WTO Dispute Settlement:One-Page Case Summaries
The next best thing after www.worldtradelaw.net
http://www.wto.org/english/res_e/booksp_e/dispu_summary06_e.pdf
World’s Happiest Countries
No. 2: Switzerland
Population: 7.5 million
Life Expectancy: 80.5 years
GDP Per Capita: $32,300
Smack in the middle of Europe and surrounded by picture-postcard scenery, Switzerland ranks second among the world’s happiest countries. It has a low crime rate, good infrastructure, and a wealth of outdoor activities, from skiing in the Alps to boating on Lake Geneva. Home to the International Red Cross, the World Health Organization, and parts of the U.N., it’s not surprising that the Swiss devote a large portion of private and public money to health care — spending an average of $3,445 per person. It’s pretty peaceful, too: years of political neutrality have sheltered the Swiss from the conflicts of their neighbors.
No. 8: Bhutan
Population: 2.3 million
Life Expectancy: 55 years
GDP Per Capita: $1,400
Here’s a surprise: The small Asian nation of Bhutan ranks eighth in the world, despite relatively low life expectancy, a literacy rate of just 47%, and a very low GDP per capita. Why? Researchers credit an unusually strong sense of national identity. Plus, the country has beautiful scenery and a largely unspoiled culture, thanks to strict governmental limits on tourism, development, and immigration. Pretty counterintuitive, but Bhutan seems to have found a recipe for happiness.
No. 11: Ireland
Population: 4 million
Life Expectancy: 77.7 years
GDP Per Capita: $41,000
Once so poor that its citizens fled by the millions, the Celtic Tiger has enjoyed unprecedented economic growth over the past dozen years. Credit membership in the European Union and a can-do attitude has raised standards of living and even lured former immigrants back home. The excellent education system, open economy, and relaxed pace of life all contribute to the overall happiness of the Irish.
Working from Home: It’s in the Details
Traffic surrounding Microsoft headquarters in Redmond, Wash., has become so congested that Washington State Governor Chris Gregoire nearly missed a 9 a.m. speech at the company’s main campus one recent morning. Roads leading to the software maker simply weren’t designed to handle the 35,000 commuters who report for work there each day. The gridlock that greeted Gregoire was just the latest reminder that Microsoft needs to tackle its commuter crisis—and quick.
So Microsoft (MSFT) has embarked on a program aimed at getting more employees to work from home and other off-site locales, joining the growing ranks of companies to catch the virtual-workplace wave. About 14% of the U.S. workforce gets its job done at a home office more than two days per week, says Charlie Grantham, executive producer of consulting firm Work Design Collaborative. That’s up from 11% in 2004, and is set to grow to 17% by 2009.
Pros and Cons
Benefits of letting employees work from outside the office include keeping cars off the road, helping a company to bolster its green bona fides. But the practice can also foster employee retention, boost worker productivity, and slash real estate costs. At IBM (IBM), about 42% of the company’s 330,000 employees work on the road, from home, or at a client location, saving the computer company about $100 million in real estate-related expenses a year. VIPdesk, an employer of at-home customer-service reps, hangs onto 85% of its employees each year, compared with the 10% to 20% rate for traditional call centers, according to consulting firm IDC. And virtual workers are about 16% more productive than office workers, according to Grantham’s research.
For all the benefits of freeing workers from the office, drawbacks abound. First, not everyone wants to leave. Some fear they will step off the corporate ladder, while others need a busy environment to stay productive. Some managers are reluctant to scatter direct reports because keeping tabs on a virtual workforce can be harder than managing those close at hand. Some virtual workers can feel lonely, isolated, or deprived of vital training and mentoring. And communication breakdowns can impede innovation, trust, job satisfaction, and performance.
Obstacles like these have prompted IBM, Sun Microsystems (SUNW), and other companies to seek out a host of creative solutions to the problems that virtual work presents. Some turn to a combination of mobile devices, e-mail, instant messaging, and collaboration software to help colleagues stay in touch.
Some Are Reluctant
But experts say successful companies go a step further, adopting a whole virtual-worker ethos. “Management by objective is critical,” says Ann Bamesberger, vice-president of Open Work at Sun. “If you have to manage by monitoring, it’s not for you.” A number of companies including Deloitte & Touche, Ernst & Young, IBM, and Sun have also revamped office space to better accommodate virtual workers, providing everything from cubicles to conference rooms for employees who only occasionally stop in.
While many relish the chance to strike a better work-life balance by working from home, some are surprisingly resistant to being stationed outside the office. Of the approximately 25% of workers who could feasibly telecommute, less than half would do so more than two days a week, and 14% wouldn’t telecommute at all, according to a survey conducted by research firm Rockbridge Associates and the Center for Excellence in Service at the University of Maryland’s Robert H. Smith School of Business.
This reluctance may be fueled by fear that if they’re out of sight, they will be out of mind, too. About 61% of global executives say they think telecommuters are less likely to advance in their careers, compared with employees in a traditional office setting, according to a survey conducted by Futurestep, a subsidiary of Korn/Ferry International (KFY).
Communication Preferences
Even workers who are eager to telecommute encounter hurdles. Many managers simply don’t know how to manage a virtual workforce. “Projects fail, and companies assume that the workers can’t do the work,” says Colleen Garton, author of Managing without Walls. “But a high percentage of time, it’s the manager.” Over time, some employees begin to feel isolated, and virtual teams suffer from communication breakdown.
For virtual workers, there are plenty of ways to stay in touch, be it through e-mail, phone, or instant messaging. The trick, say experienced virtual workers, is helping managers know how employees like to communicate. When Kathleen Timiney worked at Groove Networks, a software maker acquired by Microsoft in 2005, she asked each team member how they preferred to communicate and posted those preferences where everyone could see them. “It’s not just superficial,” she says. “You have to support people in their style.”
IBM discovered that workers who spend three or more days without talking to a manager or colleagues start to feel disconnected. “Employees used to feel that IBM meant ‘I’m By Myself,’” says Dan Pelino, general manager for health care and life sciences at IBM. “We learned that it was important for managers to understand that people feel that way and to create new collaborative environments and to ask what they’re doing.” IBM teams use tools that provide customizable online team spaces, or portals that can be tailored to a specific project—complete with calendars, task lists, discussion forums, and document libraries.
Tools for the Virtual Craft
Other companies, including Microsoft, WebEx (WEBX), and Citrix (CTXS), also specialize in online conferencing and collaboration software that makes it easier for people in different locations to work together and conduct meetings. When Microsoft’s Timiney worked at Groove, the company set a policy that if even one person was operating virtually in a meeting, then everyone would sit in their offices and the entire meeting would be virtual. “Because there’s a big sensory difference in that experience, it made sure that everyone was on a level playing field,” she says.
Another way to bridge the physical distance is to provide a worker with the tools needed to stay connected to colleagues. For the virtual worker, a laptop, high-speed Internet access, and a personal digital assistant or mobile phone are de rigueur. But some companies go an extra mile to outfit virtual employees.
IBM provides a universal messaging service that lets executives give a single phone number to clients and colleagues. The service then forwards calls to wherever that executive might be located, be it at home, on cell phone, or in a so-called eMobility Center, one of the temporary offices set up by IBM in locations around the world. Patrick Boyle, director of health-care and life-sciences sales at IBM, spends about half his time traveling, working from taxis, airport lounges, planes, and coffee shops. He’s also a frequent user of eMobility centers and considers headsets an essential tool of the trade. Microsoft’s Timiney says a quality headset is her most important tool.
Temporary Office Space
Some virtual workers at Sun use the company’s line of workstations, called Sun Ray clients. Unlike conventional PCs, these devices contain no hard disk or operating system. Instead, all the software resides in the company’s servers. That means all information is automatically backed up and stored securely—and won’t be lost in the event the desktop is stolen or irreparably damaged. No software on the desktop also means fewer frustrating calls to tech support, says Larry Ciraulo, director of client computing services for Sun IT.
About five years ago, Sun realized that its offices were empty about half the time, as workers were out traveling or at meetings. So the company began encouraging workers to work from home and created a network of temporary offices, similar to IBM’s eMobility centers, that can be reserved ahead of time. Over the last five years, Sun has saved anywhere from $300 million to $500 million, mostly in real estate costs. Sun also offers consulting services to help other companies that want to create flexible workspaces.
IBM’s eMobility centers feature cubicles and conference rooms equipped with the usual easels and whiteboards. They boast cafes with wireless access, so workers can meet informally as well. IBM realized at one point, however, that it needed to redesign the conference rooms to include clear glass. “Virtual workers want people to see them when they come into the office,” says IBM’s Pelino.
New Hires: Presence Required
It’s one thing to ask a seasoned employee to work from home, but a virtual work environment can be tough on young workers who are trying to learn their jobs and often try to develop friendships at work. “I wouldn’t want a person to come into a virtual environment as a new employee—mentoring is absolutely critical with new hires,” says Sun’s Bamesberger.
Often, Bamesberger will require that a new employee work in the office for a period of time before going virtual. “I personally think that learning requires some exposure to other human beings,” she says. Similarly, Convergys (CVG) asks call-center workers to come into the office for training and the first month of work before they start working from home. The company now employs about 60,000 call-center workers, about 850 of whom work at home.
Sometimes virtual workers simply miss that informal advice that colleagues give in an office setting. At IBM, the company has tried to make sure virtual workers receive needed coaching and mentoring. That can range from a sales exec getting advice from a colleague before an important sales call to more formal events at the office, where senior executives run roundtables.
As Microsoft establishes a formal virtual-work program, the company will likely have no trouble with the technology part of the equation. “Nearly 100% of our people have at some time worked virtually,” says Lisa Brummel, senior vice-president of human resources at Microsoft. Indeed, the company makes many of the tools that virtual workers need. Yet, figuring out how to use that technology wisely in a virtual environment requires a bit more thought. Microsoft can just ask IBM’s Pelino, who cautions, “We learned from trial and error.” Until then, beware traffic jams in Redmond.
http://www.businessweek.com/technology/content/feb2007/tc20070212_457307.htm?chan=rss_topStories_ssi_5
The Devil Dials Prada on LG’s New Phone
When Apple (AAPL) unveiled its long-anticipated iPhone at the annual Macworld trade show in San Francisco in early January, few received the news with more apprehension than Cha Kang Heui. Cha, the chief mobile phone designer at LG Electronics, has high expectations for a new co-branded handset due out next month that was designed with a team from Italian fashion house Prada.
The iPhone has certainly generated industry-wide buzz. However, opinion is divided about what sort of sales impact the wireless phone, music and video player, and mobile Internet browsing device will make in a very crowded field already dominated by Nokia (NOK), Motorola (MOT), Samsung Electronics (SSNHY), Sony Ericsson, and LG when it’s launched in June (see BusinessWeek.com, 1/10/07, “The Future of Apple”).
Even so, LG execs believe the Prada Phone, which will go head-to-head with Apple’s iPhone in the high-end multimedia handset arena, is a game-changer. It boasts an elegant shape and design, graphic interface, and, of course, the Prada brand name that oozes high-fashion and luxury. “With or without the iPhone, our Prada phone and other models will give consumers a new experience,” declares Cha. “Users will come back to us as long as we give them emotional satisfaction with easy-to-use software interface or intuitive look and feel.”
Prada Price Tag
In a world awash with mobile phones, global manufacturers have now started to reach out to luxury brand purveyors to develop fashion phones that offer a way to charge more for a little panache—but also stand out. For instance, Motorola has teamed with the (RED) group, co-founded by U2 front man and activist Bono, to develop the Red Motorazr. Plus, Samsung and high-end Danish consumer-electronics firm, Bang & Olufsen jointly developed a high-end handset called the Serene.
LG will see what kind of fashion instincts it has when the Prada Phone goes on sale in Europe in February. The design may be minimalist, but not the functions—or the price.
The multimedia phone, which will fetch €600 ($780), is not so different from other high-tech handsets. You can play and download music, surf the Internet, deliver voice mail, and read Microsoft’s document files. It also doubles as an FM radio and comes with a 2-megapixel still and video camera. (Sales in Asia will begin in March, but LG is still negotiating with U.S. carriers for its U.S. debut)
Shift to Design Emphasis
The main difference from other phones is its radically simple appearance. Like Apple’s iPhone, it removed clustered buttons and the keypad to rely on graphic icons on a big touch screen. And when not in use, the glowing icons disappear to reveal the pure black face that highlights the Italian fashion house’s ubiquitous Prada logo.
LG is betting that the touch interface and the sleek design and status symbol allure will differentiate the handset from other ultra-slim, function-backed devices. That may not be easy. The thin-is-beautiful fad has been in motion since 2004, when Motorola scored big with its Razr lineup in 2004. “Phones have become a powerful accessory of consumers, and they seek expression of their personality with their accessories,” says Cha.
Still, LG has shown some design panache in the past, what with the incredible success of its “Chocolate” phone. The Korean company, the world’s No. 5 handset maker after Nokia, Motorola, Samsung Electronics, and Sony Ericsson, has sold some 7.5 million Chocolate phones since its global debut last May.
The phone also marked the company’s shift in emphasis—to design and user interface—from leading-edge features.
“Digital Workhorse”
The Chocolate, the best-selling model LG has ever introduced, has turned LG’s money-losing cell phone business around. The handset unit posted an operating profit of $148.2 million in the second half of 2006, against a loss of $36.5 million in the first six months. The phone, which was first offered at a retail price of about $400, has also boosted LG’s average selling price for its phones in Europe to $160 from below $110 at the beginning of last year.
Like the Prada phone, the Chocolate was designed to look like a black rectangular bar, not a phone. Its LCD screen, which sleeps when not in use, suddenly lights up when it slides open. “Customers are amused when a simple personal accessory item turns into a powerful digital workhorse with a gentle touch,” says Cha, who first introduced touch-sensitive navigation buttons for the Chocolate.
Now LG is poised to ship the Prada and another new phone overseas, capitalizing on the playful interaction with its phone users. “We are creating a new market,” says Chang Ma, a vice-president with LG’s mobile communications unit. “Design has become a good enough factor for consumers to choose their phones.”
User Experience?
Ma reckons the design similarity between the iPhone and the Prada underscores how rapidly the Korean company has made strides in dreaming up innovative products on par with the kind of branding and design smarts Apple lends to its products. “We are pretty confident that [our] consumer-focused design capability has reached Apple’s class,” he says.
Already, the Prada phone won Europe’s prestigious IF award in December for its excellence in design. The ultra-thin phone, the outcome of an eight-month joint effort between LG and Prada designers, will be sold in phone dealerships and Prada stores in Britain, France, Germany, and Italy starting in February. That’s four months before Apple will start offering the iPhone in the U.S.
LG is also launching another fashion phone in Europe—called the “Shine” phone. As the name suggests, its face and the back are finished with shiny stainless steel. The face of the slider phone is a glittering silver mirror which turns into an LCD screen when it slides open. The back is a clean stainless sheet housing only the lens of a 2-megapixel camera. The phone, which will be sold globally this year, will have a price tag similar to that of the Chocolate phone.
The shiny, rectangular phone has all the ingredients for becoming a head-turner, at least as far as its hardware appeal is concerned. The big question is if users will appreciate their experience with its software as well. That issue looms large particularly because Apple is moving into the business, with Jobs pledging to “reinvent the phone.
The Candy vs. the Apple
Korean electronics companies had learned a lesson with Apple’s iPod music player earlier this decade. The Koreans were years ahead in rolling out a MP3 music player only to be outgunned by Apple with its beautifully designed iPod and the software magic of iTunes. “We admire Apple’s excellence in user interface and software,” says Brian Sohn, head of LG’s investor relations. “We are watching Apple carefully, but Apple also has some catching up to do in its telecom network technologies.”
Analysts agree that although Apple has the potential to shake up the industry, it won’t pose a major threat to large phone makers in the short term. Apple hopes to garner 1% of the global handset market by 2008, a goal that would mean sales of 10 million phones. That’s a number LG is expected to achieve with its Chocolate phone alone from one year of its global sales. LG, which sold 64 million handsets in 2006, aims to ship 78 million units this year.
With the success of its Chocolate phone, LG is no longer an obscure name among carriers, dealerships, or consumers in global markets. “The chances of LG hitting the sweet spot have certainly improved,” says Kevin Lee, telecom device analyst at Woori Investment & Securities in Seoul. If the Shine or Prada phone proves a hit model, LG could charge ahead in its campaign to move up in the fiercely competitive industry’s pecking order.
http://www.businessweek.com/globalbiz/content/jan2007/gb20070129_447358.htm
As Private Banking Booms, ‘Relationship Manager’ Is Glamour Job
When Simon Ng, a Singaporean army officer, set his sights on the glamorous world of private banking last year, he didn’t know much about stocks and bonds. “I thought a bond is something they tie you up with,” he recalls.
Then he turned down an army promotion and forked over S$48,000, or roughly $31,000, in savings to enroll in a wealth-management program. These days, he is interning at a major private bank’s Singapore branch and expects to land a private-banking job by summer. “This industry is booming here,” says the 31-year-old Mr. Ng. “It is the right place to be.”
Such career changes are by no means rare in this island-state, which, with an estimated $250 billion in private-banking assets under management, aims to rival Switzerland as a global private-banking hub. As private banks operating in Singapore report assets increasing at rates of 15% to 30% annually, they can’t get enough warm bodies to cater to Asia’s multiplying class of super-rich.
“It has become very difficult to find good people,” says Rolf Gerber, Singapore chief executive of Liechtenstein’s LGT Bank.
Clients of private banks like LGT typically have at least $1 million in financial assets. Unlike retail banks, private banks offer personalized advice from a dedicated manager whose duties extend beyond merely taking care of money and can involve socializing with customers aboard yachts, in sophisticated restaurants and on golf courses. Some bankers say salaries in Singapore for some of these relationship managers, as they are known, recently surpassed pay levels in Switzerland.
A recent survey by Calamander Group, an advisory and investment firm, estimates there are roughly 2,000 trained relationship managers based in Singapore — with an immediate market demand for 2,500, a number expected to rise to 5,000 to 6,000 in five years. The other Asian private-banking hub, Hong Kong, also has a shortage.
“Everyone is interested in coming here to establish an operation, everyone tries very hard to hire — and if the demand is larger than supply, there is a bottleneck,” says Didier von Daeniken, head of private banking for Southeast Asia and Australasia at Credit Suisse Group who is based in Singapore.
The rush to find new recruits is sparking concern about a possible deterioration of service. “When you have to hire that many people,” a large number will be “unprepared, inexperienced and unqualified,” says Leslie Menkes, head of Morgan Stanley’s private-banking business in Singapore.
The boom has made poaching staff common. At Credit Suisse, Alex Widmer, formerly head of private banking and head of Asia Pacific, jumped ship in 2005 to join rival Julius Baer, where he now heads private banking; he subsequently hired away a number of senior Credit Suisse bankers.
In February 2006, Joachim H. Straehle, the Singapore-based head of international private banking at Credit Suisse, quit to become chief executive of smaller Swiss rival Bank Sarasin & Co. Ltd.; he in turn lured Fidelis Goetz, Credit Suisse Group’s head of private banking for North Asia, to Sarasin in September. Credit Suisse is hiring Marcel Kreis from rival UBS; he takes over as head of private banking in the Asian-Pacific region this month.
“It’s a very competitive market,” says Pierre Baer, chief executive for Singapore and Southeast Asia at SG Private Banking, a unit of Societe Generale SA and a former head of Southeast Asia private banking at Credit Suisse.
Singaporean authorities are urging banks to focus on training.
“It is vital that we build a strong pipeline of fresh blood and increase the inflow of new but competent people into the industry,” said Ong Chong Tee, deputy managing director of the Singapore Monetary Authority, in a speech last year.
Bankers and the Singaporean government have joined forces to train prospective recruits.
The recently created Singapore Wealth Management Institute, where Mr. Ng is completing his master’s degree, and separate programs run by Credit Suisse and UBS have converted scores of women and men from the most unlikely professions — curtain salesmen, pianists and sewage engineers — into private bankers.
At the Wealth Management Institute, which runs two-month courses in addition to the year-long master’s program, experienced professionals teach aspiring private bankers about financial markets, estate planning — and basic etiquette.
Lessons include how to choose correct attire (such as telling women not to wear golden shoes) and tips on the correct use of forks and knives, says Annie Wee, the institute’s chief executive and herself a former private banker with Credit Agricole Indosuez.
Other lessons impart the region’s cultural taboos, including, Ms. Wee says: don’t ever touch the head of a Thai, don’t wear black to a Chinese wedding, and eat before going to an Indian party so your hungry stomach doesn’t gurgle while waiting for a late meal.
Graduates of the master’s program, bankers say, can expect starting salaries of about S$70,000 to S$90,000; after three to five years’ practice, they can earn several times that amount as full-fledged relationship managers.
Last year, when UBS advertised its own private-banking course in Asian newspapers, about 3,000 applicants responded, competing for 33 spots.
One of the candidates was Pang Siu Yuin, a professional pianist and former senior manager of the Singapore Symphony Orchestra who now works at UBS’s Hong Kong branch.
Ms. Pang says her unusual artistic background makes her stand out and helps in interactions with wealthy clients.
“When they ask me what I did before UBS, they expect me to say it was bank XYZ,” she says.
UBS, which employs 1,000 people in its Singapore private-banking division alone, says it is enrolling 60 students this year.
Increasing the number of recruits is necessary because Asian clients can be different from typical private-bank customers in Europe.
“Most of our clients are entrepreneurs who have made the money themselves, and they are much more proactive” in managing their assets, says Mr. Baer of SG Private Banking. “In Europe, it’s much more inherited, and people tend to leave it to the banker.”
The result is that a relationship manager in Asia handles about 30 clients, compared with as many as 300 per banker at some institutions in Europe, according to an Asia-based private banker.
“The clients here are all over you every day,” says Roman Scott, managing director in Singapore at Calamander Group. “Here you have to work for your money. In Switzerland, you won’t see private bankers on their phones with clients at midnight.”
Yaroslav Trofimov in Singapore and Edward Taylor in Frankfurt. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. C.1
Entrepreneurial Culture
The nations of Continental Western Europe, in the reforms they make to try to raise their economic performance, may prove to be a testing ground for the view that culture matters for a society’s economic results.
As is increasingly admitted, the economic performance in nearly every Continental country is generally poor compared to the U.S. and a few other countries that share the U.S.’s characteristics. Productivity in the Continental Big Three — Germany, France and Italy — stopped gaining ground on the U.S. in the early 1990s, then lost ground as a result of recent slowdowns and the U.S. speed-up. Unemployment rates are generally far higher than those in the U.S., U.K., Canada and Ireland. And labor force participation rates have been lower for decades. Relatedly, the employee engagement and job satisfaction reported in surveys are mostly lower, too.
It is reasonable to infer that the economic systems on the Continent are not well structured for high performance. In my view, the Continental economies began to be underperformers in the interwar period, and have remained so — with corrective steps here and further missteps there — from the postwar decades onward. There was no sense of a structural deficiency during the “glorious years” from the mid- ’50s through the ’70s when the low-hanging fruit of unexploited technologies overseas and Europeans’ drive to regain the wealth they had lost in the war powered rapid growth and high employment. Today, there is the sense that a problem exists.
What could be the origins of such underperformance? It may be that the relatively poor job satisfaction and employee engagement on the Continent are a proximate cause — though not the underlying cause — of the poorer participation and unemployment rates. And high unemployment could lead to a mismatch of worker to job, causing job dissatisfaction and employee disengagement. The task is to find the underlying cause, or causes, of the entire syndrome of poorer employment, productivity, employee engagement and job satisfaction.
Many economists attribute the Continent’s higher unemployment and lower participation, if not also its lower productivity, to the Continent’s social model — in particular, the plethora of social insurance entitlements and the taxes to pay for them. The standard argument is fallacious, though. The consequent reduction of after-tax wage rates is unlikely to be an enduring disincentive to work, for reduced earnings will bring reduced saving; and once private wealth has fallen to its former ratio to after-tax wages, people will be as motivated to work as before.
An indictment of entitlements has to focus on the huge “social wealth” that the welfare state creates at the stroke of the pen. Yet statistical tests of the effects of welfare spending on employment yield erratic results. In any case, it is hard to see that scaling down entitlements would be transformative for economic performance. (Indeed, some economists see increased wealth, social plus private, as raising the population’s willingness to weather market shocks and helping entrepreneurs to finance innovation. I am skeptical.)
In my thesis, the Continental economies’ root problem is a dearth of economic dynamism — loosely, the rate of commercially successful innovation. A country’s dynamism, being slow to change, is not measured by the growth rate over any short- or medium-length span. The level of dynamism is a matter of how fertile the country is in coming up with innovative ideas having prospects of profitability, how adept it is at identifying and nourishing the ideas with the best prospects, and how prepared it is in evaluating and trying out the new products and methods that are launched onto the market.
There is evidence of such a dearth. Germany, Italy and France appear to possess less dynamism than do the U.S. and the others. Far fewer firms break into the top ranks in the former, and fewer employees are reported to have jobs with extensive freedom in decision-making — which is essential at companies engaged in novel, and thus creative, activity.
Further, I argue that the cause of that dearth of dynamism lies in the sort of “economic model” found in most, if not all, of the Continental countries. A country’s economic model determines its economic dynamism. The dynamism that the economic model possesses is in turn a crucial determinant of the country’s economic performance: Where there is more entrepreneurial activity — and thus more innovation, as well as all the financial and managerial activity it leads to — there are more jobs to fill, and those added jobs are relatively engaging and fulfilling. Participation rises accordingly and productivity climbs to a higher path. Thus I see the sort of economic model operating in the Continental countries to be a major cause — perhaps the largest cause — of their lackluster performance characteristics.
There are two dimensions to a country’s economic model. One part consists of its economic institutions. These institutions on the Continent do not look to be good for dynamism. They typically exhibit a Balkanized/segmented financial sector favoring insiders, myriad impediments and penalties placed before outsider entrepreneurs, a consumer sector not venturesome about new products or short of the needed education, union voting (not just advice) in management decisions, and state interventionism. Some studies of mine on what attributes determine which of the advanced economies are the least vibrant — or the least responsive to the stimulus of a technological revolution — pointed to the strength in the less vibrant economies of inhibiting institutions such as employment protection legislation and red tape, and to the weakness of enabling institutions, such as a well-functioning stock market and ample liberal-arts education.
The other part of the economic model consists of various elements of the country’s economic culture. Some cultural attributes in a country may have direct effects on performance — on top of their indirect effects through the institutions they foster. Values and attitudes are analogous to institutions — some impede, others enable. They are as much a part of the “economy,” and possibly as important for how well it functions, as the institutions are. Clearly, any study of the sources of poor performance on the Continent that omits that part of the system can yield results only of unknown reliability.
Of course, people may at bottom all want the same things. Yet not all people may have the instinct to demand and seek the things that best serve their ultimate goals. There is evidence from University of Michigan “values surveys” that working-age people in the Continent’s Big Three differ somewhat from those in the U.S. and the other comparator countries in the number of them expressing various “values” in the workplace.
The values that might impact dynamism are of special interest here. Relatively few in the Big Three report that they want jobs offering opportunities for achievement (42% in France and 54% in Italy, versus an average of 73% in Canada and the U.S.); chances for initiative in the job (38% in France and 47% in Italy, as against an average of 53% in Canada and the U.S.), and even interesting work (59% in France and Italy, versus an average of 71.5% in Canada and the U.K). Relatively few are keen on taking responsibility, or freedom (57% in Germany and 58% in France as against 61% in the U.S. and 65% in Canada), and relatively few are happy about taking orders (Italy 1.03, of a possible 3.0, and Germany 1.13, as against 1.34 in Canada and 1.47 in the U.S.).
Perhaps many would be willing to take it for granted that the spirit of stimulation, problem-solving, mastery and discovery has impacts on a country’s dynamism and thus on its economic performance. In countries where that spirit is weak, an entrepreneurial type contemplating a start-up might be scared off by the prospect of having employees with little zest for any of those experiences. And there might be few entrepreneurial types to begin with. As luck would have it, a study of 18 advanced countries I conducted last summer found that inter-country differences in each of the performance indicators are significantly explained by the intercountry differences in the above cultural values. (Nearly all those values have significant influence on most of the indicators.)
The weakness of these values on the Continent is not the only impediment to a revival of dynamism there. There is the solidarist aim of protecting the “social partners” — communities and regions, business owners, organized labor and the professions — from disruptive market forces. There is also the consensualist aim of blocking business initiatives that lack the consent of the “stakeholders” — those, such as employees, customers and rival companies, thought to have a stake besides the owners. There is an intellectual current elevating community and society over individual engagement and personal growth, which springs from antimaterialist and egalitarian strains in Western culture. There is also the “scientism” that holds that state-directed research is the key to higher productivity. Equally, there is the tradition of hierarchical organization in Continental countries. Lastly, there a strain of anti- commercialism. “A German would rather say he had inherited his fortune than say he made it himself,” the economist Hans-Werner Sinn once remarked to me.
In my earlier work, I had organized my thinking around some intellectual currents — solidarism, consensualism, anti-commercialism and conformism — that emerged as a reaction on the Continent to the Enlightenment and to capitalism in the 19th century. It would be understandable if such a climate had a dispiriting effect on potential entrepreneurs. But to be candid, I had not imagined that Continental Man might be less entrepreneurial. It did not occur to me that he had less need for mental challenge, problem-solving, initiative and responsibility.
It may be that the Continentals finding, over the 19th and early 20th century, that there was little opportunity or reward to exercise freedom and responsibility, learned not to care much about those values. Similarly, it may be that Americans, having assimilated large doses of freedom and initiative for generations, take those things for granted. That appears to be what Tocqueville thought: “The greater involvement of Americans in governing themselves, their relatively broad education and their wider equality of opportunity all encourage the emergence of the ‘man of action’ with the ’skill’ to ‘grasp the chance of the moment.’”
The most basic point to carry away is that the empirical results related here lend support to the Enlightenment theme that a nation’s culture ultimately makes a difference for the nation’s economic performance in all its aspects — productivity, prosperity and personal growth.
It was a mistake of the Continental Europeans to think that they expressed the right values — right for them. These values led them to evolve economic models bringing in train a level of economic performance with which most working-age people are now discontented. Perhaps the way out — to go from unsatisfactory performance to high performance — will require not only reform of institutions but also a cultural shift that returns Europe to the philosophical roots that put it on the map to begin with.
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Mr. Phelps, a professor at Columbia University, is the 2006 Nobel Laureate in economics.
Edmund S. Phelps. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. A.15
How to Cut Energy Costs: Buy efficient appliances, unplug your TV, and other tips for reducing your thirst for power
ENERGY efficiency has come a long way from flickering fluorescent lights.
Amid rising fuel prices and increasingly dire predictions about the effects of greenhouse gases, people are seeking ways to reduce their electricity usage and lower their bills. And they’re finding it easier than ever, thanks to a host of new products and services from utilities, government agencies and manufacturers.
The Environmental Protection Agency’s Energy Star program singles out numerous products that meet energy-efficiency criteria. Utilities across the country are offering programs to help customers cut costs. And there are lots of simple household improvements that can cut your power use and lower your bill.
Here’s a look at some of the top tips for cutting costs, from several electric utilities and the EPA.
BUY EFFICIENT PRODUCTS
One of the best ways to cut costs is to use energy-efficient appliances. And there’s a simple way to track down products that fit the bill: the EPA’s Energy Star designation. The label, which was introduced in 1992, now adorns a wide array of appliances that meet the agency’s efficiency standards, from dishwashers, refrigerators and flat-screen television sets to more-modest gadgets such as cordless phones and battery chargers.
Some Energy Star products have a higher upfront cost, but the EPA says the electricity savings over the life of the product typically offset the premium. According to the EPA, a home that uses only Energy Star products and appliances will use 30% less energy than a house equipped with standard products, saving the typical homeowner about $400 a year.
Consumers saved $12 billion on their utility bills in 2005 by buying Energy Star products, the agency says. That’s up from $5 billion in 2000. Greenhouse-gas reductions through the program in 2005 were the equivalent of the emissions from 23 million vehicles, up from 11 million vehicles in 2000.
TALK TO YOUR UTILITY
Most utilities in the U.S. offer a variety of energy-efficiency programs. The offerings often include free or low-cost audits of customers’ homes to determine their energy efficiency, as well as rebates for appliances that meet certain energy-efficiency criteria. (In many cases, that means Energy Star products.)
For instance, Minneapolis-based Xcel Energy Inc. offers home audits and rebates for appliances, as well as rebates for designated home improvements that boost energy efficiency. For new homes, Xcel will cover the cost of installing energy-efficient components that meet certain guidelines.
The utility has seen a significant increase in customer interest since natural-gas prices began climbing in late 2003, says Peter Narog, manager of consumer demand-side management marketing. “The past two years, we almost haven’t even had to promote the program,” he says.
Xcel’s program reduced customers’ natural-gas usage by 160 million cubic feet in 2006 — enough to meet the natural-gas needs of 160,000 average homes for four days — surpassing the utility’s goal of 124 million cubic feet.
Southern California Edison Co., meanwhile, offers rebates for Energy Star appliances and provides energy-efficiency audits. Customers can have the audits done in their home by a third party — usually at a cost of $150 to $300 — or they can do a more-basic online audit at the utility’s Web site. Southern California Edison also offers low- income customers a break: The utility will cover the cost of weatherizing their homes and installing certain energy-efficient appliances.
Customers’ interest in the plan grew after California’s 2000-2001 energy crisis, which resulted in rolling blackouts and skyrocketing electricity prices. “After the energy crisis, everyone got very excited about energy efficiency and really started to embrace it,” says Lynda Ziegler, Southern California Edison’s senior vice president of customer service. Californians are also interested in the environmental benefits of energy efficiency, she says.
Most utilities in Europe offer similar programs. The U.K.’s ScottishPower PLC, for instance, sends energy-efficiency messages and advice with all of its customer bills and statements, says Chris Brennan, energy-services marketing manager for the company. ScottishPower customers can call a free telephone number to receive energy-efficiency advice from trained advisers.
HOME IMPROVEMENTS
There are also a host of simple improvements you can make around the house to cut down on wasted power:
Unplug your TV. Home-entertainment systems are big energy hogs to begin with. But many of them have a feature that eats even more power: They remain in standby mode after you shut them off, continuing to draw electricity. Standby power is responsible for 5% to 10% of total electricity use in most homes and accounts for roughly 1% of global carbon-dioxide emissions, according to the International Energy Agency. “Many customers don’t realize that they spend more money to power DVD players when they’re turned off than when they’re in use,” says Penny McLean-Conner, vice president of customer care for Boston- based utility Nstar.
Nstar suggests that customers connect their electronic devices to power strips and turn off the strips when the devices are not in use — which guarantees the gadgets won’t go into standby mode. You could also simply unplug your devices after turning them off.
Change your bulbs. Compact fluorescent bulbs have been substantially improved over the years — no more flickering and humming — and they now can be screwed directly into most fixtures. The bulbs, which sell for about $3 apiece, last up to 10 times longer than incandescent bulbs and can save $30 or more in energy costs over a bulb’s lifetime.
Lower your thermostat to 68 degrees Fahrenheit. Industry experts say 68 degrees is the lowest indoor temperature that most people find comfortable. For each degree you lower your thermostat, you can save 3% on your heating bill, according to the Edison Electric Institute, the Washington, D.C., industry group for U.S. investor-owned utilities. Installing an Energy Star-qualified programmable thermostat can help, by lowering the temperature automatically at designated times, such as when you’re out of the house.
Turn down the temperature on your water heater to 120 degrees Fahrenheit, which is considered adequate or comfortable for most household needs. Lowering your water heater to 120 degrees from 150 degrees can lower your utility bill by $1.80 a month, according to Greenville Utilities, which provides electricity and other utility services to customers in Greenville, N.C., and surrounding areas. Another water-temperature tip: Wash your clothes in the coolest water possible. About 80% of the energy used to run your washer comes from heating the water.
Keep fireplace dampers closed to lessen heating and cooling loss. An open or poorly sealed damper can draw air up the chimney even when the fireplace isn’t in use, creating a net energy loss on an annual basis, according to Progress Energy Inc., a Raleigh, N.C., energy holding company.
Have your furnace maintained regularly by a professional, and keep your furnace filter and vents clean. Dirty furnace filters and vents cause the furnace to burn less efficiently, making it more difficult to heat your home.
Keep the curtains open in rooms with southern exposure during the winter and closed during the summer. In the Northern Hemisphere, south-facing windows receive the most intense light in both the summer and winter. Letting in that light in the winter will help keep your house warm; blocking it in the summer will help cool things off. In both cases, you’ll be able to use less power to keep your house comfortable.
Don’t run kitchen and bathroom exhaust fans for long periods. Exhaust fans will remove heated or air-conditioned air from your home if they run for more than 15 minutes after you’re done cooking or running the water, according to Gulf Power, a Pensacola, Fla., utility. You might also consider replacing your current fan to save on costs: Energy Star ventilation fans use 65% less energy on average than standard models.
Christine Buurma. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. R.13
Alternative Approaches: Governments struggle to find policies that will spur renewable-energy industries — withouhttp://ifinish.wordpress.com/wp-admin/post-new.php?posted=114t coddling them
SINCE THE OIL shocks of the 1970s, governments around the world have paid plenty of lip service to renewable energies such as wind and solar power. But only a few governments have been able to engineer policies that have begun to bring alternative energies into wider use.
Renewable fuels provided 18% of the world’s total electricity supply in 2004, according to figures from the International Energy Agency, a Paris-based intergovernmental organization. Almost all of that, though, came from hydropower, a source with limited growth potential because of geographic constraints. The use of wind and solar power is growing, but they still generated only 1% of global electricity production in 2004, the latest year for which figures are available.
In Asia, the U.S. and Europe, governments have spent billions on research and development of renewable energies over the years, but finding effective policies to encourage their use has proved just as challenging as developing new technologies. Most governments have tried approaches like tax credits, subsidies and mandated targets for renewable-energy production. Although approaches differ, the overarching goal is the same: to spur companies to build large-scale renewable-energy plants, such as wind farms or solar installations, so that the costs of clean power come down enough to compete with fossil fuels like oil and coal.
A debate still rages over what kind of government intervention and level of subsidy is appropriate. “Regulators have to try to strike a delicate balance,” says Todd Allmendinger of Emerging Energy Research, a research and consulting firm with offices in Cambridge, Mass., and Barcelona, Spain. “They have to provide enough incentive for renewables to grow, but not so much that they coddle the industry and prevent it from becoming more efficient.”
Countries in Europe that have led in renewable adoption, including Denmark, Germany and Spain, have pursued unabashedly interventionist programs that require utility companies to buy electricity generated by clean energies at a premium price set by the government. This policy, known as “feed-in tariffs,” pushes the extra cost onto consumers in the form of higher energy prices.
In contrast, about two dozen U.S. states, Japan and the United Kingdom have preferred a more market-oriented approach, based on tax credits and “renewable portfolio standards,” or RPS. Under this approach, the government sets a target for the percentage of electricity that must come from renewable energy and lets utility companies decide how to meet it. Sometimes financial penalties are imposed if utilities don’t meet the targets. In the U.K., utilities that fall short of the targets can fulfill their obligations by buying certificates representing the amount of power they failed to produce from renewable sources. Those funds are then redistributed to companies that met the targets.
One notable success with the more interventionist approach has been Denmark. Fifteen years ago the country mounted a push to expand the use of renewable fuels, which accounted for 25% of its electricity generation in 2004, up from 3% in 1992. It’s a considerable achievement for a country with no hydropower, the cheapest and most common way of making clean electricity.
“Denmark has what is probably the most ambitious support scheme for renewable-energy technologies ever seen,” says Jonathan Coony, who wrote a report on Denmark’s energy policies for the International Energy Agency and now works at the World Bank.
The Danes established a feed-in tariff that set an above-market rate for electricity made from wind and solar power and from biofuels like wood and straw. The system spurred a wave of investment, mainly in wind, because it gave companies the certainty to proceed with massive investments and construction.
The Danish government also established capital grants for companies that built wind turbines, kicking in 15% to 30% of project costs, and spent aggressively on research in wind power. And it required utilities to build plants that burn wood pellets and straw to generate electricity, with some of those plants also providing heat for nearby homes and offices.
All this has come at a cost: Consumers and businesses in Denmark pay a “public service obligation” or tax on every kilowatt-hour of electricity. According to an analysis by the IEA, the surcharge adds about 3% to the electricity bills of every household and 9% to the cost for businesses. However, higher electricity costs often are more politically palatable in Europe than in the U.S. “People don’t really notice the costs of feed-in tariffs in Europe because the cost of electricity [already] is so high,” says Robert Dixon, head of the energy-technology policy division of the IEA.
In 1999, the Danish government worried that its subsidies for renewable energies were too generous, says Steffen Nielsen, an energy- supply expert at the Danish Energy Authority. If the government set the price too high for electricity from renewable sources, the producers would have little incentive to refine or improve their technologies to be more cost-effective. “If you had a wind turbine in a good location, you were probably getting overcompensated,” says Mr. Nielsen.
A decision was made to shift from a fixed feed-in tariff to a formula in which renewable-energy producers would be paid a certain percentage above the market rate, a change that effectively scaled back support. “The policies have become more market-oriented over time,” says Mr. Nielsen.
Japan has found some success with a slightly different mix of policies: It spent heavily on research and development in solar panels and gave grants and subsidies to promote their installation. As a result, Japan has the second-largest installed capacity of solar panels in the world, after Germany, which supports solar energy with feed-in tariffs for producers and with subsidies for the installation of panels. Also, in 2002, Japan passed a law that requires 1.35% of the electricity that utilities supply to the nation’s grid to be generated from renewable sources; those that don’t comply can buy credits from utilities that are meeting the targets.
In the U.S., the federal government instituted feed-in tariffs for wind, solar and other renewable-energy sources after the oil shocks of the 1970s. But implementation was left to the states, which in many cases wrote rules that severely watered down the effect of the federal legislation. Since 1992, federal support for renewable energy has come mostly from the production tax credit, which provides a tax benefit to companies for every kilowatt-hour of electricity a renewable-energy plant produces in its first 10 years of operation.
The policy has led to construction of numerous wind farms. But it has a major weakness: The tax credits periodically expire if not reauthorized, an element of unpredictability that hurts investment. Congress has let the credit expire several times since 1999, and each time construction of wind turbines has dropped as a result. In 2004, for instance, newly installed wind-power capacity in the U.S. dropped to 389 megawatts, from 1,687 MW in 2003, according to the American Wind Power Association. It then bounced back up to 2,431 MW in 2005. “It’s simple: no [production tax credit], no wind,” says Mr. Allmendinger of Emerging Energy Research.
At the state level in the U.S., renewable portfolio standards — targets for the percentage of electricity that must come from renewable energies — are the favored way to spur investment in renewables. “The states have really been the crucible for experimentation” with policies to encourage renewable energy in the U.S., says the IEA’s Mr. Dixon.
Texas triggered a burst of investment in wind power with a law passed in 1999 that requires a certain percentage of the electricity sold by utilities in the state to be generated from renewable sources. Those that don’t hit the target face financial penalties. But one downside of the Texas experience is that companies have invested almost exclusively in wind power because it’s the cheapest alternative — stunting the development of other promising energy sources, like solar power.
As governments continue to experiment with policy alternatives, the key is that whatever policies they employ must be predictable and reliable — not subject to constant buffeting by political winds — says Brandon Owens, associate director of global power for Cambridge Energy Research Associates, a research and consulting firm based in Cambridge, Mass.
“That’s the only way to provide market participants with the certainty required to take financial risks,” says Mr. Owens. “Investors need to be confident the rug isn’t going to get pulled out from under them in the future.”
Leila Abboud. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. R.13
Texas’ New Tea: Houston is determined not to be left behind in the race to a new-energy future
HOUSTON — As investment in alternative energy surges, scientists and entrepreneurs throughout the U.S. are trying to brew up remedies for the world’s so-called petroleum addiction.
While it’s too soon to say which of these efforts will thrive and which will wither, energy-industry veterans are increasingly confident they know where at least some of tomorrow’s leaders in alternative energy will be: Houston, the home of big oil.
In California, Gov. Arnold Schwarzenegger is pushing ahead with efforts to keep his state among the leaders in the development of green energy. The Midwest continues to explore new ways to exploit its competitive edge in ethanol. And Northeastern universities are pumping big money into energy research. But while Houston’s economy still sits on a foundation of conventional petroleum, alternative energy is suddenly on the rise here, too.
Major oil companies have stationed key alternative-energy divisions here, newer ventures in wind energy and biofuels are emerging, and Texas universities are pushing hard to develop carbon-free energy.
Houston’s emergence as an alternative-energy center is partly an outgrowth of the city’s role as home to major players in the conventional-energy industry. “There’s always been this sort of joke within biofuels, that when these technologies become real, the traditional oil companies will snap them up,” says Nathanael Greene, a senior policy analyst with the Natural Resources Defense Council, a New York nonprofit environmental advocacy group.
As alternative energy moves “from the margins into the mainstream,” the big, established energy companies will make more of a commitment to the market, and Houston “is going to play a role just because of its importance in the oil industry,” Mr. Greene says.
But Houston also is playing host to newcomers in the energy business, thanks in part to a welcoming regulatory environment and efforts by the state government to encourage the production of alternative energies.
One advantage Houston offers alternative-energy companies is that the approval process for new facilities is far less onerous in Texas than in many other states.
“Texas creates a very positive environment to work in,” says Jeff Trucksess, executive vice president of Green Earth Fuels LLC, a biodiesel company started a year ago that is based in Houston and is building a production facility along the Houston Ship Channel. “There are strict rules on what you have to do, but it’s a very efficient process.” The company’s Houston site won permits last year and is expected to begin producing biodiesel in July.
“In Texas, things happen — stuff gets built,” says Michael Skelly, chief development officer for Houston-based Horizon Wind Energy, which will produce power from seven wind farms in six states, including Texas, by the end of this year.
In addition to seven-year-old Horizon, which is a unit of Goldman Sachs Group Inc., emerging players in wind power in Houston include subsidiaries of Babcock & Brown Ltd., BP PLC and Royal Dutch Shell PLC, and law firms like Baker Botts LLP.
“This was the natural place for this business,” says Robert Lukefahr, president of BP Alternative Energy North America Inc., who emphasizes the city’s wealth of knowledge of the energy business. “These are folks that know how to bend metal and put it in the ground and do it safely,” he says.
The wind-energy business boomed in Texas after the 1999 passage of a state law that requires a certain amount of the electricity sold by utilities in the state to be generated from renewable sources.
More recently, the state has again taken the initiative by easing the construction of transmission lines for wind farms, a crucial step if entrepreneurs are to continue to build turbines in the windiest corners of the state. Mr. Skelly enthuses about the new rules, which have set Horizon and other wind companies on a land grab to claim the best spots for turbines.
Houston also is emerging as a home for both start-ups and established energy companies entering the biodiesel business. These producers like the city in part because of its access to the huge Texas consumer market and its location at the center of a nationwide fuel-distribution network, with extensive storage facilities, pipelines and rail and water connections. “Economically, it’s always been our opinion that if you’re in the heart of the distribution center . . . that’s a great place to be,” says Mr. Trucksess of Green Earth Fuels.
One unresolved issue with biodiesel is whether the fuel raises emissions of smog-causing nitrogen oxide, which is tightly regulated in Houston and other Texas cities. The state has granted the biodiesel industry until Dec. 31 to show proof the fuel meets Texas standards. The rules may require an additive to the fuel, but Mr. Trucksess doesn’t expect the issue to impede the marketing of biodiesel in Houston or elsewhere in Texas.
The city also offers easy access to people experienced in every aspect of the energy business. For instance, Green Earth’s plants initially will produce fuel mostly from soybean oils, but as different feedstocks come into use the company expects to tap into Houston’s expertise in commodity trading, Mr. Trucksess says.
“It’s already in the DNA of Houston to be energy-oriented,” says Rick Zalesky Jr., a vice president of biofuels and hydrogen at Chevron Technology Ventures, a Houston-based unit of Chevron Corp. Chevron is conducting biodiesel research at a couple of laboratories in Houston that have been used for decades in the conventional energy business. And it is a partner in Galveston Bay Biodiesel LP, a start-up that is building a facility in nearby Galveston, Texas.
Houston also is home to research on hydrogen, nanotechnology and other areas that could have a dramatic impact on the energy picture in the years ahead. Research on alternative fuels is being done not only by big energy companies like BP, Shell, Chevron and General Electric Co., but also by nonprofit institutions like the Houston Advanced Research Center and Rice University, which has convened a number of recent conferences on alternative energy.
One of the most potentially far-reaching research ventures at Rice involves work at the Carbon Nanotechnology Laboratory, the site where the late Richard Smalley, a late Nobel-laureate professor, oversaw landmark research on microscopic materials called carbon nanotubes.
Researchers are working on steps to align millions of nanotubes into carbon fibers. The hope is that one day, the fibers can be used in power transmission instead of aluminum, which has high resistance and wastes vast amounts of power.
This vision is still years away, Rice researchers say. But the university has garnered some $5 million in federal research funds for the project from a variety of sources, including the Pentagon and the National Aeronautics and Space Administration, says James Tour, the lab’s director.
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Mr. Biers is the Houston bureau chief for Dow Jones Newswires. He can be reached at john.biers@dowjones.com.
John M. Biers. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. R.10
Politics & Economics: Mexico’s Case Study; Seeing China as an Opportunity, Not a Rival
Beijing — ABOUT 100 business students gathered last autumn at Beijing’s Tsinghua University for a question-and-answer session with U.S. Treasury Secretary Henry Paulson.
The Chinese students lobbed questions about Mr. Paulson’s career at Goldman Sachs and his new job as treasury secretary, until Eduardo Nieto Del Rio raised his hand.
“How will countries like Mexico, who are still emerging markets, compete with this monster that is China?” he asked.
The treasury secretary was taken aback, the Mexican business student recalls: “He said, ‘Are you Mexican? What are you doing here?’” Then, he offered advice that Mr. Nieto Del Rio had already figured out: See China’s growth as an opportunity.
After years of blaming China for luring away foreign investment and low-end manufacturing jobs, the Mexican government and entrepreneurs like Mr. Nieto Del Rio have begun looking for ways to do business with their rival and seeking out markets that China doesn’t dominate. It is a lesson other economies overshadowed by China are also learning.
“Our economy is totally indexed to the U.S. economy, and I think we have to diversify,” says the 29-year-old business student. “We have to pay attention to China, India, Japan and Korea. We have to start thinking bigger.”
Mexico has viewed China as an economic rival for more than 10 years, more so after losing significant market share to China in electronics manufacturing in the late 1990s. China surpassed Mexico as the second leading exporter to the U.S. in 2003, behind Canada. Shortly thereafter, Mexico’s attitude started to change.
In 2005, the two sides began trade-development talks and, with their government’s urging, Mexican companies started trying to reposition themselves.
“China is an important market today, and tomorrow will be a more- important market for exporters all over the world. Mexico has to start developing that presence” there, says Roberto Zapata, director general of Multilateral and Regional Trade Negotiations in Mexico.
While Mexico remains competitive in textile manufacturing, the government is encouraging investment in products of higher value, as other competitors such as Japan have done.
“We have come to the conclusion that we cannot compete with China in labor costs,” Mr. Zapata says. “The lesson, I believe, is very clear — to move to the upper end of the value chain.”
Luis de la Calle, who was Mexico’s negotiator for China’s World Trade Organization bid, says Mexican companies are beginning to feel more confident they can compete with China, invest successfully there and even attract Chinese investment.
At the lead are companies like tortilla-maker Gruma S.A.B. de C.V., which opened a $20 million tortilla plant in Shanghai in September to better sell to Asian markets. Auto-parts producer Nemak — a subsidiary of Mexican concern ALFA S.A.B. de C.V. — said it would build a plant in China but scrapped those plans and took a shortcut, announcing in November it would acquire a company that owned a parts- production facility there.
“The Chinese market has the greatest potential for growth, given its current underdevelopment and the possibility to manufacture cars for the export market, particularly with Asia,” says Enrique Flores, an ALFA spokesman. The company already has a contract with GM Shanghai to produce engine heads for cars sold in the Chinese market.
Mexico’s market share of exports to the U.S. as of last October was 10.7%, up from 9.3% in 1996. China’s grew to 15.2% last October from 6.5% in 1996.
“Learning about China and how the Chinese operate is very important to Mexican firms,” says Mr. de la Calle, the WTO-bid negotiator, who runs a consulting firm in Mexico that opened a Shanghai office in 2005. “If you acquire those skills, you become valuable when you come back to Mexico, and even if you stay in China.”
Mexicans aren’t the only ones looking to latch on to China’s emergence as a global economic power. China hosted more than 141,000 foreign students in 2005, up 21% from 2004, according to government figures. Most foreign students come from nearby countries such as South Korea and Japan.
The number of M.B.A. programs in China has risen at a faster pace in recent years, with nearly 100 programs registered last year. Tsinghua’s program, now in its 10th year, has begun an annual overseas recruiting tour for its International M.B.A. program, which is run with the Massachusetts Institute of Technology’s Sloan School of Management. The international program received more than 200 applications from non-Chinese students and enrolled 39 — a 30% increase in foreign-student enrollment in the past year.
Mr. Nieto Del Rio is the program’s first Mexican student. After seeing the extent of China’s development on a trip there for a tuna- canning company, he decided to quit his job and enroll.
Loretta Chao. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. A.8
