Business Beyond the Reef

• It’s always good to be up to date on local happenings when you are doing business around the world.  Knowing what’s happening when you get off the flight in a foreign market can be valuable to your business dealings, can help you get to know locals quickly, and can be vital to your personal security in some places.  Knowing the local hot topics can’t be bad, but it can also be tough to find out before you are on the ground.  Check out World-Newspapers.com, a site that provides links to local, English-language newspapers virtually everywhere in the world.  Some are subscription, of course, but most offer considerable reporting for free.  This way, you can check out the Brunei Times before your meeting with the Sultan!
• The European Union and the United States finally got around to signing the agreement they initialed back in December to end the Banana War trade dispute.  You can find more about this slippery issue here.
• The United States is hosting the second round of talks next week to build the Trans Pacific Partnership.  The talks will be in San Francisco and will include trade representatives from Singapore, Chile, Australia, Peru, New Zealand, Brunei and Vietnam.  The Obama Administration says it wants TPP to be a “21st Century” trade agreement, which leaves one wondering what that phrase means.  My buddy Frank Vargo, at the National Association of Manufacturers, wonders too, hoping that it means we will go for maximizing trade, but fearful that it is code for using trade to enforce labor and environmental objectives.  Perhaps Obama is walking a fine line here, because Thea Lee of the AFL-CIO comments: “An odd thing about the Obama trade policy is that it seems to engender a lot of discomfort on both labor and the business side…”

Perhaps there is a glimmer of sanity in Washington.  Federal Reserve Chairman Ben Bernanke told the House Budget Committee Wednesday that it is time for Congress to “push forward” with the three stalled free trade agreements with South Korea, Panama and Colombia.  Chairman Bernanke made the point that you have seen often on this blog, that the three FTAs can contribute materially to the U.S. economic recovery by encouraging exports and creating or protecting jobs for Americans.  The U.S.-Korea FTA should mean 345,000 jobs, Panama is a key market in Central America, and Colombia is the top Latin American market for U.S. agricultural goods.  That would seem to be a good thing.

The Obama Administration doesn’t appear to see it that way.  They periodically say nice things about the FTAs, but never get around to asking the Congress to approve them.  The longer this goes on, the more it reeks of resisiting agreements that were negotiated by the previous administration, no matter how much that resistance hurts American companies and workers.  Strange behavior for an administration that claims to be pro-labor and says it wants a fast-track to economic recovery.

Uribe & Clinton: Excited About Trade?

Coincidentally, while Chairman Bernanke was testifying, Secretary of State Hillary Clinton was in Bogota answering a question about the U.S.-Colombia FTA.  Secretary Clinton and President Uribe avoided mentioning the FTA during their opening remarks, though Uribe pointedly referred to Colombia’s improving labor rights and the fact that the International Labor Organization has seen enough improvement to remove Colombia from the ILO list of sanctioned countries.  That should make the labor union opposition to the FTA somewhat more comfortable.

Clinton took a question from Felipe Arias of RCN Television:

Madam Secretary, good afternoon…

I would like to ask you, you’ve made great efforts here by President Uribe in recent years to achieve the signing of the FTA with the United States. Can we expect more decisive support from the Obama Administration in order to get the signing of the FTA in the upcoming months? …

SECRETARY CLINTON: Well, first, let me underscore President Obama’s and my commitment to the Free Trade Agreement. We are going to continue to work to obtain the votes in the Congress to be able to pass it. We think it is strongly in the interests of both Colombia and the United States. And I return to Washington very invigorated by the dialogue that we have had and the questions and answers that we have shared to work with your ambassador, who does an excellent job for you in Washington, and your trade minister and foreign minister and others, to begin a very intensive effort to try to obtain the votes to get the Free Trade Agreement finally ratified.

So, the Obama Administration continues to blame a purported lack of votes in the Congress, while many in Congress say they are waiting for Obama to ask them to move the FTAs forward.  Stalemate.

I’m back in Hawaii and my thoughts turn to our local comfort food.  Let’s see, there’s kalua pig, pipikaula, chicken long rice, chicken or pork katsu, spam musubi, chili rice, huli huli chicken …  It’s all good.  And our local-style foods are being exported!

Hawaii food goes international

L&L Hawaiian Barbecue announced yesterday that it has opened its first franchise in Japan.  Sure, there have been many “Hawaiian” restaurants in Japan for years, some of them reasonably authentic, but others merely exploiting Hawaii’s name and image.  L&L, however, is authentic and is a genuine Hawaii company that is on a fast track to franchise expansion. The company was founded in 1976 and began franchising in 1988.  The business is based on the Hawaiian plate lunch, usually consisting of a main course (say, teriyaki beef), a scoop of macaroni salad and two scoops of rice (all the basic Hawaiian food groups!).  L&L started exporting its stores in 1999 when it opened in California.  There are now 180 L&L stores in the United States, including one in American Samoa.  The company started its international expansion in 2008 when a franchise opened in Auckland, New Zealand.

Like any good exporter, L&L is modifying its menu for its first Japanese store (located in Shibuya in Tokyo).  Some dishes need no changes, such as the loco mocos that are heavily in demand in Japan.  Others will depend on local Japanese ingredients, so the flavors will be somewhat localized.  L&L’s signature chicken katsu will undergo a name change, sold simply as a chicken cutlet, because there are so many katsu shops all over Japan.  And L&L is bringing Hawaii’s Spam musubi to Japan.  Ono!

Better than it might be, worse than it could be.

Yesterday I posted about a recent U.S. Chamber of Commerce study about the economic impact on the U.S. economy of free trade agreements.  The Chamber has been busy and has also published a new study of the impact of exports overall on America’s well being.  This study, The State of World Trade, looks at far more than FTAs, addressing protectionist tendencies around the world, opportunities in global trade, and success and failure in implementing trade agreements and obligations.

It isn’t surprising, during an economic downturn, to see many countries pushing protectionist policies.  We seem to hear about one restriction or another virtually every day (I have reported here about China’s many restrictions and everybody talks about the value of the yuan, but China is far from alone in such policies).  The remarkable thing, however, is that the world’s trade policy gurus have thus far avoided the slippery slope of protectionism that made the Great Depression so much worse than it had to be.  The WTO’s warnings appear to have had the desired effect of heading off the worst of it.

But not all is perfect.  The stimulus packages of some nations have resurrected “buy national” policies, including the infamous “Buy America” rules and China’s attempt to impose “indigenous innovation.”  Many countries are ignoring inconvenient obligations under their international agreements (for example, Washington’s refusal to admit Mexican trucks as required under NAFTA).

The Chamber is concerned, rightly in my opinion, that the United States is losing jobs and opportunities while our competitors negotiate free trade agreements and we sit still.  The Chamber estimates that the FTAs with South Korea, Panama and Colombia would create $40 billion in export sales and in excess of 380,000 U.S. jobs – if only we would grasp the prize.  The likely benefits dwindle with every day we refuse to compete with our major trading partners in these markets.  The European Union and Canada have FTAs or are negotiating them with all three, and China can’t be far behind.

Exporters often aren’t recognized in their communities, but we made a good stab at changing that yesterday in the office of Hawaii Governor Linda Lingle.  In our local celebration of World Trade Week, nine Hawaii companies received awards, lei and certificates from the Governor  – recognizing their expertise and success in international business.

I was on hand as chairman of the Hawaii Pacific Export Council (HPEC), a volunteer group appointed by the U.S. Secretary of Commerce to advise the U.S. Export Assistance Center in Honolulu and to promote exporting from Hawaii, Guam, the Northern Marianas and American Samoa.  Several of our HPEC members attended to cheer on the winners.  And two of our HPEC members were winners themselves.

The first three awards were presented by the Small Business Administration to the three Hawaii SBA Exporters of the Year.  Baldridge & Associates is an engineering company that is doing plenty of work in the Middle East.  PR Tech was recognized for their success in attracting tourists to Hawaii, especially from Asian markets.  Tradewinds Global is a quickly growing export management firm (whose CEO, Kevin Kraft, is also an HPEC member).  Beth Tokioka of the Kauai Mayor’s office was also recognized for her support of exports.

They are all winners! (photo: Johnson Choi)

While the SBA awards tend to go to established exporters, the Commerce Department’s Export Achievement certificates often go to newer, less experienced companies that make the break into international marketing – or to experienced firms that move into new markets. 

Cyanotech is a world leader in microalgae technology that produces and distributes nutritional supplements from the Big Island. Cyanotech exports its nutritional products to over 40 countries worldwide and received this award for breaking into the Indian market.  I took pride in this one; Cyanotech was one of my clients when they first started exporting.

Hamakua Macadamia Nut Company produces roasted and flavored macadamia nuts on the Big Island, but – until recently – most have been sold here in Hawaii (where else could you sell Spam-flavored macadamia nuts?).  But with help from the U.S. Commerce Department, the State of Hawaii and the Hawaii Pacific Export Council, Hamakua exhibited in a food products show in Hong Kong, signed a distributor, and has been accelerating sales to Hong Kong ever since. Hamakua’s CEO, Richard Schnitzler, is yet another HPEC member.

Hawaiian Island Shine manufactures quality care auto products.  Commerce’s Export Assistance Center in Honolulu collaborated with the State of Hawaii to help the company secure their first international distribution partnership with a major retail chain in Latin America. The company is now exporting to five countries in Latin America.

Maui Babe manufactures skin care and sun protection products on Maui.  Using the services of the Hawaii Export Assistance Center, Maui Babe signed up a distributor in Australia who also covers sales to New Zealand.

Noni Biotech International is a grower, manufacturer and distributor of juices and skin care products derived from the noni fruit. The Hawaii Export Assistance Center provided support for Noni Biotech that allowed the company to make its first sale of a container to a new distributor in South Korea.

Honua Technologies is an industry leader in the design and manufacture of high-temperature, environmentally safe medical and bio-hazardous waste destruction and treatment systems. The Commercial Service offices in Hawaii, Hong Kong and China supported Honua Technologies’ participation in several trade shows while introducing the company to potential partners.  These efforts led to large sales of steam sterilizers and ancillary equipment for projects in China.

Congratulations to all of these companies, who have shown that it can be done no matter where you are or how small you might be.  And all I did was hand out some lei.

I wonder how many people are aware that May is World Trade Month in the United States?  Not as many as those who know that May is also National Hamburger Month.  Now that’s a month you can sink your teeth into!

Despite things like President Obama’s National Export Initiative, and occasional Congressional fulminations against trade, relatively few Americans think about international trade on a regular basis.  That is probably due to the sheer size of the American domestic market, where we have much of a continent to play with.  A shipment from Utah to Ohio is not an export, while a far shorter shipment from Denmark to Norway is.  Gives one a different perspective.  Here in Hawaii, if I approach a local company to talk about exporting, they often think I mean selling in California.  California can seem foreign at times, I’ll admit, but those sales don’t show up in our export statistics.  While many U.S. manufacturers do export and do it well, the average factory worker may not know where that day’s production is going – and likely doesn’t care.

Americans are far more conscious of imports, but often for the wrong reasons.  They hear commentators shout that other countries are taking advantage of us, and neo-mercantilists argue that we need to protect against imports (and subsidize exports).  Despite the billions spent on imported consumer goods at Wal-Mart or Costco, there is rarely much understanding that imports bring variety and help keep prices down.  There is even less consciousness about the role of imported materials and equipment in keeping American manufacturing going.

So, how important are exports to the United States, really?  Absolutely critical, whether our citizens appreciate it or not.  The big picture is that, using 2008 data, U.S. exports supported 10.3 million American jobs (6.9% of total U.S. employment) and accounted for 12.7% of U.S. GDP.  Between 1993 and 2008, exports chalked up 40% of job growth in the United States.  There’s a lot more detail in a recent article published by the U.S. Department of Commerce. You can bet exports are critical to the 288,747 U.S. firms, mostly small businesses, known to be exporting.

Source: U.S. Department of Commerce

Commerce’s data on the sectoral distribution of export trade caught my eye.  In manufacturing, the sector that mainstream media, many labor unions and most politicians think has been killed by trade and outsourcing, exports provide nearly 3.7 million jobs (27% of total manufacturing employment).  And, while manufacturing is still very important, the pie chart shows how important our exports of services have become.  Take a look, too, at my earlier post that detailed U.S. services trade.

***********

There are World Trade Month events all over the country.  If you are going to be in Honolulu on May 19, come join us at the Foreign trade zone from 9:00 AM to 1:00 PM for informative talks and a chance to meet people in the export business.  That afternoon, Governor Lingle is scheduled to present special awards to some of Hawaii’s outstanding exporters.

Hawaii papayas

Rainbow papayas, that is.  Hawaii produces some wonderful papayas and my wife and I consume at least one or two each week.  Good healthy product, so you wouldn’t think there would be much trouble exporting them.  You would be wrong.

The Honolulu Advertiser reports that Hawaii’s papaya exports have plummeted.  Hawaii really has only four export markets for papaya, if you don’t count the U.S. mainland: Japan, China, Canada and Hong Kong.  The sales drops in Canada and Hong Kong were likely simply the impact of the recession.  Our Chinese market is growing nicely.  Japan has been the problem.  Here are the numbers:

Source: Foreign Trade Zone #9, Honolulu, Hawaii (click for larger version)

So what’s the story with Japan?  It is an old and sad tale that begins with something called ring spot virus, a scourge of the papaya industry.  Papaya producers everywhere have fought this virus forever, it seems, and have tried all sorts of sprays, steam treatments and even irradiation.  The first two do unattractive things to the fruit, and irradiation raises “Frankenfruit” fears in consumers.  So the creative folks at the University of Hawaii decided to develop a genetically-modified papaya resistant to ring spot virus.  Thus was born the genetically-modified Rainbow papaya.  Tastes great, looks great, no virus.  We eat ‘em all the time.  The Advertiser article says that 75% of Hawaii’s production has shifted to the new Rainbow.

Japan wouldn’t let the modified Rainbows in because of regulations against genetically-modified organisms.  Hawaii’s non-GMO papayas are sought after by Japanese consumers, though they are looking for perfect fruit with no ring spot blemishes.  They garner up to $10 per fruit in Tokyo if perfect, but the risk of ring spot virus destroying a crop’s value has driven most growers to the GMO Rainbow.

The story has a happy ending.  Though the Advertiser wasn’t aware of it at the time they ran their article (April 25), it was announced just days before that Japan has decided to let the Rainbows in.  I haven’t seen the details yet, but I expect that boxes of Rainbows will soon be flying across the Pacific.  That doesn’t end the problems, as GMO foods must be clearly labeled as such in Japan and it may prove very tough to convince Japanese consumers to try a GMO product.

Creative labeling may prove the key to the Japanese market.  Since the Rainbow avoids considerable chemical spraying, one could argue that it is more beneficial to the environment than non-GMO papayas.  Perhaps they could be marketed as “Reduced Environmental Impact” (REI) papayas.  (See my post on a study that showed greater consumer acceptance for otherwise identical REI fruits than for GMO fruits.)

• 

  Now that's a surplus! (Click for big version)

  A few weeks back I posted about America’s trade surplus in services.  The Economist hit the same point this week. But with a nice graph.

• I chanced upon a website the other day that could be of use to the many environmental engineering and pollution remediation companies that might be interested in China.  Check out the Institute of Public & Environmental Affairs in Beijing.  The site has some fascinating pollution maps of China, from the national scale down to some individual cities.  They cover both air and water pollution and, in some case, pinpoint sources of pollution.  Some of the information is in English, but it would be good to have a Chinese reader work on this for maximum benefit.
• Earlier in the week, I mentioned an article about how the Icelandic volcano had impacted India’s gold and jewelry exports.  The International Herald Tribune reports about how the ash cloud is causing huge losses for Kenya’s fresh vegetable and cut flower exporters to Europe.
• Asia Times carried an interesting story about the impact of the free trade agreement between China and Pakistan.  trade has boomed, but many in Pakistan fear competition from inexpensive Chinese goods.
• The New York Times came out with a good article about how small companies should get into exporting.  It’s a good read.  Thanks to my friend Carl Delfeld for spotting it.  Carl has established a new Center for Economic Diplomacy to help build U.S. exports.
• Finance is not my thing, but I can understand that the credit crisis has had a profound impact on world trade.  In fact, the relative lack of available export finance may be as big a hindrance to trade right now as the relative paucity of customers.  An article in the Wall Street Journal gives the details and makes the point that perhaps the banks are getting too cautious when it comes to trade.  After all, financing for an export sale is a short-term loan secured by actual goods.  Bankers see that as risky only because the goods cross borders.  It may be riskier to stay in your home market, guys.

Neophytes in international business are often dismayed when they realize that their product, or how they sell their product, often needs to be changed to enter a new market.  This can be anything from physical changes to meet another country’s product standards, to altering labels to meet legal requirements or cultural mores, to the mix of products you offer.

Get yours with Peking duck

Costco has gone through this in learning how to operate in Taiwan, according to the Wall Street Journal.  Their stores in Taiwan look much the same as their U.S. warehouse stores.  They sell many of the same products, but they have localized what’s on offer by adding many Taiwanese and other Asian products to their mix.  “What we’ve done here is reflective of what we do in all of our international markets,” said Richard Chang, Costco’s Taiwan chief.  “We want to make it as authentic as possible, but we also want to localize. It’s proven to be a successful combination.“  Indeed. Costco’s store in the Neihu district of Taipei is now the second most profitable Costco in the world (topped only by a Costco in Korea that has followed the same strategy).  The six Costco stores in Taiwan are helped because they have no direct competition, with no other warehouse store chains having entered the market.  But it is the mix of merchandise that makes the real difference.

Costco is seen as a U.S. store, so they bring in about 40% of their offerings from the United States.  They even bring dough all the way from New York to make their bagels, selling 54,000 bagels every week in the Neihu store.  But they also “localize” their American offerings.  Steaks are thinly sliced, so that the beef is wok-ready.  Fish are sold whole, not filleted, and Costco’s ready-made pizzas may have Peking Duck topping.  Half liter milk cartons weren’t accepted in the market, but Costco discovered that they could sell milk if it was in giant 3.6 liter containers.

I saw K-Mart go part way in this direction with their stores in Singapore and Bratislava in the 1990s, but they didn’t go far enough and eventually sold out.

Japanese food product exporters are learning the localization lesson, too, according to the New York Times.  Companies such as Yakult Honsha, Ezaki Glico and Ajinomoto are attacking foreign markets by altering their products to local tastes.  These are lessons that were learned decades ago by Kraft or Nestlé or Procter & Gamble, but they are always being learned somewhere.  If you have been to Japan or elsewhere in Asia, you have seen the ubiquitous “Pocky” chocolate-dipped cookies.  But Ezaki Glico discovered that the cookies did better in Europe when they were re-branded as “Mikado” cookies.  Simple fix, good sales.  I got used to Yakult yogurt products when I lived in Asia, but the company found that sales rose in Mexico if they used a new “Sofyl” brand.  Different name, same yogurt.  Other Japanese food product companies are seeking to capitalize on Japan’s strengths with soy-based products, modifying products such as tofu to meet the tastes of other markets.  And they are also making use of the world’s current infatuation with cute Japanese animal designs in their labeling.

It all goes to demonstrate that you can export your product, maintaining its identity while still localizing it to maximize sales.  Go for it!

Don't get them mad!

OK, the gloves are off and the fighters are coming out of their corners.  It’s organized labor versus the farm lobby at the Capitol Hill arena.  It’s mostly labor unions that have blocked action on the three free trade agreements that the United States has negotiated with Panama, Colombia and South Korea.  And now the farmers are coming after the unions.

A letter was sent March 1 from 57 agricultural trade groups to the Democratic and Republican leaders of the House and the Senate that diplomatically advised the Congress to get its collective butt in gear.  The signatory organizations represent farmers, ranchers, food processors and exporters, and, according to their letter, the products they sell in foreign markets provide 8,000 jobs for every billion dollars of exports.  If the Congress and the Administration are serious about doubling U.S. exports, then ratifying and implementing the FTAs with Panama, Colombia and South Korea is a perfect way to start doing it.  We sell about $7 billion to the three markets annually, or 56,000 farm-related jobs that could be grown if we enact the FTAs or diminished if we fail to act.

Passage of these agreements will also correct an imbalance in the conditions of trade.  The letter notes that American farm exports face significant customs duties in all three countries, but that U.S. tariffs on incoming farm products are far lower.  Ninety percent of Colombia’s agricultural exports to the United States enter duty-free.  The same is true for 95% of Panama’s farm exports to the United States.  Korea’s agricultural tariffs are four times higher than America applies to Korean ag products.  Congressmen talk a big game about “leveling the playing field”, but here we have a chance to do that and the politicians aren’t moving.

Other countries are moving into these markets while the United States dithers.  The letter says that, at the end of 2008, the world had 230 free trade agreements, but that America was only in 17 of them.  Perhaps another 400 FTAs are in the pipeline worldwide, but we only have the three that Congress refuses to act on.  Since we negotiated the FTA with South Korea, the Koreans have concluded or are negotiating further agreements with 52 other countries!  Why are we waiting to gain duty-free access to the world’s fifth largest market?  Do our political leaders think it is “fair trade” if we let 52 competitors beat us to the market?

So, it is the farmers versus the unions.  Gonna be a good fight.