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ABSTRACT
Michael R. Czinkota
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The traditional participants in trade, the Western, industrialized nations have been joined by new playersthe dragons
or tigers of AsiaHong Kong, Singapore, Taiwan and South
Korea, who are now industrialized nations in their own right.
Other countries have been industrializing (for example Indonesia, Malaysia, Thailand, Argentina, Chile) while still
others such as China are preparing to become important trade
players. In addition, the entire region, which used to be
known as the Eastern Bloc, has been converted into emerging
market economies, eager and sometimes even ready to enter
the world trade field.
Collaborative blocs are emerging among these participants.
They range from loose agreements for general collaboration
to well defined economic arrangements such as NAFTA and
include intricate political formations such as the European
Union. These blocs change the way nations deal with each
other; for example, negotiators now often talk to bloc representatives rather than to individual countries.
Simultaneously, blocs have also disappearedparticularly the
Commimist one. This disappearance has opened up trade and
business relations in areas that were off limits only a few years
ago. The framework and the way we look at Third World
countries and our decisions about whether and how to support them also have been affected. For example, the cold war
threat by governments of "changing sides," which often triggered gushers of aid payments, has become meaningless today.
Exchange rates are another area where there has been major
change. Currency values used to be fixed; later they started to
float. But a key component of exchange rate theory was always that they were the result of international currency demand and supply, which in turn was triggered largely by
trade flows and interest rates. Today, financial flows exceed
trade flows by vast multiples. For example, the total value of
U.S. merchandise exports is about $550 billion per year. In
contrast, the value of worldwide currency trades exceeds
$1.5 trillion per day. Therefore, currency prices are no longer
mainly the result of financial flows that have been caused by
trade. Rather, the financial flows around the world set currency values and often impose the level of interest rates. Financial flows can now determine trade flows, since higher
currency values mean higher prices for exports and lower
ones for imports. Concurrently, a new phenomenon called "
sticky prices " manifests itself when trade volumes do not behave the way they should in response to changes in the values of currencies. This occurs, for example, when the
Japanese yen shifts from a level of 250 to the U.S. dollar, to
less than 100 to the dollar, and the wave of imports still
keeps on coming.
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Michael R. Czinkota
There are also major changes in trade and investment orientation. Investments used to be the culmination of a long trade
relationship and, due to their distance and riskiness, were infrequent and long term in nature. Today, the rate of global investment growth far exceeds the growth of trade. Such
investments have thoroughly affected trade fiows both on the
export and the import side (Okamatsu 1994). The transplant
effect in the automotive sector serves as example for increases in exports and market penetration. The effects of investments on the import side can be seen when scrutinizing
outsourcing investments which are designed to create captive sources of supply. In addition, investments today are often of a short-term nature, moving from country to country in
order to benefit from resource and wage advantages.
Major shifts in orientation are also in evidence with regard to
trade. Historically, for example, the United States has been
"Europe oriented" in its trade outlook. This is easily seen in
the number of staffers in government departments who deal
with Europe. However, since 1978 U.S./Asia merchandise
trade has exceeded U.S./European trade, and the excess is
growing rapidly. At the same time, this change is dynamic and
has shifted the trade orientation of other nations as well. For
example, the United States has eilready declined dramatically
as an export destination for Asia's exports. From a high of 38
percent the U.S. market now accounts for only 28 percent of
Japanese exports. The United States is the recipient of only 23
percent of South Korea's exports, rather than the 36 percent it
was in the past. Overall, in spite of the mutual feeling of beleaguerment, the exports of Asian countries to the United States
average only about 23 percent of their total exports.
The new orientation in trade is accompanied by trade imbalances at unprecedented levels. Today, the United States is
running an annual merchandise trade deficit of about $120
billion, with Japan accumulating a global surplus of about
the same size. It is hard to remember that in 1972 President
Nixon abandoned the gold standard because of a trade deficit
of $2.5 billion.
Finally, there is a global recognition of new issues that are too
large to be addressed successfully by any one country, yet too
important to be ignored. Society is increasingly preoccupied
by concerns such as air and water pollution, global warming,
ecosystem maintenance, and new diseases. Patterns of longterm structural vmemployment, systemic weaknesses in educational approaches, and growing safety and health care
concerns are just a few other issues which are not local, but
global in nature. Goverrunents that attempt to address these
issues find out quickly that for reasons of resource constraints or global linkages, their powers are limited, and the
effectiveness of their actions is often only minor.
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In sum, on a macro level, there are seas of change. These include changing blocs, changing relations, changing fiows of
funds, changing flows of trade, and a decreasing ability by
governments to affect these changes.
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IHE CORPORATE PERSPECTIVE
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Michael R. Gzinkota
====!^==!^=^^^^^^=
T H E CONTEXT OF A N E W
GLOBAL TRADE FRAMEWORK
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Today, there are key benefits to be gained for the United States
by entering into trade agreements. NAFTA, for example, provides U.S. firms vdth access to a market located next door. It
is hard to overestimate just how crucial such access is. Research has shoviTi, for example, that firms decide to go international based on a phenomenon called "psychic distance,"
which is a variable composed of geographic distance, culttiral
similarity and market access (Wiedersheim-Paul 1978). More
than 60 percent of U.S. firms start to export to markets that are
psychically close. NAFTA has brought Mexico psychically
much closer and therefore affords new opportxmities for U.S.
companies to get started in intemational business and grow
into multinational corporations. On a global level, the WTO
can now assist countries in achieving the important goals of
market access and rules stability, which they might not be
able to secure anymore by themselves.
But the WTO vkdll not fix all trade ills. The key third dimension of successsuperior market skillsrepresents mainly a
domestic issue in spite of the importance of sharing managerial insights beyond national borders. For the United States,
export trade is only one, albeit an important component of
the economy. In light of 120 million employed in the United
States, and the fact that about 20,000 jobs are associated with
a $1 billion increase in U.S. exports (Davis 1992), even a major trade liberalization with $10 billion in new U.S. exports
will only create 200,000 jobs. Of much greater importance is
a nation's ability to maintain its global competitiveness on a
relative basis. CATT economists predict that by the year 2002
annual increases in global exports will be in excess of $755
billion (Uruguay 1994). To persevere against this wave of
trade fiows, the key to economic progress has been, and continues to be, the fostering of market skills for firms and employees. Encouraging those skills will require stimulating
and implementing reforms in the educational system, retraining the labor force, and promoting scientific awareness
and progress (Simai 1994). Such an educational push must
consist of a two-pronged approach: It needs to include major
efforts to get people ready for economic processes, and it
must redefine the processes to get them ready for the work
force. An example of the latter approach can be found in the
computer industry. Its success in penetrating markets is not
the result of a major increase in the programming skills of the
population at large, but rather of the growing user friendliness of the machines and software.
^^^^-
T H E F U T U R E O F THE WORLD
TRADE ORGANIZATION
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THE AUTHOR
Michael R. Czinkota teaches international marketing and business at Georgetown University. His
latest book. The Global Marketing
Imperative, was published by NTC
Business Books in 1995.
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REFERENCES
Czinkota, Michael R. "Global Neighbors, Poor Relations." Marketing Management 2, no. 4 (1994): 46-52.
Davis, Lester A. Contribution of Exports to U.S. Employment.
Washington, D.C: U.S. Department of Commerce, 1992.
Focus: GATT Newsletter. "Uruguay Round results to expand trade
by $755 billion." May 1994: 6.
Guide to GATT Law and Practice (6th ed.). Geneva: General Agreement on Tariffs and Trade, 1994: 5-6.
Naisbitt, John. Global Paradox. New York: Morrow, 1994.
Okamatsu, Sozaburo. "Japan in the World Economy." Speech of
the Vice Minister of MITI before the Chicago Council of Foreign
Relations, 11 May 1994.
Simai, Mihaly. The Future of Global Governance. Washington,
D.C: United States Institute of Peace Press, 1994.
U.S. Senate Committee on Banking, Housing, and Urban Affairs.
Subcommittee on International Finance and Monetary Policy.
Benewal of the Export Administration Act. 103rd Cong., 2nd
sess., 3 February 1994, 2 (testimony of Paul Freedenberg).
Wiedersheim-Paul, Finn, H.C. Olson, and L.S. Welch. "Pre-export
Activity: The First Step in Internationalization." Joumal oflnternational Business Studies 9 (Spring/Summer 1978): 47-58.
Yearbook of International Trade Statistics. New York: United Nations, 1956.
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Michael B. Czinkota