Emerging Markets

Anastasiia Rykunich

How can a U.S. economy slumped in a recession be salvaged?  How can investors gain proximity to bigger target markets, a lower waged workforce, and low cost raw goods?  How can investors reduce risk by diversification of funds?  How can investors gain access to a world with lower environmental regulation thresholds?  How can an investor exploit the rule of reciprocity leading to political incentives like lower tax rates, subsidies, and grants? 

By investing in emerging markets!  Savvy investors will be able to use the free flow of capital across international borders to seek out and earn the highest rate of return. 

The World Bank lists an emerging market as a country having low to middle income levels per person, or, as being a country with an underdeveloped stock market.  Emerging market countries produce around 20% of the world’s goods and services and represent over 80% of the world’s population. More than two-thirds of global growth is occurring in the countries of these emerging markets. These countries also account for a rising share of world trade.

The following countries are considered to be the emerging markets offering appealing low-cost environments: Argentina, Brazil, Chile, China, Colombia, India, Mexico, Romania, Ukraine, Bulgaria, Middle East, and parts of Africa.  According to the Forbes International Investment Report, a $10,000 investment in these emerging markets in 1999 would be worth more than $18,000 today, even after the terrible crash in many of these markets last year. That same investment in the U.S. would have dwindled to $6,500. This troubling investment market has not changed as the outlook for U.S. stocks and the U.S. dollar aren’t much better today.

Establishing joint ventures and partnerships in economically emerging regions like Asia-Pacific, Eastern Europe, and Latin America is one of the most promising ways for a company to create revenue streams. That’s because, by outsourcing goods in the local market, a company can compete more effectively and expand its business. Additionally, low-cost country manufacturing can yield reduced costs for a company’s global factory network as well. In fact, a company outsourcing materials or products from a low-cost region can improve its bottom line by reducing its purchase price up to 40 percent.  At the same time, forming joint ventures helps to reduce the costs of dealing with local governments, since the local producer knows the rules of the local game.

However, there is always a risk of technologic and business spillover that foreign producers can obtain. In order to prevent that potential threat a parent company should ensure that key contributors to its competitive advantages are not wholly disclosed to the foreign partner. For example Coca-Cola presents its formula as a closely held trade secret known to only a few employees, mostly executives. 

Sensible tax policies are an attractive feature of many emerging markets. The highest tax rate in Brazil is just 27.5%. Flat-tax structures have become the norm in places like Russia, the Czech Republic, and numerous other countries that were once behind the Iron Curtain.  Dynamic Asian markets like Singapore, Malaysia, and Taiwan have long since done away with capital gains taxes.

One industry example is Brazil’s Net Servicos (NETC – news – people), the country’s largest cable TV and broadband Internet provider. Despite Brazil’s economic growth, only 10% of its 199 million citizens have access to these services. As disposable incomes rise, cable and broadband penetration rates will rise over time. Emerging-market telecom companies like Turkey’s Turk Cell ( TKC – news – people ), Mobile Tele Systems ( MBT – news – people ) in Russia, and China Mobile ( CHL – news – people ) are all direct plays on increased consumer cell phone service spending. Once an unaffordable luxury in emerging markets, mobile devices are fast becoming the primary means of communications for millions of consumers.

Developed countries are already benefiting from these emerging markets. German investments abroad, specifically by the automotive and chemical industries, have flourished by moving production out of the country. Both cars and chemicals have seen continuous growth abroad since 1994 and the profits have boosted the bottom lines of German-based companies as a result.

Japanese investors are using their unusually strong yen to buy high yielding/high growth emerging market currencies, emerging market stocks, and emerging market bonds.  With government support, French nuclear energy (Areva) and aerospace (EADS (Airbus)) giants are investing in joint ventures with China, Eastern Europe, and The Middle East.

Emerging markets still have a lot of room to improve in key areas like corporate governance, transparency, quality of management and entrepreneurship.  However, the future has never been brighter for the emerging-market businesses and there are plenty of ways to invest and take advantage of this growth.

The Sporting Blues

Esham Aluzé

I spend the majority of my days purposely ignoring the world of NASCAR; but then I pass a guy wearing a bedazzled, Tide promoting, Jeff Gordon jacket and it hits me like…like a race care slamming into a concrete wall.  What hits me you ask; my disgust with that non-sport.  

In this era of stringent fiscal responsibility, NASCAR seems like the most wasteful activity in existence.  A barrel of gas costs upwards of $72 and the strain at the pump is felt in every wallet across the country.  We are trying to diminish our dependence on foreign oil while trying to maintain a surplus.  So why does NASCAR exist?  It is nothing but a monumental waste of gas.  This has nothing to do with my disdain for the sport; this has to do with my heightened sense of fiscal responsibility, my attempt to salvage ourselves from this energy crisis.  NASCAR is frivolously wasting oil, the one thing we cannot afford to waste.  This is like professional hunters competing for Bald Eagle kills.  This is like loggers destroying rain forests so some ungrateful trust-fund baby can erect a privacy fence. Oil is now endangered, and NASCAR is nothing but a race. Not even to the finish, either, but a race to see who can burn the most gas.

Excuse me while I get down from this soapbox.     

Allow myself to introduce myself, I am Esham and this is The Method’s sports column.
I have no deeply held sports team allegiances.  When I was young we moved around a lot, so I never had the opportunity to create a lasting bond with a sports franchise. New Englanders love the Red Sox, Patriots, Bruins, and Celtics because they’ve been inundated with those teams throughout their formative years. That was not the case for me. So instead of following specific teams I fell in love with players and followed their respective teams.

A majority of “real men” seem to scoff at my fan-freelancing. You know the type – the tough, wing-eating, beer-drinking, Ed Hardy t-shirt-wearing, Fred Durst-loving men. Eh, so what.  I do me and you do you. 
Right now, I like the Patriots. I love Brady, Belichick, even Robert Kraft. In basketball I root for point guards, so it’s Nash, Rubio, or Rose.  I like Ginobli, but hate the Spurs.  In hockey, well, I don’t actually watch enough hockey to know what’s going on, but just for kicks I root for the Red Wings.  Why the Red Wings? Because Red Bull is the official The Method drink, and it gives you wings, and those wings are probably red, ergo Detroit Red Wings. 

To close my opening salvo I would like to relay some of my deeply held beliefs:  I want Michael Vick to be good again.  I think killing a human being precludes you from playing professional sports, i.e. Leonard Little and newly minted murderer Donte Stallworth.  I think Pacman Jones should be sent to Guantanamo Bay.  I think the WNBA is the longest-running practical joke in the history of pranks.  I love boxing, but it’s dying and MMA is digging its grave.  Speaking of MMA, don’t think you’re an ultimate fighter just because you decided to pony up fifty bucks for a TapOut shirt; because you’re not. I think I can fix the MLS, but we’ll talk about this later.  I love the NFL, but hate fantasy football.  College athletes should be paid, and if you disagree you’re prejudiced, but we’ll talk about this later.  I think Andy Dick and Kathy Griffin are the same person, although this may not be sports-related –I think.  Finally, I am generally the smartest person in most empty rooms.

Gone Fishin’

Esham Aluzé

It’s a wonderful day outside, so I thought, “Hey, why don’t I lug my laptop into the backyard and tan while I type.” As it turns out this idea is as bad as naming Chris Brown the next Bachelor on ABC. 

A June bug jus* landed on my keyboard, on a specific le**er and I am *oo afraid of i* to do any*hing. I *hink June bugs have a clock *ha* rings a* midnigh* during *he firs* of June, because *hey are *he mos* punc*ual bug in the world. May 31s*, no June Bugs. June 1s*, a million of *hem. 

Okay, now that it’s gone, I can finally use my “T” key again instead of that ridiculous asterisk.  Thank God summer’s almost over.
 
I think that fishing skills and Internet skills are mutually exclusive. See, I went fishing for the first time in my life the other day and caught a grand total of zero fishies.

So as soon as I got home I Googled “how do I catch fishies?” after Google rudely corrected my sentence- Did you mean: How do I catch fish? – I made some fishing inroads.  I found some articles that used typical fishing lexicon, which was Greek to me. So I tried to YouTube some fish videos and found the sorriest lot of self-help videos in existence. Half of them were ads enticing me to buy the actual videos and the others were filmed in 1985 and had the graininess of a Paris Hilton video. 

I have come to the conclusion that good fishermen are not very computer savvy. There, I said it.  So I asked a close Red friend to train me (because all red-heads can fish…all of them), and he obliged.  We worked on my wrist dexterity to increase casting distance and bicep exercises so I can reel in all the dolphins and manatees I plan on catching.  I was drinking the official The Method drink, Red Bull, and as my Red trainer offered me some smokeless tobacco I made another landmark discovery.   

Specifically, dipping and drinking Red Bull at the same time is not amazing. In fact, it is the opposite of amazing.  You’re up and down but never in the middle.  It’s like riding a roller coaster underground.  I had no idea what anguish I had unleashed upon my body by this newly formed axis of evil, Kodiak and Red Bull.  Heed my warning, friends, and avoid this deadly combination.  I feel like Dr. Wilbrand (Google him) warning the world about TNT. (Not the television channel, although that too should probably come with some kind of warning. Caution: Law and Order is on all the time.)

In due time I will be starring on the Bass Fisherman’s Tour, catching and eating the most succulent trout (that’s a fish, right?) anyone has ever laid eyes on.  But until then; don’t mix Red Bull and Kodiak; and watch out for June bugs.

A Kennedy/Reagan Style Stimulus

A Kennedy/Reagan Style Stimulus Package
By Dr. Timothy G. Nash and Dr. Keith A. Pretty

Earlier this year the Obama administration pushed through Congress its $787 billion stimulus package amid dire predictions for the US economy. The package was designed to get America working and keep unemployment below 8.5 percent. Now, with unemployment at 9.5 percent and predicted to go higher, Vice President Biden has seemingly opened the door for another round of government spending, stating he believed the White House underestimated the severity of “the worst economy since the Great Depression.” Yet President Obama’s own Labor Secretary, Hilda Solis, said recently that much of the stimulus money was moving slowly, especially construction projects. The glacial pace of approval has led to only 10% of the stimulus package being spent to date. At this rate, it will be three years before the entire package makes its way into the economy. Meanwhile more than 3.4 million jobs were lost to the U.S. economy so far this year. U.S. Congressman Eric Cantor (R-VA.), stated that the purpose of the Obama administration stimulus package was to preserve, protect and create jobs and “it has failed miserably.” Considering the above, why has the president’s stimulus package had less than intended results?

The Problem
The problem is not, as Mr. Biden would have us believe, that the government didn’t spend enough, or that government bureaucracy is slowing the pace of stimulus spending, which it is. Instead, failure rests with a package that didn’t cut taxes enough or in all the right places. People have little confidence in government spending as a catalyst for economic growth and long term prosperity. They know that business creates jobs, and that the government largely creates taxes and regulations, and spends. The U.S. economy is burdened by onerous regulations, the third highest corporate income tax rate (39.27%) in the world, and a personal income tax rate that can reach 35 percent.
Despite all the money coming in, the U.S. national debt is now $11.2 trillion dollars, or 78 percent of U.S. GDP, and will likely be above 100 percent of GDP by the end of next fiscal year, surpassing the 1949 level of 97.5 percent which included costs associated with World War II and post war reconstruction. Many key U.S. competitors have much lower national debt-to-GDP ratios with China at 21 percent and Russia at 10 percent. By comparison, the next stimulus package this economy needs is not more of the same but a massive incentive-based tax cut to allow the U.S. to be competitive globally—currently we are not! The Russian economy has out-performed the U.S. over the last 5 years with a smaller national debt-to-GDP ratio, often friendlier regulations, a corporate income tax rate of 24 percent, and an average personal income tax rate of 13 percent. The U.S. has higher corporate and personal income tax rates than Canada and Mexico, as well as much of the industrialized world. The accounting firm KPMG reported that the global average corporate income tax rate for all countries in 2008 was 25.9 percent with the EU average at 23.2 percent, the Latin American average at 26.6 percent, the Asia-Pacific average at 28.4 percent and the OECD average at 26.7 percent.

The Solution
It seems that the presidencies of John F. Kennedy and Ronald W. Reagan serve as strong cases for the effectiveness of tax cuts in stimulating economic growth during difficult times. Recall what President Kennedy said about his own tax-cut based stimulus package in 1962: “In short, to increase demand and lift the economy, the federal government’s most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures.” President Kennedy’s tax cut was implemented after his death by President Johnson in 1964, with personal income tax rates declining 23.1 percent for the top income earners and 30 percent for the lowest. Corporate income tax rates were reduced by 9.6 percent the same year. The economy responded with an average annual real growth rate of 4.65 percent in U.S. GDP from 1963 to 1968, and unemployment dropped from 6.6 percent in 1961 to 3.7 percent in 1968. President Reagan’s across-the-board tax cut of 25 percent was phased in from 1981-1983 and helped bring the U.S. economy out of the severe economic recession of 1981-82 which saw the prime interest rate peak at 21.5 percent in 1981 (the highest since the Civil War), real GDP decline by 2.2 percent in 1982, and unemployment reach 10.8 percent also in 1982. The economy responded with an average annual real GDP growth rate of 3.87 percent from 1982 – 88, unemployment declined to 5.4 percent by 1988, and real tax revenue grew by 25.5 percent from 1983 to 1988. Finally, it should be recalled that average government spending exceeded average tax revenue growth by 4.22 percent for most of the 1980’s, thus creating the budget deficits of the Reagan years and hopefully providing a lesson for today’s policymakers?

Dr. Keith A. Pretty is president and CEO of Northwood University in Midland, Michigan.

Dr. Timothy G. Nash is vice president for Strategic and Corporate Alliances and holds the David E. Fry Chair in Free Market Economics at Northwood University.

A Brit’s exposure to Independence Day

Steven Everett

As the historic 4th of July passes for another year, Northwood University postgraduate student Steven Everett reflects on his stereotypical American experience.      

English-born Everett was aware of the camaraderie and patriotism shown from the American citizens, but was somewhat unsure of the experience he was going to gain himself.

The student decided to test his reactions and fully utilize his experience by enduring a camping trip in Omer, Michigan with five native Michiganders and one Illinoisaniaiaian.

As Everett began to take the trip up north through the country roads, reality and anxiety began to sink in: he was British, in the woods with patriotic Americas, and it was the 4th of July.  He began to pray to Gordon Brown while images of David Beckham danced in his head. 

Everett was quoted: “I am looking forward to seeing what you Yanks have to offer, but at the same time, as a British citizen, I am concerned of the awkwardness of celebrating a historical event which a patriotic English born citizen would perceive as unfavorable.”

Everett added: “Why would I celebrate an event in which the Americans declared independence from us?”

Everett further added: “It may turn out fine, the day in history occurred over 200 years ago.”

After Everett commented and questioned his commitment to his Independence Day experiences, he managed to push the uncertainties to the back of his mind and concentrate on the weekends’ happenings.

As the graduate gang arrived at their destination, Everett’s inexperience prevailed as the Americans took full control of campsite “setting up” procedures.

Everett seemed confused and somewhat useless to help with these procedures; however, he seemed to break the ice with the utilization of his initiative.  The Englishman helped his colleagues by repeatedly collecting wood for the fire to combat the cold nights.  He also regaled them with wonderful tales of his adventures at Hogwarts. 

Everett’s expressions showed he was settling in to his new environment—more so when the first beer was cracked open – something he was much more accustomed to.

As Independence Day eve was coming to a close, night fell with a strong, cool air. Everett became more concerned with his sleeping conditions instead of his original fear—waking up tied to a tree while jubilant Americans fired bottle rockets at his gaunt British frame. 

He was quoted: “It is going to be bloody freezing in that tent”.

As the morning sun rose, Everett was woken by his friend’s excitement for the Independence Day activity, in the form of canoeing.  Ah, is there anything more American than floating down a shallow river, in a rented canoe, while drinking cheap beer, and singing Bon Jovi hits?  No!

Independence Day did, however, present some points of contention between the campers.

Everett was quoted: “I am sorry but I cannot say Happy Independence Day to you; it is just not the right gesture.”

He added: “I feel as though I have an overhaul of demons above my head cursing my interaction with American celebrations.” 

While Steve sat in fear that his U.K. citizenship was being rescinded, the rest of the team prepared for the day’s activity.

During the canoe trip, Steven seemed to be extremely enthusiastic as to what wildlife he would see on his travels and how fast he and his partner could canoe back down the river towards their destination.

He was quoted on numerous occasions: “We need to see a turtle; we do not get any type of turtles in the wild of England, other than Camilla Parker Boyle.”  That’s a hilarious British joke for all my internationally educated readers. 

These distractions forced Everett to forget the fact he was celebrating Independence Day.

Everett and his Illinoisan partner were experiencing life in a canoe for the first time; this was evident in the early stages with their confusion of direction.  However after their ‘country’ colleagues were relaxing and soaking up the atmosphere, both Everett and his canoe partner decided enough was enough, and off they went.

Everett recalls: “We experienced the relaxing style and the full throttle workout that went with canoeing. What a day.”

As Everett and his Illinoisan colleague returned back to camp, the two decided to get to work and cut up some wood for the night’s fire.

With three hours passing the final pair returned to camp, looking exhausted and hungry. It was not too long before the food was cooking and the group was reflecting on the day’s activity.

It was at this stage, that Everett realized something that he never thought would come to fruition. 

He was quoted: “I have had a great couple of days and encountered experiences with people in a setting which I may never get the opportunity to do again. Why should I feel guilty—although it does feel kind of weird? I should reverse the situation and consider how good the Americans have been to me in accepting my nationality and involving me in their celebrations. My persona has totally changed.” 

After Everett participated in a firework celebration with the rest of his American colleagues, the English-born citizen felt accomplished.  He proceeded to extol the virtues of the beautiful American culture while break dancing in the flickering fire-lit camp site.

Everett woke up the following morning, exerting the same excitement and pleasure that the Americans did in the wake of Independence Day. 

As the group of individuals listened to country music and drove down country roads, Everett revealed how his Michigan Independence Day experience allowed him to feel accepted in an environment that had the potential to make an English man feel very uncomfortable.  He may never appreciate Michigan staples like Kid Rock or the Red Wings, but his Independence Day 2009 experience will always have a special place in his heart.

EcoBoost to Boost Sales

Andrew Augustine

With recent increases in fuel prices and all the pressure to “go green”, it’s really no surprise that automotive manufacturers are trying to downscale vehicle size and utilize smaller engine configurations.  Ford Motor Company has devised a strategy to avoid many of these traditional methods while still delivering what the customer wants.  They have combined two technologies, turbo-charging and direct injection, which allows them to increase fuel efficiency (without decreasing vehicle size) while increasing horsepower at the same time.  Ford’s new technology comes in the form of the all-new EcoBoost engine.  It is the first North American production, twin-turbocharged, direct injection, V-6 engine—impressive, I know.   “The beauty of EcoBoost is that it enables us to downsize for fuel efficiency, yet boost for power,” claims Derrick Kuzak, Ford’s group vice president of Global Product Development.  The engine also produces fewer emissions as compared to a V-8 engine.

 The first in a wave of new Ford EcoBoost engines makes its debut in the Lincoln MKS, and MKT, as well as the Ford Flex and all new Taurus SHO next month.  The launch of the EcoBoost engine is part of Ford Motor Company’s global initiative to provide powertrains that deliver the fuel efficiency and power customers demand.  This engine technology is expected to migrate into many of Ford’s mainstream vehicle lines.

Wow- Impressive

The twin-turbocharged 3.5-liter V-6 EcoBoost engine delivers the performance found in a naturally aspirated performance built V-8, while maintaining the fuel economy of a V-6 engine.  “By injecting the fuel directly into the combustion chamber and under high pressure, the fuel is sent exactly where we want it to be for a given combustion cycle, which aids burning of fuel more efficiently  and effectively” said Joseph Basmaji, direct injection fuel system technical specialist.  In addition to increased fuel efficiency through direct injection, the turbos use wasted energy from the exhaust gas to help drive the turbines.   Improved transient response enabled by the direct injectors reduces “turbo lag,” while overcoming the traditional disadvantage of downsizing and boosting.  With help from the dual turbo configuration, this efficient, fire-breathing V-6 is able to reach an impressive 365 horsepower and nearly 350 foot pounds of torque. 

EcoBoost equipped vehicles should be surfacing in the next few weeks with an average of 20% better fuel economy over traditional vehicles.  The V-6 engine and six-speed SelectShift automatic transmission combination achieves an EPA-estimated 17 city/25 highway fuel economy rating.  Ford expects within the next five years, a half-million vehicles will be on the road sporting the groundbreaking technology.  Ford also plans on developing four-cylinder configurations of the engine that will likely be used in the popular Focus and Fusion models.

For the complete story of the 2010 Ford Taurus SHO and this revolutionary engine technology can be accessed on the Internet at www. Fordvehicles.com/cars/Taurus/.

Transforming the Way We Drive

Keilan McInnis

Most North Americans will tell you that the biggest difference between domestic and European vehicles is size. Europeans’ reluctance to use automatic transmissions has fueled this difference. Because vehicles have remained smaller, the desire for automatic transmissions has not been created.  There is however a growing trend among manufacturers to fuse the desire for more control (e.g. manual transmissions) and the better fuel efficiency of automatic transmissions into one comprehensive design.

Dual-clutch transmission combines the control you get from a manual with the reduction of engine and transmission wear you get from an automatic. This technology has manifested itself in vehicles from manufacturers around the world.  Some use an up/down or tiptronic system that allows the driver to shift the gear lever back and forth in order to control the gear selection without the use of a clutch pedal, while others offer the use of paddles located either on the steering wheel or steering column to shift gears.

It should not be any surprise that technology with roots in the racing world has made its way into the lives of daily drivers. Where once it was the realm of the F1 driver to focus on the path ahead with both hands on the wheel and no worries about missing a gear, now drivers of all ages and all abilities can feel the rush of gripping the wheel and shifting gears at the touch of a finger.

There is debate over which system works the best because each system works slightly differently. The premise behind these systems is that when you are on the open road, you will want to control as much of the speed or responsiveness of the engine as you can. On the flip side of this you can leave the vehicle in automatic mode when in traffic and conserve fuel while reducing the strain placed on your engine and transmission.

A further aspect of the dual-clutch transmission is its ability to shift gears faster than the driver. As fast as your reflexes can tap a paddle or move a gear selector up or down, you can change gears without the worry of catching the clutch or grinding the gears. Now even the most novice drivers can feel like they are in the pole position.