Whether we like it or not, we are engaged in a new world of international trade that means that business planners have to embrace a larger knowledge set. Companies like General Electric have activities in most countries of the world. Many companies see international trade as offering all kinds of benefits from importing, exporting, outsourcing, foreign partnerships, wholly-owned foreign subsidies, and more. Whether you are a human resource manager, a product manager, or operate in a finance function, it is likely that your firm is engaged or wants to be engaged in foreign activities. Because of global changes you may want to change where you operate the links in your supply chain. Because of changes in interest rates you may find that the company’s investments need to be deployed in different countries. Changes in trade barriers might mean new and better places to send your exports. Of course, you may be a company that does none of the above but is greatly affected by imports of goods or services from other countries. You compete in the global marketplace despite your best intentions!
One conclusion from the above is that your knowledge set has already and promises to continue to widen. Country information becomes more important for international business decisions. How do you decide where to locate that new foreign factory unless you acquire a lot of information about China, Singapore, Brazil, or South Africa?
You also need to acquire what we might call international macro information.
That is what we focus on in this note. This international macro information can help you understand and analyze the international environment in which you are doing business and is, therefore, crucial for you to pinpoint your specific global business decisions. Will next year be a good year for international trade and investment? Should I be moving away from importing to thinking more about exporting? Will the value of my currency be rising or falling next year? Will next year be a year in which national policymakers have big positive or negative effects on our ability to conduct trade abroad?
From the U.S. standpoint we do not begin this discussion from a neutral point of view. The U.S. situation has been volatile and controversial. The value of the dollar has bounced around a lot. In the summer of 2001, one could ask for 100 euros from any ATM in Europe and it would have cost you a little more than 80 dollars. In November of 2006, the same amount of euros cost about 131 dollars. That is quite a swing – it made European goods a lot more expensive for people holding dollars – and it made U.S. goods a lot cheaper for people holding euros. Was the dollar too high in 2001? Was it too low in 2006? Should the Fed or the ECB do something about these exchange rates? Why don’t we just freeze them? These exchange rate issues go well beyond the U.S. and Europe. Any multinational company that, for example, produces goods in Japan and sells them in Australia would be very interested in the exchange rate of the yen versus the Australian dollar. Business planners whose companies are impacted by exchange rates must think about these kinds of questions.
The value of dollar is not the only interesting issue confronting U.S. business executives. The U.S. for many years has been experiencing a growing international trade deficit – the U.S. tends to import more goods that it exports. Along with this trade deficit has come a very large and rapidly growing foreign debt.
The upshot is that it is not enough for planners to focus on the usual domestic macro variables – they must widen their information sets to include a variety of international trade and exchange rate concepts. They can’t just focus on domestic monetary and fiscal policy – they have to expand their knowledge into how governments conduct their international trade and exchange rate policies.