Understanding advantages and disadvantages of International Trade – China

International trade has always been an attractive idea for merchants and businessman since time immemorial. There is always an opportunity to sell more, make more profits, increase the market share, remove seasonality fluctuations of demand and supply, increase in productivity, and of course a business or even a country learns a lot on the product development technologies and strategies from doing business with other countries or regions. Trade also leads to higher GDP, better and more choices of products for consumers, increase in competition in domestic market leads to competitive prices which is good for consumers, competition also leads to better quality in goods and services, and reduces unemployment and poverty. Thus, this leads to growth and maturing of a countries economy as a whole and also the businesses involved.

Trade also leads to some problems that are not that obvious at the onset of trade. Even though trade tends to increase employment in one nation it may lead to job cuts in another. As businesses shift manufacturing for instance from richer nations to third world or developing nations, they take advantage of the cheap labor, weaker labor policies, weaker environmental policies, and support of the governments in these countries. They are able to recruit more and thus produce more for less. But this leads to job cuts in the parent rich nations. Trade also leads to job cuts in the developing and third world countries due to competition with multinationals from developed nations and also due to exposure to automation and modernization. Many businesses cannot put up with high productivity and competitive pricing of stronger businesses from richer nations and thus finally may lead to closing down of weaker businesses and unemployment in the face of competition. But we also have to realize that employment also increases through the new businesses from the richer nations. Overall there is a potential increase in employment. There is a problem of increasing income inequalities in China. As the business houses tend to take advantage of weaker policies in labor and environment, there will be environmental pollution leading to health and environmental complications; further labor discrimination leading to weaker social well-being. Businesses particularly also need to realize that protection of Intellectual property rights may not be recognized or understood or at least weak in some of the nations thus, leading to piracy, copyright violations, patents violations, product copies etc. This may well erode the competitive advantage, and the brand image of businesses.

The above comments on international trade can be closely associated with the international trade involving China. China has become the manufacturing hub of the world. Substantial part of the economy of China depends on international trade. The advantages it gives for other countries to setup manufacturing plants in China is its strong government support for FDIs, Infrastructure development, cheap labor, weak environment and labor laws, new strong market reach which includes China, India, Japan, Russia, Korea, Thailand, Vietnam, Indonesia, Malaysia etc, access to cheap Chinese supplier base, thus larger sales and profits, seasonality of product supply and demand can be managed (one can always sell the product in China and the markets close to it if the demand is lower in North America or Europe). US has profited considerably through trade with China. Sales of products from US have grown in popularity in China boosting US multinationals (Expanded trade with China has, in fact, been a blessing for large U.S. multinationals like Boeing, Caterpillar, and Cargill, which had trumpeted the prospect of a massive Chinese market for American products and services. China is the world’s fastest growing market for commercial aviation, and needs billions of dollars worth of airplanes from Boeing. Its growing infrastructure has been a boon for companies like Caterpillar, which produces tractors and other heavy equipment. And it is importing billions of dollars worth of farm products, a boon to companies like Cargill. Last year, China bought $2.9 billion worth of soybeans — the top U.S. export crop to China. China also has proven to be a growing market for U.S.-made fertilizer and chemicals.). China’s benefits were as follows: its economy has been growing at a very rapid rate (for instance, China’s economy grew at an average rate of 10% per year during the period 1990-2004, the highest growth rate in the world.), the resulting increase in business activity drastically reduced poverty (China has been credited for greatly lowering the percentage of East Asian population living in poverty in a recent World Bank report – from 80% to 18% in a span of 20 years), created employment (Foreign investment remains a strong element in China’s rapid expansion in world trade and has been an important factor in the growth of urban jobs.), saw a large growth in cities (population: 30% urban in 1950, estimated 60% urban in 2030, 19 mega-cities > 10 million, 22 cities with 5 with 10 million, 370 cities with 1 to 5 million, 440 cities with 0.5 to 1 million), increased the technology and business exposure of domestic firms and the countries technological expertise (China has acquired some highly sophisticated production facilities through trade and also has built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, including nuclear weapons and satellites.) making the firms and the country more competitive, increased the variety of products available to the consumers, domestic manufacturers matured and increased competition in local market (e.g. Shanghai motors), prices became competitive, Chinese suppliers matured enough to support the big multinationals (e.g. Toyota, GM) in Japan and China, trade has helped Chinese government earn huge revenues due to trade that helps to increase investment in public welfare and social infrastructure, thus increasing the overall well being of China, China is also exporting and importing to and from many countries respectively thus, it is able to manage seasonality in the supply and demand of the products involved by diverting exports (Cheap Chinese goods export to South Asian, and South East Asian markets) and switching sources of imports (Crude oil from African (e.g. Chad and Darfur), South America (e.g. Venezuela) and Middle-east (e.g. Iran) countries) as and when required, in the process China is also able to reduce dependence on any single country. Chinese exports is around $1216 billion (2007) to countries as US 21.0%, EU 18.1%, Hong Kong 17.0%, Japan 12.4%, ASEAN 7.2%, South Korea 4.7% (2004) while its imports is around $953.9 billion (2007) from Japan 16.8%, EU 12.4%, ASEAN 11.2%, South Korea 11.1%, US 7.9%, Russia 2.2% (2004).

However, in spite of the many positives of international trade there have been less obvious problems in the form of labor discrimination (86 percent said discrimination exists in China’s employment market; 51 percent see the discrimination as serious. ; China’s employee market is woefully inefficient and small foreign companies are very well positioned to take advantage of this., even multinationals like Reebok have been found guilty of labor discrimination and of taking unfair advantage of weak labor policies. Even local firms are taking such advantages), environmental problems (State Environmental Protection Administration (SEPA) announced that 130 foreign companies did not comply with current environmental laws. In fact, many multinationals see weak environmental laws as a means for cost reduction and therefore maintain different environmental standards in China than in their home countries. Multinationals can pollute more in China mainly because of an incomplete regulation system and loose supervision with few penalties that lead to a low incentive for keeping to the environmental law.), and legal problems for firms in the areas of protection of Intellectual Property Rights in China (There is little awareness that infringement is a crime in China. Growth of new businesses has outpaced the government’s ability to regulate them). Trade has fired competition which in turn has pushed many of the multinationals and domestic firms to take advantage of limited media rights, weak labor policies and implementation, and weak environmental policies and implementation (90 multinationals that have been found by the environmental protection authorities to have violated water pollution regulations since 2004, Forbes reports. General Motors, Samsung, Unilever, Pepsi and Yum Brands chains Kentucky Fried Chicken and Pizza Hut are just a few of the companies on the list, according to the article.). Both the US and China has suffered job cuts. China is losing millions of manufacturing jobs due to automation and the adoption of new business systems and production techniques, according to The Conference Board in New York. Between 1995 and 2002, 15 million manufacturing jobs were lost in China, or about 15 percent of the total manufacturing workforce, The Conference Board found after working with China’s National Bureau of Statistics. Manufacturing employment in China fell from 98 million in 1995 to 83 million in 2002. By comparison, the United States now has 14.5 million workers in the manufacturing sector, about 3 million less than in 1999.

Trade does have enormous benefits but not without some corrections required and some inevitable losses in the form of job cuts. The job cuts can be corrected though with appropriate training of the unemployed to take up jobs requiring higher skills. Countries belonging to the OECD have attempted methods and policies to reduce the unemployment created through the effect of trade. Denmark for instance cut its unemployment from about 10 percent in the early 1990s to less than 5 percent now. The main ingredient for the Danish success is a system called “flexicurity,” a set of liberal policies for hiring and firing, allowing relatively frictionless adjustment to shocks caused by international trade. A generous system of carefully monitored unemployment benefits and funding for retraining displaced workers complement Denmark’s labor-market flexibility. Governments have a range of policies to expand trade while minimizing the loss of jobs. However, a complete solution to the losses from trade is inconclusive and like always not fully repairable.

Globalization And Trade

Globalization And Trade

 Both globalization and Trade are good for the world economy as well as the participating individual economies. The very idea that FDIs and trade are done to achieve a mutually accepted and preferred arrangement is acceptable in itself. It promises that all parties participating are fully aware of their participation and achieve profits on both sides. Markets are believed to align themselves in time what is best suited for the people involved. And it must be believed that it will always be good. Most trade currently is between rich countries. Poor countries still have a lot to do in trade. Huge chemical plants etc still cannot be built in poor countries due to the infrastructure support and size of investment needed. Trade allows receiving of goods that one cannot build efficiently or in acceptable quantities and send away goods that one cannot consume enough or is able to produce in huge quantities. In short trade allows one to take advantage of ones surrounding. FDIs transfer capital to a destination where one believes that one can produce goods more efficiently and economically because of technology know-how, cheap labor, skilled labor or better business supporting policies. The FDI sending country achieves effectiveness while the receiving country receives capital, employment opportunities and exposure to technology or business. Workers in poorer countries get better wage than in local manufacturing plants. Workers in FDI sending country loose jobs and will be retrained in higher skilled jobs. Trade in exports and imports increase between these countries in intermediate and finished goods. It must also be noted that environmental problems perceived to be increasing less likely as more and more industries are moving towards more energy efficient systems which result in lesser burning of fuel thus better cost efficiency and lower pollution. For trade and globalization to prosper protectionism should be removed and liberalization must be embraced.

How companies succeed?

How companies succeed?

 All companies that want to stay in the market tend to concentrate on protecting their market share which evidently determines whether the company will succeed in making profits. The competition in the markets makes it very hard for any clear victor. It is possible though. The efforts to such a position will require great enthusiasm to innovate, be open to new ideas and finally change and serve their markets better. The idea is to attract as much positive attention as possible and always limit customers such that it is possible to serve the customers favorably. The areas where a company needs to be alert are as follows:

– Having a good relationship with their suppliers, distributors, retailers and customers
– Being innovative and open to new ideas and change.
– Committed to quality procedures in the company.
– Planned expansion with clear view of its limitations in quality service.
– Practice differentiation in the employee workforce as well as create differentiation among customers to identify areas where the company needs to stress.
– Superior customers service experience.
– Superior product quality; value for money.
– Keep amicable relationships with local and central government.
– If mistakes arise, accept readily and implement the correction.
– Concentrate the services, product quality and relationships in long term basis.

China : The Dragon with an Attitude

It is one of the oldest civilizations in the world. Its borders are constant for over 7000 years. It is the source of culture and language to Japan and Korea. It’s survival through time can be said to be a topic of envy. Strategists identify it as Clever and Patient. We can hardly find China committing troops to the missions of the UN; or even find it interfering in politics which is beyond its context. China does not seem to be interested in any military adventures, but is constantly, aggressively seeking economic opportunities and building defense. As US more often than not, gets caught in political and war deadlocks; China persistently builds a robust economy and a military power to be feared. The conservation of it’s energy in politics, military and economy results in helping it to dictate it’s development at the rate it wants, since the rate of development should be so managed that it can be maintained; e.g. a bridge can collapse under of it’s own weight. As the US is stuck in the middle-east crisis, China invests in Africa, its interest lies in it’s natural resources to feed it’s industries. China is busy looking for Oil in South and Latin America, West-Indies and the Middle-east, though it still has enough. In the process it is cementing its economy and building political allies. It’s progress seems to be very well planned. It’s exports grew by 39% last year. It has a robust Infrastructure and a very cheap workforce, ideal for manufacturers. Like the Indians, China has a huge turn-out of professionals and researchers in various fields. The no of patents to it’s name is astounding. The US meanwhile builds relations with Australia, India, Japan, Taiwan(recognized by only a few countries, thanks to China) to tackle China’s rise; but to it’s utter despair, it is too tangled in it’s own making to tackle China. China on the contrary has been bribing foreign diplomats to influence proceedings abroad. Though China has its own problems, one can still count on it’s experience. The Dragon talks slow but thinks fast.

Windows Vista : the Big Liability

Various flavors of Windows run on 96% of the World PCs. The new Vista will be a step backward and then a step forward. Vista will surprise you with its new level of User Interface and you will be even surprised when your PC is hardly good in running Vista and runs nothing else. Vista’s new technology goes a long way in protecting your PC against non-copyrighted material and deteriorates performance; and unless you have the right hardware and the support from the manufacturers of a product, you may not be able to enjoy what you just bought. The Copyright protection technology (DRM-Digital Rights Management) built into Vista has almost like self-crippling effects; as the technology continuously watches every move and measure of your activities while using the system. We will be paying for extra hardware improvements only to satisfy the nemesis that will haunt us for the use, or even purchase. Microsoft accepts that audio and video qualities can be intentionally downgraded if media is not copyrighted and may even not play. Customers using Vista are also facing problems connecting to the net. Its security is very good but it is too user interactive and depends on the User’s choices to allow a program, connection, registry change to work. Many users may not be aware of the correct choices, and many still will find it irritating. The idea is to shift the responsibility on to the Users; seems very sly to me. The move of supporting DRM into Vista is basically to drive itself into getting a better share of the entertainment market. It will get the faith and share of revenues from the likes of Sony and Warner Bros. All thanks to DRM. Sony gradually will realizes that the idea wouldn’t do any good, as people will find it increasingly hard to be able to meet all specifications to enjoy premium content; and sales will dip. Sony will then nicely ask Windows to remove it…and Windows will certainly agree. So before you buy, just observe that Vista packaging does not have all its corners equally taken care of.

WalMart in India : A lesson in retailing

WalMart is almost like a country in itself. Spread over 13 countries, WalMart practices a cost saving business mantra and a work culture that is strict and monotonous. WalMart pays well to its employees and provides good products to its customers at a low price. It has excellent storage management. A well networked system to detect buying patterns of their customers which helps to manage their storage facilities accordingly. WalMart’s entry into India could have happened earlier. But then I said earlier, it is very strict and monotonous and will take a lot of time before taking any decision and it very well will not roll-back once it decides. It will network itself deep into the Indian Markets to get the goods directly from the producers and deliver it to the city customers. The discount retailer will not only help the farmers and other producers earn more professionally, it will also motivate indian retailers to follow suit in their own local areas. WalMart will teach the use of efficient Supply-Chains and smart storage management to indian counter-parts. Agriculture sector will get the necessary boost, the Indian customers will save a lot; expenses will decrease hugely multiplied over many; economy will benefit. Displaced retailers will enter smaller cities and will try to build similar market capture as to WalMart and thus build new line of defense. Other big retailer will feel the entry barrier into India after observing the competition, will try to enter smaller cities. Competition will spill more to smaller cities and towns; more producers will get business and the Indian consumers will be still paying less! Inflation feels like history. Its time the Indian retailers learned, they have to be good enough to stop anyone better. WalMart will help the consumers greatly(in quality and price); the Agriculture sector will get much wanted boost; retailers, supply lines will become more professionally; and smaller cities will develop faster. It is not the first time that India is learning from a foreign intrusion.

India : A Resurgence unlimited

As the economy of India grows at a very adorable rate, so has the buying power of the Indians. The Return on Investments in such a market can be huge even if one holds a very small fraction of the market(considering it’s population). The potential of such a young and robust market is almost endless. The market is widely spread and the opportunities are almost homogeneous. The big cities provide a much more competitive market but is heavily competitive. Thus the competition spills to the smaller towns, and cities and finally to the villages; It easily proves to be the most generous markets of all; providing opportunity, to both the small and the big players. The basis of such a rise is the competitive nature of the Indian education structure. As the average Indian believes, education as the best of all remedies, India steadily emerged with a young but technically mature workforce. The results have been almost exponential. Indian workforce is recognized as the most talented and efficient, both in India and abroad; Indians gather wealth and spread it to relatives and friends (They in turn use it for education and business); Indian companies emerge strongly with the better buying power of the home crowd, and a talented and cheaper workforce; Indian companies become an Outsourcing phenomenon; Indian companies start acquisitions in foreign markets and gain more playing area; Meanwhile the government(Easily the weakest link) swells its revenue and FDIs; It then Invests in education, infrastructure and health; And the dream run continues. But the dream can have possible ends; India has to be consistent in keeping it’s focus on education(Both the Govt and individuals); Politics have to do away with corruption, India also should become efficient, aggressive and proactive in World Politics; and finally India needs to fear, respect, learn and then tackle China(as it grows flamboyantly to topple the US). But India has serious residual problems, like Infrastructure, Health and the poor. But the move is on and it knows.

The US favor

A sudden shift in US policies seems to remove the possibilities of a war against Iran. Everything seems to have been dialed down. There is no talk about the nuclear issue. No blaming each other. And US wants to have talks with Iran on the Iraq issue . It is highly unlikely that this is Mr Bush’s idea(he never used to think other than nonsense); it seems a result of pressure from the opposition and the intellectuals at home. While Dick Cheney was busy proclaiming Iran as an “Axis of Evil” in his visits to Australia and Pakistan; Condoleezza Rice was busy planning a meeting with Iran in the first half of April. The meeting is to discuss possible solutions to the situation in Iraq. Iran must have whewed a sigh of relief; no war as of now. As the US has its military stretched, a weaker economy and a dwindling political support which is evident as it is loosing support at home and from coalition forces who refuse to take any more risks; US hardly can take up another war and sleep peacefully. The wars are already proving futile; moreover democracy in Afghanistan and Iraq is far from true until the violence stops; Which seems quite unlikely for sometime. Iran however is enjoying a freedom and a sense of relief. Ironically the savior is none other than the US. US removed Taliban and the regime of Saddam Hussain both of which were counter-balance of power to Iran’s. This freedom has allowed Iran to develop itself and expand more control over the middle-east. Now, infact Iran enjoys a far more powerful diplomatic ability in the middle-east than the US. US will find it hard without Iran; it has infact become a necessary evil to solve the ME crisis. Recently Iran had talks with Saudi Arabia to curb violence between Sunnis and Shiites. Both of these nations are leading representatives of Shia and Sunni Islamic fragments. US hardly have any choice but allow a gradual slippage of it’s power to Iran, unless Bush has other thoughts. Infact US should worry more about China. Selling weapons to Taiwan won’t work anymore.

Russia and Chechnya conflict : The Grave of Humanity

Chechnya(one of the 21 republics and 89 regions of Russia) is an Islamic Republic in conflict against Russia. In 1858 it was forced into the Soviet Union after years of bloodshed. During the following years the region reluctantly had to follow the laws of an unfeeling central government in Moscow. With the Fall of the Soviet Union in 1991 Chechnya declared independence from the Soviet Union. Russia sent troops to march to Grozny (Capital of Chenya) to disarm the republic and re-unite with Russia. The war that followed in 1994 was the most recklessly fought battle by Russia. The Russian army was young, and poorly trained and equipped. Grozny was grinded to the ground by indiscriminate air-strikes after Russian army failed to seize the capital. Thousands of civilians including women and children lay buried till this day under the tons of concrete of the razed capital. The people who survived fled to refugee camps in neighboring republics. Most of them were left with somebody in their family missing or dead. In 1996 Russians finally lost the battle and were driven out of Chechnya. In 1999 Russians returned and inflicted even more air-strikes and were more careful and merciless. Chechnya was captured with nothing much to rule. Most of the republic was destroyed and many were slaughtered. Many of the people who survived were to see a never ending war rage between Chechen rebels and the Russian army that still continues till this day. Russians routinely arrest and harass the people. There is widespread collapse of human rights. Chechens are systematically tortured. Their bodies are mutilated. Human rights activist have found a graveyard with thousands of mutilated bodies. But the world does not know; as reporters are banned in the region to allow greater brutality. Reporters if get in, can’t get out. And Chechnya slips out of the world agenda. The conflict have left more than 2 lakh dead. More than 10000 of which are children. The screams of the people get muffled in the Russian blizzard! Pray for the lost and left.

Direct from Dell : The beauty and the beast

Kevin Rollins retired as chief executive last month leaving behind a shaken Dell. Dell have suffered losses, customer satisfaction is at an all time low, employees are frustrated and Dell seems to hardly know what to do. And as the founder Michael Dell returns as CEO to steer the company out of trouble, it remains the biggest challenge in the computer industry. But many wonder whether it is too late and the damage is beyond repair. Dell expanded too fast, which contradicted it’s basic strategy. The Strategy was discovered by a college boy selling assembled PCs to interested customers from his hostel room. Mr Dell was severely criticized by his parents for the foolishness of competing with IBM, and his critiques severely mocked his idea of not considering retail as an option for his business. Dell proved all of them wrong. The essence and power of Dell is its inventory management which is greatly supported by its direct marketing concept and, good supplier commitment. It works like this: The customers orders, and he gets a customized PC with the latest technology, at a surprisingly low price and also with a responsive customer service. Inventory management has been the key to success to other companies also, like the Wal-Mart. It allows the company to have only required amount of stock in their inventory to complete submitted orders, thus cutting down on miscalculations of buying too much or too less stock. Dell also required that they have good suppliers so that they got the stock on time and also of expected quality. The trick of this trade is not to expand too fast and have much more customers to serve, with uncommitted suppliers. The beauty of the strategy is that it is hard to copy and there is always a strong committed customer base, but the beast of the strategy is that you cannot afford to expand as fast as in retail; if you do, it will result in degraded customer and product quality. Hope Mr Dell can bring back the lost balance of a uniquely positioned company.