As businesspeople, we need to know the potential impact of our world’s variations in currency values, emerging markets, international politics and shrinking margins.
They are elements that will disclose opportunities and severe threats!
That’s why the local TEC organization has been leading members to foreign countries for more than a decade, pursuing the benefits that come from this greater understanding. To date, we’ve visited Cuba twice, South Africa, Australia, China, the Middle East, India, Vietnam and Brazil. This fall, we travel to Eastern Europe. I have been fortunate to co-lead these trips.
In each country, we arrange meetings with embassy economics officers (and sometimes the ambassadors themselves), business developers, local TEC members and other entrepreneurs, and just ordinary citizens. Through them, our members gain insights into the challenges and opportunities of doing business in that country, and can then compare them to other countries visited, and to the United States.
We have begun to understand that capitalism truly is the driver and builder of economic vibrancy in all countries. If China and Vietnam, unlike Cuba, turn to capitalism to rescue themselves from decline, that says something important.
We see patterns in various countries that tell us how quickly an economy will grow and whether it will be a good place in which to do business. We bring this understanding back to our Wisconsin businesses and share it. Here’s what we’ve learned.
The impact of dictators
From 1962 through today, Cuba’s economy led by Fidel and Raul Castro, has declined – not risen – with the rest of the world’s. When we visited in 2001, food stamps ran out on Day 27 of the month. When we returned in 2006, they ran out on Day 23.
From 1948 through 1991, under the Afrikaner regime’s disastrous apartheid policies, South Africa’s economy was static, while the world’s economies burgeoned. In virtually all cases, the existence of an authoritarian regime results in virtually no wealth creation for the populace.
Don’t go near economic systems governed by the late Hugo Chavez in Venezuela, Argentina’s Cristina Kirchner, Russia’s Vladimir Putin, and Hamas in the Middle East. As we know, even in countries driven by socialist governments like China and Vietnam, embracing capitalistic practices has driven major increases.
The impact of taxation and regulations
The more complex taxation and regulation, the more winners and losers, resulting in “crony capitalism,” also known as graft and corruption.
That’s what Brazil is all about. Last September, we visited with two TEC members. One of them services the off-shore oil drilling rigs and refuses to engage in graft payoffs. But after a slow start in getting contracts, the company now gets them because the government, when all is said and done, needs contractors who perform.
The other TEC company builds government housing and is active in payoffs to ensure it gets the permits it needs. Brazil knows regulations are a problem and is working to reduce them.
In Vietnam, the economy is burgeoning, in part because of the absence of taxation and regulations. They will come eventually, and economic growth will slow.
The impact of debt
India and Brazil were quick to emerge from the global downturn.
India’s banking system minimized mortgage derivatives so its banks were less exposed. In Brazil, the federal debt was only 66 percent of GDP (compared to 103 percent in the U.S.), so the drag on the economy, caused by unbalanced budget sins, was less than in most other countries.
The opportunity within “bubbles”
When we were in China in 2006, the country was about 15 years into its boom which was primarily government construction, in collaboration with private developers, and expansion of state-owned enterprises. U.S. government observers we talked with gave the growth bubble another five to six years.
Sure enough. Today, the outward-looking expansion is burning out due to rising costs and bad environmental and employee policies, and the government is turning to more consumer-oriented growth investments.
The impact of governance structure
Whether we like China’s single-party government or not, it gets things done quickly and well. If it wants to build a new city, it will take only a few years.
In contrast, supra democratic India, with its more than 60 political parties, can’t hardly agree on anything, and can’t execute when it does. For all its riches, it can’t create an entrepreneurial economy which provides widespread jobs and raises everyone’s income.
What we’ve learned also provides the framework for understanding the challenges of selling into those nations, or using them for outsourcing. As long as foreign countries continue to operate their economies and weaken their currencies more than the U.S. does, then it’s financially a good decision to be looking abroad.
But when we don’t know when, if or how governance in each country will achieve a stronger economy, we delay our decisions. We don’t want to waste an investment. We worked too hard to develop that capital in small bits, year by year.
Just as usefully, TEC members return to Wisconsin to educate their workforces with first-hand explanations of what’s behind the headlines, helping employees better understand customers’ pressures and how to react. That’s a terrific benefit.
Phil Hauck coordinates three TEC CEO groups in northeast Wisconsin. He can be reached at phauck@new.rr.com.
