01.26.08

Wild Week in the Markets Underscores Interconnectedness of World Economy

Posted in Economic Analysis, Taxes & Tariffs, Exchange Rates at 12:31 am by Administrator

What was interesting about the tumult of the last week in global stock markets is that the concerns began in Asia about worries over the direction of the US economy. That led to Asian investors pulling out of US stocks and European investors followed suit. The US markets were closed on Monday but it was clear to the Fed and US Treasury Department officials that with the drop around the world, the US markets would face a tsunami of sell orders at opening bell. The Fed reacted quickly by cutting some rates by 3/4 of a point and the President and Congressional leaders advanced their timetable on a stimulus package. Was it enough? We’ll have to see but the markets are still clearly worried at week’s end. My personal opinion is that there are short term liquidity issues that the markets are reacting to and long term growth issues as the US consumer has cut back on spending due to changes in the mortgage market. The equity line of credit piggy bank, which financed most of the growth in consumer spending since 2002, has been broken. It’s going to take a while for the consumer to pay down debts to start consuming again.

But let’s think through the international business implications of the policy changes in Washington this past week. The cut in interest rates made short term financial investments in the US less attractive versus the Euro or Yen zones. That will keep the dollar weak, now at $1.46/Euro. That will be good for US exporters and for foreign tourism coming to the US. That will also make it more difficult for European countries to expand their economies via the traditional export markets. I would expect the ECB to also cut rates, even with the fears about inflation.

The economic stimulus package will also affect the other major trading partner of the US, namely China. With the Yuan tied to the dollar, the interest rate cut will have little effect. However with a larger percentage of US income being spent on imported goods (estimated to be 21% today versus 19% in 2001), the stimulus package will increase demand for goods from China and part of the stimulus package will leak out of the economy.

Bottom line — Weak dollar, boost for US exports to Euro-zone and boost for Chinese exports to US.

What is your opinion - post a comment!

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01.19.08

More on Developing International CleanTech Markets

Posted in Government Resources, Clean Technology at 10:17 pm by Administrator

Clean technology will certainly be one of the fastest growing international markets over the next five years. Both governments and consumers are demanding reductions in emissions and more environmentally friendly products. New products will be created around the globe and good ideas created in one place will quickly migrate worldwide. One good example of the flow of ideas and technology is between the United States and Germany due to a common effort of governments, associations and private sector producers.

Germany recognized early on that it needed to lessen dependence on imported oil and gas, not only for national security reasons but also for environmental health. The country started a research program through its research laboratory system in the late 1970’s. With reunification, ordinary Germans were confronted in the former East Germany with the consequences of governments ignoring environmental impacts. The research programs continued producing number of interesting advances in both wind and solar generation, but the costs were still far above conventional generation. When the SPD came into power in 1998, the government instituted subsidies for solar and wind installation and set up a system that allowed producers to sell back to the grid.

Having demonstrated that renewables could be competitive given the right regulatory framework, the German companies turned toward the US market as a way to allow greater efficiencies of production. I accompanied Sigmar Gabriel, then Minister-President of Lower Saxony and current Environment Minister of Germany on a visit in 2000 to Boston, San Francisco and Silicon Valley. Accompanying him were the manufacturers of solar and wind generation equipment. In addition, German companies started their own marketing efforts.

When I came to live in the Bay Area in 2002, I joined the fledgling German American Business Association of California.  GABA early on focused on clean tech, providing a platform for German companies to meet US customers and to understand the regulatory environment. It is not surprising that the leading international companies in renewable energy are German.

The takeaway from this discussion: To develop international clean tech markets, we need to put together coalitions of governments, associations and producers. Those efforts will only be successful in so far as technologies are price competitive, given the right incentives from the regulatory structure.

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01.17.08

Developing Country Markets Attracting More Clean Tech Investment

Posted in Clean Technology at 10:40 pm by Administrator

The Cleantech Group LLC just released some interesting information on worldwide VC Markets. As reported on Cleantech.com VC investments in developing countries, most notably in solar, have upticked sharpkly in 2007:

“Venture capital investment in cleantech for 2007 hit new highs as deals in North America and Europe totaled $5.18 billion, according to data released today.

“Energy generation took the lead in last year’s cleantech investments, according to a year-end roundup from Ann Arbor, Mich.-based Cleantech Group, which has been tracking cleantech sector investment since 2001.

“The report counted 172 deals in energy generation in 2007, totaling $2.75 billion invested into the sector. North American companies continue to receive the lion’s share of cleantech venture investing, with North American-based companies receiving over 3x the investment of European-based companies.

“Within the energy generation subsector, solar made a strong showing.

“In 2007, solar emerged as a significant investment theme, and it was notable to us that of the top five solar deals of the year, three of the largest were solar investments in China and India,” said Cleantech Group Managing Director of Global Marketing Kristina Messdaghi.

“With three successful crystalline silicon IPOs, China attracted investor interest for solar companies, including Yingli Green Energy, which received $118 million, and Shunda Holdings, which received $82 million. In India, top cleantech investments of the year included solar company Moser Baer Photo Voltaic with $100 million.

“We always knew the emerging markets of China and India were going to be significant economic forces. It’s clearly now happening,” said Messdaghi.”

Both China and India, like developed economies in Europe and North America, are major oil importers. The incentives to move to renewable technologies is greater than ever and companies in those markets have the competitive advantage of knowing the idiosyncrasies in China and India. Clearly, cleantech is the growth sector for this decade in terms of international trade, but although many developments are taking place in the US (particularly California) and Europe (especially Germany), no one country can claim ownership of the sector.

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01.14.08

How can I find competitive logistics services?

Posted in Logistics at 6:05 am by Administrator

When I first started working in international trade, the shipper was simply a link to get the goods from one country to the other. Companies sent complex sheaves of documents to get goods cleared and telexes gave an update of the arrivals of ships. With the arrival of the internet and global communications, the logistics provider has taken on many functions. No longer do companies have to find and fill out complex import and export forms. These are available on-line from the logisitcs provider. The concepts of F.O.B. or F.A.S. bear less relevance since frequently the logistics provider picks up the shipment at the exporting company mnaufacturing location, ships them worldwide, pulls it though customs and delivers it to the door of the customer. Many also provide financing and insurance.

The good news for the exporter is that the logistics field is very competitive. Companies specialize in certain niches of the market. No company should settle for just one logistics provider to provide all of their shipping. The exporter can demand, and get, competitive rates and service no matter how big or small. Thus the key to finding competitive logistics support is to continually shop around and remember that you are in the driver’s seat.

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01.09.08

How much has the export driven strategy led to the boom in China.

Posted in Economic Analysis, Exchange Rates at 5:34 am by Administrator

I found the article in the January 3 Economist entitled “An Old Chinese Myth” to be quite fascinating. It takes a contrarian view that increases in domestic demand, not the export surplus, have led to the economic boom in China.

Begin Quote: “MOST people suppose that China’s economic success depends on exporting cheap goods to the rich world. Headline figures show that China’s exports surged from 20% of GDP in 2001 to almost 40% in 2007, which seems to suggest not only that exports are the main driver of growth, but also that China’s economy would be hit much harder by an American downturn than it was during the previous recession in 2001. …If exports are measured correctly, however, they account for a surprisingly modest share of China’s economic growth…

“Jonathan Anderson, an economist at UBS, a bank, has tried to estimate exports in value-added terms by stripping out imported components, and then converting the remaining domestic content into value-added terms by subtracting inputs purchased from other domestic sectors.

“Once these adjustments are made, Mr Anderson reckons that the “true” export share is just under 10% of GDP. That makes China slightly more exposed to exports than Japan, but nowhere near as export-led as Taiwan or Singapore (which on January 2nd reported an unexpected contraction in GDP in the fourth quarter of 2007, thanks in part to weakness in export markets.  Surveys suggest that one-third of manufacturing workers are in export-oriented sectors, which is equivalent to only 6% of the total workforce.”

I have a slightly different take on the process based on my experience in countries like Chile and Argentina which opened their markets to international trade in the 1980’s. An exchange-rate policy that favors exports at the beginning of the process is certainly an important first step. However, in my opinion, the key policy change is that by orienting the country to international trade, an economy can rapidly close the technology gap with the developed world. In doing so, productivity increases and domestic sectors that feed the export industry can also increase production. In a few years, countries that were laggards in technology because of self-imposed isolation can catch up to the most modern production techniques.

One of the issues that critics of globalization seize on is that income gaps widen during this process of modernization. This results from the above processes. The sectors that are open to international trade advance quickly, only limited by the pool of skilled workers, while traditional sectors lag. This is not the fault of globalization but rather a reflection of sectors where the economy has not kept up to date because of low skill levels. The answer is not to slow down globalization but rather to increase investments in education and infrastructure.

China has boomed not from low-wage exports or a “rigged ” exchange rate but rather by moving up the value chain. That in turn has allowed a good portion of the traded-sectors to grow rapidly. The challenge in China, as other economies have experienced, is to bring the non-traded sectors of the economy up to the same levels of productivity.

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01.08.08

Japan’s Consumer Still Reluctant to Spend

Posted in Strategies, Economic Analysis, Marketing at 4:13 am by Administrator

Mark Fuller and John Beck posit in their book “Japan’s Business Renaissance” that Japan’s economy turned a corner the early part of this decade thanks to business restructuring and increased willingness of consumers to spend. Certainly the prime example of restructuring is the automove industry with innovative leaders like Toyota (now number two worldwide) and Honda. The Japanese automakers have done well in creating new products and being at the forefront of clean technologies like hybrids and fuel efficient cars. The innovation has not paid off in stimulating greater purchases by Japanese consumers. Today the AP carried the following story:

TOKYO (AP) — Japan’s domestic auto sales fell to a 35-year low last year as the nation faced high gasoline prices, limited income growth and shrinking demand, an industry group said Monday.

Sales of new cars, trucks and buses declined 7.6 percent to 3.434 million vehicles in 2007, the Japan Automobile Dealers’ Association said in a statement. The figures do not include sales of minicars and minitrucks.

The result, which marked the fourth straight annual decline, was the lowest since 1972, when sales totaled 3.406 million vehicles.

The data showed that the world’s third-biggest auto market is slow to respond to efforts by some Japanese car makers to spark local demand by boosting their offerings of new models. Japan’s largest automaker, Toyota Motor Corp has introduced nine models since last May but estimates a 6 percent drop in its domestic sales in 2007.

The nation’s new vehicles sales in December alone fell 7.1 percent from a year ago to 236,142 vehicles, down for the first time in three months, the association said. And the outlook for the domestic market remains gloomy.

Another industry group, Japan Automobile Manufacturers Association, has put its domestic sales forecast for this year at 3.427 million vehicles - excluding minivehicles - down 0.2 percent from sales for 2007.