edwardsglobal.com Blog

China started applying its economic stimulus last November while the US was thinking about when the US Congress might act. And now we are starting to see articles in international publications such as ‘The Economist’, ‘Financial Times’ and the ‘Wall Street Journal’ that there is evidence the China stimulus is working on internal consumer and business spending.

Last Saturday’s ‘Wall Street Journal’ had a front page article on this subject.

http://online.wsj.com/article/SB123934751932407099.html

Chinese demand for crude oil hit a one-year high in March. Steel mills imported record quantities of iron ore in March. Cars sales hit a monthly high.

Articles in today’s ‘Wall Street Journal’ highlight upbeat news on the China property market and stock market.

Some of the biggest international retailers are going ahead with ambitious expansion plans in China in 2009.

Companies like Tesco PLC, Carrefour and Wal-Mart Stores Inc. continue to see the Chinese consumer as a good long-term bet.

Walmart http://online.wsj.com/article/SB123258172515304267.html

Yum http://online.wsj.com/article/SB122896373927096997.html

It has been some time since our last blog.

This has been due to a rush by European and Asia Pacific companies to acquire licenses from US franchisors – who are most of our Clients.

The economics are simple. A US$250,000 license from a US franchisor cost 200,000 Euros in the summer of 2006. Today it costs 155,000 Euros.

The news is also good for Australian companies. The same US$250,000 license cost $330,000 Australian dollars in mid 2006 and would cost $260,000 Australian dollars today.

For Chinese investors – who are strong buyers of US franchises these days – the cost of the license has dropped 15% over the past two years due to currency appreciation.

While this is good news for US franchisors as far as up front fees are concerned, there is a down side. Traveling to Europe and Asia Pacific for negotiations, training and support costs considerably more than two years ago.

And 36 years of international experience says the dollar will come back at least some of the way towards the exchnage rates of mid 2006.

Meanwhile, it is a peak time for US franchisors to license their business model into other countries.

One of the basic tenants of international development has always been an evaluation of the Rule Of Law in a country as a measure of the risk of doing business in a country.

Countries with a strong Rule Of Law have been perceived to be inherently less risky for foreign investors. A strong Rule Of Law has generally meant foreign investors were treated equally to local investors. And, economists have repeatedly found that the better the rule of law, the richer the nation.

A new set of studies show that the tie of the Rule Of Law to economic growth is not as simple as previously thought, as discussed in an article in the current issue of ‘The Economist‘ magazine (see link at right).

There is an “intrinsic difficulty of defining the rule of law, combined with the problems of knowing how specific laws work in practice.” What the new studies have “not yet shown beyond doubt is that the rule of law is a precondition for economic growth everywhere.”

New definitions of the Rule Of Law are emerging, as quoted from this article:

“(1)‘Thick’ definitions treat the rule of law as the core of a just society. In this version, the concept is inextricably linked to liberty and democracy.

(2) ‘Thin’ definitions are more formal. The important things, on this account, are not democracy and morality but property rights and the efficient administration of justice. Laws must provide stability. They do not necessarily have to be moral or promote human rights.

The existence of competing definitions of something may seem fatally to undermine its usefulness.”

After discussing efforts to improve the Rule Of Law in places such as Argentina, Chile, Eastern Europe and Russia, the article concludes as follows: “the more economists find out about the rule of law, the more desirable it seems—and the more problematic as a universal economic guide.”

All that having been said, my 36 years of experience working in over 60 countries from first to fifth world, says where there is strong Rule Of Law foreign investors are much more likely to get a good return on their investment and to be able to maintain control of their brands and business than in counties with weak laws.

Investor beware!

Bob Nordan, Senior Consultant with the Next Step marketing and strategy consulting group based in Northern California, has written a focused and detailed analysis of why companies should Go Global and why companies often fail when they try to Go Global.

Mr. Nordan says, “Many U.S. companies who are facing revenue struggles at home are being lured by the bright lights of international expansion and the vision of vast untapped markets of consumers or business buyers overseas.’

He goes on to say, “Unfortunately, many will make the same mistakes and suffer the same consequences as those who have gone before – international markets are strewn with failed (first) attempts.”

He gives a number of reasons why companies fail in their international development:

Expansion for the wrong reason
False assumptions about the nature of the international market
Underestimating the operating costs in an international market
Exporting your domestic operations to the local market
Deciding to become a global company too late
Failing to get expert advice

Mr. Nordan finishes by saying, “For international expansion, be cautious, be clear, be patient.”

This is probably the best advice I have heard on this subject in my 36 years of doing international business in over 60 countries.

Read the full text of this very important article at the link on the right side of this page.