FACTORS AFFECTING BUSINESS EXPANSION
FACTORS AFFECTING BUSINESS EXPANSION
The preceding section on stumbling blocks described several factors that could affect the future of business between companies in HPEs and companies in market economies. The more HPEs are economically successful, the more attention Western companies are apt to give them.
History of Internal Dependence
The combined populations of European HPEs and China make Western businesses optimistic about commercial opportunities. The combined area comprises approximately one third of the world's population, with China alone accounting for about one fifth. The CIS has a population slightly larger than the United States, and the other European HPEs have a combined population that is slightly smaller. The CIS and China rank as the world's first- and third-largest markets in terms of area. Although the large population and land mass indicate possible opportunities, they are in some ways a deterrent to expanded business with the West. Their natural resources are extremely diverse and, when coupled with the large populations, give them the potential of developing a wide variety of production. They, like the United States, might be expected to be much more nearly self-sufficient than a smaller country.
One of the striking features of HPEs has been their relatively small portion of world trade. The absolute amount has been smaller than might be indicated from population or income figures: They account for less than 10 percent of the world's share of imports and exports, including the trade they conduct with each other, and this share has been declining. Part of the lag in export share by these countries has been systemic to central planning and will not easily be altered until a market transformation is complete. Part has been self-imposed, as when HPEs shunned dependence on the West for political reasons and on each other for fear of delayed shipments or poor quality.20 The result has been a shortage of people with international market knowledge needed to build higher trade dependencies.
China has conducted only about 5 percent of its trade with other HPEs. In contrast, the members of the Council for Mutual Economic Assistance (CMEA, or COMECON) (see Table 10.1 and Map 10.1) have averaged over 60 percent of their trade with each other.21 This interchange did not use market prices for trade and perpetuated an exchange of low-quality East European machinery for Soviet raw materials. The countries began in 1991 to use market prices for trade with each other and agreed to form a new association, the Organization for International Economic Cooperation. However, the members postponed the replacement of COMECON in 1991 because of differences concerning the role of the successor group. There seems little likelihood that market prices can really be ascertained for much of the machinery they manufacture or that the historical trade patterns will easily change. Personal relationships have been developed. Spare parts are needed. Eastern Europe has a sunk cost in factories that cannot be dismantled for economic or political reasons, nor are markets readily available outside the former Soviet Union. In turn, the former USSR has a large sunk cost in pipelines to deliver oil and gas to its former satellites.22
The preceding section on stumbling blocks described several factors that could affect the future of business between companies in HPEs and companies in market economies. The more HPEs are economically successful, the more attention Western companies are apt to give them.
History of Internal Dependence
The combined populations of European HPEs and China make Western businesses optimistic about commercial opportunities. The combined area comprises approximately one third of the world's population, with China alone accounting for about one fifth. The CIS has a population slightly larger than the United States, and the other European HPEs have a combined population that is slightly smaller. The CIS and China rank as the world's first- and third-largest markets in terms of area. Although the large population and land mass indicate possible opportunities, they are in some ways a deterrent to expanded business with the West. Their natural resources are extremely diverse and, when coupled with the large populations, give them the potential of developing a wide variety of production. They, like the United States, might be expected to be much more nearly self-sufficient than a smaller country.
One of the striking features of HPEs has been their relatively small portion of world trade. The absolute amount has been smaller than might be indicated from population or income figures: They account for less than 10 percent of the world's share of imports and exports, including the trade they conduct with each other, and this share has been declining. Part of the lag in export share by these countries has been systemic to central planning and will not easily be altered until a market transformation is complete. Part has been self-imposed, as when HPEs shunned dependence on the West for political reasons and on each other for fear of delayed shipments or poor quality.20 The result has been a shortage of people with international market knowledge needed to build higher trade dependencies.
China has conducted only about 5 percent of its trade with other HPEs. In contrast, the members of the Council for Mutual Economic Assistance (CMEA, or COMECON) (see Table 10.1 and Map 10.1) have averaged over 60 percent of their trade with each other.21 This interchange did not use market prices for trade and perpetuated an exchange of low-quality East European machinery for Soviet raw materials. The countries began in 1991 to use market prices for trade with each other and agreed to form a new association, the Organization for International Economic Cooperation. However, the members postponed the replacement of COMECON in 1991 because of differences concerning the role of the successor group. There seems little likelihood that market prices can really be ascertained for much of the machinery they manufacture or that the historical trade patterns will easily change. Personal relationships have been developed. Spare parts are needed. Eastern Europe has a sunk cost in factories that cannot be dismantled for economic or political reasons, nor are markets readily available outside the former Soviet Union. In turn, the former USSR has a large sunk cost in pipelines to deliver oil and gas to its former satellites.22
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