Spain’s Expansion Abroad – a textbook strategy for an ailing economy

As with any difficult, but worthy undertaking, sustained focus and execution are key to achieving lofty goals. Recovering a country’s’ economy through exports is one such goal that any nation would be well advised to have in its arsenal.  A lot has been written about Germany as the model for a high labor cost economy that is one of  world’s leading export nations.  Yet, other high labor cost nations can certainly  compete successfully in the export arena if they focus on defining and maintaining their competitive advantages.  And as Spain’s example clearly demonstrates strong focus on exports and overseas expansion is even more vital in tough economic times.  We discussed this before. Yet what has not been as obvious, is how exports  and country’s international promotion generate direct foreign investment into the exporter country, thus providing a strong added economic benefit and a job creation platform.  Spain should serve as an interesting case study for the U.S. to continue its export expansion efforts and to pursue direct foreign investment into our economy as a by-product of such efforts.

by Evan on Friday, April 08, 2011  Global Edge

As of recent, companies in Spain have been following a common trend of expanding overseas. The country’s ability to grow in foreign markets is on the rise as successful Spanish companies turn their focus to manufacturing and developing new products in emerging markets abroad. Over the last three years, Spain has maintained a 1.8 percent share of world trade despite the rise of China and the Far East. As Spain looks to retain its position as a strong exporting nation by expanding into new markets, the domestic workforce will face steady unemployment.

Businesses in some of Spain’s fastest growing sectors, including technology and renewables, expect to reduce or at best maintain their domestic workforces as they expand into foreign markets. With Spanish companies moving into emerging markets such as Brazil and Russia, the unemployment rate in Spain could remain around 20 percent for several years to come. Companies will make an effort to correct the problem of unemployment while also maintaining further expansion. Many Spanish companies will look to hire upcoming graduates from Spain’s technical colleges and universities ranked third in Europe. Spain’s major obstacle may be unemployment but expansion overseas will continue to provide companies with many opportunities.

Everyday Spain has no less than ten companies making deals with foreign countries meaning exports will continue to be a major aspect of Spain’s economy. Exports to China increased to Spain’s highest levels last year valued at 2.6 billion euros. As government officials continue to promote foreign trade, Spanish companies hope to maintain their success abroad. Expanding overseas is also attracting foreign companies to invest in Spain. Recently, GlaxoSmithKline has made plans to open a large research and development center in Spain to improve its products. This is not the only case of foreign investment in Spain. During the past three years, foreign investment in Spain has increased 5 percent at a time when the European Union has seen a 20 percent decrease. These factors will hopefully produce jobs for the domestic workforce in Spain while also allowing further movement into foreign markets.

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USTR.gov Headlines

Comment by USTR Ron Kirk regarding WTO meeting in Geneva

04/29/2011

United States Trade Representative Ron Kirk commented briefly today following the meeting in Geneva, Switzerland, of the Trade Negotiations Committee (TNC) of the World Trade Organization (WTO). From Ambassador Kirk:

“We appreciate today’s collective assessment of WTO Members on the status of Doha. It is clear that serious gaps remain and the path ahead is uncertain. The United States is committed to pursuing any option that is reasonably likely to break the logjam. In the coming weeks, Members need to focus on a range of tough questions, including how best to move ahead.”

Deputy United States Trade Representative and U.S. Ambassador to the WTO Michael Punke spoke at today’s meeting in Geneva. His full statement, as delivered, can be found online here.

New Online Tool Highlights Tariff Benefits of Free Trade Agreements for American Small Businesses

04/27/2011

Washington, DC –

Exporters now have an online resource that streamlines tariff information for 85 percent of goods going to 20 markets with which the U.S. has negotiated trade agreements. This information has never before been available free of charge online in one searchable database. This new tool makes it easier for small businesses to grow and prosper through exports. The website also contains an instructional video, a quick start guide, and a user’s manual.

“Our trade agreements benefit small businesses by making it easier to export and sell American products to customers abroad,” said Ambassador Miriam Sapiro, Deputy U.S. Trade Representative. “Our trade agreements lower costs and risks for small businesses that seek to export by reducing and eliminating tariffs, reducing other barriers to trade, improving intellectual property protections, easing customs administration to get goods more quickly to market, and increasing the transparency of foreign countries’ laws and regulations.”

U.S. trade agreements boost American competitiveness in foreign markets and improve the global business environment, helping U.S. companies and workers to compete. The FTA Tariff Tool will help more small businesses take advantage of these valuable export opportunities.

“Exporting creates an increased demand for products and services which in turn requires increased production, often leading to more American jobs. President Obama has made free trade agreements one of the pillars of his National Export Initiative, and his recent announcements regarding agreements with Korea, Colombia and Panama expand the potential opportunities for U.S. exports to these trading partners as well,” said Nicole Y. Lamb-Hale, assistantsecretary of commerce for manufacturing and services. “By making information on tariff benefits U.S. companies receive under these agreements more accessible, the FTA Tariff Tool will make it possible for more companies to increase their exports to these markets.”

“This new tool makes it even easier for small businesses to begin exporting,” said Small Business Administration Deputy Administrator Marie Johns. “Many small business owners would benefit from exporting but might not have the time or resources to get started. Giving small business owners a simple way to navigate the complexities of tariffs and international trade is a crucial step in ensuring they have what they need to grow their business and create jobs.”

The new online tool combines tariff and trade data into a simple, easy-to-search public interface that allows small businesses and other U.S. exporters to find detailed information for the 17 U.S. trade agreement partners and three pending partners. The FTA Tariff Tool empowers the user to perform searches for tariff treatment for specific industrial products under each trade agreement instantly and at a glance. This will help small manufacturers with planning for entry into new export markets. The tool also enables the user to access market and sector reports and other FTA-related information that is useful for small businesses seeking new export opportunities.

The U.S. presently has trade agreements with 17 trading partners. In 2010, exports to these partners represented $522 billion of U.S. merchandise exports, up 23.1 percent from 2009. Manufactured goods represented 89 percent of the merchandise exports to these countries. The U.S. had a $21.1 billion trade surplus in manufactured goods with our FTA partners in 2010.

U.S. Commerce Secretary Gary Locke, U.S. Small Business Administration Deputy Administrator Marie Johns, Deputy U.S. Trade Representative Ambassador Miriam Sapiro, U.S. Department of Agriculture Acting Under Secretary Michael Scuse, and Export-Import Bank Board Member Diane Farrell, on behalf of the World Trade Center of Delaware, invite you to attend

NEW MARKETS, NEW JOBS:

THE NATIONAL EXPORT INITIATIVE SMALL BUSINESS TOUR

 

with Governor Jack Markell

 

Friday, May 13, 2011

 

Hosted by the World Trade Center of Delaware and

the State of Delaware International Trade and Development

U.S. Commerce Secretary Gary Locke, Small Business Administration Deputy Administrator Marie Johns, Deputy U.S. Trade Representative Ambassador Miriam Sapiro, U.S. Department of Agriculture Acting Under Secretary Michael Scuse, Export-Import Bank Board Member Diane Farrell, and Governor Jack Markell on behalf of the World Trade Center in Delaware, invite you to attend New Markets, New Jobs. It is a conference designed to help connect small- and medium-sized businesses with the resources they need to sell more of what they make in markets overseas.

The National Export Initiative Small Business Tour is designed to help achieve the United States’ goal of doubling U.S. exports by the end of 2014 to support the creation of several million American jobs.

America’s small- and medium-sized businesses, the engines of growth, still face many hurdles in getting their products and services to new markets: the lack of readily available information about exporting and market research; challenges in accessing export financing; and strong competition from foreign companies and governments.

New Markets, New Jobs will address those challenges, and we’re excited to make the fourth stop of the tour in Wilmington, Delaware.

Conference attendees will benefit from:

·         Trade resource panels on key export topics, including

the spectrum of federal resources that can help businesses begin exporting or expand their exports.

·         Materials and resources to guide companies in the process of selling their products and services to consumers all over the world;

·         Lessons learned from area businesses that have succeeded in utilizing federal resources to expand into new markets and grow their businesses; and

·         Remarks from senior federal and local government officials.

WHEN:

Friday, May 13, 2011

9:00 a.m. – 3:30 p.m.

Registration opens at 8:00 a.m.

WHERE:        

Delaware Technical and Community College

Wilmington Campus Conference Center

333 Shipley St, Wilmington, Del. 19801

– Reserve your seat for the NEI Small Business Tour today here: https://events.r20.constantcontact.com/register/eventReg?oeidk=a07e3q24ecqfc663487&oseq=

– Registration cost per person is $35.00.

– Questions about attending? Contact Tony Ceballos, atAntonio.Ceballos@trade.gov, or 215-597-7141

– For interest in event sponsorship, please contact Rebecca C. Faber, at rfaber@wtcde.com or 302-656-7905

– For media inquiries, please contact the Commerce Department Office of Public Affairs at (202) 482-4883 orHChatalas@doc.gov


Weekly Trade Spotlight: NEI Tariff Tool

04/28/2011

This week’s trade spotlight highlights a new online tool for small businesses to take advantage of exporting to U.S. trade agreement partners.  Deputy U.S. Trade Representative for Small Business, Market Access, and Industrial Competitiveness Christina Sevilla talks below about the new online tool and its importance for America’s small businesses.

Ambassador Kirk Briefs Members of the Hispanic Chamber of Commerce

04/27/2011

On Tuesday, Ambassador Kirk invited leaders from the United States Hispanic Chambers of Commerce to participate in a briefing about the U.S. trade agreements with Colombia and Panama. They also discussed President Obama’s trip to Latin America in March and his broader trade agenda. During the briefing, held via conference call, Ambassador Kirk gave opening remarks and answered questions. Additionally, Deputy U.S. Trade Representative Miriam Sapiro, Assistant U.S. Trade Representative for the Western Hemisphere John Melle, and Deputy Assistant U.S. Trade Representative for Latin America Bennett Harman participated in the conference call.

Cultural Intelligence: Asia’s Secret Weapon for International Business

I came across this article and completely share the author’s view. It is also one of the key points which I am discussing in my upcoming book.  U.S. companies seeking to do meaningful business overseas, must compel their executives to immerse themselves in the understanding of the culture and learning language of their target markets. It is not a simple or quick process, yet it is fundamental to long-term success in the international business arena.  The companies also must be flexible and willing to expand the resources needed to adopt their product, or services offerings to reflect the cultural nuances of their markets. Hope you enjoy the article.

by David Livermore, PhD, Global Edge, April 20, 2011 – 1:09:38 PM EST

When speaking with U.S. business leaders about global leadership and cultural intelligence, I’m often asked, “Is anyone talking to people in China and India about their need for this? After all, shouldn’t this be a two-way street?”

It’s all I can do not to burst out laughing. The question is a fair one. Cultural adaptability should be a two-way street.  I’m just struck by the irony of the question. My inbox is flooded daily with requests from businesses in India, China, and Singapore who want cultural intelligence assessment and training to increase their effectiveness in international business. Yet many U.S. companies are still skeptical about the ROI from so-called “soft skills” like cultural intelligence.

Cultural intelligence or CQ, is the capability to function effectively in a variety of cultural contexts—including national, ethnic, organizational, and generational cultures. You’ve heard about IQ and EQ. CQ stems from this same body of research. CQ is a set of capabilities and skills proven to give you a competitive advantage in our ever-shrinking world. Research across dozens of countries over the last ten years has proven that individuals and companies with higher levels of CQ are more successful in cross-border markets than those with lower levels of CQ.

I often make the “business case for cultural intelligence” when speaking at international gatherings. Inevitably, some of the Asian participants in these settings express their confusion about why something this obvious even needs to be stated. One Chinese executive recently asked me, “Do you actually have to convince people that there’s a business case to be made for this? Isn’t it patently obvious?”

Yet Doug Barry at the U.S. Department of Commerce tells me it’s still an uphill climb to get many businesses to seize the opportunities available through things like the National Export Initiative, which calls for doubling U.S exports over the next five years. We’ve been working together over the last year to help U.S. businesses see what many Asian companies have discovered—that emerging markets are as much an opportunity as a threat and with increased cultural intelligence, we can better tap those opportunities.

The research on CQ reveals four capabilities that consistently emerge among individuals who are culturally intelligent:

1. CQ Drive: They possess a high level of interest, drive and motivation to adapt cross-culturally.

2. CQ Knowledge: They have a strong understanding about how cultures are similar and different.

3. CQ Strategy: They are aware and able to plan in light of their cultural understanding.

4.  CQ Action: They know when to adapt and when not to adapt when relating and working cross-culturally.

A community of international scholars has developed an academically validated scale for measuring these four CQ capabilities. The CQ scale is the basis of a variety of CQ assessments offered by theCultural Intelligence Center. The CQ assessment consistently predicts cross-border effectiveness and is consequently being used widely by companies around the world.

U.S. companies have been trying for decades to capitalize on places like China and India. For many, the progress has been surprisingly slow. The typical approach has been to dump wares on these markets with little thought about how to tailor the products beyond changing the language on the packaging. In contrast, many Asian companies invest significant time improving their cultural intelligence in order to adapt their products and services to the twists and turns of the up and coming global customers.

Millions are expected to join the middle class in emerging markets this year. This doesn’t need to be threatening. When pursued with intentionality and cultural intelligence, it can present unprecedented opportunities for your business, wherever you go.
David Livermore, PhD (Michigan State University), is president and partner at the Cultural Intelligence Center in East Lansing, MI and has partnered with MSU’s International Business Center. He’s written several books on global leadership and cultural intelligence including Leading with Cultural Intelligence and his newest release, The Cultural Intelligence Difference.

USTR.gov Headlines 4/22

Ambassador Kirk Celebrates Earth Week at American University

4/21/2011

Today Ambassador Kirk celebrated Earth Week with a visit to American University (AU) to tour the university’s solar panel installations and host a discussion with students. AU is a leading university in sustainability initiatives. It is currently undergoing an ambitious project to install 2,300 solar photovoltaic and thermal energy panels across six buildings on campus. Students, faculty, staff, and representatives from local businesses joined Ambassador Kirk on the roof of AU’s School of International Service to tour the innovative solar technologies.

DAUSTR Christina Sevilla Speaks with Saint John’s University Students About Trade

04/21/2011

Last week, Deputy Assistant U.S. Trade Representative for Small Business, Market Access and Industrial Competitiveness Christina Sevilla met with students at Saint John’s University’s McCarthy Center for Public Policy and Civic Engagement program in Collegeville, Minnesota. Christina discussed the Obama Administration’s trade agenda, specifically the importance of helping small businesses increase exports. USTR’s work is part of President Obama’s plan for America to win the future by out-educating, out-innovating, and out-building the global competition.

“From Wayland to Washington, D.C.”

4/20/2011

As part of USTR’s “Hometown High School” program, Assistant United States Trade Representative for China Affairs Claire Reade recently sat down for a phone interview with student reporters from her alma mater Wayland High School in Wayland, MA. USTR’s “Hometown High School” program encourages and enables our employees to connect with their high school alma maters to speak to current students about the value of education in their careers. The program also provides USTR staff with an opportunity to communicate the benefits of trade to the next generation of American workers and to share their experiences in public service.

Weekly Trade Spotlight: Environmental Initiatives

4/18/2011

USTR is always searching for new opportunities to promote environmental objectives through international trade. In commemoration of Earth Day, this week’s trade spotlight will focus on a variety of environmental initiatives.

As the Obama Administration consults with Congress to advance three pending trade agreements -including Korea, Colombia and Panama – USTR is beginning to break new ground on environmental matters in the Trans-Pacific Partnership (TPP) negotiations. USTR recognizes that illegal trafficking in wildlife and forest products can amount to billions of dollars in global trade each year. This type of trade negatively impacts the conservation and economic interests of all TPP countries. USTR has proposed that TPP countries commit to take measures to prohibit this trade. This includes increased law enforcement cooperation, to enhance existing international controls on wildlife and wild plant trade. This work in the TPP builds on efforts to protect the environment in other international markets.

When the going gets tough, do you start packing?

An excerpt  from my upcoming book Fluent In Foreign

The answer is “sometimes.” Over the last 20 or so years, my business has weathered a number of political and military crises the nature and consequences of which at times were so perilous and unpredictable that it often seemed like the best thing to do was to pull up stakes and go home. 

First, there was a GKCHP coupe d’état in 1991 in Russia a couple of months after we received our official distribution rights and opened for business. Then, in October, 1993, I landed in Moscow two hours after President Yeltsin dismissed the Parliament only to find tanks and armored infantry vehicles assemble on the approach to the city from the airport. Two days later, the entire world watched as Russian tanks fired on the Parliament building.  At the time, our subsidiary already had a radio communications system built out in Moscow and my staff picked up live transmissions during the gunfights at the Ostankino Tower.

Of course, who can forget the spring of 1996 when, in anticipation of presidential elections where the communists threatened to return to power, all the money seemed to be sucked out of the financial system and our business came to a screeching halt.

The financial crisis of 1998 was not any more fun. Although I did not have much exposure in Russia at the time, our clients did, and their losses totaled millions of dollars. Not the best time to seek increased business.

Then we lived through 20004, Orange Revolution in Ukraine, 2006-2008 gas wars between Russia and  Ukraine, which threatened to cut off supply to the European Union. The war that  took place in August, 2008 between Georgia and Russia.

Then there was the chaos and turmoil of the global financial crisis of 2008 caused by the greed and extraordinary risk taking of certain elite business interests. The collapse hit the U.S. and the world pretty hard, but it almost devastated countries like Ukraine, Hungary and Latvia…  Yet, behind crisis, opportunities lie.

You either don’t do it or you do it. But if you choose to do it, do it right. I am talking here about foreign expansion of your business. Earlier in the book we talked about doing extensive homework and self-analysis prior to deciding to enter the foreign markets. We discussed the need for jumping hurdles and overcoming the problems that will come up along the way. But once you decide to do it, you have to commit and you cannot be scared. There may be military coups, economic and political crises, disease pandemics, natural disasters, competitive threats, criminal threats and other very unpleasant events. Each has to be carefully and rapidly assessed, and in some cases any of these events, or a combination of them, may force you to abandon your chosen market, as Gary did in Chapter 20. Although I fully realize that each political turmoil, financial crisis, or a cataclysmic event must be risk assessed on a stand-alone basis, more often than not, however, these events are precursors to bigger and better things and overcoming them can be a highly rewarding experience down the line.

If you were to study the events in Russia over the last 20 years, you will see that after each crisis the country came back with stronger and more robust economic expansion. Similar observations can be made about other markets, including the U.S. There was the devastation of the 1929 stock market crash and the Great Depression that followed.  But a few years later the U.S. came roaring back. What about the 1987 crash, and the dot com meltdown? All these events seemed to spell doomsday at the time, but those committed to the markets long term found great opportunities in the aftermath of these events.

The same process is taking place right now as the world is gripped in the vice of the global financial crisis. Countries like Poland, Hungary, Ukraine, Iceland, to name just a few, have been hit terribly and their economies ravaged.  Egypt, Libya, Yemen and Tunisia are battling their authoritarian leaders and Japan is dealing with consequences of major tsunami, earthquakes and nuclear accident. Yet, fundamentally, most foreign markets remain sound long term and are poised to resume their economic growth in a few years after these devastating events. You do not want to be shaken out of any market at the bottom.

Take a long-term view. If you are operating in these markets already; re-assess your company’s position. Play defense and control spending. Look for acquisition and consolidation opportunities.  If you are thinking of entering any of these markets, it may be a great time to do it, as the costs of everything from labor, advertising, real estate, and other inputs have been greatly reduced.  Stake your claim and position your business for growth.

Then again, think back to Cuba in 1959. That coup, by the Castro-led revolutionaries, has so far been irreversible and has plunged that country into oblivion. Here again I will emphasize the importance of having political risk coverage, which would protect your business from such perils as expropriation, nationalization, terrorism and currency inconvertibility.

To help you make right decisions, you should become completely plugged in to the numerous economic and political information sources. From credit agency reports, to U.S. State Department briefings, to assessments of IFI economists, bankers and political analysts, you should monitor the state of your chosen market daily.  Simply reading global papers or listening to CNN may not be enough. You need to have access to reliable local information. If all this sounds like a lot of work, it is. But there is no other way to diligently protect your financial investment.

It takes guts, patience and money to navigate your business through crisis, but if you decide to weather the storm and are properly protected, you are likely to be handsomely rewarded for your patience.

Alexander Gordin © 2011 All rights reserved

“Fluent In Foreign” book is being published by the Princeton Council on World Affairs via Xlibris and will be available both in print and electronic form directly from the www.princetoncouncil.org, as well as at all major online book sellers and at select book stores around June 1st. Advance orders are now being taken. Please contact info@princetoncouncil.org

Currently, as part of their membership drive, Princeton Council on World Affairs is offering a complimentary signed copy of the book, along with a 20% membership discount to all new members who join before April 30th. (contact akoval@princetoncouncil.org to receive the promotion code)

USTR.gov Headlines (4/15)

Ambassador Kirk Highlights how APEC can Help Chicago Businesses
04/14/2011

Today, Ambassador Kirk spoke at an Asia Pacific Economic Cooperation (APEC) forum as part of the 2011 APEC Road Show. Ambassador Kirk spoke with local business and government leaders, including Chicago Mayor Richard Daley, about how APEC can help increase exports and create jobs. He highlighted three areas that the U.S. is working on to build towards a seamless regional economy: strengthening economic integration and expanding trade; promoting green growth; and advancing regulatory cooperation and convergence. He also discussed ways that USTR is working to reduce barriers for small- and medium-sized businesses to help them increase exports to the region.

The Export Advantage

As we wrap up our focus on exports this month, the culmination of which was the U.S. Export Import Bank’s annual conference in Washington, DC last week, and as we celebrate averted government shutdown, I would like to offer for your consideration three short articles, which review and summarize issues we covered over the last few posts and offer lists of countries with best opportunities and the most ease of doing business.  The first one – Export Advantage is written by me and is reprinted in its entirety from this month’s issue of the  NY Enterprise Report and the other two are brought to you courtesy of the Global Edge blog.
Selling to emerging markets abroad can mean growth… if you are aware of the pitfalls
April 1, 2011
Published on NY Report (http://www.nyreport.com)

Exporting American-made goods and services has become a hot topic as we slowly rebound from the domestic recession of the past two years. Timing is everything, and with a favorable exchange rate for the US dollar, prices are competitive again.

Other factors in our favor include the global economic recovery, surging demand from emerging markets, the US Government’s financing and advocacy resources, and the cache of the words “MADE IN THE USA.” Service and manufacturing businesses in the New York area have much to gain from an expanding export market.

They especially can look to the unique opportunities existing in nations with emerging economies such as in Eastern Europe, Africa, the Middle East, plus India and the awakening giant, China. But companies must first successfully navigate the process of exporting with countries that are new to trading with the West.

If an American company is not prepared, it will face many obstacles that could prevent it from doing business abroad successfully. Emphasis on Export President Obama made his goals clear when he initiated the plan to double US exports in five years, and he underscored it in his 2011 State of the Union address when he said we must learn to compete globally. He has mandated that US government agencies responsible for promoting and financing American exports, along with many trade organizations and non-governmental organizations (NGOs), to unite around a powerful common goal, thereby making it easier for small and mid-size businesses to enter the export market.

Early results are encouraging, with the Export-Import Bank of the United States (www.exim.gov) just coming off of its best year of financing US exports, and the trade deficit at its narrowest in a long time. Despite the emergence of low-cost Asian and South American competition and a strong European presence, American companies remain, and will continue to stay, highly competitive in a number of sectors and industries internationally.

These industries include aerospace, medical equipment, construction machinery, agricultural equipment, telecommunications, technology services, environmental engineering, entertainment, food, hospitality services, architecture, and transportation.

The Export State of Mind

Skeptics say US companies cannot compete with low-cost goods and services from China, Brazil, and Korea; yet Germany, with some of the highest labor costs in the world, is an export powerhouse. Holland and Sweden also have highly paid workers, yet they succeed at exports.

Why? Business people in these countries think, eat, sleep, and literally live exports. It’s that simple. Their domestic markets are much smaller than ours, so they must look for business beyond their borders. They dig in and learn foreign cultures. They develop relationships and design goods and services that can be adapted in various countries. They are dedicated to finding ways of doing export business and nothing is going to stop them. And these companies are not all major European conglomerates. Untapped export opportunity exists for many small and medium-sized enterprises. International trade is simply not the typical mindset for American businesses, perhaps since historically we have been fortunate to have such a huge marketplace right here within our own borders.

But things are changing— quickly. There seems to be a lack of commitment and planning, as exporting is an afterthought to many US companies, when instead it should be a core part of that organization’s state of mind. I’ve seen it many times: a US business hires an international sales manager at the middle-management level—usually an American with extensive foreign sales experience. He or she is assigned a massive territory with a great sounding acronym such as EMEA (Europe, Middle East, Africa), often with little marketing budget or technical support. That person is sent traveling across the globe to look for qualified distributors.

I often wonder why, in contrast, even small American companies have domestic sales forces to cover multiple towns, boroughs, cities, or maybe even states, but overseas it’s acceptable for these same companies to assign entire continents to be managed by a single person with limited administrative and financial resources. What can be done to change this mindset? How can American companies open new markets abroad?

There are seven key initiatives American companies should undertake to have the best chance for success in the export market:

7 steps to becoming successful in the Export Market:

1 Commit:

Senior management of any organization seeking to become a serious exporter has to understand the extent of the effort required to become truly internationally focused. It also has to be willing to commit resources—both human and financial—to execute its export strategy. Export is not something to be attempted on a shoestring. It also is important to avoid a disconnection between the international sales group and the senior management of the company.

2 Explore:

Once management is determined to succeed abroad, the question becomes, which countries offer the best opportunity? The answer varies, depending on what business you are in and what type of product you present. Emerging markets today generally present more attractive opportunities to American companies entering the international arena than the mature markets of Europe or Canada.

Although a lot has been written about BRIC countries (Brazil, Russia, India, and China), terrific opportunities exist for US exporters in smaller markets in Africa, the Middle East, Eastern Europe, Central Asia, and South America. Utilize the free resources offered by the US Commercial Service (trade. gov/cs), CIA Factbook (www.cia.gov/ library/publications/the-world-factbook/ index.html), and industry trade groups. Attend appropriate trade shows and, most importantly, plan exploratory trips to evaluate various markets and assess your company’s product competitiveness. Select a single market to focus on.

3 Learn:

Learn as much as you can about international trade by becoming familiar with Incoterms—13 standardized definitions of words used for international trade and shipping. Also learn about commonly used letters of credit, contracts, financing options, foreign exchange, international shipping, and dispute resolution. Immerse your entire management team by offering a crash course in your chosen market’s culture, which includes learning local business customs and basic language. Learn about a country’s holidays, history, and what really makes the market tick; what’s beneath the surface.

4 Get Assistance:

A number of terrific resources, many of them free, are available to help budding exporters The aforementioned US Commercial Service, part of the Department of Commerce, has an impressive network of offices around the globe whose sole mission is to help US companies export more. US Trade and Development Agency (USTDA, www.ustda.gov) helps American companies learn about export opportunities at the very early stages of the planned international infrastructure projects.

The US Trade Administration advocates for qualified US companies in their quest to win international tenders and foreign government orders. The Export-Import Bank of the United States provides low-cost export financing, credit, and political risk insurance for qualified goods and services exporters.

Many non-profit export assistance centers and national chambers of commerce provide help, documentation support, and networking opportunities. Invest in hiring a local attorney, a market advisor, and a good interpreter who is familiar with business jargon. Develop a relationship with an experienced international shipping company.

5 Plan:

Develop a comprehensive market entry plan for each country you will do business in. Carefully look at the competition, and assess political and business situations, your potential customers, and sales prospects for the next three to five years. Devise a distribution strategy, training and support mechanisms for your distributors, and hire salespeople and/or agents.

Allocate sufficient financial and administrative resources to support planned activities, and understand that time overseas often moves much slower and things take much longer than they do here. Plan for contingencies such as political unrest, economic collapse, currency devaluation, customs delays, retroactive legislature and taxation, intellectual property theft, criminal interference, corruption, strikes, and natural disasters.

6 Execute:

While it is vital to plan, you must remember as you are executing the plan that things may change and you may be forced to scrap your original plan and rewrite it to adapt to changing market conditions. While time in emerging markets moves slower, the markets themselves can move much faster than those in the US so it is vital to monitor, adapt, and execute swiftly and decisively. Emerging markets are often filled with shoddy goods and services, and new players are looked upon with suspicion. A damaged reputation is almost impossible to repair, so be sure to provide support and service for your products from the beginning.

7 Repeat:

Prepare your entry into each new market by following the steps above. With each new market, the process will become easier. As your company exports to emerging markets, it will enjoy significant rewards financially and culturally. The process will not only help you become more diversified, but it will also make you more competitive in your domestic markets.

Author Information:Alexander Gordin is the managing director of the Broad Street Capital Group, New York, a private international Merchant Bank, Trustee of the Princeton Council of World Affairs and author of the upcoming book Fluent in Foreign™.

  • copyright RSL Media LLC

Now What? Which Emerging Market is Right for Your Business?

by Thomas on Wednesday, March 16, 2011 – 12:52:34 PM ESTWhen most people think of emerging markets they instantly think of the most famous four: China, India, Brazil and Russia. All have had staggering economic growth in recent years and continue to have great prospects for the future. However, are these necessarily the best countries for your business? The Market Potential Index by MSU-CIBER gives entrepreneurs an alternative to guessing by offering a comprehensive ranking tool that helps answer the question, “Now What?”

The index rates 26 emerging countries on a variety of factors and gives an overall ranking based on an adjusted weighted average. The top ten include the usual contenders such as Hong Kong, China and India, but how much do you know about Poland in sixth place or the Czech Republic in fifth place?

Poland has been privatizing many state-owned companies since the 1990s and encourages the development of small and medium business. The MPI has highlighted Openness (ranked 7th) and Economic Growth (ranked 13th) as the main factors swaying international companies to seek opportunities in Warsaw, Poland’s capital. One such example is the recent conversion of the Felix Hotel in downtown Warsaw to a Best Western. Best Western recognized the opportunities in Poland and was willing to endorse a Polish hotel with its name in order to exploit the growing amount of business travel to the country.

The MPI has also signaled huge potential for Czech Republic‘s future growth by ranking them second in Market Consumption Capacity, second in Commercial Infrastructure, and third in Economic Freedom. Economic growth can already be witnessed by the increasing amount of premium goods being sold in the Czech Republic. One example is local entrepreneurs selling premium beer though an increasing amount of microbreweries. In 1989 there were only 65 such breweries.  However, this number has surged to 104 breweries today!  The MPI can be used to highlight that the Czech Republic still has market capacity and may be a great place to start a business.

So before your business rushes headfirst into emerging markets, take a lesson from history and remember that many investors have gotten burned by rushing into emerging “gold” markets that they didn’t understand. Make sure to look at all your options and use the MPI to gauge which market would be best for your business.

gE Blog Series: What’s on Top? Part 2 – Top Countries in Ease of Doing Business

by Evan on Tuesday, March 29, 2011 – 4:56:01 PM EST

As globalization becomes an increasingly important trend in the business world, finding the right country to conduct business in may seem like a difficult task. However, it could be easier than you think. The International Finance Corporation, an organization under the World Bank, develops anindex to rank 183 countries based on their ease of doing business. The country rankings depend on nine different percentile categories including: starting a business, dealing with construction permits, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business.

Here is the list of the top ten countries:

1. Singapore
2. Hong Kong
3. New Zealand
4. United Kingdom
5. United States
6. Denmark
7. Canada
8. Norway
9. Ireland
10. Australia

Singapore, one of the world’s fastest-growing economies this year, tops the list with the most business-friendly regulations. A company can begin conducting business in less than three days making Singapore an ideal place for new businesses operations. Singapore’s government has also established additional tax incentives for certain industries including legal services, finance, shipbroking, and maritime financing. Alongside tax reductions, technology plays a tremendous role in enhancing Singapore’s ease of business ranking. Authorities in Singapore have been one of the most aggressive adopters of information technology to post business processes, such as import and export details, online. All of these factors contribute to Singapore’s success in doing business and are a main reason why Singapore has topped the list five straight years.

Other countries on the list are making an effort to improve their rankings by implementing newreforms and procedures. Countries deemed easiest to do business often have electronic procedures, as in the United Kingdom where commercial court filing can now be done online. Countries in Asia are beginning to adopt electronic procedures making these countries the most active in taking business-friendly measures. Hong Kong retains its high ranking through business reforms including the abolishment of fuel tax on diesel and civil justice improvements. Its one-stop online service for business registration and incorporation has been one of Hong Kong’s most significant reforms. Hong Kong’s success is a good example of the bright future for other countries in Asia looking to enhance their ease of business ranking.

As doing business abroad becomes easier and more effective, the world will become the marketplace for many companies. The international business landscape benefits greatly from each country’s improvement in creating a business-friendly environment and the good news is these improvements will certainly continue.

 

USTR.gov Headlines (4/9/11)


Ambassador Kirk and Secretary Clinton Urge Congress to Reauthorize Three Important Trade Programs

04/07/2011

 

U.S. Trade Representative Ron Kirk and Secretary of State Hillary Rodham Clinton recently sent a letter to leaders of Congress, urging them to reauthorize the Generalized System of Preferences, the Andean Trade Preference Act, and the Trade Adjustment Assistance program. It was sent to members of Senate and House leadership as well as to the Chairs and Ranking Members of the Senate Committee on Finance, the Senate Committee on Foreign Relations, the House Committee on Ways and Means, and the House Committee on Foreign Affairs.

 

Watch Ambassador Demetrios Marantis testimony before the House Ways and Means Subcommittee on Trade

04/07/2011

 

 

Today, Ambassador Demetrios Marantis is testifying before the House Ways and Means Subcommittee on Trade.

Ambassador Kirk Meets with Deputy Prime Minister Ivanov from the Russian Federation
04/06/2011

 

Today Ambassador Kirk met with Deputy Prime Minister Ivanov from the Russian Federation to discuss Russia’s accession to the World Trade Organization (WTO). Both sides expressed the hope that the positive momentum would continue and that Russia would soon complete its accession negotiations.

 

 

Navigating the Dark Side When the Markets Entice

Two articles below ( “American Business Needs to Get in the Game”, By Fred Hochberg, Chairman of the U.S. Export Import Bank and “Brazil’s Olympic push isn’t winning any medals”, By Brian Winter of Reuters) present a terrific illustration of issues, which often arise in emerging markets where certain defining events offer phenomenal opportunities for trade and investment. In addition to the shiny side of huge economic gain, there always exists a dark side of malaise, corruption, organized crime, local clans and lack of leadership.  Like a swamp beneath a pretty looking grass these issues threaten to sink anyone who ventures to take advantage of the opportunities.  There is, however, no reason to panic and American companies should absolutely pursue the monumental opportunities such as those presented by the soccer World Cup and Olympics in Brazil, UEFA Euro 2012 Soccer Championships in Poland and Ukraine, the 2014 Olympics in Russia and the World Cup in Qatar.  However, they should do it soberly, and only with a deep understanding of the local culture, issues and players involved. 

When host nations announce massive infrastructure programs, which call for billions in investment and spending, the entire world takes notice and races for economic prizes begin.  Thus U.S. companies wishing to participate in these lucrative opportunities face off not only against other global players who may have very strong cost advantages, geographic or cultural market proximity and technological expertise, but also against local competitors who have political influence, money, and in many cases, different ethical or legal constraints.

How do American companies successfully enter and navigate this challenging landscape?  Having government support and financing facilities such as the $1 billion announced by the President on his visit to Brazil, helps enormously. As Chairman Hochberg notes in his article, the U.S. has a strong position when it comes to providing capital goods and services for global infrastructure projects. Our construction equipment manufacturers, communications systems and power systems integrators, stadium architects, engineers and hotel operators are second to none. Many large U.S. companies have global presence and local distributors who understand the true situation in the field and know how to navigate around potential pitfalls.  Smaller manufacturers and professional practices should form multidisciplinary alliances, such as the Princeton Emergency Telecom Services Alliance, several large and small U.S. firms and professional service providers developed to compete for Ukraine’s 112 (911) National Emergency System project due for completion before the Euro-2012 Championships. It is crucial that knowledgeable local partners are part of such alliances and that they are clearly made aware of the ethics, rules and codes of conduct which governs the behavior of the alliance members. Alliances and companies going at it alone will be well advised to retain strong local counsel and advisers who have experience in entering foreign markets, structuring  cross-border financing deals, navigating logistics and customs landscape and local permitting processes.  Depending on the type of products supplied, U.S.companies should explore export licensing requirements early in the process.

Once the company or alliance determines market entry strategy, and identifies the target transactions, it is essential for a company, or an alliance to commit to the market/project and appoint a point person(s) to coordinate and drive the projects.  The time cycle on the transactions surrounding preparation for the large events is usually quite long, yet the event’s target date is well-defined and known. It is easy for the company involved in other businesses and markets to lose steam and focus in pursuit of these marquee projects years away, thus the entire project acquisition cycle must be carefully managed.

A U.S. organization must use all the government and private resources available to it to understand the true competitive landscape, identify all the players, ascertain threats and risks ( commercial, political, physical and reputational). If the company’s top management does not have a comprehensive picture of all potential players and possible problems, it should not be involved in these markets, no matter how attractive they seem.

Finally, companies will be well served to explore political risk insurance or credit insurance, and implement strong FCPA compliance procedures and internal controls.  It is important to ask for Department of Commerce support in tenders where foreign competition is pervasive, use low-cost U.S. Government trade & project financing, as well as  grant programs to secure competitive advantages in upcoming projects.

Through the duration of the project preparation and implementation cycles,companies must hone and monitor their information networks, along with local , geopolitical and economic developments, new market entrants and overall event preparation landscape. All emerging, developing and almost developed markets share common characteristics, and just like open seas can and should be navigated, but they have to be respected and well analyzed first. Now without further ado, I present the articles below for your consideration.  Good luck and good business!

By: Alexander Gordin   http://www.princetoncouncil.org

 

Fred Hochberg

Fred Hochberg

President, Export-Import Bank of the United States

Posted: March 24, 2011 11:34 AM
Teamwork. Cooperation. Intense preparation.

That’s what is needed to win at the highest levels of athletic competition. It also is what will be needed in Brazil as the country prepares to host two of the world’s largest sporting events: the 2014 World Cup and the 2016 Summer Olympics.

As I traveled with President Obama in Brazil, you could see the anticipation and excitement building for these events; you also could see the enormous investment and planning that is required to ensure that they will be successful.

Brazil is planning to spend $200 billion in additional infrastructure across the country on everything from roads and public transportation to airports and sports stadiums. World Cup events alone will be played in 12 cities.

It is critical, as President Obama told business leaders in Brazil, that America does more than just watch these projects from the stands. It is critical that we get in the game.

We may not always win on the soccer field, but when it comes to providing the engineering services, machinery, security systems and IT support required to build and run the stadium, or the buses and transportation systems needed to get fans into their seats, American business is second to none.

This is no time for the United States, particularly our business community, to be sitting on the sidelines. These projects play into America’s strength — and require the types of high-quality capital goods and services that U.S. companies lead the world in producing.

To ensure that Brazil can obtain more American-made products and services for these important projects, President Obama announced $1 billion in financing through the Export-Import Bank of the United States.

Its purpose is to facilitate the purchase of more American goods and services for various infrastructure projects, including those associated with the World Cup, the Olympics and the rebuilding that is needed in the wake of recent flooding in Brazil.

One of the key points President Obama emphasized in our meetings was the enormous opportunity for Brazil and the United States to be doing more business together. And to be doing the kind of business that is mutually beneficial for our countries — the type that creates good jobs and boosts local economies.

2010 was a strong year for that type of cooperation and teamwork. And there is reason to be even more bullish on the future.

U.S. goods exports to Brazil were up 35 percent in 2010. These sales support about 250,000 U.S. jobs. And over the last five years we have doubled our exports to Brazil.

This has allowed our countries to build a strong and mutually beneficial $80 billion trading relationship — and we see enormous opportunity to grow and deepen these economic ties in the coming years.

Brazil’s economic trajectory has been remarkable. Today, it is the world’s seventh largest economy –a \nd this growth has helped put millions of Brazilians on a path to the middle class.

However, meeting the needs of this growing middle class will require significant additional investment in building power capacity and infrastructure.

In Rio today, 16 percent of people move around the city using mass transit. The country is making plans to raise that figure to 50 percent by 2016. This will require an incredible investment.

The city currently has 25,000 hotel rooms. To meet the demand for upcoming events, they are looking to grow that by 4,000 rooms by 2013, with the goal of further increasing capacity for the Summer Olympics.

In addition to these infrastructure projects, Brazil is expecting electricity consumption to grow more than 60 percent between 2009 and 2019, requiring total investment of more than $128 billion.

To address this, Brazil is rapidly developing its renewable energy sector, with a particular focus on biofuels, hydropower, wind and solar. The country also recently discovered deepwater oil reserves that are twice the size of our reserves.

These are all additional areas of opportunity and for partnership between our countries — and they are sectors where private investment is critical. They also happen to be areas where Ex-Im Bank’s financing is particularly effective at ensuring the success of a project.

We have a long history of working with Brazil, beginning back in 1936. Much of our early work involved financing the sale of millions of dollars of American-made electrical, railway, mining, and cargo equipment.

As Brazil continues to build and rebuild, there is an enormous opportunity for the U.S. to assist on these critical projects. And we are continuing to look for new and innovative ways to finance these transactions.

In the last two years, our nation has made real progress in building the foundation for an export-focused economy. And the results are beginning to show: Exports were up 16.7 percent in 2010, putting us on target to meet President Obama’s goal of doubling exports by 2015. And in January they hit the highest one-month total ever recorded.

To continue building on that momentum, we need to focus on strategic partnerships with key markets across Latin America.

In today’s global economy, nations that build together — and buy from each other — are invested in ways that go far deeper than just business transactions. They are investing in each other’s prosperity, security and economic vitality. They are investing in the hopes and dreams of each other’s citizens.

When we make these investments, regardless of what happens on the playing field, both our countries — and our citizens — come away winners.

Brazil’s Olympic push isn’t winning any medals

Corruption, insufficient funds, glaring lack of leadership jeopardize big plans

    Image: Laborers work during the renovation of the Maracana Stadium in Rio de Janeiro

Ricardo Moraes  /  Reuters file 

Laborers work during the renovation of the Maracana Stadium in Rio de Janeiro. Brazil plans more than $1 trillion in construction projects this decade to bring its woeful airports, roads, and other infrastructure up to date — an ambitious building boom that will prepare the country to host the 2014 World Cup and 2016 Olympics.
By Brian Winter
as seen in World Business WNBC.com
updated 3/28/2011 5:04:07 PM ET
  • SAO PAULO — It’s 8 p.m. at Sao Paulo’s sublimely overcrowded international airport and Marvin Curie, seeing all the chairs around him taken, decides to join dozens of other business travelers and sit on the floor.

Until, that is, a coffee-colored mystery liquid starts to seep out of a nearby men’s room.

“Oh, Jesus!” Curie exclaims, scrambling to his feet. He checks the seat of his suit pants for stains — nothing.

“I hate this place,” sighs the U.S. pharmaceutical executive, gesturing at the peeling paint, the flickering fluorescent lights and, above all, the crowds. “You’d think that a country like Brazil would have fixed this by now.

Indeed, scenes like this are supposed to become a thing of the past here. Brazil plans more than $1 trillion in construction projects this decade to bring its woeful airports, roads and other infrastructure up to date — an ambitious building boom that will prepare the country to host the 2014 World Cup and 2016 Olympics, provide a bonanza of opportunities for foreign investors, and secure Brazil’s place among the world’s most dynamic emerging economies.

That’s the dream, anyway.

In reality, expectations are coming unraveled — fast. Brazil’s grand infrastructure plans now seem likely to fall well short of President Dilma Rousseff’s ambitions, according to a Reuters investigation of major building projects and interviews with nearly two dozen senior political leaders, investors, government watchdog groups and others.

Even Rousseff’s top aides are starting to voice doubts.

“We need to begin to control people’s expectations,” said Sports Minister Orlando Silva, who is overseeing preparations for the World Cup and Olympics. “The idea that we were going to make up for 30 years without investment in infrastructure in just four years was probably never realistic.”

Numerous high-profile projects are falling victim to a long list of problems including endemic corruption, red tape, insufficient funds and — above all — a glaring lack of leadership and know-how.

By some independent estimates, fewer than half of the major projects planned nationwide will be done on time.

Unless Rousseff and other officials act quickly to overcome the obstacles, investors may need to rethink some of their rosier long-term economic forecasts for Brazil. The delays also raise questions about whether expectations are too high for emerging market democracies generally, including India, South Africa and others, as they try to keep pace with demand from their booming middle classes but lack China’s ability to implement rapid, authoritarian solutions.

So many big projects are currently behind schedule that Pele, the Brazilian soccer legend, warned in February that Brazil risks “embarrassing itself” during the World Cup.

The stadium that would host the tournament’s opening match in Sao Paulo hasn’t even had its groundbreaking yet, resulting in a public spat with FIFA, the world soccer body. But that’s merely the most visible problem. Pele and others say that road and air traffic, communications grids and other systems could simply collapse under the weight of extra demand during the Cup unless progress is made at a pace that Brazil has, so far, not shown it’s capable of.

Silva hears the warnings, and he’s concerned. The lone cabinet member from Brazil’s Communist Party has found himself in the unlikely position of being one of the nation’s biggest cheerleaders for private investment, barnstorming the country and meeting with governors and mayors in a furious last-minute effort to untangle the legal and regulatory issues — and, often, the mental blocks — that are preventing progress.

It’s not going all that well.

“People are finally starting to realize that we’re running out of time … that we need to do more, faster,” Silva said. “But resources are scarce. And the work is difficult.”

As if to illustrate his point, during an interview in a Sao Paulo restaurant, Silva spotted a senator from the northeastern state of Ceara whom he had seen the day before at a particularly contentious meeting for World Cup preparations.

“So,” said Senator Inacio Arruda, smiling mischievously, “are we going to be have a Cup or not?”

“Are you worried?” Silva asked.

“You’re making us worry.”

“Everything will work out,” Silva replied, clasping him on the back. “But we’re going to need help.”

Silva may yet be proven right. But the real dilemma for Brazil boils down to this: If it’s so hard to get a new stadium or airport built before the World Cup when the whole world is watching, then what will happen to the projects that really matter? That is, what about the ports, refineries and railways that are crucial to Brazil resolving the bottlenecks that stand between it and developed-nation status in the next decade?

“People aren’t discussing it publicly, maybe because Brazilians prefer to be optimistic … (but) the truth is that we are seeing an important change in expectations,” said Andre Glogowsky, president of Hochtief Brazil, one of the country’s largest construction firms, which has built hydroelectric dams and other major infrastructure projects here.

“There are just so many barriers.”

Stuck at Latin America’s worst airport
No case encapsulates those barriers better than the jam-packed, hard-to-reach, 1980s-era time warp that is Sao Paulo’s international airport — popularly known as Guarulhos.

Congestion inside and outside Guarulhos is so bad that visitors to Brazil’s business capital are advised to leave for the airport at least five hours before their flight departs. Those who successfully navigate the 15-mile trip, which is only possible by car, are greeted by chaotic, shifting lines that snake through the main terminal; signs in the bathrooms warning of petty thieves; and, of course, the occasional pool of sludge leaking out of the pipes.

Guarulhos was ranked “hands down” the worst among 26 major airports in Latin America in a survey of business travelers published in February by Latin Trade magazine.

The overcrowding is, like so many bottlenecks in Brazil, partly a product of its stunning economic growth. Passenger traffic nationally has doubled in the last seven years, and grew 21 percent in 2010, as millions of Brazilians joined the middle class and flew for the first time.

Yet there are other, more sordid explanations as well.

The government agency that operates Brazil’s airports, Infraero, has long been one of the country’s most dysfunctional organizations. As many as a third of Infraero’s engineers are currently suspended from their normal jobs because of suspected corruption or other irregularities, three sources with direct knowledge of the agency told Reuters.

The sources spoke on condition of anonymity because of the sensitivity of the issue. In an e-mailed statement, Infraero denied the allegations.

Those engineers are critical to any airport expansion, which helps explain why Infraero no longer plans to finish a major new terminal at Guarulhos by mid-2014 — which would have been soon enough to handle visitors for the World Cup.

Meanwhile, Infraero is barely upgrading its existing facilities. Of the roughly $3.3 billion budgeted for improvements at airports at the 12 cities that will host Cup events, only 2 percent has been spent to date, according to Contas Abertas, an independent group that monitors government accounts.

A major reason why: Employees in Infraero’s rank and file often refuse to sign procurement contracts because so many of their colleagues have been prosecuted in graft investigations, said Alex Fabiano, head of Infraero’s employee association.

“We’ve all seen families and entire careers ruined by just the suspicion of corruption,” Fabiano said. “Some projects don’t proceed because nobody wants to put their name on them.”

Infraero, which is part of the defense ministry, was long treated as a repository for politicians to appoint their friends, supporters and relatives. Fabiano estimates that until a recent clean-up drive, about 1,000 of the company’s roughly 13,000 employees were political appointees, most of them with little to no technical knowledge of how airports work.

The hope at Infraero, and throughout Brazil, was that the World Cup and Olympics would provide an iron-clad excuse for the country to get its act together — not just for the sake of the sporting events, but for the long-term good of a country where traffic jams, blackouts, and miles-long lines of trucks at overburdened ports during harvest are all too common.

However, shortly after Rousseff took office on January 1, officials said that airports will likely have to rely on temporary, warehouse-like “modules” to house passengers for the World Cup — not just at Guarulhos, but in other cities also.

“We hoped the Cup would lead to a more profound expansion,” Fabiano said. “It’s a shame what corruption has done.”

Yet corruption alone cannot explain the woes at Infraero, or at other Brazilian projects, for that matter. After all, the biggest open secret of the global infrastructure business is that streets from Chicago to Beijing have been successfully and efficiently paved over the years by greasing the palms of officials who, in turn, help speed up construction.

People who know the Brazilian state apparatus from the inside out say the problems go much deeper.

“The real problem with Infraero is that it’s a prisoner of this mess … this paralysis you see in the public sector,” said Sergio Gaudenzi, a former congressman who ran Infraero from 2007 to 2008. “More than corruption, it’s the slowness, the lack of funds, the restrictions.”

“This isn’t a problem with only Infraero. It’s a problem you see everywhere in Brazil.”

Waiting for Godot … and Sao Paulo’s Line 4
If anybody deserves a medal for dealing with the Brazilian public sector’s problems — and bearing them with nearly superhuman patience — it’s probably Luis Valenca.

Valenca runs ViaQuatro, a privately held consortium that operates Line 4, Sao Paulo’s newest subway line. Under the arrangement, one of Brazil’s first public-private partnerships or PPPs, the Sao Paulo state government will build the line’s tunnels and stations and ViaQuatro will then operate the concession for 30 years.

On rails outside the company’s offices, several gleaming, new, top-of-the-line Korean trains sit, ready to go. The subway will be one of the world’s most modern and comfortable — as soon as the state government finishes construction.

The delay: 42 years and counting.

“We didn’t expect so many adjustments in the timeline,” Valenca says, with practiced understatement and a wry smile.

The plans for Line 4 have been on the books since 1969, when Sao Paulo’s city government first laid out a blueprint for a subway expansion to alleviate traffic in what is now a metropolis of about 20 million people. Yet the system has barely expanded since the late 1970s, and the Line 4 has suffered so many fatal accidents, lawsuits and other problems along the way that tabloids say it is “cursed.”

The story of what went wrong begins with a number: 1,825,059,944,843. That was, almost incomprehensibly, the accumulated percentage of inflation in Brazil between 1968 and 1993 — a period that saw the federal government, straining under the weight of inefficient state-run companies, go functionally bankrupt and print money to cover its debts.

The government finally began to get its accounts in order in 1994 by introducing a new currency and privatizing companies, reforms that set the stage for Brazil’s current economic boom. A new feasibility study for Line 4 was completed around the same time. Yet public funds remained extremely tight, and another decade would pass until Sao Paulo’s state government could muster the financing to begin construction.

“That’s more than 30 lost years, not just for this project but virtually every large project in Brazil,” said Jurandir Fernandes, the transportation secretary for Sao Paulo state, who is responsible for the construction of Line 4. “We’re still suffering the consequences.”

In fact, one of the biggest problems facing Brazil sounds almost too simple to be true: There just aren’t enough people with experience executing major projects.

Silva, the sports minister, said that at the first meeting he chaired to discuss proposals for transportation projects related to the World Cup, including Line 4, some governors and mayors showed up with nothing but text documents saying little more than “Build Metro from airport to downtown.”

Jose Baiao, the president of the engineers’ association for the Sao Paulo Metro, said “an entire generation” of his colleagues had all the proper training for their jobs but lacked practical experience because so little subway construction took place in the city.

“We tried to go from zero projects to a hundred projects, and that’s impossible,” Baiao said. “Human capital doesn’t work like that … especially in technical fields like this.”

An unfortunate example: On January 12, 2007, a portion of the Line 4 tunnel that was under construction collapsed, opening up a massive crater in one of the city’s most densely populated areas.

The accident killed seven people. Local media investigations at the time attributed the collapse to errors by engineers running the project. A wave of lawsuits followed.

It wasn’t the first legal problem for the line. Brazil’s byzantine regulatory and legal system is, essentially, the other major factor in delays at Line 4. Based on Napoleonic code, and thus highly reliant on decisions by individual judges, the system “makes it tremendously easy for parties with complaints to halt construction over and over again,” says Andre Janszky, a lawyer who advises companies in the infrastructure sector.

“The way (judges) give out injunctions here is unlike anything you’ll see in most places, certainly in the Anglo-Saxon world,” says Janszky, who has also practiced law in the United States. “It’s a big reason why companies think two or three times before participating in projects here.”

Fernandes, the Sao Paulo transportation secretary, says Line 4 has suffered almost too many lawsuits to count — by residents who fought eviction, by environmental groups, and by public-sector unions who he says opposed the participation of private capital “and took any opportunity to make this whole project look like a failure.”

Partial service between two stations finally debuted in May 2010, allowing Sao Paulo’s then-governor, who was running for president, to say he had opened the line. Yet, nine months later, no new stations have opened and service remains restricted from 8 a.m. to 3 p.m. until engineers finish conducting “tests,” Fernandes said.

The current estimated date for Line 4’s completion?

“2014,” Fernandes replied.

Guaranteed?

“I’m confident,” he said. “But you have to remember that this is Brazil.”

Toning down the Brazil euphoria
It’s talk like that that has Paulo Resende, one of the country’s top independent infrastructure experts, touring the world and pleading with investors to stop treating Brazil like an inevitable success story.

He says the government’s current projections are “totally unrealistic” and estimates that fewer than half of the planned works will be completed on time.

The message is a tough one to deliver at a time when so much of the world is betting on emerging markets to be the main engine for growth. “People want very much to believe in Brazil … but we’re going to struggle with these big projects, at least in the short term,” said Resende, coordinator for the Center of Infrastructure and Logistics at Fundacao Dom Cabral, a Brazilian business school.

Reeve Wolford, chairman of the infrastructure working group at the Brazil-U.S. Business Council in Washington, agrees and says he is now advising American companies to seek opportunities in “areas where Brazil simply can’t fail,” such as security systems for the World Cup.

Within the presidential palace in Brasilia, Rousseff’s aides acknowledge some problems but say they are confident their flagship infrastructure program, known as PAC for its initials in Portuguese, will be a success.

A lifelong government technocrat, Rousseff personally oversaw the infrastructure program for several years. She campaigned in 2010 as “the mother of the PAC,” hailing new bridges, highways and refineries as the path to achieving her dream of ending extreme poverty in Brazil.

“The president is personally committed to this issue,” said Mauricio Muniz, the Planning Ministry official who inherited oversight of the PAC. “We are fortunate to have someone in her job who understands perfectly what needs to be done.”

Muniz pointed out that the first phase of the PAC, which ran from 2007 to 2010, coincided with the worst global financial crisis in 70 years — a period that saw private long-term financing, already tenuous in Brazil, practically disappear.

Yet, thanks in large part to a boom in funding from the BNDES state development bank, official data shows that a robust 82 percent of the PAC’s planned projects were completed. “That’s not perfect, but I think it’s acceptable,” Muniz said. He expects a similar success rate in the next four years.

Mention that data to the PAC’s critics, though, and they tend to go wild.

“Those numbers are not true,” said Gil Castello Branco of Contas Abertas, the watchdog group. He and Resende say the official “success rate” is misleading because it includes money that Brazilians spent on mortgages — on new and old houses alike, and even on renovations.

Contas Abertas’ own calculations, which removed mortgages and other expenditures it deemed improperly classified as infrastructure investment, put the number of PAC projects that were concluded by the end of 2010 at a much lower 52 percent. Resende cites a similar number.

“We have no evidence to suggest the government can execute above that level,” Castello Branco says.

Rousseff’s actions suggest that she sees the need for changes — to an extent. Her most dramatic move to date was her announcement in March that, for the first time, Brazil would adopt a concession model to allow the private sector to operate terminals or perhaps entire airports.

The declaration was welcomed by investors who saw it as proof that Rousseff will be more open to private capital on big projects than her predecessor, Luiz Inacio Lula da Silva.

Yet Line 4’s saga shows that private-sector participation does little, by itself, to cut through other barriers to progress in Brazil. Just ask Luis Valenca, who four years after winning the concession for Line 4, is barely making enough revenue to pay for electricity costs.

“If you’re going to invest in this sector, you need to have funding,” he says with a laugh. “Come with money.”

Even some of Rousseff’s allies are starting to clamor for wholesale changes. Sergio Cabral, the governor of Rio de Janeiro state, says the government could easily speed up the pace of works by getting rid of “this absurd centralization we have in Brazil” — that is, by giving more responsibility for ports and other projects to state and city governments.

Yet the outlook for truly game-changing reforms looks bleak — in part, paradoxically, because of Brazil’s recent success. Rousseff campaigned on a message of continuity of Lula’s policies, and she has shown no interest in a fiscal reform, for example, that could open up more money for public investment. Meanwhile, leaders in Congress have ruled out sweeping changes to labor, environmental or procurement laws, essentially arguing that the country seems to be doing just fine as it is.

Many are appalled by what they see as a lack of leadership. “I’ve heard it said that the best thing that could happen to Brazil would be a fiasco at the World Cup,” Castello Branco said. “Maybe that kind of an embarrassment would help convince people that we need big changes.”

The world is watching
Unfortunately for Brazil, there’s a decent chance that Castello Branco will get his wish.

FIFA President Sepp Blatter issued an unusual public rebuke of Brazilian officials in March, saying that the site of the World Cup’s opening match was in doubt because stadiums in both Sao Paulo and Rio de Janeiro might not be ready in time.

The latest complication: two underground oil pipes under the planned stadium site in Sao Paulo, which will likely put construction on hold until they can be redirected.

One by one, other projects associated with the sporting events are falling apart. Two other Metro lines that were due to be opened in time for the Cup in Sao Paulo were postponed. A $20 billion bullet train between Rio and Sao Paulo is unlikely to be ready by the Olympics, as previously planned, after the bidding for the project was postponed in December. And plans for the Holy Grail of travelers to Sao Paulo — a train line linking Guarulhos with the city — were shelved in December because potential investors had no confidence in the airport’s expansion plans, the governor at the time said.

It is true that major infrastructure projects in other countries — particularly those related to the Olympics — are often accompanied by a lot of hand-wringing over whether projects will get done on time, and that things usually tend to sort themselves out. Indeed, most Brazilians assume that their government will somehow find a way to make a frantic last-minute push and get the most critical projects done.

What makes this case different though is that, unlike Athens’ Summer Olympics in 2004, for example, Brazil is trying to pull off two major sporting events back-to-back while simultaneously attempting a quantum leap to developed-nation status. Beijing pulled it off in 2008; but China is China, and Brazil is facing new, different challenges.

Take labor. With unemployment at all-time lows, the head of Sao Paulo’s biggest civil construction unions says that 80 percent of building sites in the city are currently suffering delays because there aren’t enough workers to go around.

“I don’t know where they’re going to get the people to build the stadium and do all these other projects,” said the union leader, Antonio Ramalho. He says some companies are already cutting corners by using unqualified workers, and that complaints over shoddy building have soared in recent months.

Indeed, Brazil gives every impression of a country that simply can’t expand any faster than it already is. Robust economic growth in 2010 pushed inflation to a six-year high of nearly 6 percent, which in turn forced Rousseff to announce sweeping budget cuts — including to some PAC programs — to cool the economy.

If it’s not panic time yet, it’s getting there.

“I’m hearing what I’d call a positive anxiety,” said Cabral, the Rio governor. “We have work to do.”

Others, though, are coming around to the idea that Brazil may simply have to settle for a slower pace.

For Fernandes, the Sao Paulo transportation chief, the realization came on a trip last year to China, of all places.

“I was walking around, and officials were showing me entire blocks of buildings they had just knocked down. At first I was impressed.” He started to laugh. “I can’t tell you how many times I’ve dreamed of doing just that.”

“But Brazil is a democracy,” he concluded. “We may not move as fast as China. Yet we’re growing in ways that we never have before. In the end, isn’t that what matters?”

USTR.gov Headlines April 1st


Weekly Trade Spotlight: Breaking Down Trade Barriers
03/30/2011 – 5:36pm

On March 30, the Office of the United States Trade Representative (USTR) transmitted two reports to Congress concerning trade barriers that affect American businesses.  These two reports focus on how the Administration has engaged over the past year to combat unwarranted sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT).  They mark a continued effort by the USTR to sharpen enforcement of American trade rights and to support well-paying jobs here at home.  The 2011 SPS and TBT reports also document the processes, procedures, and tools the U.S. Government employs to resolve these trade problems.

Watch Ambassador Miriam Sapiro’s Testimony before the House Ways and Means Subcommittee on Trade
03/30/2011 – 12:02pm

Today Ambassador Miriam Sapiro is testifying before the House Ways and Means Subcommittee on Trade.  You can find a link to the live feed of the hearing at the bottom of the Committee’s website here starting at 1:30 p.m. EST.

Trade Can Help Atlanta Businesses Win The Future
03/29/2011 – 4:32pm

United States Trade Representative Ron Kirk was in Atlanta on Friday to speak with students, small business owners, and local government leaders on how trade will help U.S. businesses and workers win the future.

 

 

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