Monday, July 19, 2010

Global trade strategy

By Shan Saeed

Gone are the days when reliance was placed on various forms of foreign aids for boosting developing economies. The equation has changed dramatically and now it is the trade of a country that matters most. And that is why the global trade is getting more and more competitive and capital flight takes place in seconds.

Blocs like, NAFTA, GCC, Asean, EU, ECO, and OAU have emerged for enhancing trade and investments. After the Russian debt default and the Asian financial crises in 1997, when countries like Indonesia lost 80 per cent of the value of its Rupiah, they shifted their focus to regional cooperation [Asean] to protect their economies and used tourism to boost economies. Thailand has been very successful in doing so.

People all over the world, have become apprehensive about the future, following the tragic events of September 11 as they watched with dismay and horror, internal instability of governments (German elections, crisis in Argentina); corporate scandals, (WorldCom and Enron); failures of the financial institutions (Shensei Bank/Japan); fluctuating oil prices; debt burdens of lowly developed countries; rise in global terrorism; unchecked waves of asylum-seekers in various parts of Europe and Australia and uncontrollable ambitions for nuclear arsenal (India, Pakistan).

And despite such a pessimistic scenario, there are factors\elements which continue to boosting trades of various countries. Let us have a look at them briefly:

(1) Consistent policies: Consistent policies of the Chinese government have led China into in the global arena and she has become a major trading partner with a large number of countries. Over the next 10 years, China is expected to attract as much as 80 per cent of the global foreign investment while Asean�s share is likely to drop from 16 to 10 per cent. Global firms such as Nokia, IBM, BMW, Goldman Sachs, are already in China. International investors are moving into this country very quickly in order to take full advantage of the situation. Ten years back, public relations was an outlandish concept in China, but now it is a thriving industry and China is the second largest market in Asia after Japan.

(2) Exchange rates: During the Asian financial crises in July 1997, the factor that counted most.was the stable exchange rates. A number of countries had to devalue their currencies and investors almost ran out of such countries:Indonesia�80 per cent; Malaysia�43 per cent; Thailand�62 per cent; Singapore�25 per cent; Philippines� 38 per cent; Hong Kong�22 per cent; South Korea� 20 per cent. (Sources: 1. World Bank/IMF annual reports and those of the Asian Development Bank).

The IMF came up with a solution to the economy and proposed stable exchange rate mechanism for the region. One country that came out good was Malaysia. It made ground rules for investors so that they could not play havoc with the economies of the region. All the credit goes to Dr. Mahatir Mohammad, the Prime Minister of Malaysia. Malaysia is now fast becoming a very strong country with foreign exchange reserves comfortably placed around $40 billion.

(3) Internal stability: Five years before the Hong Kong was reverted to China amid widespread pessimism but the region showed a legendary dynamism. The reason was simple. China kept its promise to respect Hong Kong�s autonomy, ensuring the continuity and stability that businesses covet. Among the region�s most prominent attractions are the strong exchange controls, a strong legal system, free flow of information, private ownership of the banking systems, English-speaking labour force, free port status, unparalleled infrastructure, and most favourable of all, a low and simple tax system. Although Hong Kong has higher costs than many other business centres, this does not deter new business. The businesses are willing to pay the premium for the trade because of its stability and good governance.

4) Liberalized trade policies: Quotas, tariffs and protectionist policies impede trade and loss to the country. China, Thailand, Vietnam, South Korea, Brazil, India are benefiting from liberalized trade policies. The significant thing that these countries have achieved is positive image of the country in the minds of investors and people in general. All these countries have adopted aggressive positioning strategy in order to get bigger chunk of the trade around the world. Take Vietnam, the war-torn country is banking on its tourist industry now along with cheap exports. South Koreans are turning their companies [Samsung, LO, Hyundi] into huge conglomerates and major players in the world and are successfully competing against other colossal MNC�s. Investors prefer liberalized policies of these nations. Fifteen years ago, very few people prefered going for desert Safari in Dubai. The rulers have now made their country, the Europe of the Gulf. Dubai can truly be called a cosmopolitan city of the world just like Singapore, Paris, London, and Frankfurt, because of policies.

The policy makers have taken a strategic word of marketing that is �positioning� and have focused their energies to create an image of Dubai as a world-class place with all international facilities.

5) Human assets: Skillful and technical people are in demand everywhere. The reason why so many companies are thronging into China is that people are technically strong and production cost is very low. This provides China a sustainable competitive advantage over other countries. China, where per capita income was $ 310, now stands $750 in a span of 3-years time.

6) Infrastructure/communication network: Greater and easy access to the global market is the first priority in the international trade arena. Countries like India, China, Brazil, Singapore, South Korea have built and focused their resources in order to get bigger trade share in the global arena. Road networks, highways and communication facilities for quick access to a target market is seen as a plus point for such countries.

Global capitalism is now truly continental or whatever you may call it. China is moving very fast with excellent network of roads and highways. In the next 2 to 3 years China would become a major economic power in the East Asian region. In order to attain considerable and sizable trade share in the global economy, countries are positioning themselves in a way through tourism, infrastructure and stability to get major chunk in the share of the world trade. A country like Singapore through its brilliant infrastructure, friendly policies, stable government, skilled human assets can rightly be termed as a paragon for other countries to follow. It is rightly said about Singapore that the country is an Asian Tiger.

Countries and continents are blaming one another for the global economic recession. However, no one and everyone are to blame for the global economic slowdown. A speculation boom, once started, cannot end gracefully. Prices that went to unrealistic heights must collapse. There must be causalities. But, what the presidents and governments of different countries cannot do is to guide the global economy along a path of trouble- free prosperity. The job is too large; the pressures of the economy are too many; the government�s tools [taxes, spending programme, interest rates cut, monetary and fiscal policy] are too few.

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