The Need for Two-Way Business Flows
The Need for Two-Way Business Flows
There has been much recent discussion about HPE plans for making their currencies convertible. Inevitably, the questions are "for whom?" and "for what?" For example, convertibility could be for foreigners, but not for residents; it could be for trade, but not for dividends. Regardless of the regula- tions or intent, business with HPEs must inevitably be two-way to succeed.
If HPEs earn insufficient hard currencies, they will have insufficient hard cur-rency for payments to foreign firms under trade, licensing, or investment agreements. As HPEs have turned toward reform or economic transformation, they have favored fixed rather than fluctuating exchange rates and have had to make large currency devaluations when unable to sustain their existing rates.
For some time, basically because of ideological differences, many people in market economies assumed that all HPE-made products were inferior, pointing to items that are in fact of low quality. The reality is that perhaps as many as 25 percent of all scientists in the world are employed in the CIS. Bulgaria and the Czech and Slovak Federal Republic have a much higher proportion of scientists and engineers in their work forces than any country in Western Europe.23 In many technical areas HPEs are now leaders. There has been an upsurge in patent registrations from the former USSR in the United States and in sales of their technology to U.S. firms. Payload Systems was the first U.S. firm to contract to have experiments aboard what was then the Soviet space station. In 1987 the Soviets granted their first nonindustrial license to a U.S. company—from the House of Zaitzev to Tanner Companies— providing for U.S. production of high-fashion, Soviet-designed clothing aimed at affluent American women. Poland expected a hard-currency trade deficit for 1990, but instead ran a $2.5 billion surplus as state companies began seeking out export orders more vigorously than in the past.24 HPEs could conceivably sell many products in greater abundance abroad. A factor that has apparently aided Chinese exports in recent years is that tens of millions of people of Chinese descent live outside of China. A large portion of them have family ties in China and a knowledge of market opportunities for specific Chinese products.25 A large portion of China's trade is handled by Hong Kong-based middlemen who have such ties.
One question is what will happen to commodity prices. The CIS, Poland, Yugoslavia, and Romania have large natural resource reserves. The former Soviet Union at times has been able to mitigate its payments problems largely because of the high world prices of oil, gold, diamonds, and platinum. But the prices of these commodities fluctuate considerably. Furthermore, a study financed by the National Science Foundation of the United States focuses doubt on the former USSR's ability to take advantage of its rich storehouse of minerals. The bulk of these resources are often located in very remote areas, which makes them more expensive within the CIS than imported ones.26 In addition, the former Soviet Union needs Western technology to exploit its own oil.
The Chinese bid on labor-intensive construction projects abroad as a means of alleviating foreign-exchange shortages. The state-run companies pay workers less than the amount they receive on contracts; additionally, workers send part of their salaries to their families in China. They have worked on such projects as highway construction in Ethiopia, the construction of a power station in Hong Kong, and the building of model farms in Algeria.
In the absence of the development of sufficient foreign earnings by HPE firms, Western companies may need to take a very long-term perspective on pay-back in hard currency. Or they may need to develop hard-currency earnings from their HPE activities. Recall in the opening case that McDonald's has taken a combination of these approaches. In a survey of American, Asian, and Western European corporate chief executive officers, they saw the extraction of hard currency to be the major impediment to doing business in HPEs.
There has been much recent discussion about HPE plans for making their currencies convertible. Inevitably, the questions are "for whom?" and "for what?" For example, convertibility could be for foreigners, but not for residents; it could be for trade, but not for dividends. Regardless of the regula- tions or intent, business with HPEs must inevitably be two-way to succeed.
If HPEs earn insufficient hard currencies, they will have insufficient hard cur-rency for payments to foreign firms under trade, licensing, or investment agreements. As HPEs have turned toward reform or economic transformation, they have favored fixed rather than fluctuating exchange rates and have had to make large currency devaluations when unable to sustain their existing rates.
For some time, basically because of ideological differences, many people in market economies assumed that all HPE-made products were inferior, pointing to items that are in fact of low quality. The reality is that perhaps as many as 25 percent of all scientists in the world are employed in the CIS. Bulgaria and the Czech and Slovak Federal Republic have a much higher proportion of scientists and engineers in their work forces than any country in Western Europe.23 In many technical areas HPEs are now leaders. There has been an upsurge in patent registrations from the former USSR in the United States and in sales of their technology to U.S. firms. Payload Systems was the first U.S. firm to contract to have experiments aboard what was then the Soviet space station. In 1987 the Soviets granted their first nonindustrial license to a U.S. company—from the House of Zaitzev to Tanner Companies— providing for U.S. production of high-fashion, Soviet-designed clothing aimed at affluent American women. Poland expected a hard-currency trade deficit for 1990, but instead ran a $2.5 billion surplus as state companies began seeking out export orders more vigorously than in the past.24 HPEs could conceivably sell many products in greater abundance abroad. A factor that has apparently aided Chinese exports in recent years is that tens of millions of people of Chinese descent live outside of China. A large portion of them have family ties in China and a knowledge of market opportunities for specific Chinese products.25 A large portion of China's trade is handled by Hong Kong-based middlemen who have such ties.
One question is what will happen to commodity prices. The CIS, Poland, Yugoslavia, and Romania have large natural resource reserves. The former Soviet Union at times has been able to mitigate its payments problems largely because of the high world prices of oil, gold, diamonds, and platinum. But the prices of these commodities fluctuate considerably. Furthermore, a study financed by the National Science Foundation of the United States focuses doubt on the former USSR's ability to take advantage of its rich storehouse of minerals. The bulk of these resources are often located in very remote areas, which makes them more expensive within the CIS than imported ones.26 In addition, the former Soviet Union needs Western technology to exploit its own oil.
The Chinese bid on labor-intensive construction projects abroad as a means of alleviating foreign-exchange shortages. The state-run companies pay workers less than the amount they receive on contracts; additionally, workers send part of their salaries to their families in China. They have worked on such projects as highway construction in Ethiopia, the construction of a power station in Hong Kong, and the building of model farms in Algeria.
In the absence of the development of sufficient foreign earnings by HPE firms, Western companies may need to take a very long-term perspective on pay-back in hard currency. Or they may need to develop hard-currency earnings from their HPE activities. Recall in the opening case that McDonald's has taken a combination of these approaches. In a survey of American, Asian, and Western European corporate chief executive officers, they saw the extraction of hard currency to be the major impediment to doing business in HPEs.
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