It’s a marvel of modern industry: members of U.S. sports teams win a championship game and—presto—within seconds of the final buzzer/whistle/strikeout—they’re suddenly wearing caps and shirts proclaiming their victory in a game that, only an instant before, was still uncertain. The losers’ shirts and caps? They’ll end up in the third world. Here’s the backstory.
1As soon as two January 22 playoffs determined the New York Giants and New England Patriots would play in the 2012 Super Bowl, the National Football League ordered 300 shirts, caps and towels for each of those teams, staff and even families. At the same time, the league directed Reebok (until this year, the NFL’s licensed apparel-maker) to manufacture and distribute to retailers clothing declaring each team the Super Bowl victor. Reebok’s ability to ship in time for the Feb. 5 game—14 days later—was part of the secret behind the rapid deployment of winners’ apparel.
2 Reebok was founded in England; is part of Adidas, the German athletic-apparel giant; is headquartered in the U.S.; and manufactured most of its clothing—including Super Bowl gear—in China.
3 Hours before the Super Bowl, Reebok-licensed team caps and shirts declaring each team the Super Bowl champ arrived in the respective team locker rooms at Lucas Oil Stadium in Indianapolis, Indiana, and in retail distribution centers around North America.
4The New England Patriots lost, of course. So while New York Giants fans partied in new caps and tees, NFL officials secured the Patriots’ championship gear.
5 In the olden days, the NFL simply destroyed the losers’ gear as “mislabeled” and “brand-damaging.” But under terms of a novel 1994 agreement, the unused NFL gear is donated to World Vision, a century-old Christian relief organization that gets the stuff out of North America. Other professional sports leagues—including Major League Baseball, the National Basketball Association and the National Hockey League—have similar arrangements with World Vision.
6 On Monday morning, about 12 hours after the Super Bowl, NFL officials shipped the Patriots gear via FedEx to World Vision’s warehouse in Sewickley, Pennsylvania.
7 By Tuesday, World Vision volunteers in Sewickley received the gear from all sources—retail distribution centers, silent/grim locker rooms—and sorted it carefully “by age, size and season,” Jeff Fields, WV’s senior director of corporate relations, told Global Trade. “We don’t want to send
XX-large shirts to a country that doesn’t have large people, or size-14 shoes to people with small feet.”
8 Information about the NFL gear was entered into World Vision’s database and made available to in-country aid workers who identify potential recipients. The gear was broken down again and, along with personal-care items and other equipment bound for the respective markets, loaded onto pallets. “On average,” World Vision figures, the NFL contribution alone “equates to about 100 pallets annually—$2 million worth of product—or about 100,000 articles of clothing.” Volunteers move the pallets into containers.
9 Third-party logistics firm CH Robinson manages World Vision’s incoming donations. Experts in foreign markets handle outgoing shipments, including the losing team’s Super Bowl apparel. World Vision’s Africa-bound donations, for example, are managed by Missionary Expediters. That firm arranges trucking of containers from Sewickley to the Port of Baltimore (though, occasionally, to the Port of New York and New Jersey). Missionary Expediters determines ocean carriers by price and availability. [PORT OF BALTIMORE] In 2012, New England Patriots Super Bowl apparel went to several regions, including Central America, Eastern Europe and Africa.
10 In distant ports, smaller trucks—sometimes owned by World Vision itself—handle delivery to the final destination. Aid officials there assure (as Fields puts it) “that people aren’t walking away with boxes” and that the NFL gear doesn’t end up where it shouldn’t—like, maybe, for sale in the U.S. via eBay.
11 At the other end of that exquisite supply chain, there’s a kid who got a free, high-quality shirt. The National Football League got a tax write-off. World Vision got publicity for its ancillary relief efforts around the globe. Everybody’s a winner, except maybe the Patriots—or before them, the NFL’s No. 2 Pittsburgh Steelers.
12 Even so generous an act has critics. “We know that GIK (gifts in kind) items (like clothing) that are readily available in a country undermine local clothing markets, create dependence, and deprive poor people of work and the dignity work provides,” Laura Seay, a Morehouse College political science professor, writes on the Christian Science Monitor’s Africa Monitor blog.
13 Not so, says World Vision spokesperson Amy Parodi: her organization sends “the Super Bowl gear to several different communities in at least four different countries to ensure that we don’t flood their local markets with more supplies than the market can handle and that our distributions don’t have an adverse affect on local suppliers.”
14 A reader of the women’s fashion magazine Glamour liked the idea, saying it’s “certainly better than the dress company that you reported was spray-painting red Xs on their wedding dresses before putting them in the dumpster. Yay, NFL!”
President Obama’s promise to double exports in five years was a big idea. Maybe too big. Here’s where we’re really headed—and why.
Even now, reliving the moment online through the magic of YouTube, you’re struck by the Bigness of his Big Idea: President Barack Obama’s January 2010 promise to double exports by 2015 and, so, produce two million new jobs.
Observers called it “bold,” “surprising” and “ambitious.” It had the quality of Babe Ruth’s famous (perhaps apocryphal) promise to homer in game three of the 1932 World Series. Or U.S. Gen. Douglas MacArthur’s 1942 promise that he’d retake the Philippines. Or President John F. Kennedy’s 1961 promise to send a man to the moon.
And early this year, two years after his Declaration of Export Independence, it seemed the president had delivered. A New York Times reporter noted that the president’s original “surprise” announcement was a “bold promise” that had “sent the eyebrows of economists and policy experts upward, even as they applauded its intent.” However twisted that sentence (we know “they” is supposed to refer to “economists and policy experts,” but can’t help thinking it refers to “eyebrows”), her point was otherwise clear and nearly universal among reporters: “The administration is on track — for now — to meet its ambitious goal. Growing exports have been one of the central drivers of the recovery, accounting for about half the nation’s economic growth since the recession ended.”
“Exports are running at about $180 billion a month,” the Times reported, citing Commerce Department data, “up from $140 billion a month two years ago. They are currently growing at an annual pace of about 16 percent—a percentage-point higher than necessary to double exports to $3.1 trillion by 2015.”
But since January, European economies have collapsed, recovered and collapsed again. The U.S. jobs market has stalled. China—inexorable China—is wobbly. And while U.S. monthly exports hit $184 billion in March, they backed down to about $182 billion in April, the last month for which information is available.
Projections suggest slower export growth ahead. But worry not: The president hasn’t done the wrong things. It’s just that when it comes to growing exports, presidents simply can’t control the things that really matter. It turns out that generating exports—and export jobs—is less a function of government action than a result of things largely outside any president’s control.
THIS ISN’T A MATTER OF PARTISAN SPEECH but of understanding the limits of government where exports are concerned—something with which Republicans and Democrats both struggle.
You can find the root of the problem in the president’s Jan. 27, 2010, State of the Union. The passage on exports is so brief that we can quote the whole thing here, courtesy of the White House website; we’ve retained the White House’s very helpful notes on crowd response:
Third, we need to export more of our goods. (Applause.) Because the more products we make and sell to other countries, the more jobs we support right here in America. (Applause.) So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. (Applause.) To help meet this goal, we’re launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security. (Applause.)
We have to seek new markets aggressively, just as our competitors are. If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. (Applause.) But realizing those benefits also means enforcing those agreements so our trading partners play by the rules. (Applause.) And that’s why we’ll continue to shape a Doha trade agreement that opens global markets, and why we will strengthen our trade relations in Asia and with key partners like South Korea and Panama and Colombia. (Applause.)
There are fewer applause lines in your average television sit-com, and probably fewer errors.
The president made at least two crucial mistakes. First, in creating the National Export Initiative, he suggested that what he was proposing was somehow path-breaking/remarkable/unprecedented. It wasn’t. Second, he assumed a link between job growth and exports. There isn’t.
Go to the NEI’s own website for evidence that the president’s new, bold initiative is actually neither new nor bold. You’ll notice that the government scribes who drafted content for the site work first to lower our expectations. On national television, in the State of the Union, we got standing ovations for the president’s sweeping visions of a mighty nation roused to macroeconomic action; here we get microeconomics, humility and honesty: “The decision to export is one fundamentally made by U.S. business owners, entrepreneurs and farmers.”
Translation: You’re more or less on your own.
On the other hand, they (the scribes) assure us that the government can indeed help. But the help will come in fairly conventional areas. “U.S. companies, particularly small and medium-sized enterprises, often face hurdles when trying to close an export sale including lack of readily available information about exporting and market research, challenges obtaining export financing, strong competition from foreign companies and obstacles thrown up by foreign governments,” the website reads. “This suggests an important role for the federal government.”
Important? Maybe. But not new.
ON MARCH 11, 2010, SIX WEEKS AFTER HIS SPEECH, the president signed Executive Order 13534, creating the National Export Initiative. The order itself is more symphonic flourishes and booming bass drums than real action. It created the Export Promotion Cabinet (whose members are heads of various government departments and agencies or their designees) who “shall meet periodically and report to the President on the progress of the NEI.” Oh, and they “shall coordinate with the Trade Promotion Coordinating Committee (TPCC), established by Executive Order 12870 of September 30, 1993.”
Bottom line: One new committee shall meet with an old one.
There follow some general ideas about trade missions, commercial advocacy, expanding export credit … you can practically hear the sounds of a major recycling effort.
The reason for the recycling: American presidents have no power over the real variables affecting U.S. export growth. At least one critic, Foreign Policy’s Daniel W. Drezner, understood this. Blogging around the time of the State of Union, Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University in Massachusetts, declared, “Obama’s National Export Initiative will have no appreciable effect on export flows.”
In just a few paragraphs in a mere blog post, Drezner discounted the president’s proposals from breathtaking to merely windy. “The fundamental drivers for U.S. exports are the rate of economic growth of the rest of the world and the exchange rate value of the dollar,” Drezner noted. “If the dollar depreciates in value and the rest of the world experiences high rates of economic growth, then exports will take off. Everything else would generously be described as window dressing.”
AS ANYONE WHO HAS PURCHASED plantation shutters, curtain rods or drapes can tell you, never underestimate the value—or the cost—of window dressing. It blocks out harsh light, creates a sense of privacy, hides our shame.
But what this particular window dressing also blocked or hid was the reality that an export economy—even one that doubles its output—doesn’t necessarily produce jobs. And creating American jobs was the point of the president’s National Export Initiative.
Even the most optimistic observers grudgingly concede that what’s good for exporters is not necessarily good for a blue-collar worker in Ohio. In “What Export-Oriented America Means,” his brilliant essay in The American Interest, Tyler Cowen says there are three reasons to believe American businesses will, in fact, double exports in the five-year period ending 2015—and then destroys our innocence vis-à-vis job growth.
FIRST, HE SAYS, AUTOMATION IS MAKING production cheaper in the U.S. “The less manufacturing has to do with labor costs and relative wage levels, the greater the comparative advantage of the United States,” he says.
Second, Cowen says, “the recent discoveries of very large shale oil and natural gas deposits in the United States” mean cheaper fuel for American industry, and exports of that fuel and associated technologies around the world.” Let’s all agree that when it comes to fracking, opportunity rocks.
Finally, because the U.S. specializes in the accouterments of middle-class life, the rise of a global middle class will boost U.S. exports. Cowen sums it up this way: “The closer other nations come to our economic level, the more they will want to buy our stuff.”
So, there you have it: “Export success will resurrect the United States as a dominant global economic power,” Cowen believes. “America will be wealthier, its products will have greater global reach, and it will largely cure its trade imbalance with China. The fear of American foreign policy being determined by Beijing, or constrained by the financial resources of the Chinese central bank, will be forgotten. No one will view the United States as the borrowing supplicant in the U.S.-China economic relationship, and, all else equal, our exports to China will increase friendly feelings toward that country.”
This model—of a resource-exporting country that manufactures high-end goods in worker-free workplaces—might not sound like a wealthy country, not in the sense of one that produces jobs in great numbers. But Cowen suspects there will be real advantages. “As a major exporter (among other strengths), the United States can be expected to maintain and even extend its investments in its Navy and Air Force,” he writes. “The current defense budget austerity won’t last very long, meaning, among other things, that it won’t be a fun time to be a pirate. Parts of the Pacific may, politically speaking, become a ‘Chinese lake,’ but the two economically dominant countries will favor both open seas for trading and some approximation of global free trade, albeit with remaining protections in China itself. The United States will solidify its relationships with Latin America, and the old dream of an economically integrated New World will largely come true. Our neighbors to the south, too, will be buying a lot more U.S.-made goods.”
And because they will have been wiped out by outsourced production or insourced-robot production, labor unions will no longer be in a position to shape this new America—either through opposition to free trade or via project-labor agreements on the massive infrastructure projects that will likely follow this boom.
And Cowen suspects Americans will still get their jobs—though at far lower rates of pay—“in health care, education, services and government, areas that are largely insulated from foreign competition and that will themselves seek out export markets.”
Cowen doesn’t point out that many of these jobs, of course, represent their own grave threat to the nation’s future: The financial burden of the defined-benefit pensions and health-care benefits associated with jobs in the public sector are already scuttling city, county and state budgets across the country.
If all of this has you feeling glum, consider the example of recent German export history—“inspiring,” Cowen says, but “sobering, too.”
“At the beginning of the last decade, Gerhard Schröder’s Social Democrat government decided to reform labor markets and revamp Germany’s export prowess,” he writes. “These policies succeeded beyond most expectations, but less well advertised is the fact that real wages in Germany’s export sectors have been stagnant or declining, depending on which measures are used.”
The alternative—no jobs at all—is too grim to contemplate.
“We will continue to cut a proverbial ‘deal with the devil,’ in which ever more jobs will be created in the relatively protected service sectors, while much of the economic dynamism and income gains will accrue to the capitalists, CEOs and managers who dare to export.”
SO, AN EXPORTING BOOM IS ALMOST INEVITABLE—whatever presidents do—but won’t necessarily/invariably/inevitably create jobs. Should you worry?
That depends on your political philosophy. Democrats like the president (and going back to Andrew Jackson and the urban political machines of the nineteenth century) believe the government has a responsibility to create work. That may be. But if you want an example of governments that focus on job creation, take a look at North Korea where human technology is expensive and people are cheap—and so men and women spend hours each day sweeping Pyongyang’s empty highway system with brooms like something out of your kid’s Halloween pageant or the Renaissance Pleasure Faire. Where one guy driving a machine in the U.S. can clean 40 miles of roadway in a day, thousands of North Koreans are required. Now that’s job creation.
The idea that creating jobs is the full measure of the president’s activity is so pervasive that Republican activists have unconsciously accepted its corollary—that the job of business is to create jobs. Hence the Republican Party’s manipulative use of the descriptor “job creators” when they really mean to say “businesses” or “investors” or even just “rich people.” You don’t have to be a Democrat to guess that “job creators” was focus-grouped by conservative pollster Frank Luntz in order to appeal to President Obama’s constituency. But if you’re a business owner, you already understand its damaging implications: Republicans want Americans to believe that the primary job of business is job-creation.
It’s not. The primary goal of business is to create profit. There’s no question that it must do that in ways that are consistent with law and, more than that, morality. But jobs? That’s what a business produces as a byproduct when it has no other way to produce a profit.
The president’s larger ambition in 2010 was arguably to rally Americans to a point of view—to see the world as a marketplace for American products. That was a reasonable, legitimate and even honorable goal. But his blueprint for doubling exports—promising that government could manage the biggest things (foreign currency and economy) as well as the little things (that he would, as he said in his 2012 address, “go anywhere in the world to open new markets for American products”) was unsound in principle. Exports do not necessarily produce jobs. The world is not, as the president’s plan assumes, a place of competing nation states involved in zero-sum/binary/export-import calculations and easy-to-manage domestic job-growth. It’s more like chaos theory or multi-level chess.
Nor can the president bash American companies for moving jobs overseas; those companies are often also—in the real world, the one that’s more like multi-level chess—America’s leading exporters. And those exporters are making investments overseas and growing their wealth without much regard for boundaries—and no honest desire to grow jobs for the sake of job growth. They are not “job creators” except by accident. Sometimes, they’ll move jobs overseas. Sometimes they’ll bring them back to the U.S.—“insourcing,” has become a buzzword as popular among Beltway economists as the English boy-band One Direction is among tween girls.
If they are smart, and if they can, manufacturers will simply reduce the labor required to produce a product or service.
“The fact of the matter is these are the firms that account for two-thirds of American exports,” Gary C. Hufbauer said of companies that sometimes move jobs offshore. A senior fellow at the Peterson Institute for International Economics, Hufbauer noted that those offshore flows of capital and jobs “are intimately related to their exports. The notion that you can punish U.S. firms for investing abroad and still see exports rise is bunk.”
Bunk. Even the president’s friends and trusted associates understand this. In February, the Daily Caller, an online news site, reported that Matthew Rubel, one of the president’s private-sector trade advisers, also sits on the board of a Minnesota-based company called Supervalu. Months before Rubel’s September 2010 appointment to the president’s Advisory Committee for Trade Policy and Negotiations, Supervalu announced that it would move “149 white-collar jobs—including numerous high-tech jobs—to an India-based info-tech firm.”
THUNDERBIRD PROF ANDREAS SCHOTTER MAY HAVE DISCOVERED A SECRET TO REAL GLOBAL SUCCESS. HE CALLS THEM ‘BOUNDARY SPANNERS.’ YOU’LL CALL THEM ‘ESSENTIAL.’
Andreas Schotter is 45, six-foot-three and looks every bit the competitive rower he was when he won a silver medal for Germany in the World Games at 19, and represented Hong Kong in the scull just seven years ago. He describes corporate management in language lifted from the B-school vernacular, as well as from psychology, sociology and the human-potential movement. His accent reveals his German origins, but he also carries a Canadian passport. He’s got permanent-resident status in Hong Kong (lived there for 10 years) and (no mere academic wonk) he ran Asia-Pacific operations for a global manufacturing company, and later (with Indonesian-Chinese partners) owned a manufacturing business in Australia and China.
But at the moment, Dr. Schotter is in his office at Thunderbird School of Global Management in Glendale, Arizona. He’s talking about his path-breaking study of 150 multinationals, an investigation that ultimately revealed the presence in successful global firms of special managers. These “boundary spanners,” as he calls them, are men and women who transcend the everyday tug-of-war between parts of companies, individuals who “psycho-socially” (he says) bridge the boundaries (such as geographic, class, political, ethnic, religious, racial, sexual) that divide their organizations, and turn those divisions into opportunities for profit.
Part of the challenge of studying boundary spanners, of course, is that they don’t wear the title. You may find them almost anywhere in an organization’s upper management. And it’s almost impossible to put a cash value on their work. Still, through a complex series of measurements and a sample of over 150 name-brand global companies (with and without boundary spanners), Schotter says he and his colleagues have found strong support for one conclusion: “Organizational performance in the presence of boundary spanners is higher than for organizations without them.”
“Many executives like to think they live in a large multinational but homogenous family,” Schotter says, with the emphasis on family. “In reality, in many corporations there’s a competition between different subsidiaries for headquarters’ attention—for funds, for recognition, for support,” he says. “And this is the fault of the headquarters.” The solution is the boundary spanner, “someone who is able to facilitate transfers of knowledge and expertise despite the intrinsic counter-incentives”—counter-incentives like the me-first impulse, or what Schotter calls the “corporate never listens” response, these and similar barriers to the free-flow of information that bedevil every organization.
In last year’s “Performance effects of MNC headquarters-subsidiary conflict and the role of boundary spanners: The case of headquarter initiative rejection” (Journal of International Management), Schotter and co-author Paul W. Beamish list the sources of such “intra-organizational conflict,” beginning with “market and customer preferences, global and local competitors’ strategies, host-country and home-country regulatory requirements, strategic misalignments, asymmetries between local and global industry dynamics, managerial self-interests, psychosocial characteristics of managers at both headquarters and the subsidiaries, and many more.”
Many, many more: the kinds of hurdles you’ve encountered if you’ve worked for even a short time in a global company: distance, tradition, habit, race, gender, religiosity, culture, habit, prejudice . . . . You get the picture.
With his colleague Beamish, Schotter identified five characteristics of a boundary spanner: “high levels of what we call bipolar context understanding, high levels of professional expertise, strong and wide reaching social ties, awareness of the need for boundary spanning, and a global mindset.”
But if you follow him in conversation—if you’re keeping track at home—Schotter adds other characteristics. That “high level of expertise,” for example, is probably responsible for creating what he elsewhere calls “legitimacy.” And then there’s “dual embeddedness” (that is, the boundary spanner has some work experience in his or her home-country subsidiary and at corporate HQ, wherever that is) and length of service (the typical boundary spanner “has been with the firm for a long time—between nine and 12 years”). In addition to a psychological profile characterized by “bipolar context understanding,” there’s the fact that boundary spanners “are not driven by money alone. Money is not even a key motivator. While they like monetary rewards, they are more driven by social rewards—trust, decision-making authority beyond their job responsibilities and fairness.” They generally have at least one second language, and often several. They’re highly educated, with many holding multiple degrees.
When I suggest that the psycho-social stuff makes it sound as if boundary spanners are created in utero rather than in business schools, he agrees—sort of: “In the international context they are indeed somewhat ‘born,’” he says, and then stipulates that he is “not necessarily in favor of this term” (i.e., “born”) because “we have found evidence for nurture over nature or at least that boundary spanners’ personal traits have been influenced by certain psycho-social events early during their lives.”
“I have a manager in my sample,” Schotter says. “He works for the world’s leading manufacturer of prosthetics. He’s from London. His spouse lives in Paris. He works half in Germany and half in China; I don’t know how he does it. He’s truly a global manager. But he’s not a boundary spanner because he’s disbursed so much to different places. He’s a boundary spanner because of the way he addresses the needs of the business.”
What way is that? Boundary spanners, Schotter says, “look for the best solution at both ends of the headquarter-subsidiary dyad.” Sometimes that means the tail wags the dog—that corporate should adopt processes, procedures and products developed in a subsidiary. Sometimes it means the boundary spanner pushes back against headquarters if a headquarters initiative doesn’t make sense for the subsidiary or for the company at large. “But they also convince subsidiaries that there are HQ-initiatives that may not benefit the subsidiary but benefit the larger network.”
Schotter waves off the suggestion that boundary spanners are merely the latest iteration of what we used to call “expatriates.” Indeed, the word appears to sicken him slightly. “We need to get rid of the term ‘expatriate,’ he says. “It’s almost a colonial term. It really is top-down terminology.” An “expat,” he explains, was traditionally called in “to control foreign operations” or to transfer knowledge from the center to the periphery, from headquarters to the subsidiary. It was very one-way, and, “at one time, much needed and even very effective.” But times have changed, he says. What your organization really needs is a boundary spanner, a manager who can move information “from both ends—from headquarters to the subsidiary or from the subsidiary to the headquarters.”
Nor is a boundary spanner just someone who’s been around the planetary block a few times. “It’s not only that these people know how to speak Chinese in China, or Spanish in Mexico, or German in Germany.” Nor is it enough merely to be culturally sensitive, “to know that the Germans like to drink beer and the Chinese hand their business cards over with two hands. That’s not it. That’s just cultural awareness. The real deal is to understand the needs—how to think like a Chinese in China even if you’re not Chinese.” It is, he says, “about how you perceive others.”
And then Schotter zeroes in on his central point: “How we can be sure that my German boss understands that I’m not out here [in a subsidiary] creating an annoying hassle that divides the organization and disturbs global efficiencies. In fact, I have a huge opportunity that we can exploit not only here in the faraway market but potentially globally, even back in our home market in Germany.”
This is the place where Schotter becomes almost evangelical or maybe revolutionary in describing the implications of his observations. In his cosmology, the corporate world isn’t Thomas Friedman’s flat earth, but what Schotter calls “spiky”: no point in the company is a beginning or end, better or worse, a center or a point on the periphery. “But every point is unique and provides learning opportunities,” and learning—if you know your business professors—is where the corporate profit is.
The boundary spanner gets that, and is at ease in that spiky world. The boundary spanner “takes the learning from this market and transfers it across the network, eliminates dysfunctional conflict, creates inter-organizational trust, and nurtures transnational management efficiencies.”
The boundary spanner does all this, Schotter concludes—and this is key—“even without holding the highest level of formal power in an organization.”
“It helps if you understand the traditional models” of global corporate organization, Schotter says. “There are two basic patterns you can see. There’s the pattern of the headquarters as a controller of information, the master database. That’s very antiquated. Then there’s the other pattern of very dispersed information networks,” where the danger is that no one communicates with anyone else.
“These are the two extremes,” he says. What you want now, Schotter continues, is to “create hubs where people come together for information sharing.”
“’Hubs’ like a meeting?” you ask.
No, no: not a meeting, Schotter says, though that’s how global companies typically interpret it. “Usually what happens is that those meetings are extremely structured in firms: People come together, they report their data, and these reports are compiled and reported in such a way that everybody can be compared based on global standards only—the subsidiary in Brazil reports sales figures and gross figures and tells you maybe one or two interesting things that give some credit to the Brazilian subsidiary. Then the China manager steps up, and then the German. The next one is from South Africa, and then from Australia. At the end of the day, everyone has told his or her story but nothing new has been revealed. Nobody explained the underlying local business-execution stories.”
We don’t want that—these “one-directional meetings,” Schotter says. “The key here instead is to create communication opportunities that go outside these structured reporting self-promotion fests so that the manager from Brazil starts to know the manager from China at a personal level, and that they start to discuss the little problems offline.”
So, you suggest, why not create something at headquarters like the United Nations or the Galactic Senate in Star Wars where odd-looking creatures from distant planets sit in close proximity and resolve differences? Why not just bring managers from far-flung subsidiaries into the headquarters building to represent the interests of their subsidiaries? Call it the company’s Parliament of Boundary Spanners or something?
Schotter says that’s how most companies work today: they treat the subsidiaries as a minor league or development squad, drafting the most talented boundary spanners for a role in New York, London or Paris. The result, Schotter suggests, is often lose-lose. Those boundary spanners “lose their local embeddedness and their connections with those stakeholders who are located relatively farther away from the center of gravity in any firm. A global function creates very complex trade-offs and while understanding the overall organization is important the relative importance of the sub-unit for such a manager is being reduced. This includes the sensing abilities in each of the local contexts as well as the understanding of the local environments.”
In the end—literally: it’s in their conclusion to last year’s Journal of International Management article—it’s important to remember that conflict over boundary issues in a global organization is inevitable. But there’s hope. “Managing these dynamics within MNCs should not be regarded as a dilemma,” Schotter and Beamish write, “and global integration efficiency and local responsiveness effectiveness are equal sources of competitive advantage for MNCs. Those MNCs that achieve high levels of both are among the best performing.”
Or, as our Buddhist friends say, pain is inevitable, suffering is not: it’s possible to not merely tolerate boundary conflict but to transform it into something profitable.
IN THE RED
Should the U.S. adopt Chinese business practices?
Americans love China. Americans hate China. We asked two experts to explore the troubled relationship between the world’s biggest trading partners.
Can we learn something from the Chinese about manufacturing? We asked Global Trade contributor Greg Autry to speak with New York University professor Ann Lee, author of What the U.S. Can Learn from China: An Open-Minded Guide to Treating Our Greatest Competitor as Our Greatest Teacher.
A former investment banker and hedge-fund partner, Lee has an informed (albeit cynical) view of Wall Street, and she’s been an adjunct professor of economics and finance at New York University. Her China insights are also very personal. As a former visiting professor at Peking University, she’s spent a great deal of time on the ground there. But it’s more personal than that: her family fled the Communist state. In What the U.S. Can Learn from China, she notes her father will always be “biased against China’s leadership no matter what evidence I cite because the Chinese Communist Party ruined his family, stole their wealth, and condemned them to a life of hardship and misery.”
For his part, Autry is a lecturer at the University of California Irvine’s Paul Merage School of Business. He’s also (with his colleague Peter Navarro) an author himself—of Death by China: Confronting the Dragon, a book you can safely judge by its cover.
Their conversation took place by phone and email in late January. We have edited it for clarity and length.
Autry: What would you tell an American who’s lost his job at the factory and had to take two retail jobs without benefits selling Chinese-made goods to his fellow Americans about why the U.S.-China relationship has been mutually beneficial?
Lee: I would say that his job loss is the result of U.S. policies. We have a tax policy that doesn’t tax corporations for overseas profits so there’s no incentive for them to invest in America. Meanwhile individuals like that factory worker get taxed on earned income. So there’s significant bias in our tax code. The fact that there is no retraining—that people on unemployment can’t to go back to school to get retrained if they want to continue receiving unemployment checks—is another flaw. We have three million jobs in the U.S. that go unfilled for six months or longer, and most of these are in technical fields, including manufacturing; we should be retraining people to work on high-tech manufacturing. Simply to blame the Chinese is not being cognizant of all the things the U.S. government can really do to help that factory worker get back on his feet.
But I also really don’t think they [U.S. workers] want to take on these cheap, labor-intensive jobs that some companies have outsourced to China. They [U.S. manufacturers in China] pay the Chinese nothing, and I don’t know anyone here in the United States who would work for $5 a day. Even if the job left China, it wouldn’t come back here for them. It would either be replaced by machines or go to another country with cheap labor.
AUTRY
Is Western progress undermined when companies can simply circumvent U.S. law by manufacturing in China?
LEE
If companies want the benefits of U.S. incorporation, then U.S. policymakers can dictate the rules they follow.
Autry: I see large, nominally American, multinational corporations as exploiting Chinese workers—with the sanction of the Chinese Communist Party—by running over to Shenzhen to take advantage of subsidies and a lack of regulatory enforcement which produces labor abuse, environmental destruction, and quality shortcuts that increase corporate profits.
Lee: Environmental issues and labor abuses have been a problem for every single country that went through industrialization. Charles Dickens documented child labor abuses in England, and the U.S. has had its share of labor and environmental abuses. The Cuyahoga River [in Cleveland, Ohio] caught fire because of excessive pollution in the U.S. as recently as 1969. While it took centuries for Western countries to correct these issues, Chinese leaders recognize them and are making changes so that hopefully they will be corrected within the next couple of decades.
While I don’t condone Chinese labor abuses in any way, I believe the U.S. government shares the blame on this one. The U.S. government encourages outsourcing through its free trade and tax policies. If corporations abuse labor in the states, we all condemn them. But when corporations such as Apple exploit people in other countries by hiring intermediaries such as Foxconn, we worship Steve Jobs as a hero. Stockholders love the high profit margins, and consumers love the low prices. In the meantime, we blame China for our loss of jobs. There is inherent hypocrisy in this line of argument.
Autry: I think our readers are likely to acknowledge that industrialization is—or at least has been—an inherently messy (sometimes even ugly, violent, racist) process, but also that the West has done a lot (and continues to do much) to restrain its worst excesses. But is such progress undermined if manufacturers can simply circumvent U.S. law by manufacturing in China?
Lee: How U.S. corporations behave is completely within the control of U.S. regulators. If corporations want the benefits associated with being a U.S. corporation, then U.S. policymakers can dictate the rules they must follow—including whether to outsource to China. The problem with blaming China is that the U.S. never accepts responsibility for its own actions. Before China, Americans blamed Japan. I’m sure once China is out of the picture, there will be someone else to scapegoat. Rather than make it a national pastime to blame someone for the nation’s ills, U.S. citizens must recognize we can always define our own future. Whether we have the political will to do the right thing is entirely up to us.
Autry: In your book you suggest that China’s economic and geopolitical rise is the outcome of some positive political and cultural traits that might offer a model for America. What are these traits?
Lee: When the communists in China took over—back when Mao was in power—they really wanted to have a strong China. But they didn’t have the right policies and the right people in place. That led to the starvation of millions of Chinese. It was a complete disaster. Everyone knows what went wrong now. But I think something went right: the Chinese continued to try, continued to keep an open mind about what would work and what wouldn’t work. Instead of being completely married to an ideology, they started to pay attention to practical solutions. They tried to incorporate those practical solutions into their ideals, and that was what I think led to the rise of modern China.
Autry: So, one of the positive traits is ideological flexibility. In your book, you praise China’s current leadership for its willingness to adopt some features of market capitalism. But isn’t there always the possibility that because China is still authoritarian that it will produce another Mao and another disastrous Cultural Revolution?
Lee: There are risks in any system. In my book I say that systems have to match the time and the situation. In my chapter on meritocracy, I give examples of other countries that started out with benevolent authoritarians because they needed to make dramatic changes. Sometimes, having that sort of system is the most effective way to a peaceful transition to an industrial society; once that transition occurs, a more democratic system can replace it. I am not suggesting that [China’s] authoritarian practices get exported. In fact, I’m talking about specific principals—trying to give everyone a fair shake in terms of having power. And that is actually more democratic—so that people don’t rely on money to get power, but on their merits.
Autry: Let’s talk about the challenges for Americans of really getting a handle on the Chinese market. Take the country’s own estimates of its industrial output: A Wikileaks cable quoted Vice Premier Le Keqiang saying, “China’s GDP numbers are manmade artifacts,” and that even he doesn’t trust them. Do you trust what the Chinese government tells us? Or do you have to take all that with a grain of salt?
Lee: I do take their numbers with a grain of salt. But I think they’re sometimes under-reported as opposed to over-reported. For instance, I think the consumption numbers are much higher because many Chinese people still use cash and/or use the barter system so those transactions are difficult to capture in official statistics. They also tend to spend a lot of money outside their borders so that those numbers are not captured in China’s GDP consumption numbers but are instead captured in those of another country. When they go to America or Europe as tourists for instance, they make lots of purchases because in the Chinese culture you buy gifts for your colleagues and your bosses which tend to be luxury items that are very expensive. All those numbers don’t get reported in China’s GDP consumption numbers but are instead in America’s and Europe’s consumption numbers. That is why I think a lot of numbers go missing.
Autry: You suggest that the U.S. must be careful not to create a military adversary out of China. This strikes me as peculiar since the U.S. has been historically the friendliest of Western nations to China—not with a perfect record, but I think of the Boxer Rebellion scholarships of 1909, U.S. sanctions on Japan following the Rape of Nanking, and the volunteer Flying Tigers defending China against the Japanese. Indeed, America’s entry into World War II was obviously very beneficial to China. And yet, since Mao’s postwar rise, China has used America as an external boogie man to create unity within China. As an American, I find that unfair and offensive. Do really think it’s America that is creating the tension here?
Lee: Yeah, I think it is. We’ve had a history of prejudice against Chinese in America. If you go and look at history, it’s well-documented—starting with the folks that worked on the railroads and so forth; they weren’t even allowed to have children. This prejudice is long-lasting in the U.S. I agree that the U.S. has been friendly in helping China open during Mao’s last years, but that was mostly because the U.S. was trying to use China as a counterpoint to the Soviet Union.
And I think China hasn’t really done anything to threaten the U.S. in any way other than economic growth. Most Chinese admire the U.S. and would like China to be friends with the U.S. On the other hand, I think China’s economic growth and the relative decline of the U.S. have alarmed many citizens in the U.S. who don’t fully comprehend the reasons for the rapid changes. A lot of U.S. politicians who won’t take responsibility for their own policy mistakes would conveniently scapegoat China and say all the jobs are gone because of China. They use name-calling and other demagoguery by accusing China a “currency manipulator.” Even though we started out as friendly partners, and the early U.S. presidents—Nixon, Carter, Reagan—all had very strong relationships with Chinese leaders, of late the rhetoric has been much more hostile. A Cold War mentality has returned to both nations—a very unfortunate development.
China has not had any military designs on the U.S. and never would because that wouldn’t make any sense. Obviously, the U.S. being the strongest military power has no reason to fear China’s military. I think the tough rhetoric and the announcement by President Obama to redirect and redeploy Marines to Australia is sending probably the wrong message. That’s not going to help relations, either.
AUTRY: You say the Chinese admire Americans, but the leadership itself seems mistrustful of democracy.
LEE: Yes, I agree that some people in China dislike democracy, especially those government officials who enjoy absolute power. However, my prediction is that this will change within the next decade. China is already debating how and when to change their system of one-party rule. Many more open-minded high level officials recognize the system needs change, and I am hopeful that the change will come. I also believe that the Chinese people and government will be friendlier with the U.S.—that is, unless we continue to bash and threaten China.
AUTRY: What do you hope people take away from your book?
LEE: Basically my message is that people need to keep an open mind. I’m not endorsing all things China at all. I’m only suggesting that there are certain principals that can help the United States stay strong and productive. Every country has its strengths and weakness. We know what China’s weaknesses are and they’ve been articulated by folks like yourself and others. What we all need to consider is “What are the some of the best practices? What are things to that do work? How can we adopt them here and make our nation stronger?” I think that would be the more positive takeaway.
POETRY IN OCEAN
The USPS honors the U.S. Merchant Marine for service so courageous that FDR relaxed his ban on awarding medals to civilians.
Is it still necessary—69 years later—to issue a spoiler alert for Action in the North Atlantic, the 1943 movie starring Humphrey Bogart and Raymond Massey? Consider yourself warned.
Action follows Bogart and Massey as officers in the World War II-era U.S. Merchant Marine. It’s classic Bogart: tempted by the promise of living comfortably ashore with his new wife, he nevertheless follows the call of duty: “We’ve been hanging around Axis ports for a long time, and we’ve seen what they do,” he tells the missus. “What we’ve seen ain’t nice. So we can’t sit around holding hands with all that going on.” Bogart and Massey sign on with the SS Seawitch, part of a death-defying convoy that will attempt to relieve our Russian allies in Murmansk. In the climactic scene, the convoy steams into a deadly metal pod of German U-boats. Our heroes use their very own Seawitch to ram and sink their German antagonists, and then practically drift into the harbor at Murmansk, damaged but proud. Grateful Russians cheer. Triumphant music swells. Credits roll.
We thought of Action in the North Atlantic when we ran across the U.S. Postal Service’s new stamp commemorating a Liberty ship like the one Bogart and Massey used to crush the Huns. The stamp is part of a series honoring the U.S. Merchant Marine, and also features “clipper ship,” “auxiliary steamship,” and “container ship”—this last one reportedly based on a photo of the R.J. Pfeiffer operated by the Matson Navigation Company and steaming eastward across the Pacific as we went to press.
“Since colonial times, America’s merchant ships have plied the oceans and other navigable waters conveying goods and passengers,” reads an explanation accompanying the summer 2011 issue. “During wartime, they have also helped deliver troops and war materials.”
The Merchant Marine is a hybrid—part commercial enterprise, part U.S. military. Though privately owned and run by civilians, the ships are available to serve (sometimes urgent) government demands. Its crews have proved as brave as Bogart—so courageous that, in the case of merchant mariners serving in World War II, President Franklin D. Roosevelt relaxed his ban on awarding medals to civilians.
The U.S. Merchant Marine bailed out soldiers and civilians in Korea and Vietnam; it was there at the beginning of the Afghan and Iraq wars; member ships relieved New Orleans in 2005 after Hurricane Katrina and the Gulf Coast after the 2010 Deepwater Horizon oil spill.
The Postal Service’s 2011 series is not the first time it has honored the Merchant Marine. That would be in 1946, when the USPS released its first Liberty ship stamp, “U.S. Merchant Marine: Peace and War.” Unveiling the stamp, Assistant Postmaster General Joseph J. Lawler recalled “that 604 large American merchant ships were sunk by the enemy during the conflict” and “noted that Crew Casualties [totaled] more than 5,000 dead or missing in action.”
The stamps are called Forever stamps; it says so above each vessel in the series. The USPS will tell you that means the stamps “can be used to mail First Class letters no matter what the postal rate.” But in this case—in the case of the men and women who run these ships on behalf of strangers back home—we prefer to think of the word “forever” in more poetic terms.
—Andrew D. Kelly
EXPORT OAR ELSE
Shipping canoes in a cargo container is like working a Rubik’s Cube, a task that requires an engineer’s smarts and the patience of geological forces. It was so hard in the beginning that Osagian Canoes almost abandoned its hope of becoming a global company.
“For years, we sent them assembled and just didn’t sell very many,” says John Carr, VP of Osagian’s parent company, Lebanon, Missouri-based Carmeco Inc. Fitting just 20 canoes to a cargo container, Carr says, “it cost us almost as much to ship the canoes as we made on them. And it was always a chore to get them in there.”
OSAGIAN’S CARR
“I thought I was going to have to learn German. I learned that English really is the international language of buisness.”
Carr allows that there was occasionally a little loss of faith and maybe some cursing. Because along with the frustrations of shipping their canoes to foreign markets was the realization that the U.S. market is pretty mature, canoe-wise: 30-year-old Osagian was selling a steady 800 canoes per year, with no growth in sight . . . unless it was offshore.
Nevertheless, along with Carr’s anxiety about foreign languages and unenforceable contracts, the cargo-container puzzle was enough to keep Osagian Canoes in dry dock. And when he got the occasional call from an interested foreign buyer? “As soon as we talked about freight prices, well, we usually just gave up.”
And so the company’s export effort limped along, hampered by questions that have bedeviled generations of moving men—the questions of square pegs in round holes, the diabolical shape of a canoe and the container into which it must fit for export.
As recently as 2010, foreign sales accounted for a measly 1 percent of company revenue.
Then Carr attended a Commerce Department ExporTech workshop; that helped relieve his language and legal worries. (“I learned that English is the international language of business,” he says. “I thought I was going to have to learn German.”) And then out of the chaos came an answer to the cargo-container challenge, like something handed down by the Ikea furniture gods: if they shipped the canoes in pieces and assembled them on the other end, Carr and his colleagues could move up to 400 canoes in a single container. That would cut delivery costs dramatically, from about $250 per canoe to something like $12.50.
The solution hinged on the presence in Europe of an assembler. Carr turned to Claus Nielsen, a Danish outdoorsman and fanatical oarsman who, Carr says, “just really loved our product.” Nielsen had already asked Osagian if he could represent the firm in Europe. Osagian went a step farther, making him an employee.
The plan unfolded in October 2010. Osagian shipped unassembled canoes to Copenhagen; Carr, his brother and the Osagian Canoes plant supervisor flew in behind them. The trio showed Nielsen how to assemble canoes for transshipment to distributors throughout Europe.
Osagian has made three such shipments and will complete another in a few weeks. Foreign sales now account for about 20 percent of total sales, Carr says, “and we hope to grow international to be about equal to our U.S. business.”
Carr says the experience has taught him something about geography: “It’s not that big of a world out there.”
—Will Swaim
NEW RULE: BRING A BELT AND SUSPENDERS
Yes, yes, yes: we’re all bullish on global trade—from President Barack Obama (who appears to have been prophetic in his bullish 2010 promise to see the U.S. double exports by 2015) to the chatty guy with the oversized ego sitting next to me in business class on a 16-hour Cathay Pacific flight into HKIA (you know who you are). Amidst all the intoxicating optimism, it’s a weird sort of relief to read “Locate the Nearest Exit,” the Ninth Commandment in Perry Newman’s new book, The 10 Commandments of International Business—and other rules to observe religiously.
“It may seem counterintuitive, even a bit defeatist, to contemplate the potential failure of a deal or the collapse of an effort to enter a new market, particularly if you’re just starting out and are excited by the prospects of going global,” Newman writes. “But it’s essential to consider the possibility that things will go awry for one reason or another, and that you’ll have to abandon the effort.”
Conversational, generous, and smart, Newman’s primer is also (despite the Ninth Commandment) invariably upbeat. You can do it, he seems to say in such chapters as “Makest Thou a Plan” (the Fifth Commandment) and “Appoint Thee a Moses” (the Sixth). And then, suddenly, in chapter nine, there’s this wonderful, bracing and undeniable reality: “Force yourself to consider the possibility that things won’t work out.”
“This is a particularly unusual suggestion,” Newman tells us, acknowledging that, sure, contemplating failure distinguishes his book “from many others of its ilk—given that so many government agencies relentlessly encourage entrepreneurs to go on trade missions and generally to get in the game whether they’re ready or not.
Newman should know. A writer, speaker and trade consultant, he’s spent a good part of his adult life working with big-time exporters as well as rookies. He is chairman of the Maine District Export Council; that he has served in that capacity under Bill Clinton, George W. Bush and Barack Obama tells you something of his diplomatic skills—that and the fact that the Canadian government picked Newman, an American, to serve as its first Honor¬ary Consul to Maine. He sits on too many trade-related boards to list (though we’ll mention our favorite, the delightful-sounding French-American Chamber of Commerce for New England), and has worked with the European Union on infrastructural development.
He knows international business, in other words, and so he’s seen a few major screw-ups. But even many of those worked out, he says, because the exporters had a Plan B.
NEWMAN AT THE TAJ MAHAL
Sometimes it’s worth thinking about the possibility that the glass is half full. And broken.
Newman recalls, for instance, the U.S. exporter who shipped frozen chickens to Russia. “This was when the country had just begun to transition from a command economy to one that more closely resembled a free market,” Newman tells us. “The product arrived in Moscow, but Russian customs authorities refused to release it to the importer, citing various alleged insufficiencies in the documentation.
Never mind that the American had hired a reputable logistics man; the Russians were adamant: these chickens would not cross the road. And to add international insult to injury, the Russians told the American exporter that he would be assessed “significant charges” while his birds cooled their already-frozen chicken heels in cold storage.
“Fortunately,” Newman says, the exporter “had taken precautions.” Knowing he’d be doing business in the wild West of post-Soviet Russia, he had established a relationship with a representative of the U.S. Commercial Service in Moscow before he shipped the product. Newman wants you to notice that the exporter “was not starting from a blank slate” when the shipment stalled: the exporter made two phone calls—to his newfound friend in the Commercial Service and his Russian sales agent. Each had been prepared for just such an eventuality; each called the recalcitrant customs agent. Even in Yeltsin’s Russia, apparently, that was enough to shake loose the chickens.
The Lesson: “You have to take a belt-and-suspenders approach, particularly with emerging markets,” Newman says. “You can do everything right, but mistakes—or, in this case, avarice—sometimes get in the way.”
Buy the book on Amazon.com. Email Perry Newman at pbn@atlanticagroup.com.
—Will Swaim
NEW TANG FAN
If you watched television between 1965 and 1985, you almost certainly saw the ad campaign linking Tang—the orange-flavored drink mix—to the American space program. Now part of Kraft’s Global Snacks division, Tang is winning market share in the world’s developing markets.
The trajectory—from space-age drink of astronauts to No. 1 choice of urban poor—isn’t as odd as it sounds. And let’s admit that one of these target markets is substantially larger than the other. Popularity in emerging markets accounts for the fact that, though it holds a measly 2.5 percent of the powdered drink-mix market in the U.S., Tang has become Kraft’s twelfth billion-dollar brand.
Tang began life in the late 1950s as a General Foods product marketed with then-conventional tactics. The earliest print advertising reads like a chemical engineer’s spec sheet, featuring “instant,” “vitamin C,” and a well-manicured blonde. A black-and-white TV commercial from the era features two boys who awake in “the bunkhouse,” dress up as cowboys and then playfully shoot one another in a struggle over Tang.
The marketing campaign soon changed—dramatically and for decades. The proximate cause: In 1965, the Kraft website deadpans, “Gemini 4 astronauts bring Tang along on their mission. Tang is on board all manned Gemini and Apollo space flights over the next 10 years. Space theme is used in communications.” Indeed it was: A 1966 TV commercial features documentary footage of the Gemini space program—including an astronaut mixing and drinking Tang while his capsule floats like an enormous gas mask high in earth orbit. In the 1970s, playful cartoon aliens trade moon rocks for Tang. In 1983, it’s documentary film footage intercut with suburban domesticity—“from Gemini to the space shuttle to your family.”
The decision to put Tang in a space capsule was no mere product placement hatched in the General Foods marketing department. Among the modern environmental movement’s early heroes, engineers who designed astronauts’ flight suits created a recycling system to transform waste water (an anonymous NASA engineer refers to it euphemistically as the “byproduct of a recurring chemical reaction”) into safe if foul-tasting drinking water. The addition of Tang to that byproduct made potable palatable.
And still does. Market analysts say Tang has become popular in emerging markets for reasons the Gemini crew could relate to—pushed along by some thoughtful marketing at Kraft.
Sanjay Khosla, a Kraft executive VP and president of developing markets, attributes Tang’s success to “Glocal” marketing—that’s “go” plus “local” in a neologism that sounds like “global.” Nixing the one-size-fits-all strategy, Khosla doubled brand sales, from $500 million in 2006 to more than a $1 billion today.
IN PORTUGUESE IT MEANS “HELLO” AND “GOODBYE”
No, it doesn’t. But Tang that’s “new,” “fresh,” “modern,” amd “green” makes for powerful marketing in Brazil.
“I have been experimenting with this concept for a while, and I have realized that the difference is only in implementation from country to country,” Khosla has said.
Consider China, where Tang first appeared more than 25 years ago. Sales remained anemic until the company acted on research revealing that Chinese drink Tang hot and in smaller servings. Most powerfully, the research showed, while Chinese mothers wanted their offspring to drink more water, Chinese children, like their Gemini counterparts, don’t like the taste. This led to a new marketing campaign, smaller packaging, and a slogan: “Tang makes water more exciting.”
Similarly, Tang has always been marketed toward mothers as a great way to get Vitamin C into their children. But mothers’ dietary concerns vary by region. Kraft’s research indicated that Brazilian children were iron-deficient; Tang in Brazil is now fortified with iron. That may help explain soaring sales there—up 40 percent last year, making Brazil the brand’s biggest market. A new Tang factory opened in Pernambuco last year.
It’s not all taste and nutrition. Kraft Brazil president Marcos Grasso told Bloomberg he’s “fueling sales partly with a marketing campaign that encourages kids to recycle Tang packages so they can be made into pencil cases and backpacks.”
1 As humans become wealthier—in the Mideast and China, for instance—they abandon diets based on fruits, vegetables and grains in favor of meat and dairy products.
2 Beef and dairy cows eat up to 30 pounds of hay per day. But drought and lousy infrastructure make it difficult for China to satisfy its skyrocketing internal demand for hay; in the Mideast, according to Hay & Forage Grower, governments have routed “scarce water resources to . . . higher-value fruit and vegetable crops,”.
3 So, beef and dairy ranchers in both regions have turned to hay growers in the United States. Grower Greg Braun meets those ranchers at conferences around the world—in his capacity as president of Border Valley Trading, a 23-year-old California-based company, and as member of the U.S.-based National Hay Association.
4 Braun says Border Valley ships to “about 18 different countries. Three years ago, we shipped to about six different countries, so that tells you how much growth there has been in the export industry on alfalfa.”
5 Border Valley is representative of a broader uptick in the market. U.S. hay exports have doubled—from about 2% of all production in 2006 to nearly 4% today. “Any way you look at it, the growth has been striking,” a California state ag expert recently told Hay & Forage.
6 As rising demand drives up prices for U.S. hay, Mideast buyers have gone on a global buying spree of a different sort, reports Arabian Business magazine: “The UAE and other Gulf countries are investing in agricultural land in countries such as Egypt, Sudan, Pakistan, Kazakhstan and Azerbaijan to grow fodder, and they will begin to challenge the U.S. companies.”
7 Braun uses Los Angeles-based freight-forwarder International Solutions, an expert in the ways of hay exports. Starting with just one grower a decade ago, International now moves about 200 40-foot containers of hay per week for at least 25 growers, says Joe Zizi, CEO of International Solutions. Most of that hay leaves through the ports of Long Beach, Los Angeles, Oakland and Seattle/Tacoma.
8 Zizi has discovered that real-life ranchers are like their cinematic counterparts: “They like to meet face to face to do a deal. They’re salt-of-the-earth people. Their word is gold, is their bond. They don’t need a contract. A handshake is all they want.” Zizi shakes their hands and then manages their international letters of credit, cargo insurance and invoicing; makes sure the packing lists match the letters of credit, creates the ocean bills of lading and handles government reporting.
9 To prepare his hay for export, Braun compresses the conventional 48-inch bale to about half its length, and packs 24 metric tons into each 40-foot container. The hay has a shelf life of one year.
10 One benefit of the U.S.-China trade deficit: U.S. growers have a edge over their competitors (in Spain, Australia, and Canada, for example). The reason? Once emptied in the U.S., all those Chinese containers have to be filled with something for the return trip. That makes it cheaper to ship hay 6,000 miles from the Port of Los Angeles to China (about $30 a short ton) than to truck it 220 miles from Los Angeles to California’s Central Valley dairy farms (about $53).
11 If you’re looking for a Chinese burger in Shanghai, you want Malone’s American Café where the beef in your Double-Double is grown in China on a diet that likely includes California’s finest hay. “Almost all of the ingredients are obtained locally, including the meat, buns, produce and fries,” says restaurant writer Mike “Shanghai Expat” Finstad. “One ingredient that isn’t made locally is the Kraft Singles cheese slices, as cheese is not easily found in Chinese markets.” Not yet, brother.
12 A 2010 United Nations report warns that the shift toward Western diets—particularly the emphasis on dairy and meat—will produce obesity and global warming. If not fat and happy, we will be fat and warm. But we will continue to call ourselves “big-boned.”