranking Muslim cleric from Damascus that fled to Egypt earlier this year. This new coalition already has the backing of the United States and a number of Arab and European countries and it is hoped that the international supporters of Syria’s political opposition will be able to use the coalition to unify their efforts to support the ousting of President Assad and his government.

    While the formation of a unified opposition coalition is a major step towards removing the Assad regime, the deep divisions that made the negotiations on the formation of this coalition so difficult serve as a reminder that there is no unified front in the fight against the Syrian government. In particular, rebel forces battling Syria’s military consist of a wide range of groups with vastly different goals and agendas. Furthermore, it remains to be seen if these disparate rebel groups will submit to the authority of the new coalition. For this to happen, significant foreign pressure will have to be put on the rebels by the United States and its allies in the region. If not, the new coalition will struggle to unify the rebels in their efforts to oust the Assad regime and the civil war in that country will continue.

    More Tough Times for the Japanese Economy (2012-11-12)
    Following the recovery from last year’s natural and nuclear disasters, Japan’s economy has once again fallen on tough times and economic growth in the world’s third-largest economy has once again come to a halt. As an increasingly export-dependent economy, Japan has been hit hard by the slowdown in key export markets, particularly East Asia and Europe. As Japan’s domestic market will continue to decline over the long-term, this dependence on exports for growth will increase and this will have massive consequences for Japan’s economy in the coming years and decades.

    The Japanese economy contracted by 3.5% on an annualized basis in the third quarter of 2012, a worse performance than had been expected. With Europe in the midst of a severe downturn and with key Asian export markets continuing to weaken, Japan’s export-driven industries struggled in recent months. Moreover, anti-Japanese sentiment in China has damaged trade relations between Asia’s two largest economies, further reducing economic growth in Japan. With key export markets such as Europe and parts of East Asia forecast to remain weak in 2013, the potential for an export-driven recovery in Japan is poor; even as North America’s export markets grow at a healthier pace.

    As always, Japan’s shrinking domestic market is a major hindrance to economic growth in Japan. In fact, it is Japan’s demographic decline and the shrinking number of consumers in that country that has been the greatest factor in Japan’s two decades of stagnation. While the Japanese government will likely enact even more economic stimulus programs in the coming months in a bid to boost the domestic market, it is becoming increasingly difficult to generate growth in such a declining home market. This is the lesson that demographically-declining developed markets such as Japan and much of West Europe must face as they confront greater challenges in competing for the world’s export markets as their own domestic opportunities shrink.

    _____________________________________________________________________
    Reprinted from ISA Report published December 1, 2012 (updated December 27, 2012), International Strategic Analysis, http://www.isa-world.com/main.php  
  • November 21, 2012 10:17 AM | Anonymous
    It is not often one has a chance to write this: the International Monetary Fund has slashed its GDP-growth forecast for 2013 almost in half, to a paltry 12.2% (from 22.9%). Nor this: for 2012 it is now expecting growth to reach 15.1%, double its previous forecast of 7.6%. Mongolia is going through extraordinary times, offering enormous hope that this vast but sparsely populated nation of just 3m people might be on the fast track out of poverty. Yet the mood is rather bitter.

    The bungee-jumping forecasts are based on the rapid progress of Oyu Tolgoi, or “Turquoise Hill”. Near the Chinese border, in the wastes of the Gobi desert, this is the largest foreign investment in Mongolia, a copper-and-gold mine that will account for one-third of its GDP. Oyu Tolgoi is just the advance guard. Behind it stomps an army of minersundefinedof coal, silver, uranium and much elseundefinedpromising to lead Mongolia into national prosperity.

    Oyu Tolgoi is due to reach full production in the first half of 2013, a year which will be crucial for the project. And, because of its importance to the Mongolian economy and as a symbol of Mongolia’s ability to carry off vast mining endeavours, that makes 2013 a crunch year for the country.

    The project, however, faces two big problemsundefinedone immediate, and one that may dog it for years. The short-term difficulty is a fundamental one: the lack of electricity. This is to come from the Chinese region of Inner Mongolia. In the haggling over the sale of electricity some suspect China, which will be the market for Oyu Tolgoi’s copper, as for almost all Mongolia’s mining projects, of playing tough to extract better terms.

    That suspicion is a symptom of the second, long-term, problem: “resource nationalism”. Mongolian nationalists would like to see the terms of the government’s investment agreement covering Oyu Tolgoi amended to give it a bigger share. At present it holds 34%, with the balance owned by a foreign shareholder, Turquoise Hill, which is controlled by Rio Tinto, the British-Australian mining giant that is managing the project and has put in almost all the investment ($6 billion and counting). In 2011 Rio Tinto saw off requests for the renegotiation of its agreement. It will face more.

    In a parliamentary election held in June 2012 no party won an absolute majority. The Democratic Party, which helped lead the protests against the old Soviet-backed regime which fell in 1990, won 31 seats out of 76 but has been forced into coalition with smaller parties. This gives clout to the 25 members of parliament counted as “resource nationalists”. The government has backed away from threats of an immediate renegotiation of Oyu Tolgoi. But its “action plan” commits it to a 
    “review” of all foreign-investment agreements.

    The appeal of nonsense
    It is hard to imagine that the government would do something as disastrous as taking the wrecking ball to an agreement on which its hopes of prosperity are built. But Mongolian fears of being swamped by China and of becoming economically dependent on it are deep-seated. Commercially nonsensical battles with foreign shareholders have political appeal. So the background noise will not fade as Oyu Tolgoi goes into production, especially with a presidential election due in May. The issue will cloud the investment climate.

    The biggest of the other projects is the Tavan Tolgoi coal mine. This was supposed to have been financed in part by share offerings in Hong Kong and London in 2012, which have been deferred. The delay also has its origins in the nationalist fear of China, which has been using its monopsonist power to bear prices down. The project will make little progress in 2013.

    The heady growth of recent years has had a cultural impact. Just 20 years ago, most Mongols, even those in the capital, Ulaanbaatar, identified with their home aimag, or province, where their parents had lived in gers, felt tents, as nomadic herders. Many feel uneasy that this way of life is in decline, with the steppes despoiled by miners. Environmental degradation and the periodic dzudsundefinedicier than usual winters often following summer droughts that leave too little grassundefinedhave populated ger districts where the poor congregate on the edge of the capital.

    For these poor the inflow of foreign money means not prosperity but rising prices, unplanned urbanisation, pollution, corrupt politicians, an influx of foreigners and a sense of alienation. It is not surprising that they are drawn to “resource nationalism”. And it is hard to see the political leadership emerging in 2013 that might make them change their minds.

    ______________________________________________________________________
    Reprinted from The Economist, November 21, 2012. To view article including graphics, go tohttp://www.economist.com/news/21566387-mongolia-will-needand-fearchina-cursed-bounty 
  • November 13, 2012 10:13 AM | Anonymous
    n an interview with IMT, James Chan, president of Asia Marketing and Management, explains the ins and outs of selling U.S.-made goods to the Chinese market and how American manufacturers can grow their overseas business.

    China has become one of the most profitable destinations for U.S.-made goods, but some manufacturers remain reluctant to venture into the Chinese market. In a recent interview, James Chan, exporting expert and president of Asia Marketing and Management (AMM), told IMT why American firms shouldn’t be hesitant about exporting their products to China.

    Chan founded AMM, a Philadelphia-based consultancy, in 1983, after serving as the China area manager and international promotion manager of Academic Press, a subsidiary of HBJ, a Fortune 500 publishing firm in New York. He has since advised more than 100 U.S. industrial equipment manufacturers, technology firms and professional services organizations.

    His clients include Westinghouse Electric Company, Kingsbury, Kodak, 3 Com, Nationwide Insurance, Monitor Aerospace, Glenayre, American Management Association (AMA), Vulcan Spring Mfg. Co., Lucent Technologies and ASTM. He is a frequent keynote speaker at annual events of professional associations.

    In addition to teaching an MBA course titled “Global Exporting: Asia Focus” at Villanova School of Business, Chan has also authored the book Spare Room Tycoon and produced the DVD “Secrets of Business Success in China.”

    Q: What are the markets like for U.S. manufactured goods in China? Are they being affected by the slowdown in the Chinese economy?

    The media in general reports that China’s GDP is dropping, but in my experience, in terms of exporting 100 percent American-made products and engineering services, the drop is not significant. I would even predict there will be a rise in activity instead. Based on my daily experience exporting to China, the country only imports things that it doesn’t have, like raw materials, including minerals, certain agricultural products and scrap metals. China also needs lumber to feed its furniture-making industry. But the key category for imports is products that China can’t make on its own, especially precision-engineered parts and components.

    Q: Has China’s rapid growth and development in recent decades changed demand for U.S. goods?

    When China first opened up in 1979, both its heavy and light manufacturing industries were weak. China was unable to make turbines, gearboxes or any other type of heavy equipment or parts, and this continued through the ’80s. As China began exporting sets of capital equipment, it became determined to learn how to make these complete sets of equipment on its own. The Chinese have succeeded considerably.

    However, even though they’ve been able to make their own turbines, for example, there are many parts and components they are not good at making, such as valves, seals, specialized bearings and the full range of precision-engineered products. They are still unable to make these parts up to good quality levels. If the quality is not up to par, it affects the stability and performance of a machine. This is why China buys U.S. goods.

    Q: But each year we hear about the increasing sophistication of Chinese production capabilities. Can U.S. firms continue to be competitive in the export market given China’s mounting expertise?

    There is a major lack of understanding on the American side because U.S. manufacturers think China is “rising,” but its growth is by and large due to U.S., European and Japanese manufacturers who have gone in to develop China’s manufacturing base. About 62 percent of China’s inbound industrial and consumer products to the U.S. are actually made outside of China undefined they are either European, American or Japanese-made products. In a way, our manufacturers are like tourists: they go to China, assemble products there with lower-cost components, then come back to their home markets with these products.

    Q: What about pricing? Aren’t Chinese components generally cheaper than their American-made counterparts?

    I have a company I’ve been working with for 28 years, and they make specialized bearings. Most Chinese OEMs place a high value on these bearings because if you don’t make the part well you have to shut down your power-making machinery and lose huge amounts of money. The best market for U.S. exports is high-tech, high-end, high-touch. For example, China buys a lot of computer components and aircraft components. In fact, they’ll buy a whole plane because they lack the ability to make the high-quality components that would go into producing one themselves. They have to import seals, o-rings, bearings, valvesundefinedall these little metal parts. A lot of these things have intellectual property attached to them.

    When I first went there in 1982, China only graduated 19 PhD students in the entire country, whereas America graduated close to 30,000. But right now, China has more than 50,000 PhD graduates each year. In 1982, less than 1 percent of the world’s published scientific and engineering articles were written by Chinese scientists and engineers. Now it’s closer to 10 percent.

    As China produces more knowledge-sector workersundefinedpeople with a good understanding of science and technologyundefinedthey increasingly understand the value of intellectual property. They therefore understand why they have to pay more for high-quality, high-tech products and services. As the Chinese become better educated, they understand why it’s so important to specialize and pay more for that expertise.

    Q: The Chinese market is highly lucrative for U.S. manufacturers. Does it make sense for companies looking to increase their China sales to open facilities there?

    Companies that export to China are quite leery of setting up facilities on Chinese soil because if they are to establish a factory and start hiring and training employees, engineers and technical people, they might be creating competition. This happens often enough: you train someone to repair a product and after he or she learns as much as possible they set up shop right next to you. Of course, not all manufacturers are avoiding setting up overseas facilities, but that has to happen under the right combination of circumstances. The export companies I work with would rather spend resources and time making their products better understood by Chinese consumers.

    Q: And how do U.S. manufacturers go about making Chinese businesses aware of their products?

    We call it “educational marketing.” Some people think that if they only need to spend $5,000 to go to a community college, why should they spend $50,000 to go to Harvard? Our job is to illustrate the quality differences that money can buy. Manufacturers here have to spend time at trade shows, perform market outreach and travel to China with experts. They strive to educate their customers to help them see the difference between low-cost goods and high-cost, higher-quality products.

    Manufacturers have to be willing to spend time traveling in China, meeting people and having discussions to prove how their products are actually better in terms of engineering design and quality. They should also have a Chinese language website. No one expects a printed catalogue. Normally, Chinese engineers and technicians will go online to look up a company’s information and products.

    Q: U.S. companies may be worried about security issues, as many products have been pirated or counterfeited in China. Should manufacturers be concerned about their intellectual property, and what can they do to protect themselves?

    Export warriors understand how pirates and intellectual property thieves cannot possibly compete with U.S.-made products and services. But if you don’t spend time on the ground in China, you don’t know. You think that the Chinese can do anything, but no, they are unable to do many things, as a matter of fact.

    For example, in 1984 we first went to China to sell our specialized bearings for turbines. A potential customer would tell our sales rep, “Your bearing is so expensive, we’ll just buy one set and reverse-engineer them. We’ll pirate them.” They’re very bold and believe they can reverse-engineer any Western product adroitly and then sell it at one-third the price. For the first-time visitor to China this can be scary. But guess what? You can’t stop them from trying to reverse-engineerundefinedit’s too expensive to fight them in courts.

    However, since 1984 we ignored the pirates’ bullying and threats and we continued to do educational marketing to tell people why using our bearings can keep their machines from malfunctioning, and over the years we’ve seen sales rise dramatically. Chinese users don’t even argue with our prices anymore because they know buying our components for specific applications gets them the value they need. Companies should not be paralyzed by fear. It’s a matter of proving to Chinese consumers that U.S. products have a benefit. Moving them from unknowing customers to enlightened customers is the solution.

    Q: What are some things manufacturers need to know about the unique aspects of doing business in China and dealing with the Chinese regulatory environment?

    The Chinese market by definition is a black box. In 5,000 years, China has never been a transparent society. If you’re an outsider, you’re not privileged to know what’s going on inside. The first thing any company that wants to export American-made products or professional services to China must have is reliable agents or a representative who acts as the mouthpiece of the company. You need to have a person on the ground you can trust and who also trusts you. The role of a good agent is to be an insider and to know all the people he needs to know.

    There are certain subjects or areas that you simply cannot discuss with Chinese businesspeople. Though both parties might know the reality of the situation, you cannot openly mention or discuss certain things. You need an agent to help navigate this type of environment.

    Q: Are there any tariffs or levies on American imports that manufacturers should be concerned about?

    When a product leaves the factory and crosses the Chinese border, the customer will pay three categories of costs: a value-added tax (VAT), which only China has, that averages 17 percent. The second category is a 10 percent average import duty. The final category is transport costs, plus miscellaneous freight charges and fees. When everything is said and done, you add 35 percent to the factory price.

    But exporters shouldn’t be nervousundefinedtheir customers will pay this amount. The price is elastic because customers need these products and have already budgeted for these amounts. The costs are built into their business operations, and exporters shouldn’t worry about them.

    Q: There are numerous trade tensions between the U.S. and China. Are there any problems that might arise from escalating trade conflicts?

    Right now it’s a tit-for-tat culture, with the U.S. and China going back and forth to appear tough to one another, and that’s just a matter of pride. In the near-term, tariffs will decrease in China. Chinese companies will continue to buy American products in large quantities because they understand they need them and it’s in their own interests to keep trade channels open. Bottom line, China absolutely needs U.S. goods much more than most Americans know.

    For the long haul, U.S. exporters shouldn’t be concerned about trade restrictionsundefinedthey won’t get in the way of business in any meaningful way.

    Q: What’s the key piece of advice you’d like manufacturers to remember when trying to build business in China?

    You can’t expect to go to China for a trip and come back with an order. It’s a journey, it takes time and commitment to establish yourself and you can’t expect China to be a huge revenue source right off the bat. You can’t go there and allow yourself to become distractedundefinedestablishing yourself in the Chinese market shouldn’t be one of 50 things you need to do, it needs to be one of only two or three projects you spend your time on.

    What manufacturers should remember is that they need to commit time and effort to educating China about their companies, to illustrate their value and build that market. We’re not selling fast food, we’re selling fine dining. That’s what American manufactured goods are and the Chinese know it. Don’t be paralyzed.

    ______________________________________________________________________
    Reprinted from Industry Market Trends, November 13, 2012. To view article, go tohttp://news.thomasnet.com/IMT/2012/11/13/qa-exporting-pro-on-selling-u-s-industrial-goods-to-china
  • November 01, 2012 10:55 AM | Anonymous
    Obama Wins (2012-11-07)
    President Barack Obama defeated his Republican challenger Mitt Romney in this year’s presidential election in the United States by virtue of his ability to win nearly all of the hotly contested swing states in the US. Meanwhile, the Democrats retained their control of the US Senate, while the Republicans remained firmly in control of the US House of Representatives. As a result, the balance of power in Washington will remain unchanged as the United States prepares to deal with a number of immediate economic and political risks that will have to be dealt with by both parties.

    President Obama defeated Mr. Romney by the narrow margin of 50% to 48% in terms of the popular vote in the presidential election, although he won at least 303 of the 538 votes in the Electoral College (Florida’s 29 electoral votes had yet to be allocated). The president’s larger-than-expected victory in the Electoral College was the result of his ability to win nearly all of the swing states that ultimately decided the winner in this election, often by much larger margins than had been anticipated. Furthermore, the president benefitted from strong support from minorities in the US, while his management of the recent storm disaster in the northeastern US also boosted his support in the final days of the campaign.

    As little has changed in terms of the balance of power in Washington in the wake of the 2012 presidential and congressional elections, Democrats and Republicans will have little choice but to immediately turn their attention to a number of key issues impacting the United States. The most pressing issue is the looming “fiscal cliff” consisting of tax hikes and public spending cuts that will be triggered at the end of this year unless the two parties can reach a budget deal before that time. Meanwhile, foreign policy is likely to loom large in the coming months as relations with China remained strained, the civil war in Syria continues to intensify, Iran continues to push forward with its nuclear program and as Europe faces a severe economic crisis. If Democrats and Republicans fail to work together on these issues, a dangerous political stalemate could bring the US government to a halt.

    The French Economy at Risk (2012-11-06)
    While much of the attention on the European economy has been focused on the crisis in southern Europe, more attention is now being paid to France as that country also faces what could be a prolonged economic slump. This is due to the fact that many of the factors that have led to the devastating recession in southern Europe are also present in France to some degree. As a result, it is up to France’s Socialist government led by President Francois Hollande to take the necessary steps to reform the French economy before it is too late.

    Despite the fact that France’s economy has stagnated this year and the country’s unemployment rate has risen to 10.8%, France has not faced the degree of economic difficulty as its neighbors to the south, Spain and Italy. However, France too has seen its economic competitiveness fall sharply vis-à-vis other developed economies such as Germany and the United States and this is threatening to usher in a period of prolonged economic decline in the Eurozone’s second-largest economy. Moreover, France remains heavily dependent upon European export markets that are likely to remain very weak for the foreseeable future, forcing French exporters to seek markets outside of Europe.

    These challenges fall to new French President Francois Hollande and his Socialist Party that enjoys near-total power in France at present. In recent weeks, international and domestic experts have called on President Hollande’s government to enact major reforms such as reducing the size of the public sector in France and reforming the country’s tight labor market. However, these reforms are unpopular among many elements of the ruling Socialists, raising the possibility that this government will not follow the lead of the previous Socialist-led government in Germany under Chancellor Gerhard Schroeder that enacted many of the economic reforms that have enabled Germany to defy the crisis in Europe by improving its economic competitiveness. If the French government doesn’t act soon, France risks being lumped together with Spain, Italy and other southern European economies in a zone of long-term economic decline.

    Hurricane Sandy and the US Elections (2012-10-31)
    Hurricane Sandy caused massive damage to many areas of the northeastern United States just one week before presidential, congressional and state elections in the US. While the immediate focus is on relief and rescue efforts in areas of the US impacted by this massive storm, attention has also turned to how this disaster will impact these elections. In particular, the tightly contested presidential election between President Barack Obama and Republican challenger Mitt Romney could be swayed by the impact of Hurricane Sandy.

    Never before has a presidential election in the United States been impacted by such a natural disaster. With Hurricane Sandy causing dozens of deaths and major damage to many areas of the heavily populated northeastern United States, there are fears that voting in this election could be disrupted in many areas, particularly as millions of people have lost power. Moreover, this disaster took President Obama and Mr. Romney off of the campaign trail for a period time and may have cost the Republican challenger some of the momentum he had been building in recent weeks, while allowing President Obama to remain in the spotlight as he led disaster-relief efforts.

    Most of the states that were impacted significantly by Hurricane Sandy were states that are considered locks for President Obama to win and thus will have little impact on the Electoral College. Nevertheless, voter turnout in these states could be much lower than had been anticipated and this could hurt the president’s chances of winning the national popular vote. 

    However, two swing states (Ohio and Pennsylvania) were also impacted by this disaster. In Ohio, President Obama has maintained a slight lead in the polls, but the storm’s greatest impact was on the heavily Democratic northeast corner of the state. Meanwhile, Pennsylvania had been considered a likely win for President Obama, but the storm’s major impact on that state could lead to a surprise there as well, particularly if voter turnout is much lower around the city of Philadelphia. Surprise victories by Mr. Romney in both of these states would allow him to lose other swing states such as Colorado, Virginia and New Hampshire and still win the election, although Pennsylvania still appears to be a long-shot for the challenger.

    Will the US Save or Sink the World Economy? (2012-10-29)
    In the coming months, the United States economy will be in a position where it will either become a leading engine for a global economic recovery or it will drag the world down into an even worse economic downturn. The evidence for the US being a pillar of economic growth is seen in the fact that the US economy grew at a healthier pace in the third quarter of this year. However, politics could get in the way in the form of the looming “fiscal cliff” that could have a major negative impact on the US and global economies.

    It had been expected that the United States economy would grow at a faster pace in the second half of 2012 and the 2.3% GDP growth (year-on-year) that it recorded in the third quarter of this year was welcome news for the global economy. While most of the world’s developed economies are struggling to avoid a recession and many key emerging markets are in a slowdown, the United States has re-emerged as a leading pillar of growth for the global economy. Moreover, if US politicians allow it to occur, the US economy is set to realize even higher rates of growth in late 2012 and early 2013, providing exporting economies around the world with a chance to boost their levels of economic growth.

    While most of the recent economic news from the United States has been positive, there is one factor that continues to threaten the health of the global economy, the looming “fiscal cliff” in the US. This “fiscal cliff” is a series of tax increases and spending cuts that will go into effect in 2013 unless the US Congress can reach a new budget deal before the end of this year. Should the Congress fail to do so; there is a strong chance that the US could fall into another recession, a factor that would severely delay recoveries in Europe, China and elsewhere. As such, lawmakers in the United States will have an enormous amount of influence over the direction of the global economy in the coming year.

    Two Weeks Until the US Presidential Election (2012-10-24)
    With less than two weeks to go before the presidential (and congressional) elections in the United States, the race between Democratic President Barack Obama and Republican candidate Mitt Romney is tighter than ever. Just a few weeks ago, it appeared that President Obama was on his way to a relatively easy election victory as he led in the polls in all of the key swing states across the United States. However, a poor performance in the first electoral debate has cost President Obama some support, as has a much-improved campaign by Mr. Romney, who has overcome a series of gaffes to be in a position to win this election.

    As always, this presidential election in the US will be decided by a handful of swing states that are roughly divided between supporters of the Democrats and the Republicans. At the end of the summer, President Obama had the lead in the polls in all of these swing states and was even challenging Mr. Romney in a number of traditionally-Republican states such as Arizona and Missouri. However, the Republican challenger has surged in the polls in recent weeks and is now in the lead in swing states in the South (Florida and North Carolina) and has drawn even with the president in two other swing states (Virginia and Colorado).

    However, for Mr. Romney to unseat President Obama, he will have to make even more gains in swing states where he continues to trail in the polls, but by a smaller margin. For example, it seems unlikely that Mr. Romney can close the gap with the president in the states of Pennsylvania (50% to 45% for the president) and Michigan (49% to 44%). Even if Mr. Romney wins Virginia and Colorado, he will be 13 electoral votes short of the 270 he needs to win the presidency. This leaves five swing states in which Mr. Romney is trailing in the polls by margins of between 1.5% and 3.0%; Ohio (18 electoral votes), Wisconsin (10), Nevada (6), Iowa (6) and New Hampshire (4). To win the election, Mr. Romney must win not only Virginia and Colorado, but also Ohio, a state that every victorious presidential candidate has won since 1960.

    China's Economy Slows in the Third Quarter (2012-10-23)
    China’s economy continued to slow in the third quarter of this year, although it did not slow as much as some economists had feared. This raised hopes that the slowdown in China was close to bottoming out and that higher rates of growth could be realized in the world’s second largest economy in 2013. However, the Chinese economy will continue to face a number of internal and external challenges that could prevent it from returning to double-digit growth rates in the coming years.

    Chinese GDP growth slowed to 7.4% on an annualized basis in the third quarter of 2012, its lowest rate of growth since early 2009. This slowdown was attributed to the growing weakness of many of China’s key export markets, particularly Europe, and this has led to lower levels of export growth in recent months. This growth rate would have been even lower had the Chinese government not begun to introduce some stimulus measures into the economy. Most notably, the government has encouraged banks to boost lending to consumers and businesses in a bid to allow China’s domestic market to offset the weakness in export markets.

    As there were fears that economic growth in China could fall to as low as 7.0% during that period, the third quarter’s result was welcomed by exporters and investors as a sign that China’s slowdown was approaching an end. However, export markets in Europe and parts of Asia are forecast to remain weak over the near-term and the recovery in North America will not be strong enough to offset these region’s poor outlooks. As a result, while the stimulus measures being enacted by the Chinese government will prevent a hard landing, it is likely that economic growth will continue to gradually slow into early 2013 before once again trending upwards. However, it is highly unlikely that China will be able to record the incredibly high rates of economic growth that it did in previous years and will instead realize growth rates in the range of 8.5% to 9.0% over the next few years.

    Who Will Import in 2013? (2012-10-17)
    With the growth rate for global trade forecast to remain relatively low in 2013, exporters will again be challenged to determine which export markets will provide the best opportunities for growth next year. Moreover, with many key emerging export markets forecast to remain weaker than in previous years, emerging markets will not provide such a large share of export growth as they have done over the previous decade. Instead, there are likely to be major regional discrepancies when it comes to the health of export markets in 2013.

    The economic crisis in Europe and the economic slowdown underway in China, India and other key emerging markets have resulted in these economies importing much lower levels of goods and services this year. With Europe’s economy forecast to remain in a recession for much of 2013, most European countries will record little or no import growth next year, with the possible exception of Germany and a handful of smaller northern European countries. Meanwhile, import growth levels in the major emerging markets such as China and India are forecast to remain well below their previous highs as the slowdown in global trade and investment has had a major impact on these countries’ domestic markets.

    As so many of the world’s leading importing countries are set to face another year of sluggish growth, exporters will struggle to find markets for their goods and services in 2013. One region that is forecast to record solid import growth is North America, where the rebounding United States economy and a stronger dollar are allowing the US to once again become an important pillar of global economic growth. Meanwhile, mid-sized emerging markets such as Indonesia and Thailand will continue to record respectable import growth levels next year as their domestic markets expand. Finally, despite its slowdown, China will remain a key source of growth for exporters around the world, even as its import growth levels fail to match previous levels in the coming year.

    Syria and the Balance of Power in the Middle East (2012-10-16)
    While Syria’s civil war is largely a domestic affair, its outcome will have a major impact on the shifting balance of power in the Middle East and will have significant implications for all of the region’s leading powers. The most apparent impact of the eventual outcome of Syria’s civil war will be realized in the five countries that share a border with Syria, as this conflict has the potential to destabilize each of them. However, countries further afield in the region, as well as global powers with a stake in the Middle East, will also feel the impact of this worsening conflict.

    For the five countries that share a border with Syria (Turkey, Lebanon, Israel, Jordan and Iraq), the escalating civil war in that country is rapidly threatening to involve each of them. On one head, more than a quarter of a million refugees have fled Syria for its neighbors, overwhelming their ability to cope with this refugee influx. Meanwhile, the conflict has already spilled into Turkey and Lebanon, threatening to draw the former into the war and threatening the latter with its own civil war. Adding to the uncertainty are the concerns that a new government in Syria could prove much more hostile to Israel and could move to take a more aggressive stance regarding the Golan Heights territory that has been under Israeli control since 1967. 

    Syria’s civil war is not only impacting its neighbors, but is involving a number of other powers involved in the region. For Iran, Syria is the only country in the eastern Mediterranean region that it can call an ally, so the potential ouster of the Assad regime would be a geopolitical disaster for Iran. In contrast, Saudi Arabia has openly backed the rebels in Syria and stands to gain significant influence inside Syria should President Assad fall from power. Further afield, Russia stands to lose its leading ally in the region should the rebels in Syria prevail, weakening Russia’s already poor position in the Middle East. Finally, the United States would welcome a new government in Syria, but is likely to be concerned that Iran will seek to bolster its position in Iraq should its Syrian ally fall, adding to the destabilization of that country.

    _____________________________________________________________________
    Reprinted from ISA Report published November 1, 2012 (updated November 7, 2012), International Strategic Analysis, http://www.isa-world.com/main.php 
     
  • October 05, 2012 6:03 PM | Anonymous
    CHICAGO - LR International Inc. was awarded the Presidential "E" Award for Export Service by U.S. Department of Commerce Secretary John Bryson at the White House in Washington, D.C. on May 17, 2012. The "E" Awards are the highest recognition any U.S. entity may receive for making a significant contribution to the expansion of U.S. exports.

    "Along with providing Global Logistics, promoting Export though public and private training continues to be very important part of our day to day operation. We are honored to receive the "E" Award for Service," said Ric and Linda Frantz, C.E.O, C.F.O and founders of LR International, Inc. (LRI). "We opened the doors in 1988 with one office in Chicago, and now have grown to having Representative Offices throughout the U.S. and in 102 countries. Whether it's controlling off shore inventory, moving Railroad Locomotives to help build the infrastructure in Central Asia, or distributing food processing chemicals to help feed the World, LRI continues to offer assistance to U.S. companies to help them grow their export markets."

    "I am pleased to recognize LRI for receiving the President's "E" Award for Service which honors companies that make significant contributions toward increasing U.S. exports," said U.S. Commerce Secretary John Bryson. "This Administration is committed to leveling the playing field for American businesses and workers to help U.S. companies build things here and sell them around the world. "E" Awards winners like LRI have excelled in this effort, demonstrating four years of successive export growth. It is companies like this that are helping to grow our economy and put more Americans back to work."

    A business partner of the Department's U.S. Commercial Service, LRI has provided export counseling, to greatly help expand U.S. export sales.

    U.S. companies are nominated for the "E" Awards through the U.S. Commercial Service office network in 108 U.S. cities and more than 75 countries which helps U.S. companies export. The primary criterion for the "E" Award is four years of successive export growth or of supporting the export growth of others. "E" Awards are awarded to applicants that can demonstrate a significant contribution to U.S. export expansion that is measurable, innovative, sustainable, and has broad impact. 

    All nominations are reviewed by the "E" Award Committee, which is chaired by the Department of Commerce, and includes representatives of ExIm Bank, the Small Business Administration, and the Departments of Agriculture, Labor, State, and Transportation.

    This year marks 50th anniversary of the first presentation of the President's "E" Award by President John F. Kennedy. The President's "E" Award was created by Executive Order in 1961 to encourage U.S. companies to sell their products abroad. A second award, the President's "E Star" Award, was authorized by the Secretary of Commerce in 1969 to recognize "E" Award recipients for their continuing significant contributions to U.S. export expansion. 

    A total of 41 U.S. companies and organizations were presented with the "E" Award at the May 17, 2012 World Trade Week ceremonies in Washington DC. 


    About LR International 
    LR International, Inc. is a full service international freight forwarding company with the capability of handling just about any type of shipment. In our tenth year, LR International continues to lead the way in the International Freight Forwarding industry. 

    Initially founded to serve the needs of small to medium size companies exporting to difficult areas of the world, LR has grown into a full-service operation enjoying the support of many multinational corporations doing business worldwide. As a result, their coverage has recently expanded to over 200 both domestic and international representative offices. 

    LR International has become a one-stop shop for exporters of all sizes by offering services ranging from financing of export orders, through support logistical services, international banking collections, all risk insurance and general counseling and consulting on going global. 

    • Appointed freight forwarder for the state of Illinois. 
    • Contract with the state government to provide pro-bono counseling for Illinois exporters. 
    • Recognized by the federal government for efforts in promoting international trade, by appointing LR International to the Illinois District Export Council.
    • Consulting service includes training in all phases of exporting. Either through private in-house corporate training sessions, or through public seminars, trainers are the most sought after speakers in the industry.

      CEO and co-founder Ric Frantz is Vice President and former President of the International Club of Chicago.
  • October 01, 2012 6:02 PM | Anonymous
    Who Suffers as a Result of China's Slowdown (2012-10-10)
    The fact that China’s economic slowdown appears to be continuing in the second half of 2012 has raised fears that countries and businesses dependent upon exports to China for their growth could be in for a severe downturn. While China’s vast domestic market is not expected to contract by a large amount, its recent run of strong growth is not forecast to continue. As a result, countries and businesses that had counted on China for much of their growth in late 2012 and in 2013 are likely to struggle, particularly as other export markets, most notably Europe, remain very weak.

    China has become a leading export market for many economies around the world, particularly those that supply natural resources for China’s massive industrial sector. For example, China is the dominant export market for a host of natural resource-exporting countries such as Australia, Chile and numerous Sub-Saharan African and Asian countries. Meanwhile, soaring levels of consumer demand have allowed China to become a much more important market for higher-end exports from Asia, North America and Europe in recent years, with China accounting for much of these region’s export growth.

    Should China’s current economic struggles extend to the country’s consumer and business markets, the outlook for global economic growth will suffer accordingly. At present, the world’s leading export markets are either experiencing sluggish growth (North America) or are in the midst of a serious recession (Europe). With these developed markets having suffered from five years of little or no growth, exporters have become increasingly dependent upon larger emerging markets such as China for their growth. If China’s economic slowdown continues, this avenue of growth will also be blocked and this will result in lower rates of economic growth around the world.

    Chavez Re-Elected (2012-10-08)
    Despite facing a unified political opposition for the first time in years, Venezuelan President Hugo Chavez was able to win re-election for a fourth term in office, defeating his center-right rival Henrique Capriles by a healthy margin. For President Chavez, this victory confirmed the support for his policies among poorer Venezuelans who have stuck with him despite the country’s economic problems. However, questions over the president’s health will remain a major issue in Venezuela and will cloud that country’s political future in the coming months and years.

    President Hugo Chavez won Venezuela’s presidential election by a margin of 54.4% to 45.0% over the candidate of the unified political opposition in that country, Henrique Capriles. President Chavez was aided by a high voter turnout among poorer Venezuelans that pushed the overall voter turnout in this election to 81%. Meanwhile, the election itself turned out to be peaceful, despite an acrimonious campaign that led to a number of violent clashes in the weeks before the election. As a result, President Chavez will now begin a fourth term in office, while the rightist opposition in Venezuela will likely struggle to retain the cohesiveness that it showed during the election campaign.

    Given the fact that President Chavez is suffering from an unknown form of cancer and has had to continuously travel to Cuba for treatment, his health will remain a major issue in Venezuela in the months and years to come. In fact, there had been much speculation in Venezuela in the months leading up to the election that President Chavez would be too ill to actually run for re-election. Should President Chavez’s health deteriorate before the end of his fourth term in office, Venezuelan politics could be thrown into disarray as he has dominated the country’s political scene since taking power in 1999. This, in turn, could destabilize one of the region’s most important countries and have a major impact on Venezuela’s neighbors.

    Al-Qaeda's New Stronghold (2012-10-03)
    One of the most alarming developments this year in the global effort to eradicate terrorist groups has been the seizure of a vast area of the West African country of Mali by a terrorist group affiliated with al-Qaeda. Since its seizure of the arid northern half of Mali earlier this year, the group al-Qaeda in the Islamic Maghreb (AQIM) has consolidated its grip on power in that region that is as large as France, sidelining the other rebel groups that it had allied itself with in order to oust the Malian government from that region. Given the fact that the AQIM is well-armed as a result of the flow of weapons from Libya over the past two years, this group could soon pose the greatest terrorist threat in the world.

    Amid the chaos of the coup d’état that ousted Mali’s government in early 2012, the AQIM, together with its allies (the Islamist Ansar Dine group and Tuareg MNLA rebel group), seized control of the northern half of Mali. In the months that followed, the AQIM was able to wrest control of the region from its allies and turn the vast region into an al-Qaeda-led Islamist region. Given the fact that Mali’s government has been preoccupied with strengthening its own grip on power in southern Mali, it has been unable to do anything to win back territory from the AQIM. In fact, the AQIM has been expanding its control into more southern areas of Mali in recent months.

    Given the chaos in Mali, it will take foreign intervention to oust the AQIM from the northern half of that country. Recently, the United States announced that it is considering the use of drone aircraft against the AQIM, much as it has done in Pakistan, Yemen and Somalia in recent years. However, it will also take significant ground forces to oust the AQIM from northern Mali and it is uncertain as to who would provide such forces. The logical choice would be ECOWAS (West Africa’s regional body), but it lacks the troops needed to secure such a vast territory. Moreover, it is unlikely that other African countries will be interested in committing large numbers of forces to Mali, forcing Western countries to consider some form of involvement.

    The Impact of the Arab Spring on Foreign Investment (2012-10-02)
    With political unrest continuing to impact many areas of the Middle East and North Africa in the wake of the Arab Spring, many foreign investors have become increasingly wary in investing in that region. As a result, foreign investment inflows into the Middle East and North Africa have fallen sharply, with only a few exceptions. As foreign investment is a necessary component of the region’s efforts to modernize and diversify its economy, this loss of foreign investment is having both an immediate and a longer-tern detrimental impact on the region’s economy.

    The combination of the global economic troubles over the past few years and the political turmoil that has occurred in many countries in the Middle East and North Africa since late 2010 has resulted in foreign investment inflows into the region falling by nearly 50% from their peak in 2007-2008. The largest declines have occurred in countries such as Egypt, Libya and Tunisia where governments have been ousted over the past two years. However, more stable countries such as Saudi Arabia and the United Arab Emirates have also recorded much lower levels of foreign investment in recent years. Only those countries that have combined higher rates of economic growth with relative political stability (such as Turkey and Israel) have managed to maintain high levels of foreign investment inflows in recent years, but both of those economies have limited trade and investment ties with the rest of the region.

    As the level of political risk in most areas of the Middle East and North Africa is forecast to remain very high in the coming years, many foreign investors are likely to continue to shun the region, particularly investors from outside of the region. This sharp fall in the level of foreign investment will have a major impact on the region’s economic outlook over the near-term and will contribute to low levels of economic growth across the region in 2012 and 2013. A greater concern is the impact that this lack of foreign investment will have on the long-term economic growth potential of the region, as foreign investment has been a key driver in both job creation and economic diversification in the Middle East and North Africa. As such, this sharp downturn in foreign investment has the potential to add to the region’s political turmoil, both now and in the coming years.

    Popular Will Threatens Europe's Future (2012-09-26)
    While European political leaders have finally begun to take some of the steps necessary to pull that region back from the brink of an economic collapse, the popular will in many European countries threatens to worsen the region’s already-serious economic crisis. Simply, large numbers of European voters are opposed to the austerity measures and other steps needed to rescue the Eurozone economy and are using their numbers to thwart the efforts of European governments to restore the region to a more sound economic footing. As such, Europe’s longer-term economic decline is likely to continue.

    The massive protests and strikes that have gripped many of the Eurozone economies in recent months have been aimed at preventing the region’s governments from enacting the austerity measures needed to improve the longer-term economic outlook for Eurozone economies. Already, labor unions and other special-interest groups have had some success in forcing governments to water down some of their proposed measures, as highlighted by the Portuguese government’s recent withdrawal of a proposed increase in that country’s social security tax. Furthermore, governments that have enacted austerity measures have seen their popularity plummet, forcing them to either withdraw some of these measures or face being voted out of office in the next election.

    For much of the Eurozone, these austerity measures are a necessary step in improving the region’s deteriorating economic competitiveness. With shrinking domestic markets and working-age populations being combined with ultra-generous pension and healthcare systems, Eurozone economies are becoming more dependent upon exports for their economic growth at a time when their export competitiveness is deteriorating sharply. As a result, those governments that back down on their planned austerity measures are likely dooming their countries to a prolonged period of economic decline that will further reduce government revenues. In turn, these declining government revenues will result in even more severe austerity measures being forced on these countries in the longer-term.

    East Asian Flashpoints (2012-09-25)
    In terms of their potential impact on the global economy and many of the world’s leading powers, the maritime disputes in the waters of East Asia may be the most important flashpoints in the world. Not only is China the key player in these disputes, but other major Asian powers such as Japan, Indonesia and South Korea are involved as well. Furthermore, as the region’s leading naval power, the United States is also entwined in these disputes. Should China press forward with its territorial claims in East Asia, a conflict between the world’s two dominant powers cannot be ruled out.

    With the exception of the dispute between Japan and South Korea over the Takeshima/Dokdo islands (which has deeply divided those two countries in recent months), all of the other major maritime disputes in East Asia involve China. As a rising power that believes its rightful position is as the dominant power in East Asia, China is unlikely to back down on its claims to both the Senkaku/Diaoyu islands that are also claimed by Japan and Taiwan and to almost all of the South China Sea (with areas claimed by the Philippines, Malaysia, Indonesia, Vietnam and others). Moreover, China is prodding each of its rivals in these disputes to test their resolve to defend their own claims, as well as testing the United States’ resolve to back its allies in these disputes.

    It is this growing assertiveness by China in the waters of East Asia that most alarms many of its East Asian neighbors and their US ally. Moreover, China is moving to back its territorial claims by enhancing its air and naval power, with China recently launching its first aircraft carrier as a sign of its military ambitions. Should China’s economic slowdown worsen, or should the new generation of Chinese leaders feel the need to burnish their nationalist credentials, there is a significant risk that China could become even more aggressive in asserting its territorial claims in the region. With many sides increasing their naval presence in the region, the potential for a spark to set off a conflict will increase. As these disputes are in the heart of the world’s fastest-growing economic region, the potential impact is global in scope as rising tensions could spark both a global political and economic crisis.

    A New Wave of Unrest in the Muslim World (2012-09-19)
    The recent wave of protests that have spread across the Middle East, North Africa and other regions with large Muslim populations has unleashed a new round of unrest in these highly volatile areas. That these protests were sparked by a crude anti-Islam film that was produced in the United States has resulted in the US being the focus of the protestors anger and has led to attacks on US embassies, consulates and other Western targets in these regions. Moreover, the political changes wrought by the Arab Spring mean that these protests could have a much larger impact on US relations with the Muslim world than they would have under these countries’ previous regimes.

    Following the production in the United States of a film insulting the Islamic religion, large-scale protests have erupted in many Muslim-populated countries. The most violent of these protests have been led by Salafists and other more radical groups and have led to attacks on a number of US and other Western embassies and consulates in the Middle East, North Africa and Asia. These attacks on US and Western embassies and consulates have led to a number of deaths (including that of the US ambassador to Libya) and have forced the US and many of its allies to withdraw their diplomatic staff from these regions at a time of great political change.

    This latest round of unrest threatens to severely damage the United States’ relations with many of the new governments in the Middle East, North Africa and Asia. For the recently elected governments in countries such as Egypt, Libya and Tunisia, these protests are often being led by Islamists that support these governments, making it difficult for them to crack down on the protestors. Meanwhile, already high-levels of anti-US sentiment have been inflamed by this film in countries such as Pakistan, Afghanistan and Yemen, potentially hampering the cooperation between the US and these government in their joint efforts to defeat terrorist organizations based in each those countries.

    _____________________________________________________________________
    Reprinted from ISA Report published October 1, 2012 (updated September 10, 2012), International Strategic Analysis, http://www.isa-world.com/main.php  
  • August 14, 2012 6:01 PM | Anonymous
    Turkey's Slowing Economy (2012-09-12)
    Economic growth in Turkey slowed to 2.9% on an annualized basis in the second quarter of 2012, down from the 3.3% growth recorded in the first quarter of this year and well below the soaring rates of economic growth recorded in the previous two years. This slowdown was largely the result of a fall in domestic demand in the second quarter, raising the potential for interest rate cuts in the months ahead. Despite this slowdown, Turkey has done pretty well to withstand the impact of the crisis in nearby Europe and should enter into a recovery next year.

    Turkey’s economy had been one of the fastest-growing economies in the world in recent years, growing by 9.0% in 2010 and 8.5% in 2011. This growth was driven in large part by the expansion of Turkey’s domestic market and the partial recovery of key export markets in northern Europe. However, Turkey’s domestic market is now weakening, with both consumer and business spending cooling off after a period of rapid growth. Moreover, Europe remains Turkey’s key export market and as Europe’s economic downturn deepens, Turkey’s export prospects continue to worsen.

    While the Turkish economy has slowed significantly from the heady days of 2010 and 2011, it appears that the Turkish economy will not experience a hard landing. This is important as until recently, the Turkish economy was characterized by massive volatility and frequent severe recessions. This improved stability is due largely to the rapid increase in purchasing power among Turkish consumers and the diversification of the economy, which is allowing Turkey to develop new export sectors. As a result, economic growth in Turkey is forecast to remain lower over the near-term, but a strong recovery is likely beginning sometime in 2013.

    Rising Political Risk Levels (2012-09-11)
    As we head into the final months of 2012, it is clear that political risk levels are rising to dangerous heights in many of the key regions of the world. A number of factors, including the worsening economic situations in Europe and many of the world’s key emerging markets, are converging to boost political risk levels. Moreover, the fact that the United States’ presidential election and the leadership transition in China are happening at roughly the same time means that politics in the world’s two most powerful countries will become more unpredictable over the near-term and a lack of leadership will manifest itself on the global stage.

    Conflict and internal unrest risk remains dangerously high in many areas of the world, most notably the Middle East where the civil war in Syria threatens to spread outside of its borders and Iran continues to push forward with its controversial nuclear program. Moreover, food prices are forecast to soar in the coming months and this is likely to raise political tensions in poorer emerging markets, much as it did in the Middle East and North Africa before the Arab Spring. Meanwhile, elections will take place in deeply divided countries such as Venezuela, Ukraine and Romania later this year and, given these countries economic troubles, could lead to a rapid escalation of unrest in each of those countries.

    In addition to the threat or war and unrest, there is a major risk stemming from what can be described as a lack of political leadership in the world in late 2012. This lack of leadership stems from a number of factors, including the upcoming presidential election in the United States, the transfer of power to a new generation of leaders in China, political gridlock in India and the ongoing economic meltdown in Europe. With this leadership vacuum forecast to remain in place until early next year, the threat of rising powers or non-state actors taking advantage of this lack of leadership will rise sharply and this could precipitate unrest in regions such as Persian Gulf, North Africa, the Caucasus or a host of other flashpoints around the world.

    The Syrian Civil War (2012-09-05)
    A few months ago, it appeared that Syria’s disparate groups of rebels were on the verge of taking control of many of Syria’s leading cities and ousting President Bashar al-Assad from power. However, without the hoped-for intervention by the armed forces of many Western and Middle Eastern powers, the rebels have lost much of their momentum, as the Syrian government has been able to use its significant air and armor power to drive the rebels out of many of the areas they had seized. As such, it is becoming clear that, without direct foreign intervention, Syria’s civil war is likely to drag on, leading to a major increase in the death toll in that country.

    When Syrian rebels seized control of many areas of Syria’s leading two cities, Damascus and Aleppo, it appeared that it was only a matter of time before the Assad regime was driven from power or forced to seek sanctuary in the Alawite-dominated regions of northwestern Syria. Instead, the rebels lacked the capabilities needed to withstand the government’s counterattacks as Syria’s armed forces used significant numbers of warplanes and tanks for the first time in the civil war. As such, the rebels have suffered major losses in recent weeks and have been forced to cede hard-earned territory to Syria’s armed forces.

    These setbacks have demonstrated the rebels’ need for more support from their allies in the West and the Middle East. As in Libya, the rebels have no chance to defeat the country’s armed forces without either major defections from the government side or direct military intervention by significant foreign armed forces. Meanwhile, the death toll in Syria continues to rise at an alarming rate, with more than 5,000 people being killed last month alone and with as many as 26,000 people having died since the start of the civil war 18 months ago. As the death toll continues to rise and as hundreds of thousands of refugees flee from the country, the pressure on the rebels’ foreign allies to intervene militarily will continue to mount.

    India's Economic Troubles (2012-09-04)
    While India’s economic growth rate rose slightly in the second quarter of this year, there are clear signs that a return to the higher growth rates achieved in earlier years will not occur over the near-term. Moreover, many of the factors that prevented the Indian economy from matching China’s growth rates over the past two decades remain in place and are once again threatening the longer-term health of India’s economy. With India’s political system continuing to hamper growth, India’s ability to achieve the growth rates it needs to match the world’s more dynamic emerging markets is in question.

    India’s year-on-year economic growth rate rose slightly from 5.3% in the first quarter of 2012 to 5.5% in the second quarter. This was a slightly better performance than had been expected, but was nevertheless well below the levels of economic growth achieved in previous years. Growth was once again held back by the country’s central bank’s unwillingness to significantly lower interest rates, despite a recent downturn in inflation. Moreover, India’s manufacturing sector continued to struggle as a result of the sharp downturn in many of the country’s key export markets.

    More worryingly for the Indian economy, there are a number of long-term factors that are preventing it from reaching its true potential. First and foremost, the chaotic Indian political system is holding back growth in foreign investment, as region-based political parties and special interest groups continue to block needed economic reforms. Second, India has not invested enough in its infrastructure, a factor that has severely hindered the development of India’s manufacturing sector. As a result, India’s ability to achieve the levels of economic growth needed to reduce the level of poverty in a largely poor country of 1.2 billion people is being hindered by the country’s unwieldy political system and there appears to be little chance that this will change for the better in the coming years.

    Foreign Investment Trends in East Asia (2012-08-29)
    While global foreign investment levels have declined in recent years as a result of the global economic crisis, foreign investment in East Asia continues to expand at a healthy pace. This foreign investment continues to be focused on East Asia’s traditional centers of manufacturing such as China, Japan, Singapore and Hong Kong, which received 82% of all of the FDI inflows into the region. However, other countries in East Asia have begun to receive higher levels of foreign investment in recent years, a trend that is forecast to continue in the years ahead.

    In 2011, East Asia received $333.5 billion in foreign investment, up from $94.2 in 2002. This accounted for 21.9% of all of the global FDI inflows in the world in 2011, an increase over the 15.0% share of global FDI inflows that East Asia attracted in 2002. Of course, China (together with its territories of Hong Kong and Macau) continued to attract the bulk of the foreign investment in the region, but its share of the FDI inflows into East Asia fell from 66.7% in 2002 to 63.4% last year. Meanwhile, Singapore remained the world’s leading recipient of foreign investment on a per capita basis, receiving a massive $64.0 billion in foreign investment last year, more than any other country in the region apart from China.

    One trend worth following with regards to foreign investment in East Asia is the rapid growth in foreign investment in two of the region’s most dynamic economies, Indonesia and Mongolia. Until 2010, Indonesia had struggled to attract foreign investment due to its sluggish economy and the threat of political unrest there. However, foreign investment in the region’s second-most-populous country has risen sharply over the past two years as Indonesia’s domestic market has begun to expand rapidly. Meanwhile, Mongolia has seen a major increase in foreign investment over the past two years as mining companies make major investments in that country’s vast mineral wealth. One other country to watch in the coming years will be Myanmar, as the recent political reforms there have opened that potentially large market to foreign investment for the first time.

    Seeking Peace in Colombia (2012-08-28)
    This week, Colombian President Juan Manuel Santos announced that his government had held exploratory talks in Cuba with the left-wing FARC rebel group in a bid to bring peace to Colombia. Furthermore, President Santos indicated that his government was willing to hold talks with other rebel groups and paramilitary organizations active in Colombia. Should these talks lead to peace and stability in Colombia, that country could begin to realize its true economic potential and become a major center for trade and investment in Latin America.

    The exploratory talks between the Colombian government and the FARC rebels took place in Havana, one year after FARC leaders indicated that they were prepared to begin talks with the government. As the FARC leadership has been decimated by attacks from Colombia’s armed forces, the new leaders of the rebel group have proven to be far more interested in seeking a peace deal than their predecessors. Likewise, President Santos has used his two years in office to prepare for such talks, unlike his hardline predecessor Alvaro Uribe who ruled out any negotiations with the rebels. As a result, these exploratory talks have taken place and it appears that full-blown peace talks could begin later this year in Oslo and Havana.

    These impending peace talks are raising hopes that peace and stability could finally come to Colombia after decades of war and unrest, allowing that country’s economy to realize its true potential. Already, Colombia’s economy has begun to grow at a healthier pace as the government has had success in bringing stability to more areas of the country, opening the door for foreign investment in Colombia’s energy and mining sectors. Should a peace deal be reached, Colombia could experience a surge in foreign investment, enabling that country’s economy to achieve soaring economic growth rates such as those achieved in neighboring Peru and Panama over the past decade, two countries that overcame similar challenges as Colombia.

    Ethiopia After Zenawi (2012-08-22)
    The death of Ethiopian Prime Minister Meles Zenawi has left a major power vacuum in that East African country of 94 million people. This power vacuum threatens to bring an end to the relative political stability that Ethiopia has experienced in recent years, as well as to that country’s recent run of strong economic growth. Moreover, Ethiopia is at the heart of one of the most unstable regions in the world, so a difficult transfer of power could have repercussions far outside of Ethiopia’s borders.

    Prime Minister Meles Zenawi dominated Ethiopian politics from the time that his rebel forces overthrew Ethiopia’s communist dictatorship in 1991 until his recent death. While he was criticized for his crackdown on opposition movements inside Ethiopia, the United States and other Western powers quietly backed the prime minister for his ability to hold together his fractious country and his willingness to intervene against radical Islamist groups in neighboring Somalia. Moreover, his government’s economic policies helped Ethiopia to record some of the highest rates of economic growth in Sub-Saharan Africa in recent years.

    Having held such a tight grip on power for so long, it is little surprise that there was no plan of succession in place in Ethiopia, creating a dangerous power vacuum. Initially, former Foreign Minister Hailemariam Desalegn has been tapped to be the interim prime minister. However, he is expected to face a number of challengers when the ruling EPRDF party meets next month and he could struggle to win over the country’s armed forces and intelligence leaders. Should a power struggle ensue, Ethiopia’s deep ethnic, religious and linguistic divisions could be reopened, exposing the country to the risk of internal unrest that could have a major impact across East Africa.

    Russia and the WTO (2012-08-21)
    Russia officially became the 156th member of the World Trade Organization (WTO) this week, becoming the final major global economy to join that organization. This brought an end to almost two decades of difficult negotiations on Russian entry into the WTO, as opposition to Russian membership was strong, both within and outside of Russia. As a result of Russia’s WTO membership, many sectors of the Russian economy will be exposed to international competition after decades of protection, while some global exporters will find major new opportunities inside Russia.

    For Russia, the tariffs that had protected Russia’s outdated manufacturing sector from international competition will gradually be lifted as part of the conditions of Russia’s WTO membership. For example, Russia’s current average tariff on imports is 9.5%, but this will be reduced to 7.4% in 2013 and to 6.0% by 2015. With the Russian government realizing the danger of the Russian economy’s growing dependence on high natural resource prices for growth, it understood that it had to attract foreign investment into Russia’s manufacturing industries in order for them to modernize and to compete with international manufacturers. If successful, this could allow Russia to develop manufacturing industries that could one day export their products around the world.

    For international exporters, Russia’s entry into the WTO will give them greater access to a market of 140 million people. Over the next three years, exports to Russia are forecast to grow 50% faster than to other large emerging markets as a result of WTO membership. One sector that is poised for significant growth is high-end consumer goods, due to the lack of serious domestic competition in Russia. Significant growth is also expected for agricultural exports to Russia as Russia’s agricultural sector has struggled in recent years. On the downside, Russia’s growth potential remains limited by its shrinking domestic population and the rising threats to the country’s economy.

    Europe's Shrinking Economy (2012-08-14)
    Europe’s economy continued to contract in the second quarter of this year, as austerity measures continued to weaken Europe’s already struggling domestic market. This was particularly the case in southern Europe, where the region’s most debt-laden economies remained in a deep recession. The lone bright spot was found among Europe’s leading exporting economies, where the economic slowdown was tempered by export growth that was spurred by the weakened euro.

    The European Union’s economy contracted by 0.2% on an annualized basis in the second quarter of 2012, its first overall contraction in more than two years. This was a slightly better performance than had been expected as the weak euro helped to bolster the economies of key exporters such as Germany (1.0% GDP growth), Sweden (2.2%) and parts of Central Europe. In contrast, southern Europe remained mired in a deep recession, highlighted by the severe contractions in Greece (-6.2%), Portugal (-3.3%), Italy (-2.5%), Cyprus (-2.4%) and Spain (-1.0%). Meanwhile, key economies such as Britain (-0.8%) and France (0.3%) continued to struggle as well.

    Unfortunately for Europe, the outlook for the second half of 2012 has deteriorated and it is likely that the region’s economic downturn will deepen. In southern Europe, economic growth is unlikely to return until at least 2014 as austerity measures continue to make dramatic cuts in government spending and as unemployment rates continue to soar, weakening domestic demand. Meanwhile, northern Europe is threatened by the weakening of key export markets in Asia, as well as domestic markets that will record little growth in the coming years. As such, Europe’s economic crisis is almost certain to worsen, while the prospects for a major collapse remain in place as the future of the euro remains uncertain. Should more economies in the region require international bailouts and should one or more countries be ejected from the Eurozone, the region could be headed for a recession much worse than that experienced in 2008 and 2009.

    _____________________________________________________________________
    Reprinted from ISA Report published August 14, 2012 (updated September 12, 2012), International Strategic Analysis, http://www.isa-world.com/main.php  
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