Summary of business with historically planned economies
SUMMARY
■ Political and economic changes within the former communist bloc have led
to optimism about business therein because (a) political barriers may be lessened and (b) economic growth will enhance market potentials.
H As political relationships have varied in this century between Western countries and what are now known as HPEs, business relationships have fluctuated substantially. This has been especially true of trade between the United States and the former Soviet Union. Trade flourished when the two countries were allies but fell when animosities arose.
■ Trade controls have been instituted to hurt an unfriendly country, to try to make a country change some policy, or to make a public statement of displeasure about another country's actions.
■ Not all HPEs plan to transform themselves into market economies, nor will transformation to a market economy necessarily make HPEs economically successful.
■ Regardless of the model of market economy that countries follow, the successful ones all enjoy certain conditions in common: predominance of privately owned production, producer competition, sound currencies, effective financial institutions, good infrastructures, environmental-protection interest, and opportunities for individual fulfillment.
■ Short-term economic hardships may inhibit the transformation to becoming market economies as the general population loses confidence in the changes.
■ Some of the obstacles to privatizing state enterprises are their inefficiencies, the lack of local funds and management skills to take them over, and a reluctance to allow foreign interests to take over too much of the economy.
■ Soft budgets protect state enterprises from going out of business, but they provide little incentive for effecting operating efficiencies.
■ The shortage of employees in HPEs who are trained in competitive management inhibits the transition to market-oriented operations and may leave bureaucratic managers in situations where they are not really accountable to anyone for their actions.
■ Single-site state monopolies will be difficult to sell off or break up. They are particularly present in the former USSR.
■ Regional ethnic differences have surfaced in HPEs because they are no longer suppressed dictatorially and because the common fear of the West has subsided.
■ A successful market transformation process will be very expensive; and there are uncertainties as to whether HPEs will gain access to needed funds.
■ The fact that the HPEs contain about one third of the world's population indicates a large market potential. However, the large land mass and the past desire to be as independent as possible from the West mean that the Eastern bloc is more nearly self-sufficient than other areas of the world.
■ One of the major factors inhibiting the expansion of trade between HPEs and market economies is the lack of products that can be marketed in the West in sufficient quantity to gain the exchange needed for imports.
■ Some legacies of central planning that inhibit HPEs in their international business are: the need to compete primarily on the basis of price, their lack of adequate cost or competitive price references in many cases, their unrealistic economic figures, and the lack of experience of and with new decentralized decision makers.
■ Many products that U.S. producers could sell in HPEs cannot be exported because of U.S. controls. Many potential exporters have argued that these policies result not in maintaining security, but rather in diverting purchases to non-U.S. sources.
■ When an exporter sells to an historically planned economy, it may be for credit, for cash payment, or in exchange for merchandise. All Western industrial countries have some type of export credit insurance, which helps their firms to make large sales to HPEs.
■ For sales of consumer products in HPEs, there is presently so much pent-up demand that little marketing effort is needed. For industrial product sales, two of the major means of creating demand are through exhibitions at trade fairs and by soliciting sales to other Western firms that have become major contractors for building plants and facilities in HPEs.
■ A large amount of Western business in HPEs is in the form of cooperative arrangements, such as joint ventures, licensing, and turnkey projects. Frequently, the Western firm is paid by receiving part of the merchandise, which is then sold in the West.
■ Western managers perceive much greater business opportunities in some HPEs than in others.
■ The United States, Western Europe, and Japan and companies located in each have different relative advantages for business in different HPEs.
■ Political and economic changes within the former communist bloc have led
to optimism about business therein because (a) political barriers may be lessened and (b) economic growth will enhance market potentials.
H As political relationships have varied in this century between Western countries and what are now known as HPEs, business relationships have fluctuated substantially. This has been especially true of trade between the United States and the former Soviet Union. Trade flourished when the two countries were allies but fell when animosities arose.
■ Trade controls have been instituted to hurt an unfriendly country, to try to make a country change some policy, or to make a public statement of displeasure about another country's actions.
■ Not all HPEs plan to transform themselves into market economies, nor will transformation to a market economy necessarily make HPEs economically successful.
■ Regardless of the model of market economy that countries follow, the successful ones all enjoy certain conditions in common: predominance of privately owned production, producer competition, sound currencies, effective financial institutions, good infrastructures, environmental-protection interest, and opportunities for individual fulfillment.
■ Short-term economic hardships may inhibit the transformation to becoming market economies as the general population loses confidence in the changes.
■ Some of the obstacles to privatizing state enterprises are their inefficiencies, the lack of local funds and management skills to take them over, and a reluctance to allow foreign interests to take over too much of the economy.
■ Soft budgets protect state enterprises from going out of business, but they provide little incentive for effecting operating efficiencies.
■ The shortage of employees in HPEs who are trained in competitive management inhibits the transition to market-oriented operations and may leave bureaucratic managers in situations where they are not really accountable to anyone for their actions.
■ Single-site state monopolies will be difficult to sell off or break up. They are particularly present in the former USSR.
■ Regional ethnic differences have surfaced in HPEs because they are no longer suppressed dictatorially and because the common fear of the West has subsided.
■ A successful market transformation process will be very expensive; and there are uncertainties as to whether HPEs will gain access to needed funds.
■ The fact that the HPEs contain about one third of the world's population indicates a large market potential. However, the large land mass and the past desire to be as independent as possible from the West mean that the Eastern bloc is more nearly self-sufficient than other areas of the world.
■ One of the major factors inhibiting the expansion of trade between HPEs and market economies is the lack of products that can be marketed in the West in sufficient quantity to gain the exchange needed for imports.
■ Some legacies of central planning that inhibit HPEs in their international business are: the need to compete primarily on the basis of price, their lack of adequate cost or competitive price references in many cases, their unrealistic economic figures, and the lack of experience of and with new decentralized decision makers.
■ Many products that U.S. producers could sell in HPEs cannot be exported because of U.S. controls. Many potential exporters have argued that these policies result not in maintaining security, but rather in diverting purchases to non-U.S. sources.
■ When an exporter sells to an historically planned economy, it may be for credit, for cash payment, or in exchange for merchandise. All Western industrial countries have some type of export credit insurance, which helps their firms to make large sales to HPEs.
■ For sales of consumer products in HPEs, there is presently so much pent-up demand that little marketing effort is needed. For industrial product sales, two of the major means of creating demand are through exhibitions at trade fairs and by soliciting sales to other Western firms that have become major contractors for building plants and facilities in HPEs.
■ A large amount of Western business in HPEs is in the form of cooperative arrangements, such as joint ventures, licensing, and turnkey projects. Frequently, the Western firm is paid by receiving part of the merchandise, which is then sold in the West.
■ Western managers perceive much greater business opportunities in some HPEs than in others.
■ The United States, Western Europe, and Japan and companies located in each have different relative advantages for business in different HPEs.
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