Business Beyond the Reef

There has been some press play given to a report published a week ago about the vast number of protectionist measures that countries have implemented during the recession and, especially, since the G-20 promised not to do such things nearly a year ago.  The report, Broken Promises: a G20 Summit Report by Global Trade Alert, was produced by the Centre for Economic Policy Research in London and is an eye-opener.  In the United States, depending on which news sources one follows, we either paint ourselves as the most put-upon of nations or as the worst offender, loving to enact protectionist measures.  Actually, we come out somewhere in between.  It’s just that when we do go off the reservation with protectionist actions, our economy and clout is so great that we impact an awful lot of people all over the world.

Broken Promises: G20

Broken Promises is intended to look at the performance of the world’s nations on protectionist actions during the recession, and particularly at the actions of G-20 members following the G-20 pledge not to do such things in November 2008.  The pledge was lofty – and the performance is dismal.  Since the pledge, the authors count 192 new discriminatory actions, nearly five times the number of liberalizing actions worldwide.  Of these, 63% or 121 of the discriminatory actions have been implemented by the G-20 nations themselves, the very nations that made the pledge not to be naughty during the recession.  That means the G-20 countries broke their pledge on the average of once every three days.  So much for promises.

We have changed how we go about being protectionist.  The big fear was that, during the recession, countries would resort to massive tariff discrimination such as happened in the 1930s, e.g., the infamous Smoot-Hawley Tariff.  But we have become more subtle over the years.  Broken Promises reveals that the favored methods of discrimination now include bailouts and other state aids or subsidies that favor national companies, export taxes and restrictions, export subsidies, buy national policies and other non-tariff measures.  Customs duties are still used, of course, but they are so last century.

China has been the most frequent target for discrimination, not surprising given China’s startling emergence on the world business stage.  The next most likely targets for trade actions are the United States (yes, we are a victim, too, not just a perpetrator), Germany, France and Japan.  So who is leading the assault against China?  Despite all the headlines given to the recent U.S. safeguard action against Chinese tires (for which I am not in a mood to forgive the Obama Administration), the most consistent anti-China actors are, in order, Russia, Indonesia, India, Germany and Spain.  But they aren’t alone; 56 countries have established new restrictions that may adversely impact Chinese companies.

So who are the worst offenders overall?  The report makes it clear that there are many ways in which to measure this, but all their measures seem to point squarely at countries such as Indonesia, China (it works both ways), Russia, Germany, India, Ukraine and Algeria.  Notice the absence of the United States?  We appear in some of the lists of wrongdoers, but not at the top.  Our importance is that any time the United States uses protectionism, we are so important to world trade that we impact almost every country.

Broken Promises is but one report on a new website, Global Trade Alert, which first saw the light of day in June.  I recommend the site and have added it to my website list on the right.  Use the site to explore the world of trade restrictions and to report new restrictions and actions that you pick up in your travels.  The mainstream media is not particularly good about this, but experienced business people know a protectionist measure when they see one.  Get the word out!

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Koko Crater - Oahu

While I was exploring Europe, the Hawaii Tourism Authority (HTA) released its budget for tourism marketing in 2010, which Pacific Business News analyzed in its September 4 edition.  The article contained sidebars that attracted this economist’s attention, putting Hawaii’s visitor arrival numbers for 2008 right next to HTA’s planned marketing budget for 2010.  Now, I know you are not supposed to compare 2008 numbers with 2010 numbers, but I don’t have the HTA budget numbers for 2008 – and I just can’t resist seeing which tourists we are spending the most money on to attract.

Dividing the 2010 budget plans by the 2008 arrivals from each region, here’s what we get in the way of marketing expenditure per visitor for each region:

• North America (U.S. & Canada)                                 $  4.65
• Japan                                                                          $  6.22
• Other Asia (Korea, China, Taiwan, Hong Kong)        $ 13.51
• Oceania (Australia, New Zealand)                             $  4.50
• Europe                                                                        $    .87
• Latin America                                                             $       0

One shouldn’t compare the numbers as I have done, but I am only using them to look at orders of magnitude – which are probably close to what the comparable numbers would indicate.

The conclusion is pretty clear.  HTA continues to ignore world markets that are highly lucrative for other travel destinations, and continues to concentrate its marketing funds in markets in which Hawaii has long been a well developed brand.  The big spend per visitor for Other Asia may be appropriate as some of these markets are newly opened and visa waiver programs hold the promise of building these markets.  But I am baffled by the continuing spend on Japan and the U.S. West Coast.  It’s not that I object to spending money there, but I am concerned about NOT spending marketing funds in super rich travel markets like Europe and Latin America.  I know from my years living and working in Europe that European tourists are exactly what Hawaii should be going after.  These are visitors who will stay for far longer vacations than our U.S., Canadian or Japanese customers – and will likely spend more than the first two on a daily basis.  And Latin America always gets left out.  Hawaii seems to have a cultural bias that prevents its decision makers from taking Latin America seriously.  The fact is that Latin America is a potential source for high quality, high spending visitors  without visa issues – yet HTA is spending nothing in this region according to the published 2010 budget. 

Isn’t it time we thought about re-allocating some marketing funds?  For any other export business, a downturn requires that you take good care of existing customers AND that you go after new customers.  HTA doesn’t seem to have fully glommed on to the latter point.

London – My first impression was that London is coming out of the recession in good shape.  When we checked into our hotel in Bayswater, the desk clerk commented that the hotel was full and the shopping streets of Bayswater were teeming with people. The restaurants were full and the shops seemed to be doing business.

Stormcluds Over the Eye

But first impressions are not always accurate.  Bayswater is now a neighborhood of immigrants and transients, which explains the busy restaurants.  And my hotel had a particularly good offer.  As I spoke to friends in the city and paid attention to the news broadcasts, quite another picture emerged.  Real estate prices that seemed atrocious to me (that takes some doing if you live in high-cost Honolulu) were down 20% or more from their highs.  A local news show visited an industrial park where 20% of the factory space was vacant, and the more we looked, the more retail space we saw with “For Lease” signs on them.  Another news story averred that London has a quarter of a million people suffering from depression brought on by financial setbacks.  I mentioned all this to a friend who is involved with Europe-wide project finance, and he said his bank’s economists aren’t expecting things to really improve in England or Europe as a whole until 2012.  That’s a long time to wait and certainly at odds with all the ‘green shoots’ that the politicians claim to be seeing.

Český Krumlov – Driving from Austria into the Czech Republic revealed a stark picture of recession for the first time on this journey. We crossed the border north of Linz bound for Český Krumlov. It wasn’t the proliferation of casinos on the Czech side of the border that caught our attention. This is an agricultural area with low population density, but we were surprised at the immediate difference between the well-groomed Austrian fields and the less-cared-for Czech farms. An even stronger image was the number of prostitutes waiting on the country roads we were driving. In the first five kilometers across the border we must have seen at least three dozen young women (girls, really) in provocative poses at bus stops, by dirt roads, or just by the highway. I’m not sure if this is a comment on the Czech economy, Austrian men, or both.

Cesky Krumlov

Our mood lightened considerably upon pulling into Český Krumlov, a UNESCO World Heritage site, that has been one of our favorite places for years. Truly worth the journey, Český Krumlov is largely unchanged since the 15^th century and boasts a superb castle with dynamite views.  One of our favorite things to buy in Český Krumlov is marvelous reproductions of Renaissance glassware – the sort with bubbles in the glass and rough places for greasy fingers to hold on to.

We left the Czech Republic through an extremely rural area before crossing into Bavaria. This crossing featured few people and no prostitutes.

Klosterneuburg – We are staying in Klosterneuburg, a suburb on the north side of Vienna, just over the hill from the house in Grinzing where we lived for four years. Like Illmitz in the previous post, Vienna appears to be weathering the recession well. There is obvious stimulus money being spent, as many of Vienna’s streets in the First District are torn up for improvements. The Austrians seem to have become Keynesian enough to target much of their stimulus package at infrastructure to get the money moving into the economy quickly. That said, there are other signs of the recession: shops that don’t seem quite as full as they were the last time we visited, and a marked reduction in the number of Turkish and Middle Eastern faces about the city. One assumes they were among the first to be let go.

Shopping on the Graben

Friends in Vienna tell me that, of course, Austria has felt the pain of countries further east because the Austrian banks were and are among the primary lenders in this part of the world. Others say that Austria’s industrial companies seem as busy as ever. One commented that real estate prices really haven’t dropped, especially among high-end properties. The city and the surrounding countryside seem as prosperous as ever. Perhaps income is down slightly, but past savings will keep this economy going for a long while to come.

Tourism note: Vienna itself has enough top sites to keep any visitor occupied, but give some thought to seeing the abbey at Klosterneuburg.  This abbey was founded in the 11th century by the Babenburgs and the Habsburgs added a palace.  The tours are fascinating.

Illmitz – Posts have been delayed thanks to computer problems. Thank you, Microsoft, for the updates that appear to have put me out of action for a few days.

Illmitz Parish Church

Illmitz is a small town near Austria’s Hungarian border by the shores of the Neusiedlersee. We have been coming here for years because of an old friend who makes some of the world’s best late-harvest wines. Willi Opitz makes all sorts of excellent wines, but his dessert wines have established his international reputation. His “Opitz One” red dessert wine has been described as one of the thousand best wines ever made, and I won’t dispute that. Willi’s client list includes British Airways, Prince Charles, Elton John, and the McLaren Formula One racing team. Not currently imported into the United States, you may see Opitz wines soon. For the moment, they are best purchased directly or through Harrod’s in London. If any of my readers know how to work with ATF to import wines, you might want to get in touch with Willi. His website is www.willi-opitz.at.

Willi and his family run a delightful guesthouse, organizing occasional special wine weekends, and his daughter Angela and her partner Iain do fantastic ten-course gourmet dinners in which each course is paired with the appropriate Opitz wine. As Michelin would say, this is worth the journey!

My theme in the last few posts has been the impact of the recession on central European countries. Frankly, I don’t see much of an impact in Illmitz. Not all the wineries are doing well, but many of them haven’t done well for a long time – allowing innovative vintners such as Willi to come to the fore. Tourism must be down, so I assume that the families that rely on it are hurting somewhat. Still, Illmitz appears to be a most prosperous community. And worth a visit.

On to Vienna.

Bratislava – Bratislava’s old town is one of the best preserved in central Europe and is always a joy. Though the city is Slovakia’s capital, it is far smaller, say, than Prague or Budapest – and perhaps more accessible because of it. Like Budapest, Bratislava is not showing overt signs of recession, but my friends tell me that the smaller cities and the countryside are hurting. Indeed, there is impressive new construction in Bratislava’s Incheba neighborhood, where the trade show fairgrounds are located. I was told about ambitious plans to renovate the city’s Danube waterfront and that much of the riverbank will be covered with broad promenades and docking space for Danube cruise ships.

Bratislava Street Man

Corruption is still an issue in Slovakia, though I was relieved to hear that there seems to be less criminal activity than in years past. In the late 1990s there were gang wars between the Slovak, Ukrainian, Hungarian and Italian mafias. It was well known which mafias controlled which hotels or sections of Bratislava, but this is less clear today as the gangs have moved into more legitimate activities and are run on more businesslike lines.

There is an undeniable air of entrepreneurship in Slovakia, something that struck me fifteen years ago and, to my eye, is still evident today. At the time of the breakup, it seemed to me that the Slovaks were perhaps more ambitious than the Czechs, but the latter were starting their new country with more resources. I’ll be interested to see what has happened on the Czech side of the border.

But first, let’s check out some vineyards in Austria.

Budapest – I was expecting to see the ravages of the recession in this great city. My wife and I are traveling in central Europe and my next few posts will provide my observations along with views of friends and colleagues along the way. I had heard tales of an awful Hungarian economy plagued by Swiss franc mortgages whose payments in forint had skyrocketed. What I found was a vibrant city with well-stocked shops and plenty of visitors to those shops (what I couldn’t tell was how much they were spending). An old friend told me over drinks and dinner that the recession has been far tougher in the countryside than in the cities, as evidenced by the $15.7 billion bailout loan that Hungary was forced to take from the International Monetary Fund. The IMF has brought some tough austerity budgets to Hungary, implemented by what locals consider a professional government of bureaucrats that is temporarily in power. The previous regime was largely a replay of old-line communists, but there is some hope that the elections in 2010 will bring a more moderate coalition to power.

Houses of Parliament in Budapest

Corruption is a big issue, though perhaps less prevalent now than during the days when Hungary’s state-owned economy was being privatized. I heard horror stories of how state enterprises were sold at fire sale prices to favored friends of the government. There may be less corruption now simply because there is little left to privatize.

The political landscape is colored by the Roma issue. The Roma people, known to many wrongly as gypsies, make up perhaps 5-7% of Hungary’s population, but have a disproportionate impact on politics. Many politicians act on the assumption that Roma votes can be purchased at minimal cost (they are probably right about that), so there is tremendous attention given to Roma-oriented issues. Politicians are promising increased government services to the Roma, welfare payments, government subsidies – anything that will win votes in the near-term. That said, there seems little attention paid to longer-term programs that might really help the Roma out of poverty and into the mainstream of Hungarian life. Too much of the Roma coddling for votes consists of simply buying drinks out on the hustings.

Despite all this, Budapest is an exciting city – with some of the world’s best art deco architecture. Still, I saw many, many buildings in need of renovation. I fear this work will have to wait until the country pulls out of its recession, which is going to take a long while.

Next stop: Slovakia.